Ethereum: Shanghai hard fork scheduled for March - Good news or bearish risk?

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AiVIF.com - With a gain of more than 4% since yesterday, Ethereum is the best-performing cryptocurrency in the top 10 at the time of writing, with an ETH price of around $1280.

Like many cryptocurrencies, including Bitcoin, Ethereum began to climb in mid-day trading, and saw its upward movement accelerate sharply in the early evening. ETH/USD went from $1255 to $1289 (+2.7%) in less than 30 minutes, between 13:25 and 13:55 ET (18:25 and 18:55 GMT).

Now, while the reasons for this generalized cryptocurrency rise remain unclear, the news about Ethereum unveiled last night could sustain interest in the second-largest cryptocurrency over the next few months.

Shanghai, Ethereum's next hard fork, scheduled for March 2023

According to a discussion at the 151st Ethereum Core Developers meeting on Dec. 8, the next Ethereum blockchain 'hark fork', known by the codename 'Shanghai', could come as early as March 2023.

This is the next step in ETH's roadmap as it transitions from an energy-intensive 'proof-of-work' (PoW) system to a proof-of-stake (PoS) system. Earlier this year, the 'Merge' update effectively formalized ETH's move from PoW to PoS operation.

Merge thus replaced 'Ethereum mining' with 'Ethereum staking'. Without going into the technical details, we note that staking allows anyone holding ETH to 'lock' them on the network to become 'validators' and receive rewards in the form of ETH tokens for doing so.

What will the Shanghai update bring to the ETH network?

However, while Merge has effectively replaced mining with staking in the operation of Ethereum, 'staked' ETH (stETH) are currently locked onto Ethereum's Beacon chain, and it is this very point that is most affected by the Shanghai upgrade.

After the Shanghai upgrade, stETH users will be able to withdraw their funds as well as applicable staking rewards to validate transactions on the network. The Ethereum Foundation said it structured the upgrades in this way to "simplify and maximize the focus on a successful transition to proof-of-stake."

Knowing that the Shanghai upgrade will "free up" staked ETH, this assumes the risk that validators will sell their staked ETH en masse as soon as the Shanghai upgrade has been implemented, with the result being a sudden spike in supply that would cause prices to fall.

However, the ETH protocol has set a limit on disbursements of 43,200 stashed ETH per day, out of a total of more than 10 million, which should avoid any impact on the cryptocurrency's price.