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Ethereum’s Shanghai Upgrade Activity Slammed by Wall Street Ban

Published September 22, 2023 1:48 PM
Teuta Franjkovic
Published September 22, 2023 1:48 PM

Key Takeaways

  • For JPMorgan analysts, Ethereum’s behavior following the Shanghai upgrade has been “disappointing.”
  • A future update may incorporate EIP-4844, according to Ethereum developers.
  • EIP-4844 seeks to increase Ethereum’s scalability beyond what is possible with Layer 2 solutions.

According to a study analysis  released on Thursday, September 21, 2023, by JPMorgan (JPM), Ethereum’s Shanghai upgrade, which was introduced in April, does not seem to have increased activity on the biggest smart contract blockchain in the world as many had hoped.

Concerns Over Ethereum’s Network Activity 

Lead analysts Nikolaos Panigirtzoglou explained  that while the energy consumption for the Ethereum network decreased by more than 99% as a result of the Merge upgrade’s switch from proof-of-work (PoW) to proof-of-stake (PoS), the Ether supply is decreasing, and staking increased significantly, the increase in network activity has been disappointing.

According to JPM, following the Shanghai upgrade, daily Ethereum transactions have dropped by 12%, daily active addresses have decreased by over 20%, and the total value locked (TVL) in decentralized finance (DeFi) on the blockchain has fallen by approximately 8%.

The decline in network activity suggests that various “bearish forces” from the previous year, such as the Terra and FTX setbacks, the regulatory crackdown in the United States, and a contracting stablecoin market, may have offset the benefits of the Shanghai upgrade, the bank added.

Despite a 50% increase in staking since the Shanghai update, which bolsters network security, the “prevalence of liquid staking protocols like Lido remains uncomfortably high, raising concerns about centralization,” the bank noted.

Change in ETH metrics
Credit: J.P. Morgan

The Merge, which involved switching from a more energy-intensive PoW to the PoS consensus process, happened in September 2022.

The Shanghai upgrade, implemented in April of this year, enabled the withdrawal of staked ether (stETH). DeFi encompasses a wide range of blockchain-based financial activities, including lending, trading, and other transactions. The total value of digital assets deposited in a DeFi protocol is referred to as TVL.

EIP-4844 Upgrade For Ethereum

The article suggested that the impending EIP-4844 upgrade, also known as Protodanksharding , holds the potential for a significant uptick in Ethereum network activity. However, it cautioned that “continuing bearish crypto forces remain a headwind.”

With the EIP-4844 upgrade or protodanksharding, the cryptocurrency sector is now anticipating for a significant rise in Ethereum network activity. According to the experts, “continued bearish crypto forces remain a headwind,” nonetheless.

In order to fully execute danksharding, which differs from the initially anticipated sharding method, protodanksharding is a necessary first step. Danksharding introduces data-containing blobs—temporary data packets linked to blocks that can hold more data than the blocks themselves—instead of slicing the Ethereum blockchain into numerous shard chains.

Layer 2 networks like Arbitrum and Optimism, which bundle transactions before sending them to the main chain, could gain from this. While the data blobs won’t alter Ethereum block sizes, they’ll provide extra temporary data space for Layer 2 rollups, potentially enhancing network speed and reducing transaction costs.

Currently planned for the fourth quarter of this year, protodanksharding might now happen in the first quarter of 2024.

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