What is the Shanghai Upgrade of ETH?
The Shanghai upgrade is a technical upgrade to the Ethereum network. It will enable Ethereum stakers to withdraw their staked ETH for the first time since staking went live in December 2020. Relative to “The Merge,” Shanghai is a minor technical upgrade, but from a price perspective, it could be a big deal as theoretically all of the $33B worth of staked Ethereum could be withdrawn.
How will the Shanghai Upgrade Impact Ethereum?
The Shanghai upgrade of Ethereum will enable withdrawals of staked ETH for the first time since staking went live in December 2020. While theoretically, $33B worth of staked ETH could be withdrawn and sold, the chances of a Shanghai-induced ETH sell-off are slim. In fact, Shanghai should result in more ETH being staked over the coming months. Most stakers will withdraw their staked ETH rewards but hold onto their staked ETH deposits. Any ETH sell pressure induced by Shanghai should be minor and enabling withdrawals is expected to result in more, not less, ETH being staked over the coming months: a bullish catalyst for Ethereum and ETH.
What is proof-of-stake?
Proof-of-stake was enabled in September of 2022 which replaces proof-of-work (PoW) also referred to as mining, where millions of computers facilitate the transactions of the network. Proof-of-stake (PoS) is a consensus mechanism used by some blockchain networks to achieve distributed consensus. In a PoS system, validators (i.e., nodes that create new blocks and validate transactions) are chosen randomly from among those who have staked their cryptocurrency. The more cryptocurrency a user stakes, the higher their chance of being chosen as a validator and earning rewards. This system creates an incentive for users to hold on to their coins and helps to secure the blockchain against fraudulent activity.
What are staked ETH deposits?
Staked ETH deposits refer to the process of depositing or “locking up” a certain amount of ETH to activate validator software on the Ethereum network. Validators help Ethereum reach consensus by proposing new blocks or verifying and attesting to the validity of blocks proposed by others. By staking their ETH, users can participate in the operation of the Ethereum network and earn rewards. Staked ETH deposits refer to the ETH that has been staked or locked up by users to support the operation of the Ethereum network. The Shanghai upgrade will enable Ethereum stakers to withdraw their staked ETH for the first time since staking went live in December 2020.
Conclusion
The Shanghai Upgrade is actually positive for the blockchain. Enabling withdrawals “de-risks” staking and should result in more ETH being staked post-Shanghai. Depending on the economic data the Shanghai Upgrade seems bullish/positive for Ethereum.
