This update is crucial for Ethereum. It will allow users to withdraw their ethers “blocked” on the blockchain for years. BFM Crypto reports.
The year 2023 is going to be a busy one for the developers of Ethereum, the blockchain co-founded by Vitalik Buterin. Indeed, Ethereum will proceed to a new update, named Shanghai. This update, which should take place in March, is highly anticipated by the community. We explain why.
The origins of the Shanghai update
To understand what this new update consists of, we must first go back to the last major update of Ethereum, which is called The Merge. The blockchain successfully completed this update in September, moving from a so-called “proof of work” (PoW) to “proof of stake” (PoS).
As a reminder, PoW involves tens of thousands of computers (“miners”) running to solve a mathematical problem to earn the right to add a new transaction (block) on the blockchain to secure the network. This is a very energy-intensive method, as these computers consume a lot of power.
With PoS, on the other hand, validators must each “deposit” 32 Ether into a common pot (in crypto-speak, this is called a “staker,” which means “stake”) to secure the network. By depositing Ether, they receive a reward.
Since December 2020, it was already possible for validators to deposit ethers on the Ethereum blockchain, to facilitate the transition to The Merge. Today, Ethereum has more than 496,000 validators, who have “staked” more than 15.9 million ethers, allowing them an average return of 5%.
However, these “stacked” Ethers are now “blocked” on the blockchain, meaning they cannot be retrieved by their owners, the validators. This is where the Shanghai update becomes interesting.
What does this update consist of?
In concrete terms, the Shanghai update will allow users (validators) to be able to withdraw their “locked” ethers from the blockchain. To put it simply, 15.9 million ethers will be able to be released, the equivalent of $20 billion at the current price of the cryptocurrency.
The Shanghai update was supposed to be done in the first half of 2023, but no details had really been given until now. In a video published on January 5, developers of the Ethereum blockchain were more prolix.
In particular, we learn that a final internal test (testnet) will be deployed on the blockchain next month, to make this transition smoothly. Then the update of Shanghai should take place in March. Despite these beautiful announcements, we remember that The Merge had been delayed by several months by the developers, the latter wishing to make other tests before the transition. So, we are not at the abbri of a delay of Shanghai.
What are the consequences for the price of ether and other “staky” cryptos?
For many experts, the release of these millions of ethers could have an impact on the price of the cryptocurrency. Indeed, it is likely that validators who have had their ethers blocked since December 2020 will want them back. In December 2020, an ether was worth about $600… compared to about $1300 today.For many experts, the release of these millions of ethers could have an impact on the price of the cryptocurrency. Indeed, it is likely that validators who have had their ethers blocked since December 2020 will want them back. In December 2020, an ether was worth about $600… compared to about $1300 today.
“Some observers fear significant selling pressure that would cause the ether price to fall, but it’s worth noting that today’s price ($1300) is well below the Merge’s date price ($1600),” Cryptoast points out.
In addition, in recent days we have seen an increase in the prices of some cryptocurrencies that operate on a so-called liquid staking system, linked to protocols like Lido and Rocket Pool.
Indeed, these protocols allow users to perform staking without staking a whopping 32 ethers in the blockchain to participate in the development of Ethereum. In the last few days the prices of the native token of Lido (Lido) and Rocket Pool (RPL) have seen their prices jump, and this trend could continue in the coming months.
What next after Shanghai?
At their meeting on January 5, the developers chose to postpone the addition of a feature called the Ethereum Virtual Machine Object Format (EOF), which should change the way to make smart contracts on the blockchain. A feature postponed to later, as the one called the “Proto-danksharding”. This is a feature that “essentially aims to solve the congestion of the Ethereum network by changing the structure of transactions on the blockchain”, explains Cryptoast.