How the latest Ethereum upgrade will affect crypto investors
Just a few months after the massive upgrade called the Merger – the full transition to Proof of Stake (PoS) from Proof of Work (PoW) – Ethereum is slated to undergo another major upgrade, the so-called Shanghai Upgrade, within a few weeks .
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Simply put, the Shanghai upgrade – or fork – will implement a series of improvements to the main Ethereum chain, several of which upgrade the technical capacity of the chain and lay the foundation for future scalability, said Lex Sokolin, head of crypto economics at ConsenSys. .
We take a look at how this upgrade will affect Ethereum and its stakeholders.
Effects of the Shanghai upgrade
Sokolin explained that the most talked about change is the ability to withdraw Ether. Staking means depositing 32 ETH to activate validation software – the cost of which was $52,763 as of February 22nd.
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“This ether then acts as collateral that can be destroyed if the validator behaves dishonestly or lazily,” explains the Ethereum Foundation. “The validator is then responsible for checking that new blocks spread across the network are valid and occasionally creating and spreading new blocks themselves.”
So when Ethereum switched to PoS, miners became validators and were able to earn a return denominated in ETH in exchange for locking their capital.
“This lockout was one way, meaning they couldn’t get their money back,” Sokolin said. “Such illiquidity is a special type of risk and explains why stakes within Ethereum are below 20%, while stakes in other PoS chains can reach 80% or more of circulating supply. We believe that by unlocking the assets, stakes will decrease and be available to several types of participants.”
At the same time, Sokolin added, the recently withdrawn asset will create additional supply in the market, potentially creating pressure. “In the long run, however, we would expect a larger portion of all Ethereum users to take advantage of the return on investment of the network.”
Some expect price volatility
That pressure leads some industry experts to expect price volatility when the upgrade happens. Whether it lasts or stabilizes remains to be seen. In fact, there were 16.7 million ETH staked as of February 22, distributed among approximately 524,000 validators who have an average balance of 34 ETH, according to the Ethereum Foundation.
Therefore, by freeing up the assets, the supply will increase.
“Volatility is an opportunity,” said Christopher Alexander, head of communications for Liberty Blockchain. “After the merge, investors were able to stake their ETH and were unable to redeem their coins until after the Shanghai upgrade went live. Because of this, some investors may take their profits now that the upgrade is complete.
“However, the positive attention that the performance has on the industry may attract new investors or cause current investors to ‘double down.'” So that remains to be seen.
Easier access, expanded tools
While there may be a temporary drop in ETH’s price, many experts said the long-term effect will be an influx of new people into the ecosystem, including when it comes to stakes.
“This is actually another step to make Ethereum easy to use for ordinary people as well as for institutions,” said John Paller, founder of Opolis. “With efforts close to reaching full functionality, the interest among institutions to earn a return on ETH is likely to grow and grow.”
Although there are many upgrades to be implemented for Ethereum to reach its full potential, the stake aspect of these upgrades will be crucial to further incentivize the network, which in turn is likely to create positive ripple effects that will ultimately affect the utility of several other applications, said Pallets.
These “include cryptogaming, domain services, use of NFTs for identity authentication – you name it,” he said. “These are exciting times. In fact, the Shanghai upgrade is a testament to the resilience of Ethereum, along with a number of other decentralized networks, after a year that was quite turbulent for our industry. The lesson here is that our industry continues to focus on the fundamentals — that is, to keep building and building.”
While the ability for participants to withdraw their ETH is one of the most well-known aspects of the Shanghai upgrade as it reduces uncertainty, which in turn could attract more participants, many experts also point to the fact that it will also have a wider impact.
“Stepping back, it’s important to point out how all these upgrades that have happened in the Ethereum network are really overloading the overall development of this important blockchain,” said Adrian Baschuk, chief creative officer and founder of Ethernity. “Ultimately, the Shanghai upgrade symbolizes one of a series of steps that will make Ethereum much faster and much cheaper to use.”
According to Baschuk, as Ethereum improves in this regard, a huge amount of utility will eventually be unlocked for an expanded range of applications, and an easier-to-use Ethereum ecosystem will ultimately be a huge boon not only for DeFi, but also for crypto. -focused gaming and NFTs.
“It is therefore important to see this particular upgrade as part of a wider development that will make all kinds of applications far more functional on Ethereum and thus much easier to use for more and more people around the world,” he added. “In short, the successes highlighted by Ethereum developers will be a huge boon to the entire digital asset industry. It’s truly an exciting time.”
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This article originally appeared on GOBankingRates.com: How the Latest Ethereum Upgrade Will Affect Crypto Investors
