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Ethereum has become a leading blockchain platform since its inception, but as its user base grew, its infrastructure struggled to keep up with demand. In response to this, the Ethereum community proposed a series of upgrades to improve the blockchain’s performance, scalability, and security. One of the most highly anticipated upgrades is the Shanghai Upgrade, which is set to introduce several changes that aim to make the Ethereum network more efficient and user-friendly.
In this blog, we’ll take a closer look at the Ethereum Shanghai Upgrade and how it will impact Ethereum’s price. Let’s get started!
About Ethereum Shanghai Upgrade
The Ethereum Shanghai Upgrade is a proposed upgrade to the Ethereum blockchain that aims to enhance the network’s performance, scalability, and security. The upgrade is expected to include a range of changes, including the implementation of Ethereum Improvement Proposals (EIPs), like EIP – 1559, 3651, 3855, 3860, and 4895. The most significant of these changes are EIP-1559 and EIP-4895.
EIP-1559 will introduce a new fee structure for transactions and help reduce the high fees that have been a persistent issue on the network. On the other hand, EIP-4895 will enable validators to withdraw the 16 million ETH they have so far “staked” to support network security.
Overall, the Shanghai Upgrade is a crucial step towards improving the Ethereum blockchain’s efficiency and making it more accessible to users around the world.
The overall impact of the Ethereum Shanghai Upgrade
- Reduced gas fees: Reducing gas fees for layer-2 solutions like Polygon, Optimism, and similar ones that run on top of Ethereum is one of the main changes that the Ethereum Shanghai Upgrade is anticipated to bring about. Using Ethereum is now quicker and less expensive thanks to these L2 solutions, and this improvement might even lower the cost of transactions on the Ethereum blockchain.
- Withdrawal of staked ETH tokens: Before the Ethereum Merge, anyone who was interested in joining the new PoS Ethereum Beacon chain as a validator was required to stake a particular amount of ETH into a deposit smart contract, which remained locked in with the contract even after the Merge. However, with the Shanghai Upgrade, we might witness the release of the lock-in and allow people who have staked their ETH tokens to unstake them.
- Updates to smart contract facilities: This is another significant change that will result from the Shanghai Upgrade. The largest blockchain network that supports smart contracts, Ethereum, will continue to advance in terms of development.
Impact of the Ethereum Shanghai Upgrade on ETH Prices
The long-awaited Ethereum Shanghai Upgrade has arrived, marking the completion of the two-year transition to Proof-of-Stake (PoS) on the Ethereum blockchain. The upgrade will bring significant technical improvements to the network, but most traders are primarily interested in staking withdrawals. Over 18 million ETH, worth approximately $34 billion, have been locked up on the Ethereum network and will now become available to validators, making investors understandably concerned about the impact on the price of the Crypto.
However, some data analysts believe that the price impact in the short term will be less dramatic than community expectations suggest. While there may be sustained downward pressure on the price, withdrawal requests are limited to a certain amount per day, making it unlikely that the process will cause a sharp, sudden dip in the price. Additionally, the availability of liquid staking services like Lido has already allowed traders to sell staked ETH, so Shanghai may not represent a major shift in the economics of Ethereum.
Despite the potential short-term uncertainty, the Ethereum Shanghai Upgrade is expected to be bullish in the long term. Enhanced business use cases for Crypto custody, including the ability for banks to store ETH for low to no fees, could lead to a significant amount of locked-up ETH, ultimately driving up the price of the Crypto. Overall, while the upgrade may cause some volatility in the short term, it is expected to have positive implications for the future of Ethereum.
Check the list of Cryptos that will be majorly impacted by the Ethereum Shanghai Upgrade here.
Final thoughts
The Ethereum community eagerly awaits the launch of the Shanghai Upgrade, which marks a significant milestone in the platform’s transition to a Proof of Stake (PoS) network. Although the impact on Ethereum’s short-term price remains uncertain, the update is expected to contribute to the full functionality of Ethereum’s PoS network. Nonetheless, the details surrounding the withdrawal process are yet to be revealed. Despite this, Crypto enthusiasts have a high level of anticipation for the Shanghai Upgrade.
It is always advisable to do your due diligence before making any investment decisions.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
