Ethereum (ETH) price breaks nearby support as block rewards are cut by 75%

Ethereum (ETH) price is trading over 3% lower today as the sellers attempt to force a correction below the $400 mark. Separately, the latest Ethereum improvement proposal (EIP) will cut block rewards by 75% and was condemned by miners who think the proposal will hurt the network’s security.

Fundamental analysis: Block rewards cut by 75%

The latest EIP calls for a major cut in block rewards making ETH miners unhappy with the new proposal. They believe those behind it care more about investors’ interests rather than the network’s safety. 

The proposal will cut the block rewards to 0.5 ETH from the previous 2 ETH per block. The aim of the proposal is to match Ethereum’s inflation rate with Bitcoin’s (BTC) inflation rate and to retain ETH’s buying power.

The proposal was published on August 11 by ConsenSys Managing Director John Lilic and Ledger’s Global Head of Client Success Jerome de Tychey, together with a detailed explanation on the Ethereum Magicians forum where developers and miners can discuss the proposal together.

Miners expressed their discontent about the proposal almost immediately as the block reward reduction was more than double the percentage of the network’s previous drop, citing the 51% attack as a possible outcome.

Time Beiko, the product manager at PegaSys said that “this is much too dramatic of a change, given we’ve gone from 5 to 3 (-40%), then 3 to 2 (-33%), now you are going from 2 to 0.5 (-75%).”

“The biggest consideration, in my opinion, should be the security of the network (i.e. how do we ensure the likelihood of 51% attacks remains low, how do we keep a diverse set of miners on the network, etc.).”

Most of the people didn’t fundamentally oppose the new proposal as Ethereum doesn’t have an inherent halving mechanism such as Bitcoin, and therefore depends on EIPs to manage inflation through reward drops. However, the majority believes that a reduction to 1.5 or 1 ETH was more rational. 

Technical analysis: ETH sellers in short-term control

Ethereum price has corrected lower today to trade over 3% in the red and therefore continuing this week’s reversal. On Monday, the buyers forced a move to a fresh 2-year high at $447 before profit-taking dragged the price action lower. 

Ethereum daily chart (TradingView)

The sellers are now forcing the price action to trade below the nearby horizontal support at $415. A daily close below $400 would be of a bearish nature, paving the way for a trip to the next level of interest near $370. This area is also a solid buying opportunity for ETH investors as it offers a good risk-reward setup. 

Summary

The new Ethereum improvement proposal will slash block rewards by 75% to 0.5 ETH per block, causing dissatisfaction among miners. Moreover, ETH/USD has continued its correction as the sellers threaten to take the price action below $400. 

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