Ethereum Shanghai upgrade

The Ethereum Shanghai upgrade is the next big event after the transition from a “proof of work” to a “proof of stake” algorithm (both allow the mining of the blocks that join the blockchain, but the second requires less energy), which took place in September 2022. It should become effective in mid-March, offering greater benefits in terms of liquidity.

Ethereum Shanghai upgrade

«Since the staking contract was filed in December 2020, users who have frozen their shares of Ether (it is the cryptocurrency that runs on the Ethereum network) in order to become validators, or to acquire the ability to approve transactions that take place on the blockchain, they have no longer been able to recover their capital – explains Carlos Gonzales Campo, analyst of the 21Shares research team.

The Shanghai upgrade will enable this feature, allowing various market agents to withdraw their assets denominated in Ether, effectively putting an end to the indefinite staking period that characterized this blockchain and, at the same time, will allow users to rely on higher levels of liquidity.

Long-term benefits of the Ethereum Shanghai upgrade

An upgrade which, on the one hand, optimizes staking on ether (staking can be compared to a time deposit: you freeze your assets and in return you receive interest), on the other, it rings an alarm bell, with many validators long-term investors who could seize the opportunity and divest the stakes blocked for some time, putting Ethereum under pressure.

«It is a concrete risk – confirms Campo -, but only in the short term. The long-term benefits will offset any sell-off, arriving at a final balance where the benefits will exceed the costs.

This conclusion is based on a logical assumption, divided into 4 points.

First, we must consider that a single block can process up to a maximum of 16 withdrawals. At this rate, a maximum of 115,200 withdrawal transactions can be made per day. According to the smart contract deposited on the Beacon Chain, there are around 528,000 validators and they have deposited assets for a value of 16.9 million Ether, equal to around 14% of all circulating assets (data as of February 21, 2023). This means that it would take 5 days to free up all assets currently staking. However – he adds -, it is very unlikely that all the validators will come to withdraw their shares, considering that when they invested them they were perfectly aware that the period of time in which they would be frozen was potentially unlimited. If they have taken this decision anyway, it is because they were convinced of the long-term success of Ethereum and its potential to increase market value. Therefore, it is more reasonable to expect that a large part of these will not withdraw their shares and will continue to receive remuneration. In this way, the solidity of the entire blockchain will be guaranteed».


Therefore, Campo expects that the amount of Ether staked will increase considerably due to the Ethereum Shanghai upgrade. And to get an idea of how much staking can grow, the 21Share expert points out that the assets blocked to receive remuneration in the main networks based on the proof of stake algorithm are always more than 60% of the total. The only exception is Ethereum, which does not reach 15 percent: «we are therefore convinced that the share of ether that will be staked after the Shanghai upgrade will be higher than that withdrawn by the validators, and this opens up a positive outlook for the market,” he concludes.

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