Ethereum’s upcoming Shanghai/Capella upgrade, known as Shapella, is set to happen on April 12th, 2023. While it may not be as hyped as last year’s “Merge” upgrade or offer turbocharged speeds, it is nevertheless an important step for Ethereum’s roadmap to the future. Specifically, the upgrade will strengthen the network’s new validation mechanism and remove barriers for institutional investors. Stakers will be able to unlock their Ether (ETH) rewards, or even exit staking, for the first time since September’s Merge.
However, the upgrade is not without risks. There are concerns that it may lower the overall number of validators and put selling pressure on the network. Additionally, bugs could emerge in some of the network’s staking smart contracts that may not have been noticed previously. Despite these concerns, the upgrade should mitigate risks for investors and make Ether a more familiar and less risky asset to hold in the long term.
One of the potential benefits of the upgrade is that it could attract more institutional investors to the blockchain. Research and brokerage firm AB Bernstein has indicated that the upgrade could bring in staking from new institutional investors. Some institutional investors have been reluctant to lock up funds without a clear withdrawal option. However, other experts have suggested that institutional investors may still remain on the sidelines until comprehensive crypto reform legislation is established in the United States.
There are also longer-term risks to consider, particularly regulatory risk in the United States. With Ethereum’s move to a staking validation mechanism, some believe that the SEC may begin to scrutinize Ethereum. Additionally, there are concerns that Ethereum’s move to staking could lead to increasing network centralization. However, experts believe that as long as the ecosystem remains competitive, dangers from centralization are unlikely.
Ultimately, Ethereum’s significance lies in its potential to create a decentralized digital marketplace that is free from monopolies. Public blockchains, particularly Ethereum’s, are well-positioned to be the “big global winners” in the coming years, provided they are privacy-enabled. EY Global’s Starlight project is working towards enabling blockchain-based business agreements where business logic is shared at the network level, but privacy from potential competitors is still preserved. This project could ultimately lead to more blockchain-based inventory management systems that use privacy technology to manage individual tokens.
Overall, while the Shapella upgrade may not be the flashiest upgrade Ethereum has seen, it is an important step towards creating a more decentralized digital marketplace. The upgrade has the potential to make Ether a more familiar and less risky asset to hold in the long term, and may even attract more institutional investors to the blockchain. While there are risks involved, the benefits outweigh them in the long run.
