News JVTech Ethereum: towards a potential “crash” of the second crypto next month?
Published on 01/11/2023 at 18:20
While Ethereum is doing for the best since its last update, some fear a drop, or even a “crash” of the second largest crypto. These alarming predictions are largely fueled by the arrival of the new Shanghai update.
Update on Ethereum
To understand what this famous Shanghai update is, you have to go back 3 years ago. We are in 2020, and Ethereum is getting it into its head to want to completely change its functioning in order to differentiate itself from Bitcoin. In December of that same year, Ethereum announced the launch of The Merge update. This consists of moving the Ethereum blockchain network from proof of work to proof of stake.
As a reminder, the blockchain uses a validation system which makes it possible, in a way, to digitize trust. There are two main ones, which are: proof of work and proof of stake.
For example, to work, Bitcoin is based on proof of work since it relies on the computing power of miners’ machines to validate transaction blocks. Very energy-intensive, this system was no longer considered ideal for Ethereum, so the crypto switched to proof-of-stake.
More eco-responsible, the transition to proof of stake consisted in replacing the mechanism based on the strength of calculation by another, based on the active use of its cash. Concretely, after The Merge, Ethereum miners were able to mine cryptocurrency by no longer using graphics card RIGs, but by depositing 32 ethers.
This long-awaited update was implemented in September 2022, two years after its announcement. However, during these years, a lot has happened…
Indeed, to facilitate the development and deployment of The Merge, users were encouraged to save ethers on the Ethereum blockchain. Through this manipulation, commonly known as stacking in the industry, users received a return of 5% per year in Ethereum. However, their ethers were totally “locked” until the update was released. Thus, the owners could not remove them from the contract.
Ethereum’s Shanghai Update Coming Next Month
Today, Ethereum has moved to proof of work, but ethers are still “locked in”. Don’t worry, we have to wait for the Shanghai update which will take place next month according to the Ethereum teams.
This new update scheduled for March will therefore allow some 496,000 drives to withdraw the 15.9 million ethers stored since 2020 for some. For this reason, some experts are worried for the next few months.
Indeed, many fear to see a drop in the price of Ethereum after this massive release of ethers. The track is widely audible when we know that the “savers” deposited their ethers in December 2020, when the crypto was worth around €500. Today, an ether is worth more than €1,200. Thus, a certain part of them could be tempted to sell their ethers, which would create a supply shock – and, inexorably, a drop in the price of Ethereum.
However, it is important to remember that this does not apply to all validators. A majority surely deposited the ethers when the price of the crypto oscillated between 1000€ and 4000€. For this reason, no one can actually predict the reaction of Ethereum price after the upcoming Shanghai update.