of ethereal Shanghai/Capella The update, also known by the acronym Shapella, may not be the technical marvel of last year’s “Merge” or introduce turbocharged speeds to the grid.
Volumes of more than 100,000 transactions per second will have to wait for future “darksharding” updates, according to the Ethereum Foundation.
But the hard fork is still an important step on Ethereum road map going forward, i.e. further reinforcing the new network validation mechanism while (potentially) removing barriers for institutional investors.
Currently scheduled for 10:27pm UTC on April 12, the update will allow punters to unlock their Ether (ETH) rewards, or even stop gambling altogether, for the first time since the September merger.
It’s happening
Shapella is scheduled on mainnet for epoch 194048, scheduled for 22:27:35 UTC on April 12, 2023
The client versions supported by the update are listed in the announcement below https://t.co/I0hSv9lnjz
— timbeiko.eth ☀️ (@TimBeiko) March 28, 2023
The hype leading up to the fork hasn’t matched the hype surrounding last fall’s change of consensus mechanisms from proof-of-work to proof-of-stake (PoS). “This time, we will not have a war room,” Freddy Zwanzger, Ethereum ecosystem leader at Blockdaemon, told Cointelegraph. Still, “there are always risks” when one reshuffles the deck in this way.
Ethereum takers and validators will soon be able to withdraw $32 billion worth of Ether from the Beacon Chain, which represents roughly 15% of the circulating supply of ETH, according to Coinbase’s April 5 newsletter. Some are concerned that the update, also known as the Shanghai hard fork, could reduce the total number of validators and put up for sale. pressure online, among other concerns.
“Every hard fork carries some upgrade risk,” Paul Brody, global blockchain lead at EY, told Cointelegraph, especially in cases like this where you are enabling withdrawals. On the technical side, there could be latent “zero-day” bugs in some of the network’s staking smart contracts, for example, that may not surface until the retirement date, though Brody doesn’t think that’s likely.
The upgrade should mitigate risks for investors. “Lower volatility plus yield makes it a more familiar and less risky asset to hold for the long term,” Rich Rosenblum, co-founder and chairman of GSR, a crypto market building firm, told Cointelegraph.
More institutional investors?
Will Shapella really attract more institutional investors to the blockchain, as some believe? Brokerage and research firm AB Bernstein stated in a late-February research report that the upgrade could attract participation from new institutional investors, and Blockdaemon’s Zwanzger, whose firm has many institutional clients, sees increased interest in investment opportunities. participation of Ethereum by large professional investors. Some institutional investors have been reluctant to lock up funds without a clear withdrawal option.
“There will probably be a queue for the first two weeks,” Zwanzger said. “Therefore, it is better for them to wait until it goes down to normal levels.”
According to Rosenblum, “once the PoS network is fully operational, more institutions will feel comfortable holding ETH, especially once staking performance becomes more accessible.”
EY’s Brody, on the other hand, doesn’t see much of a change. “Many of the large institutional investors that we know and work with are basically sitting on the sidelines. They want to comply, but they want to feel more comfortable knowing what the rules are.” Comprehensive crypto reform legislation in the United States would probably be more likely to get them off the sidelines.
Longer-term risks
So what about regulatory risk, particularly in the United States? For years, Bitcoin (BTC) and Ether were thought to be impervious to Securities and Exchange Commission (SEC) scrutiny, with many US regulators tacitly agreeing that native currencies for decentralized systems like these were more like commodities. commodities than as securities, placing them under the Commodity Jurisdiction of the Futures Trading Commission. But with Ethereum shifting to a bet validation mechanism, some think the SEC may now target Ethereum.
Still, “I wouldn’t consider it a significant risk to the network,” even if that happens, Zwanzger said. The Ethereum protocol is global, and it is likely that not all jurisdictions share the SEC’s view of what should be regulated. Of course, other countries might eventually choose to follow the US, so you never know.
Others worry that Ethereum’s shift to staking could herald increasing network centralization. In March, Cointelegraph reported that “the concentration of ETH staked through third parties raises concerns about decentralization on Lido and Coinbase in particular.”
