Disclaimer: This article is sponsored content and should not be considered as financial or investment advice. Always do your own research before making any financial decisions. The opinions expressed in this article are those of the author and do not necessarily reflect the views of CryptoGlobe.
Ethereum has recently completed another historic milestone in its development, commonly known as the Shanghai upgrade, which has caused a lot of stir in the crypto space over the past few weeks. As expected, most of the discussions revolved around the impact that this new upgrade might have on the Ethereum price. Fortunately, concerns regarding possible negative implications for Ethereum haven’t materialized. On the contrary, we saw Ethereum rally up for several days in a row after the upgrade, topping $2,100 for the first time since May 2022.
Ethereum is the second largest crypto in existence in terms of market cap, so the sudden price increase, although short-lived, came as a very pleasant surprise for many traders, investors and crypto enthusiasts alike. This is all the more significant given the current state of the crypto market after all the unfortunate events that marked the industry in 2022 when the crypto winter took over. So, let’s take a closer look at how this much-anticipated hard fork went down and what can be expected of it.
We can’t talk about the Shanghai upgrade without reminding everyone of the previous major upgrade that Ethereum underwent in September 2022 – the Merge. As some of you may already know, the Merge represents the biggest upgrade in Ethereum’s history as it targeted the network’s core technology, forever changing the way new coins are released into circulation and the protocol used for validating transactions on the network. That implied moving from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism.
The process started back in December 2020 when the PoS-based Beacon Chain was launched, running in parallel with the original Ethereum chain. The aim was to replace miners with stakers, which meant that users had to lock up ETH tokens in order to become validators, earn rewards and help secure the Ethereum network. Since the debut of the Beacon Chain, users collectively staked over $34 billion in Ether.
After the Merge was successfully executed, the energy needed to operate the network was drastically reduced by 99%. While energy consumption was the main issue that the upgrade wanted to address, there were also additional benefits to the Merge that went beyond enhancing the system’s sustainability and minimizing its environmental impact.
The main advantage deriving from this initiative was the increased accessibility to the network. Some argued that the staking cost of 32 ETH to participate in the validation process and earn rewards would become a barrier to entry. However, if you draw a parallel between staking and the costs entailed by mining in the proof-of-work model, it becomes clear that the first option is more cost-effective as it completely eliminates the need for mining-specific equipment which is extremely expensive.
The Merge also helped reduce network centralization. Ethereum has always been praised for its decentralized nature. Unfortunately, miners used to combine their computational systems in joint groups known as mining pools in order to boost their chances of solving the complicated mathematical equations that would help them win rewards, and that led to the increasing centralization of the blockchain. With stakers replacing miners, these types of consortiums became obsolete, ensuring enhanced decentralization.
The road to the Shanghai upgrade
While the implementation of the Merge went without a hitch, the transition to a PoS consensus mechanism wasn’t yet complete because the funds that users had staked since 2020, and the rewards that came with them, remained locked on the network. In order to make those assets accessible to validators, Ethereum required one final step that would introduce consensus layer withdrawals. That’s what the Shanghai upgrade is all about.
However, enabling the withdrawal functionality was not a simple process. Developers were under a lot of pressure to implement the upgrade as soon as possible. In order to rush the release date, they were forced to make several compromises and give up on a series of improvements that they initially wanted to include in the Shanghai upgrade, such as proto-danksharding and EOF.
The urgency to complete the Shanghai upgrade was understandable since thousands of validators were waiting to gain access to the billions of funds that have been locked on the network for years. Also, developers had to make sure things would run smoothly as even the slightest mistake could have cost them dearly, not only in terms of reputation but also regarding potential technical issues and relationships with their partners. Therefore, they couldn’t afford to cut corners just to stick to their original plan and include all the initial improvements. In the end, after making the necessary concessions, the Shanghai upgrade was implemented on April 12 and Ethereum’s proof-of-stake transition was finally completed.
Now that the Shanghai upgrade was rolled out successfully, all the concerns that rose in the months leading up to it can finally be put to rest. After the integration of the upgrade, the improved version of the network continued to process transactions as per usual. Shortly after the release, users began to withdraw their staked funds with no issues in sight. According to crypto data firm CryptoQuant, in the following days, there was an influx of approximately 179,500 newly withdrawn Ether on crypto exchanges, valued at over $375 million.
The fact that users are already moving their funds to exchange platforms might be an indication that they are ready to sell, which could potentially cause the Ether price to plummet. However, at the moment, Ethereum seems to continue its appreciation journey that started earlier this year. After the news that the Shanghai upgrade was a success travelled across the world, the Ethereum price surged above the $2,100 threshold for the first time since May 2022. The price fell back slightly afterwards, but there’s nothing to suggest that this might be anything more than the usual short-term fluctuations that all cryptos are expected to experience.
It might be too soon to draw conclusions regarding the upgrade’s impact on the network, but for now, Ethereum seems to be doing just fine, which is exactly the good news that the entire crypto sphere was expecting to hear.
Featured image via Pixabay.