This update is critical to Ethereum. It will allow users to withdraw their ether that has been “locked” on the blockchain for years. BFM Crypto takes stock.
2023 promises to be challenging for the developers of Ethereum, the blockchain co-founded by Vitalik Buterin. In fact, Ethereum will proceed with a new update, called 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 is all about, we first need to go back to the latest major Ethereum update, which is called The Merge. The blockchain succeeded in this upgrade in September, moving from a so-called “proof of work” (PoW) to “proof of stake” (PoS) operation.
As a reminder, on PoW, tens of thousands of computers (“miners”) work to solve a mathematical problem and thus acquire the right to add a new transaction (block) on the blockchain to secure the network. It’s about a very energy consuming method as these computers consume a lot of electricity.
Conversely, with PoS, the validators must each “deposit” (in cryptographic language we’re talking about “player” from where proof of “bet”) in a common pot 32 ether (at the current price of ether, 32 ether equals 39,000 euros), in order to secure the network. By depositing ethers, they get a reward.
Since December 2020 it was already possible for validators to deposit ether on the Ethereum blockchain, in order to facilitate the transition to The Merge. Today Ethereum has more than 496,000 validators, who have staked more than 15.9 million ether, allowing them an average return of 5%.
However, these ether “stakes” are now “locked” to the blockchain, meaning they cannot be retrieved by their owners, the validators. This is when the Shanghai update gets interesting.
• What is this update about?
Concretely, the Shanghai update will allow users (validators) to be able to withdraw their “locked” ether on the blockchain. To put it simply, 15.9 million ether can be released, which is the equivalent of $20 billion at the current price of the cryptocurrency.
The Shanghai upgrade was expected to take place in the first half of 2023, but no details had been provided so far. In a video posted on Jan. 5, the developers of the Ethereum blockchain were more verbose.
We especially learn that a final internal test (testnet) will be deployed on the blockchain next month, in order to make this transition go smoothly. So the Shanghai update is expected to happen in March. Despite these beautiful announcements, we remember it The fusion it had been delayed for several months by the developers, the latter eager to do more testing before the transition. So we are not immune to a move from Shanghai.
• What impact on the price of Ether and other “stake” cryptocurrencies?
For many experts, the release of these millions of ether could impact the price of the cryptocurrency. In fact, validators with their ether locked up since December 2020 are likely to want to get it back. In December 2020, one ether was worth about $600… compared to about $1300 today.
“Some observers worry that significant selling pressure will drive Ether prices down, but it should be noted that today’s price ($1300) is significantly lower than the merger date ($1600).” Cryptoast points out.
Furthermore, in recent days we have observed an increase in the prices of some cryptocurrencies that operate on a so-called liquid staking system, linked to protocols such as Lido and Rocket Pool.
Indeed, these protocols allow users to stake without betting the tidy sum of 32 ether in the blockchain to stake the Ethereum developer. In recent days, the prices of the native tokens of Lido (Lido) and Rocket Pool (RPL) have seen their prices jump, and this trend could continue in the coming months.
• And after Shanghai?
During their January 5th meeting, the developers chose to postpone the addition of a feature calledEthereum virtual machine object format (EOF), which is expected to change the way smart contracts are entered into on the blockchain. A delayed feature film, just like the one called “Proto-danksharding”. This is a feature that “essentially aims to solve the congestion of the Ethereum network by changing the transaction structure of the blockchain,” explains Cryptoast.