JVTech News Ethereum: towards a potential “crash” of the second crypto next month?
While Ethereum has been doing well since its last update, some fear a decline, or even a “crash” of the second largest cryptocurrency. These alarming predictions are largely fueled by the arrival of the new Shanghai update.
Update on Ethereum
To understand what this famous Shanghai update is, one has to go back 3 years ago. We are in 2020, and Ethereum is making up its mind that it wants to completely change its functioning to differentiate itself from Bitcoin. In December of the same year, Ethereum announced the launch of The Merge update. It involves moving the Ethereum blockchain network from proof of work to proof of stake.
As a reminder, the blockchain uses a validation system that makes it possible, in a sense, to digitize trust. There are two main ones, which are: proof of work and proof of stake.
For example, to work, Bitcoin relies on proof of work as it relies on the computing power of miners’ machines to validate transaction blocks. Very energy intensive, this system was no longer considered ideal for Ethereum, so the cryptocurrency moved to proof-of-point.
More eco-responsible, the passage to the stake test consisted in replacing the mechanism based on the strength of calculation with another, based on the active use of one’s own cash. Concretely, after The Merge, Ethereum miners were able to mine cryptocurrency by no longer using RIGs for graphics cards, but by depositing 32 ether.
This long-awaited update was rolled out in September 2022, two years after its announcement, but a lot has happened over the years…
Indeed, to facilitate the development and implementation of The Merge, users were encouraged to save ether on the Ethereum blockchain. Through this manipulation, commonly known as stacking in the industry, users received a 5% annual return in Ethereum. However, their ethers were totally “locked” until the update was released. Therefore, the owners could not remove them from the contract.
Ethereum Shanghai Upgrade Coming Next Month
Today Ethereum has moved to proof of work, but ether is still “stuck”. Don’t worry, we have to wait for the Shanghai update which will happen next month according to the Ethereum teams.
This new update scheduled for March will therefore allow approximately 496,000 drives to withdraw the 15.9 million ether stored since 2020 for some. This is why some experts are concerned for the coming months.
Indeed, many fear seeing a drop in the price of Ethereum after this massive release of ethers. The trace is widely audible when we know that the “savers” deposited their ether in December 2020, when the crypto was worth around €500. Today, an ether is worth more than €1,200. Therefore, a certain portion of them may be tempted to sell their ether, which would create a supply shock and, inexorably, a drop in the price of Ethereum.
However, it’s important to remember that this doesn’t apply to all validators. The majority certainly deposited ether when the price of the crypto fluctuated between €1,000 and €4,000. Because of this, no one can actually predict the Ethereum price reaction after the upcoming Shanghai update.