• Ethereum merge forms the basis of the Shanghai upgrade
• Stakes ETH can be withdrawn
• Increased volatility possible
The Ethereum merger was the most important upgrade to date of the second largest cryptocurrency after Bitcoin. In September 2022, after years of preparation, the blockchain was switched from the energy-intensive proof-of-work to the less energy-consuming proof-of-stake process, which also meant an end to the lucrative Ethereum mining.
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The next important update of the ETH blockchain is due in March, namely the so-called Shanghai Fork. The update is a direct effect of the merger, which could also result in large fluctuations in the price of the cyber currency.
Before the Shanghai upgrade: staked ETH and rewards firmly entrenched
In the wake of the major Ethereum upgrade, users had the opportunity to spend 32% of their ETH staking the cryptocurrency to become network validators. This, in turn, pays off for users, as blockchain validators are rewarded in the form of new Ethereum, similar to a positive return on investment. The crux, however, was that these “donated” Ethereum were firmly anchored and could not be withdrawn, so in principle they were lost for the owners. A total of 16 million ETH tokens were locked in for staking in this way. The same applied to the new ETH tokens earned in this process.
As already announced in the course of the Ethereum merger, this should change with the Shanghai Fork. With the completion of the update in March, users will once again have access to the ETH staked and their reward.
Validators can now withdraw staked Ethereum
Accordingly, it is expected that many Ethereum users will seize the opportunity to monetize their investment. Many more may also prefer to withdraw their cryptocurrencies altogether and manage them differently given the great uncertainty in the crypto sector over the last year. It will also be interesting to see how the Ethereum blockchain works without the ETH being staked. While the chain has been working flawlessly so far, CoinDesk writes that only when the invested ETH tokens are withdrawn will it be seen how the proof-of-stake blockchain actually comes to life.
The Shanghai fork opens up two options for Ethereum stakers. You can set a “Withdrawal Eligibility” beforehand, which will result in all Ethereum rewards being automatically deducted from the stake and transferred to the validator upon the upgrade being performed. With the second option, the staker is given the opportunity to release his 32 Ethereum stakes from the beacon chain. However, it is not yet clear when exactly ETH stakers will be able to access their invested tokens again. According to Ethereum developer Marius Van Der Wijden, this would depend on how many people would choose to reclaim their Ethereum at the same time, he told CoinDesk. So there is only one queue for both types of withdrawal requests. And only 16 of these requests can be made at a time, which happens every twelve seconds.
Increased volatility possible
However, according to the industry portal, it is rather unlikely that all validators will decide to leave the beacon chain, after all it only really starts with the Shanghai fork that rewards can also be earned with the staked ETH. There is also no clear opinion as to whether the March update will now lead to increased price losses for cryptocurrencies or rather profits. The fact that numerous ETH stakers will certainly want to monetize their rewards would speak in favor of losses. Profits could mean that more crypto enthusiasts could now choose to stake their ETH to collect a reward. In any case, investors should prepare for increased volatility.
Gas fees should go down
Incidentally, the Shangai Fork does not only include the release of staked ETH from the chain. The update also affects the gas fees that have to be paid to carry out transactions on the Ethereum blockchain. These can get quite high at times of high activity, a fact that is also addressed by the fork. Some functions are built into the update, which should lead to the gas fees being reduced under certain conditions, such as when developers build on the blockchain.
Nevertheless, the Shanghai upgrade is significantly smaller overall than other updates, which is also due to the fact that the Ethereum developers did not want to wait too long to release the staked ETH so as not to attract the displeasure of the important validators pull. It is also clear that it will not be the last update of the Ethereum blockchain.
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