Ethereum Shanghai Upgrade: What does it mean for the Crypto Market?

Ethereum Shanghai Upgrade: Predictions from Kairon Labs
Calendar IconJul 2023Clock Icon2 mins
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School of CryptoCrypto Market Insights

As February greets this ever-changing market, and new FOMC reports are released, people are now anticipating the next major crypto event happening this March 2023: The Ethereum Shanghai Upgrade.

The ETH Shanghai update is a planned network upgrade for the Ethereum blockchain, which aims to improve the overall functionality and scalability of the network, promising relative changes in the blockchain's EVM functionalities towards its full Ethereum 2.0 release.

The upgrade aims to fully transition the Ethereum network from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS) consensus mechanism, resulting in a more energy-efficient, secure, and scalable network. It also included the launch of the Beacon Chain, which serves as the backbone of the new PoS consensus mechanism.

The Beacon Chain is responsible for coordinating and managing the network of validators, who are responsible for verifying transactions and adding new blocks to the Ethereum blockchain.Another key benefit of the ETH Shanghai upgrade is increased security. The PoS consensus mechanism eliminates the need for miners to compete for rewards, reducing the risk of 51% attacks and other security threats.

The ETH Shanghai upgrade is also expected to help address the issue of users who haven't been able to remove their staked funds after last year’s Merge. This will be achieved through the implementation of EIP4895 (Ethereum Improved Proposals #4895)which aims to add a withdrawal functionality to their new staking system.

Image: Ethereum 2.0 setup and architecture by box miningWith all those new promises laid out for us, what does this release mean for the current bear market? Will this eventually stop the recent crypto winter after the FTX meltdown or will it pose a new set of problems?Our Senior Quantitative Trader at Kairon Labs (Crypto Market Makers),Joshua Van de Kerckhove comments:

“The Shanghai upgrade in the long term will be a net positive for Ethereum. Traditional finance and older investors love dividend stocks, so they will most likely also love passive income staking from ETH. If the Shanghai upgrade is successful, it could make ETH the institutional baby's next cycle as passive income will be a big narrative around it. At the moment, a lot of capital is holding off waiting to see if withdrawals after the upgrade work as intended. As soon as these risks are out of the way and the perceived risk of large withdrawal sell-offs is gone, we’ll start seeing larger institutional investors flow into ETH. However, in the short term given where the market is at macro-wise, and the perceived risk the Shanghai unlock poses with large portions of ETH coming to market, it is relative to the thin market liquidity at the moment. Even if none of the locked ETH gets sold on the market, the perception around the possibility of them selling in itself will cause enough confusion for traders and investors to likely cause a good selloff. Markets hate uncertainty more than anything.”

Overall, the ETH Shanghai upgrade represents a significant milestone for Ethereum, promising better scalability of the platform and a more efficient consensus mechanism. It sets the stage for further upgrades and improvements to the network, positioning Ethereum as a leading player in the development of decentralized technology.

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