JVTech News Ethereum: Towards a Possible Second Crypto ‘Crash’ Next Month?
While Ethereum is doing its best since its last update, some fear a decline, or even a “crash” of the second largest crypto. These alarming predictions are mainly 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. It’s 2020 and Ethereum is taking it into its head to want to completely change how it works in order to differentiate itself from Bitcoin. In December of the same year, Ethereum announced the launch of the Merge update. This consists of shifting the Ethereum blockchain network from proof-of-work to proof-of-stake.
As a reminder, blockchain uses an authentication 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 as it relies on the computing power of mining machines to validate blocks of transactions. With a lot of energy intensive, this system was no longer considered ideal for Ethereum, so the crypto moved to trial shares.
More eco-responsible, the transition to proof of stake consisted in replacing the mechanism based on the power of calculation by another, based on the active use of its money. Specifically, after The Merge, Ethereum miners were able to mine the 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 store ethers on the Ethereum blockchain. Through this manipulation, commonly known as stacking in the industry, users received a return of 5% per year on Ethereum. However, their ethers were completely “locked” until the update was released. Thus, the owners could not remove them from the contract.
Ethereum Shanghai update coming next month
Today, Ethereum has moved into proof of work, but ethers are still “locked”. Don’t worry, we have to wait for the Shanghai update which will be done next month according to the Ethereum teams.
Therefore, this new update planned for March will allow about 496,000 drives to withdraw the 15.9 million ethers stored since 2020 for some. For this reason, some experts are worried about the coming months.
Indeed, many fear to see a drop in the price of Ethereum after this massive release of ethers. The track is widely heard when we know that “savers” deposited their ethers in December 2020, when the crypto was worth around €500. Today, one ether is worth more than €1,200. Thus, some of them might be tempted to sell their ethers, which would create a supply shock – and, inevitably, a drop in Ethereum’s price.
However, it is important to remember that this does not apply to all validators. A majority certainly deposited ethers when the price of the crypto fluctuated between €1000 and €4000. For this reason, no one can really predict the Ethereum price reaction after the next Shanghai update.