Ethereum network upgrade that will destroy coins could cause 'explosive growth' in the ether price, experts say

• An upgrade to the Ethereum network will change how transactions work and start to destroy coins.
• The fall in supply could trigger "explosive growth" in the ether price, one expert said.
• Ether has soared by more than 130% in 2021, but the cryptocurrency remains highly volatile.

A change in the Ethereum network to cut the number of ether tokens in existence could set the stage for "explosive growth" in the world's second-biggest cryptocurrency, experts said.

On Friday, Ethereum blockchain developers approved a major change to how the network runs, to come into force this summer.

It is set to overhaul the bitcoin rival's auction system, under which users send tokens to pay for transactions to be completed by miners.

Under the changes, known as EIP 1559, users would send a base transaction fee to the network that would destroy or "burn" the ether tokens, reducing the number outstanding.

Cryptocurrency analysts have said that limiting ether, as the bitcoin system does, will put upward pressure on the price. That combined with the recent enthusiasm for crypto coins means the price could rise sharply, they said.

"What is most exciting to cryptocurrency traders is that now Ethereum will reduce the amount of outstanding ether by destroying some of the tokens every time it's used to process some transactions," Edward Moya, the chief market analyst at currency firm Oanda, told Insider.

"Ethereum's never-ending supply was the least attractive part about it, and now optimism is growing that the world's most-used blockchain will see a major shift in retail and institutional buying."

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Justin d'Anethan, a sales manager at the cryptocurrency exchange Equos, told Insider that the proposed changes to the Ethereum network should "not only make the blockchain more eco-friendly" by making transactions more efficient, "but should also make it more scalable."

"Add to this fewer coins in circulation," he said, "and you have a recipe for explosive growth."

However, crypto skeptics have argued that the surge in the prices of the world's top cryptocurrencies has set them up for sharp falls.

The ether price has risen by more than 130% so far in 2021, taking it to $1,734 on Monday morning, well off a high of more than $2,000 touched in February.

It rose above $1,400 in 2018 before slumping to below $100 later that year.

The changes are set to come into force in July or August as part of a system upgrade known as the "London hard fork."