Ethereum’s Shanghai Upgrade, also referred to as the Shapella Upgrade, occurred in April 2023, implementing EIP-4895 to allow validators to withdraw the ETH staked as long as December 2020 from the Beacon Chain. The Shanghai Upgrade was the biggest upgrade since the Merge, the final step in Ethereum’s move to a proof-of-stake consensus mechanism, which ensures users can’t mint coins they didn’t earn. Although many hoped that the Shanghai Upgrade would lead to increased activity on the low-carbon blockchain, it didn’t live up to expectations.
To stake Ethereum, it’s first necessary to deposit or buy ETH. Newly staked tokens undergo a bonding period of up to several weeks before earning rewards. If you’re curious to know how to buy ETH, you can get it from exchanges, which let you purchase crypto using traditional currencies. The exchange will have custody over any Ethereum you buy until you send it to a wallet of your liking. Since the Shanghai upgrade was completed, you can now un-stake ETH but can’t trade your staked ETH for un-staked ETH. The rewards for staked ETH come in the form of liquidity tokens, which can be switched on exchanges or held in your wallet until they gain interest.
Daily Transactions on The Ethereum Network Have Experienced a Drop Post-Shanghai Upgrade
The transaction volume is a measure of the economic throughput of ETH on the blockchain. You can observe the cryptocurrency market in real-time and speculate about the motives behind transactions based on public information. The Ethereum transactions per day highlight the daily number of transactions completed on the network, reflecting increased or decreased optimism in ETH, leading to greater or lesser occurrences as the audience for Ethereum increases or decreases. JP Morgan’s analysis revealed that daily transactions on the Ethereum blockchain decreased after the Shanghai Upgrade, even if the amount of ETH staked increased by roughly 50%.
According to the experts in financial markets at JP Morgan, the number of Ethereum transactions per day has fallen to 12%, but it’s an incomplete picture. There are other variables to take into account, such as active addresses and the Total Value Locked (TVL) in DeFi, when appraising value. Together, they provide the economic throughput of the system, a measure of ETH’s financial health. The joining of the original execution layer of Ethereum with the new proof-of-stake consensus layer drastically reduced energy consumption but disappointed in other respects. To be more precise, the increase in network activity has been rather disappointing.
Various Factors Could Be Dampening Ethereum’s Performance
The analysts at JP Morgan, led by Nikolaos Panigirtzoglou, believe the decline in activity can be attributed to several forces that have persisted over the years, such as the collapse of FTX and TerraUSD, lawsuits from regulators, and the shrinking stablecoin market. As we can all remember, the cryptocurrency market lost billions following the sudden fall of the FTX in November 2022, as numerous investors withdrew their funds. Ethereum (and Bitcoin) reached a two-year low at the time and dragged down other cryptocurrencies. TerraUSD lost its peg in May 2022 due to deposits in the Anchor protocol, which continues to be a source of criticism.
It’s no secret that cryptocurrency companies don’t feel at home in America. As a matter of fact, in the midst of a regulatory crackdown, many executives seek to export business processes to other countries to ensure growth, at least for the time being. Regulatory changes impact the growth of Ethereum by creating market volatility, and investors pay a great deal of attention to such events. Regulators and central banks are intensifying their efforts to shape regulations for cryptocurrencies such as ETH, but inquiry into regulatory policy remains nascent. The magnitude of the reaction isn’t negligible.
Stablecoin use is declining as investors are struggling to work out the confusing macro environment, mirroring not only low trading volumes on centralized exchanges but also reduced activity in the DeFi space. The market dominance of stablecoins has dropped to 11.6%, and the reasons for the exodus aren’t entirely clear. Decreased stablecoin supply negatively impacted network activity on Ethereum and DeFi protocols, contributing to the drop in daily transactions on the blockchain. A further decrease in demand for stablecoins coins affects the liquidity and efficiency of the cryptocurrency market because they serve as a medium of exchange and a store of value.
Despite These Challenges, There’s Hope for Ethereum
All hope isn’t lost. Notwithstanding the aforementioned challenges, there’s a chance that network activity on Ethereum will increase after the upcoming upgrade, which is scheduled for implementation in the fourth quarter of this year. EIP-4844, as it’s called, is a highly anticipated development that aims to address the blockchain’s high gas fees by introducing blob-carrying transactions and facilitating the transition to sharding. Proto-danksharding will decrease transaction costs and increase transaction throughput, significantly improving ETH’s scalability. The blobs are optimized for uploading large amounts of data efficiently; it’s the data the Ethereum Virtual Machine can’t process but can access.
The Cancun Upgrade seeks to improve the Ethereum blockchain’s maximum number of transactions per second without forfeiting security and ease of development for Layer 2 dApps. Besides introducing blob-carrying transactions, the Cancun Upgrade will implement execution layer logic, verification rules, and multidimensional fee markets that are helpful when it comes to full danksharding. Simply put, it’s not just another software update but an important milestone for Ethereum. The upgrade brings uncertainties to the cryptocurrency market and it’s worth keeping in mind that past performance isn’t a predictor of future performance. The value of ETH can increase or decrease.
Wrapping Up
All in all, Ethereum’s Shanghai Upgrade has failed to boost network activity, for which reason the experts at JP Morgan label it “disappointing.” Still, ETH has matured into a robust ecosystem, so it can operate in the absence of the involvement of the Ethereum Foundation, strengthening its resilience by eliminating vulnerability. EIP-4844 will introduce a new kind of transaction to Ethereum, enabling rollups to grow in capacity. The blobs are small enough to keep disk space manageable. There’s optimism regarding the positive impact of the Cancun Upgrade.
