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- The Ethereum Shanghai upgrade is set to take effect on April 12th and some analysts are raising concerns that the network could be jeopardized when network validators withdraw funds.
- A temporary risk, in the long term, analysts believe that unstaked ETH will “de-risk the ETH investment in a tremendous way.”
In around 24 hours, the Ethereum Shanghai upgrade will take effect. ETH holders who have staked their assets since December 2020 will be allowed to withdraw their tokens. Etherscan shows that about 18 million Ether, worth about $36 billion, is being staked on the network. Researcher Coin Metrics predicts that Ether worth $2.2 billion, about 15 percent of the total amount in circulation, will be withdrawn over the next five days. Their release could cause temporary turbulence in the ETH price.
1/ Shanghai upgrade in itself marks the completion of Ethereum’s full transition to proof-of-stake,
It will allow network validators to withdraw funds that have been locked since December 2020.
— Paulo (@TycoonPal) April 10, 2023
Viewed as the most commercially important network, the entire crypto community will be watching the event. The sheer amount is of concern to some analysts suggesting that validators could withdraw and sell or switch staking services. But it is important to note that withdrawals will be limited to some extent to ensure the Ethereum network security is not compromised. Staking has become a crucial component of the Ethereum network since it switched from Proof-of-Work to Proof-of-Stake. In a PoS chain, the more tokens are staked, the higher the cost to attack and vice versa.
Other worrying issues have been raised such as node operators losing their unique keys leading to insolvency and investors losing their investments. Ben Edgington, Teku product lead at ConsenSys notes;
A possible threat exists if a third party were to gain an operator’s withdrawal keys,
Any large operator should be taking the security of their keys very seriously, so I would be very surprised if there were any widespread leaks.
So far no large operator has revealed any issue but this can only come up or be confirmed after withdrawals are enabled. The event is also drawing regulatory attention with the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) unable to agree on whether the digital asset is a security or commodity.
In 2023, the SEC has been going after U.S-based crypto exchanges offering crypto staking services explaining that “staking-as-a-service” products are unregulated securities offerings. But the SEC has maintained that only centralization staking services but not individual staking and decentralized staking services need to be shut down. But while this might hurt the market in the short term, in the long run, it encourages decentralization fulfilling cryptos’ original mission.
Ethereum (ETH) price prediction
At the time of press, ETH is edging closer to $2,000 and trading for $1,930. This marks a 3 percent rise in the last 24 hours and a 5 percent rise in 7 days. It is evident that investors are cautious about the upgrade and taking a wait-and-see approach.
Ether Capital Corp. CEO, a company specializing in staking states “My suspicion is that this is going to be a nonevent in terms of price.”
In the long term, Ethereum is nearly guaranteed to continue rising but over the next couple of days, it’s on a knife’s edge based on the success of the upgrade and the events that follow. If all goes as planned, ETH holders are eyeing the $4,000 high and possibly breaking the $4,800 ATH reached on Nov 16, 2021.
