Ethereum just broke $3,000 — here's why it's gaining so fast on Bitcoin

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Ether, the second largest cryptocurrency after Bitcoin by market capitalization, exceeded $3,000 in U.S. dollars per unit for the first time yesterday (May 2). This comes after a major bond sale by the European Investment Bank.

Ether (ETH) depends on Ethereum, which is the most-actively used blockchain and the backbone of multiple other cryptocurrencies, as well as NFTs. At the time of this writing Monday (May 3), Ether had reached a new high over $3,250, according to Coindesk

In fact, Ether has surpassed a market capitalization of $376 billion, making it more valuable than Bank of America, as reported by Benzinga.

Last month, Bloomberg Law reported that the European Investment Bank had sold $121 million in digital bonds on the Ethereum blockchain. Goldman Sachs, Societe Generale and Banco Santander were also involved. This, along with a series of updates to the Ethereum blockchain, are likely the reason for the recent spike in value.

On July 14, the Ethereum blockchain will see an upgrade called EIP 1559. According to Decrypt, this update would "burn" billions in ETH each year, reducing the overall supply and increasing value. It would do so by using Ethereum transaction fees to buy ETH only to then destroy it. 

“It’s like a company that earns a profit and buys back shares,” Tim Ogilvie, CEO of Staked, an Ethereum infrastructure services company, said to Decrypt.

According to Ogilvie, he believes that Ethereum could burn 1-4% of supply each year. Unlike Bitcoin, which has a supply cap of 21 million individual tokens, the supply of Ether tokens is unlimited. And because the supply is unlimited, Ether can also become inflationary. 

By purging a certain amount of Ether tokens per year, the Ethereum blockchain will allow the cryptocurrency to retain value. By not having a cap, Ether tokens should remain more affordable than Bitcoin. At the time of this writing, Bitcoins were trading at about $57,600 per U.S. dollar.

Another reason to be excited for the EIP 1559 update is that it would introduce a flat fee for Ethereum transactions. At the moment, the market is more auction-like, with transaction fees fluctuating. The set fee can make it more affordable for buyers purchasing Ethereum from miners. 

Imad Khan

Imad is currently Senior Google and Internet Culture reporter for CNET, but until recently was News Editor at Tom's Guide. Hailing from Texas, Imad started his journalism career in 2013 and has amassed bylines with the New York Times, the Washington Post, ESPN, Wired and Men's Health Magazine, among others. Outside of work, you can find him sitting blankly in front of a Word document trying desperately to write the first pages of a new book.