Crypto

GET IT ALL. What is the Shanghai Update Coming Soon to Ethereum?

This update is critical for Ethereum. This will allow users to withdraw their ethers “locked” in the blockchain for years. BFM Crypto sums up.

2023 promises to be a busy year for the developers of Ethereum, the blockchain co-founded by Vitalik Buterin. Indeed, Ethereum will release a new update called Shanghai. This update, due in March, is something the community is looking forward to. We explain why.

• The Origins of the Shanghai Update

To understand what this new update is about, we must first go back to the latest major Ethereum update called The Merge. Blockchain succeeded in this upgrade in September, moving from the so-called proof-of-work (PoW) operation to proof-of-stake (PoS).

Recall that in PoW, tens of thousands of computers (“miners”) work on solving a mathematical problem and thus get the right to add a new transaction (block) to the blockchain to protect the network. This is a very energy intensive method as these computers consume a lot of electricity.

Conversely, with PoS, each validator must “deposit” (in cryptography terms, we speak of a “staker”, hence the proof of “bet”) to a common pot of 32 Ether (at the current Ether price, 32 Ether is equivalent to 39,000 euros). to secure the network. By depositing ethers, they receive a reward.

Since December 2020, validators have already been able to contribute ether to the Ethereum blockchain to ease the transition to The Merge. Today, Ethereum has over 496,000 validators who have staked over 15.9 million Ether, allowing them to earn an average return of 5%.

However, these “mortgaged” ethers are now “locked” in the blockchain, meaning their owners, the validators, cannot restore them. This is when the Shanghai update gets interesting.

• What is this update about?

In particular, the Shanghai update will allow users (validators) to withdraw their “locked” ethers on the blockchain. Simply put, 15.9 million Ether could be issued, which is equivalent to $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 have been released so far. In a video posted on January 5, the developers of the Ethereum blockchain were more verbose.

Specifically, we will learn that a final internal test (testnet) will be rolled out on the blockchain next month to ensure this transition goes smoothly. Then the Shanghai update should happen in March. Despite these great announcements, we remember that the merge was delayed by the developers for several months, as the developers wanted to do other tests before the transition. So we are not immune from the transfer from Shanghai.

• What are the implications for the price of ether and other cryptocurrencies?

According to many experts, the release of these millions of ethers could affect the price of the cryptocurrency. Indeed, it is likely that validators whose ethers have been blocked since December 2020 want to restore them. In December 2020, Ether was worth about $600, compared to about $1,300 today.

“Some observers fear that significant selling pressure will cause Ethereum prices to drop, but it should be noted that today’s price ($1,300) is significantly lower than the date of the merger ($1,600),” notes Cryptoast.

In addition, in the last few days, we have seen price increases for some cryptocurrencies that operate in the so-called liquid staking system associated with protocols such as Lido and Rocket Pool.

Indeed, these protocols allow users to stake without having to stake a tidy sum of 32 Ether on the blockchain to participate in an Ethereum developer. Over the past few days, the prices of Lido’s native token (Lido) and Rocket Pool’s (RPL) have skyrocketed, and this trend may continue for the next few months.

• What’s next after Shanghai?

During a meeting on January 5, the developers decided to delay adding a feature called the Ethereum Virtual Machine Object Format (EOF), which should change the way smart contracts are created on the blockchain. The feature is delayed, as is the one called “Proto-danksharding”. This is a feature that “essentially aims to solve the problem of Ethereum network congestion by changing the structure of transactions on the blockchain,” explains Cryptoast.

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