The Ethereum network is preparing to undergo a significant upgrade known as the “Shanghai” upgrade, set to take place on April 12. This upgrade will allow users to withdraw around $37 billion worth of Ether, Ethereum’s native token, that have been locked in the protocol for staking since 2020. Users who stake Ether become “validators” of transactions on the Ethereum blockchain and receive an income in return.
The Shanghai upgrade is necessary after Ethereum moved to a less power-hungry process for ordering transactions, called proof-of-stake, in September 2022, and will reduce the risk for those involved in staking Ether. However, there are concerns about how many users will want to cash out once their Ether is unlocked, given the wild fluctuations in Ether’s value in recent years.
During a recent test of the code, transaction confirmations took longer than expected, and there is a risk that some nodes in the broader Ethereum blockchain that are holding staked Ether may have lost the keys that enable access to the coins, leaving users shut out. The process of withdrawing staked Ether could take months, and Ethereum has put limits in place to prevent too many people from withdrawing at once, leaving it vulnerable to an attack.
Regulators, including the US Securities and Exchange Commission, have scrutinized services offering yields from staking cryptocurrencies, indicating that they may be illegal securities offerings. The Shanghai upgrade could result in stepped-up scrutiny, which could further affect the value of Ether.
Despite these concerns, Ethereum’s underlying technology has endured, and the platform has become popular for developing apps used for everything from trading to gaming. Transactions on Ethereum and many other crypto platforms known as blockchains are publicly viewable and built on open-source software, allowing developers to make improvements. The Shanghai upgrade is an important step for Ethereum, and the cryptocurrency community will be watching closely to see how it develops.