Ethereum is coming up with yet another improvement, the Shanghai Upgrade on April 12, leaving the crypto sector excited. The upgrade would allow billions of withdrawals of their native token Ether. As stakers who have previously staked them for various reasons can now un-stake, speculations are that this could bring the prices down as huge amounts will be in the market.
The Much-awaited Shanghai Upgrade
From its inception till September 2022, Ethereum incorporated energy-intensive proof-of-work (PoW) for transactions. This changed with a hard fork called Merge, and they shifted to proof-of-stake (PoS). This process involved users staking Ether to become validators and earn rewards in return. However, these staked Ether could not be withdrawn; the Shanghai upgrade would allow them to un-stake them. Studies show that almost 16% of the ETH supply is staked and valued at around $37 billion.
However, it is unclear if the users would cash the staked ETH, as the values have fluctuated wildly over the years, especially since crypto winter started in 2022. Speculations are that the initial demand for withdrawal could exceed the new staking on the blockchain. But as time passes, the opportunity to withdraw staked ETH could make the proposition of Ether staking more rewarding and appealing.
Analysts argue that this increased volatility could benefit liquid-staking tokens and be used in many dApps to let people borrow, lend and trade coins, thereby increasing the trading volume and, thus, the price.
Managing withdrawals at such a massive scale would not be easy for the Ethereum network. When the withdrawals start, expectations are that people will have to line up for their chance. The wait could be short or long, depending on where the stakes are held. If a holder has had a liquid staking token on Lido, the process would be more complex. The services, which held about a third of the staked ETH, are expected to begin withdrawals in May 2023. Due to the scale of the project, its completion could take months. Moreover, mechanisms should be maintained to ensure no attacks occur and the ecosystem is not vulnerable while facilitating massive withdrawals.
Due to its massive scale, there could be glitches when it goes live. Recent test results were not encouraging, as they revealed a long time for transaction confirmation because many computers could not handle the software upgrade. But still, Ethereum developers are tracking everything for seamless software changes.
Another issue that could arise is that the blockchain holding staked ETH has lost the access keys and could be thrown out of the process.
After the Merge, Ether has inadvertently drawn the attention of regulators like the United States Securities and Exchange Commission. The authority argues that certain offerings from them should be counted as illegal securities and dealt with as such.
The Shanghai Upgrade has a very promising premise, and if it can deliver what is promised, it has the potential to revolutionize the crypto industry. However, certain underlying problems could surface and should be dealt with.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing
Source: https://www.thecoinrepublic.com/2023/04/08/ethereums-shanghai-upgrade-and-why-the-industry-is-excited/