No. 2 cryptocurrency Ethereum faces software ‘fork’; the lower supply seen

LONDON (Reuters) – Ethereum, the world’s second biggest cryptocurrency, was on the Thursday before major software upgrades that traders and analysts had predicted would be a significant reduction of the supply.

FILE PHOTO: Representation of the Ethereum virtual currency are on the PC motherboard can be seen in this image image February 3, 2018. REUTERS/dado Ruvic/Image/File Photo

Ethereum is the upgrade of its network to cut the cost and the complexity of the interactions and the communication on the blockchain.

It will undergo two so-called “hard forks” during the evening, essentially creating a new version of the blockchain software that gives miners incentive to spend time and energy in the production of fresh coins.

“It’s a big deal,” said Mati Greenspan, an analyst at eToro in Israel. “The supply and demand equation is going to be very changed.”

A reduction in the supply of Ethereum can cause price movements in other major cryptocurrencies, Greenspan said.

Price moves about cryptocurrencies tend to be highly correlated. A recent six-day rally in bitcoin — a rare winning streak — was seen to be in part due to a decrease in the number of new Ethereum.

During the late afternoon, Ethereum was trading up 1.1 percent at about $136. It has jumped nearly 30 percent this month, compared with 12 percent gain for bitcoin.

The upgrades to Ethereum, known as “Constantinople” and “St.-Petersburg”, are due to kick-in around 1945 GMT, according to the blockchain analytics site Amberdata.

Ethereum, as well as other cryptocurrencies, is produced when the miners to solve algorithmic puzzles — typically a very energy-intensive process and thus expensive.

Miners win three coins when they are to solve each puzzle, or “block”. The Ethereum fork, which will be activated in the production of block number 7,280,000, will the number of coins received to two.

A fork in bitcoin in 2017 caused large fluctuations in the cryptocurrency markets — something analysts said was not likely to happen as a result of the Ethereum upgrades.

In the bitcoin fork, violent disagreements between the developers intended that a competitive currency Bitcoin Cash, was born after the user continued to use the older code.

But the consensus among the Ethereum developers means the chances of the birth of a rival currency are slim, the market participants said, because the pre-fork software will quickly cease to be used.

“There was some uncertainty in the community and on the market around that fork would win if it went to (Bitcoin Money and bitcoin),” said Jamie Farquhar, portfolio manager at crypto company NBK Group in London.

“There is no fight going on between different factions here.”

Ethereum has a market capitalization of $14.6 billion, compared with bitcoin $68 billion, according to the CoinMarketCap website.

Reporting by Tom Wilson; Editing by Catherine Evans

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