Crypto investors face delays in withdrawing funds after Ethereum upgrade

LONDON, April 13 (Reuters) – Cryptocurrency investors are facing delays to withdraw funds deposited on the Ethereum blockchain after its major software upgrade, highlighting ongoing headaches for Ethereum as it aims to have the technology widely used for instant payments.

The software upgrade, known as “Shapella,” was supposed to unlock more than $30 billion in ether, the second-largest cryptocurrency, that investors had deposited on the Ethereum blockchain for interest.

Until Wednesday’s upgrade, investors could not withdraw funds they had deposited via this method, known as “staking,” on the Ethereum blockchain.

As of Thursday, about $1.4 billion worth of ether was stuck in a withdrawal queue, blockchain data firm Nansen said.

The delays are an example of the limits of the transactions that Ethereum can process, and highlight potential shortcomings as it strives to become a widely used financial infrastructure.

The Ethereum Foundation, a body that advocates for the network, did not immediately comment.

The delays are due to limits in the amount of transactions the blockchain can process, Nansen analyst Martin Lee told Reuters by email. It can process about 1,800 validator withdrawals, or 57,600 ether worth of withdrawals per day, he said — that’s about $115 million.

The validator withdrawal limits were in place for security reasons, Lee said.

“In an extreme scenario, if there are no limits, and a large majority of validators go out, the Ethereum network will be vulnerable to attacks and bad actors,” he said.

Ethereum has grown in popularity for offshoots of the crypto market such as so-called decentralized finance or NFTs, but it has yet to be used in mainstream payments, finance or commerce.

The major Binance exchange said that users would be able to withdraw the ether from their staking product from April 19 and that it could take “15 days to several weeks” to process these transactions.

“Due to the processing limitations on the Ethereum network, Binance will set a daily ETH redemption quota for each Binance user,” Binance said on its website.

Nansen’s Lee said the backlog will likely take weeks to clear, after which it will take just hours or a couple of days, depending on what the average daily amount is.

Reporting by Elizabeth Howcroft, editing by Tom Wilson and Emelia Sithole-Matarise

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