The Ethereum network is set to undergo a technical revamp called the “Shanghai” upgrade on April 12th. This upgrade will allow users to withdraw tens of billions of dollars worth of Ether, the network’s native token, which was previously locked in the protocol for staking. The shift from a proof-of-work to a proof-of-stake process in September 2022 has made Ethereum less power-hungry and more environmentally friendly. However, investors are now worried about whether Ether holders will run for the hills once they have the opportunity to withdraw their tokens.
Ethereum is a computer network that hosts smart contracts, self-executing software agreements in which a chain of actions can flow from defined conditions and contingencies. Since its introduction in 2014, it has become a popular platform for developing apps used for everything from trading to gaming. The Shanghai upgrade is necessary after the network shifted to a less power-hungry process for ordering transactions.
The Shanghai upgrade will allow users to withdraw their staked Ether, which accounts for around 16% of the total Ether supply and is worth approximately $37 billion. However, it is not clear how many users will want to cash out once their Ether is unlocked. The token’s value has fluctuated wildly in recent years, soaring as its popularity grew with institutional and retail investors, then tumbling in 2022. Longer-term, the opportunity to withdraw staked tokens is likely to make Ether staking more appealing as it will reduce risk for those involved.
There may be technical problems as Shanghai goes live. During a recent test of the code, transaction confirmations took much longer than expected as many computers handling the process hadn’t had a software upgrade. Ethereum developers have a track record of seamless software changes, but there is still a risk that some nodes holding staked Ether may have lost the keys that enable access to the coins, leaving users shut out.
Since the Merge, Ether has drawn scrutiny from regulators, including the US Securities and Exchange Commission, which has indicated that certain services offering yields from staking cryptocurrencies amount to illegal securities offerings. The Shanghai upgrade, by allowing staked Ether to be unlocked, could result in stepped-up scrutiny.
Overall, the Shanghai upgrade is a significant event for the Ethereum network and its users. It remains to be seen how many users will want to withdraw their Ether once it is unlocked, but the opportunity to do so is likely to make staking more appealing in the long run. Technical glitches and regulatory concerns could pose challenges for the upgrade, but Ethereum developers are well-equipped to handle them.