Recent: Crypto audits and bug bounties are broken – here’s how to fix them
“The battle to keep Ethereum sufficiently and properly decentralized is probably one of the most important in terms of governance and organization,” Brody told Cointelegraph. If a single staking partner had 33% of the ecosystem, that “could potentially, and I do mean potentially, have an impact on the finality of the transaction, although it would be cut for doing so.” If a single or cooperating group of entities controlled two-thirds of the engagement infrastructure, “it would have the potential to change the governance of the chain,” which would be “very suboptimal,” she said.
But these dangers remain largely theoretical given how things have evolved since the Fusion. “A relatively vibrant staking ecosystem” has emerged, Brody said, with “some highly centralized custodial players” but also “some semi-centralized custodial players” such as Lido, which is a liquid staking pool leader that invests with funds. of tens of thousands. of individual crypto wallets. There are also prominent staking groups that are “trying to be more fully decentralized,” like Rocket Pool, he added.
“As long as this remains a very competitive ecosystem,” the dangers of centralization are unlikely, Brody continued. Also, as more business users join the network and become de facto stakeholders, including “Fortune 1000” companies, the system “becomes quite decentralized.”
Zwangzer said that centralization was more of a threat in the days before the merger, when a few proof-of-work pools dominated ETH mining. In any case, he added:
“I don’t think this will become a problem as long as we can keep the centralized (cryptocurrency) exchanges at bay.”
“The golden age of digital monopolies”
One might wonder why decentralized digital networks are even important for commerce and society. Cointelegraph posed this question to EY’s Brody, who believes that public blockchains, especially Ethereum, “will be the big global winners,” with the caveat that public blockchains will first need to be “privacy-enabled.” .
Blockchain-based decentralized networks simply offer the world’s best hope for developing monopoly-resistant global digital markets, he said. “We live in the golden age of digital monopolies” like Amazon, Google and Facebook, mainly because that is simply the nature of networks. According to Metcalfe’s Law, as a network grows, its value increases exponentially. The first to market has a good chance to dominate.
But monopolies have a social and economic cost. New York University finance professor Thomas Philippon has My dear that monopolies cost the average American family $300 per month, and the inefficiencies that come with it “deprive American workers of about $1.25 trillion of earned income.” According to Brody, “if we want to fully digitize the economy and we want to do it without digital monopolies, we should do it in decentralized public systems.”
In recent years, EY Global has been devoting significant resources to “industrializing blockchain privacy technology” through its Starlight project, a zero-knowledge proof compiler that It allows Secure and private business logic on the public Ethereum blockchain. The project is still in beta, but developers can now experiment with building privacy-enabled features for robust smart contracts. The goal is to enable blockchain-based business deals where business logic is shared at the network level, but privacy from potential competitors is still preserved.
This last point is critical. After all, in the business world, no company wants another company to know its trade secrets. A pharmaceutical manufacturer, for example, may want to trace its drug packages throughout its supply chain, starting with the drug’s raw materials, all the way to distributors and hospitals.
Each packet can be attached to a non-fungible token registered on a public blockchain. The pharmaceutical company may also want to attach some business agreements. For example, a distributor that sells one million units of the manufacturer’s drug could generate an automatic refund payment to the distributor through a smart contract. But the pharmaceutical company doesn’t want everyone to know about this reimbursement agreement.
“We are starting to build a blockchain-based inventory management system that will use privacy technology to manage those individual tokens,” Brody said. It’s starting on a private chain, but “they’re building it with privacy technology because they want to move to the public chain so anyone can join them using these standards.” brody added:
“So, essentially, you’ll be able to take an entire trading contract and supply chain operations and run it under privacy on public Ethereum at a profitable level.”
Tasks like product tracking and linking trade agreements to digital ledgers may seem mundane, but their financial impact could be enormous. “2 to 5 percent of all the money in the world in corporations is spent managing things, keeping track of them, moving things around,” Brody said. “By using smart contracts and tokenized assets, we could dramatically reduce that.”
Feature: The State of the Bitcoin Lightning Network in 2023
This all brings us back to Shapella and why such updates are important. A smooth launch would be further proof that Ethereum is still on track to achieve the three key goals set out at the Ethereum Foundation. road map: scalability, security and sustainability. Or as Blockdaemon’s Zwanzger told Cointelegraph:
“It will also bolster trust in the network and protocol design so that a developer launching a project can be sure that, for example, gas rates and scalability won’t be a big problem in the next year or two. ”.
