cryptocoin.com As we reported, the Ethereum Shanghai update will take place on April 13 at 01:30 CEST. While many cryptocurrency investors have their eyes on Ethereum, experts have revealed the must-know points for the Ethereum Shanghai upgrade! Here are the details…
Here are 4 critical points that investors should know for the Ethereum Shanghai upgrade!
As the Ethereum Shanghai update approaches, many cryptocurrency investors have kept their eyes on ETH as they think it could have a negative impact on the leading altcoin Ethereum, at least in the short term. The upgrade, which will take place on April 13 at 01:30 Turkish time, will offer investors the opportunity to withdraw their staked ETH. That’s why experts cited the negative effects going forward for the ETH price. The upgrade also includes the implementation of five different Ethereum Improvement Proposals (EIPs).
Completion of Transition to Proof-of-Stake
Ethereum Shanghai is the final step in Ethereum’s transition from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism. Proof-of-stake is considered a more energy efficient way to validate cryptocurrency transactions, where validators are randomly selected based on staked ETH, unlike all validators competing to verify blocks first in proof-of-work. Ethereum started as a PoW network, but the PoS-based Beacon Chain running along the live PoW blockchain was first launched in December 2020, and a merger between these two chains known as The Merge took place in September 2022. Although Ethereum users have been able to stake their ETH since the launch of Beacon Chain, they could not get their ETH back. The Shanghai update changes this to EIP-4895 and completes the transition to PoS.
Investors are worried about the amount of ETH staked: prices may drop!
The redeemability of ETH and related stake rewards earned thus far has some investors worried as it may cause many users who are unable to sell their previously staked ETH to release their holdings. Currently, around 15 percent of the total ETH supply is staked on the network. According to the data, $2.4 billion worth of selling pressure could come to the ETH market as a result of Shanghai. However, it should be noted that all these staked ETH cannot be withdrawn in one go. There is a limit to the amount of staking withdrawals that can take place per block, and a February estimate by Into The Block indicates that it will take around 60 days for 20 percent of the rectifiers (stakeholders in the network) to remove their ETH.
Ethereum’s environmental impact is in the focus of investors
With Shanghai completing Ethereum’s transition to PoS, it also raises the ongoing debate about crypto’s potential environmental impact. While PoW requires miners to prove their reliability to the network using computer hardware, PoS prefers an approach that involves staking a crypto asset. Therefore, PoW uses much more energy compared to PoS. Proponents of PoS often describe PoW as wasteful, while advocates of PoW, which is used in Bitcoin and unlikely to be removed from this crypto network, view PoS as less secure and prone to centralization.
New technical updates for Ethereum transactions
Of course, reclaiming staked ETH is not the only change taking place in Ethereum Shanghai. For example, there are also EIP-3651, EIP-3855 and EIP-3860, which aim to improve the efficiency of transactions on the Ethereum network and reduce gas fees for various decentralized applications (dapps). It should also be noted that the new hard fork has a number of consensus layer changes in the form of an upgrade known as Capella. For this reason, many Ethereum developers refer to the combination of these two upgrades as Shapella (combination of Shanghai and Capella).
What is Ethereum Shanghai?
The Ethereum Shanghai upgrade is the first planned update to the Ethereum blockchain following The Merge that took place in September last year. This update is aimed to implement a number of EIP (Ethereum Improvement Proposal) Ethereum improvement proposals to enable them to unlock staked Ethereums (ETH). Ethereum’s ultimate goal is still the same, scale-up. The ultimate goal is to achieve sharding as Ethereum’s method of scaling layer-1 transactions. Shredding provides more transactions per block and faster block times. Data is stored in chunks across multiple nodes instead of each node storing all the data. Every node holding all the data is how Bitcoin works. It is secure but processing times are therefore slower. Fragmentation enables scaling.
The Merge upgrade had arrived to switch to Sharding. This moved ETH from Proof of Work to Proof of Stake. Now, thanks to the validators, they can reach the final sharding target. The next upgrade to this scaling goal is the Ethereum Shanghai upgrade, which will take place tonight. The best known part of this update is that people can stake and redeem ETH at any time. Currently their ETH is locked and they cannot access it. This is why liquid staking protocols like Lido and Frax are so popular. Currently, $34.6 million worth of ETH is locked in staking. According to experts, this will not create a big selling pressure. The reason for this is explained as there is a certain limit of ETH that can be withdrawn from staking transactions.
More than 50 percent of ETH staking investors are at a loss!
Thanks to the protracted bear market and locked staking, most stakers have been holding ETH positions for over a year. And that means they hold it at a loss. Many will likely continue to hold.
Experts think that staking transactions show their belief in the project. However, experts state that many investors will tend to hold on. On the other hand, experts who think that not only locked stakers will sell, also point to a rise for liquid stake providers. Three of them are Lido, Coinbase and RocketPool.
So, how will the ETH price be affected after the upgrade?
In their statements on this subject, leading crypto money experts point to the past years for Ethereum and quote the following words:
The ATH level for Ethereum stands at $4878 as of November 2021. Although we are close to that, the last time ETH was below $1000 for more than 1 day was on New Year’s Day 2021. So this is more than 2 years ago. The low of the bear market was $995 for exactly 1 day on June 18, 2022. Since that bear market low, we have seen higher lows in the $1095-1110 range and around $1420.
However, experts state that we are still not very close to the ATH level and point to a big move to break above $4878. A decrease can be experienced from the instant price of $ 1,872.62 to $ 1800 levels. However, experts don’t think it’s just because of the staking withdrawals that can come with the upgrade. Many investors do not want to sell at a loss, so experts do not expect investors with staked ETH to sell immediately. Therefore, experts suggest that liquid staking providers will grow even more.
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