Ethereum Upgrade Set To Release Billions In Value

The price of the Ether token rose about 3 percent in early trading on Tuesday ahead of a planned major upgrade of the Ethereum blockchain on Wednesday.

The so-called Shanghai-Capella or “Shapella” hard fork is designed to give investors access to more than $30 billion (£25bn) of Ether that has been “staked” or pledged on the blockchain since December 2020.

The system introduced in 2020 allowed investors to stake or deposit Ether tokens on the blockchain in exchange for interest.

About 15 percent of all Ether is staked, amounting to more than $30 billion in market value, according to Dune Analytics.

Withdrawals

The latest upgrade follows last September’s overhaul called the “Merge”, which replaced the blockchain’s formerly energy-intensive proof-of-work system for verifying transactions with a proof-of-stake system, paving the way for Shanghai.

Wednesday’s upgrade unlocks some 18 million Ether, but only partial withdrawals of 1.1 million – the coins earned as staking rewards – will be immediately available to withdraw.

The partial withdrawals will take several days to process, meaning they are unlikley to place selling strain on the market, industry analysts have said.

“If all partial withdrawals are attempted just after the Shapella fork (which seems highly improbable), it would take around four and a half days for these ETH profits to enter the market,” said IntoTheBlock head of research Lucas Outumuro in a Friday research note.

SEC scrutiny

The availability of staking withdrawals is expected to make Ether more attractive to investors in the long run.

But regulatory issues may pose a concern for Ether, with the US Securities and Exchange Commission warning in recent months that it considers staking services offered by centralised exchanges to be an illegal sale of securities.

Regulators have increasingly cracked down on cryptocurrencies this year, following a string of collapses of major crypto organisations in 2022, including that of the TerraUSD token and the exchange FTX.

The Shanghai upgrade completes the migration away from the energy-intensive proof-of-work system, posting questions for Bitcoin, which has remained with the older system.

Alex de Vries, a data scientist at De Nederlandsche Bank, has estimated that the Merge reduced Ethereum’s energy consumption by at least 99.84 percent.