Ether, the native coin of the Ethereum blockchain, is the most popular altcoin in the world and the biggest by market capitalization. Exchanges such as Binance record frequent changes in the Ethereum price owing to interest from traders and investors. For the blockchain, an additional layer contributes to its popularity apart from the cryptocurrencies. Since its earliest days, the platform has been a place for innovation within the field of digital assets. Ethereum has found use cases in decentralized finance and apps, as well as non-fungible tokens, a hype that saw the digital art pieces sell for millions of dollars during their heyday in the late 2010s.
One of the most noteworthy things about Ethereum is that the blockchain has gone through several transformations and was the center of several upgrades over the years. The most recent one, the Shanghai, has been delayed by about a month in order to perform more tests that could guarantee it was ready for a launch. It went live on April 12th, 2023, at 10:27 PM UTC. Here are some of the ways in which it has already started affecting the market.
Liquidity boost
One of the main reasons for the upgrade has been to improve the overall liquidity levels. Poor liquidity is particularly damaging within the cryptocurrency ecosystem since it can create significant inefficiencies within the market and cause investors to lose considerable amounts of capital through slippages and large spreads.
Higher liquidity makes the market more stable overall, something significantly important in the world of digital assets, where fluctuations levels can be particularly problematic. Both exchanges and investors require protection against these swings. More stability and predictability within the market enable investors to predict the future a little better so they know when and how they should commence their transactions.
Staking
One of the features that investors were most excited about regarding the Shanghai upgrade was the changes to the staking. Following this update, all users can withdraw their staked coins. Withdrawals weren’t possible before, with the funds locked in Ethereum’s consensus layer, the Beacon Chain.
There are two main ways investors can get their coins, either through partial or complete withdrawals. The former category releases all the issuances you’ve obtained over time, while the latter alternative includes the issuances alongside the main deposit. This change is meant to have a positive impact on liquidity and put investors in control of their finances.
While some have expressed their concerns that enabling staking withdrawals will cause increased volatility within the market and make transactions riskier, these worries have thankfully not materialized, and traders were able to commence their transfers.
Innovation
We’ve already established that the Ethereum blockchain is particularly well-known for its ability to provide the cryptocurrency ecosystem with innovative technologies and solutions. Every update that has ever occurred on the blockchain aimed to drive innovation forward and provide a space for the crypto world to come up with newer and better solutions.
The ability to perform ETH withdrawals is the most easily observable innovative measure so far, but there are certainly more to follow. The ability to improve financial performance and explore new areas of the blockchain is more likely to create solutions that can, over time, maximize the yield of all transactions while minimizing the risks.
The increased liquidity will also determine exchange platforms to become even more accessible for users and improve their customer services. As the incentives expand and develop, new features are likely to appear so the system can keep up with the demands of the novel market.
Security
Technological growth has made everything tasks and processes more efficient and accessible. However, a significant drawback is associated with the increasing use of virtual solutions, namely a higher incidence of hacker attacks and data breach events. Digital wallets are particularly sought after by hackers, who can extract immense amounts of funds without leaving any trace behind. As a result, safety has always been a primary concern among cryptocurrency investors.
PoS platforms such as Ethereum use staked assets as a means to protect the system from attacks. Considering that it is virtually impossible that a single individual can control a majority of these assets, the blockchain can withstand attacks and attempts to tamper with the data or modify it in any way. As such, the Ethereum blockchain can protect the security and integrity of the system through several means, including price appreciation and an increase in the number of staked assets.
Arbitrage
Arbitrage opportunities, which require significant capital in order to be executed, will become more common. There are two possible cases involving this type of transaction:
- Buying staking coins when the discount reaches a particular level, generally below a predetermined level. Even small values will be worth the arbitrage, as they can be redeemed over the following days or weeks to generate an annual profit margin of over 20%.
- Arbitrage between tokens is obtained when the market share increases, and volatility acts as a helpful thing by creating opportunities. This type of market will become similar to stablecoins, with the coins having different implementations.
Market changes
In 2022, the cryptocurrency market has been navigating a bear market, with values moving slowly. However, since the beginning of 2023, prices have begun climbing again. While they have remained relatively consistent, many believe that the latest upgrade could mark the beginning of a potential bull market.
While some were apprehensive about the possibility of releasing the Shanghai upgrade during a crypto winter, it is more likely that the upgrade will be beneficial in the long run. The blockchain will likely get a bullish boost as the update increases the incentives for liquidity providers.
However, those that are new to staking might be unwilling to deposit a large number of funds while the crypto market takes a bullish turn, while those with previous experience are also likely to err on the side of caution and keep their coins liquid in case there’s trouble on the market in the long-run.
All changes in the crypto would have far-reaching ramifications, and there are perhaps none that shift things as much as Ethereum blockchain upgrades.
