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Breaking News: LINK Price Climbs Following Chainlink's Deal With US Commerce Department, Eyes $30

Myth Buster: Ethereum Shanghai Hard Fork Won’t Create Major Selling Pressure

Jake Simmons
Jake Simmons
2 years ago
3 mins read
Ethereum ETH

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With the “Merge”, the Ethereum blockchain successfully mastered the biggest upgrade in its history on September 15 last year. Even before the switch to Proof of Stake (PoS), investors were able to stake ETH to receive rewards.

However, the prerequisite was that a minimum of 32 ETH had to be staked and could not be accessed until the next upgrade, meaning the ETH could be unstaked. This changes with the Shanghai hard fork, which is tentatively scheduled for March this year.

As NewsBTC reported, the upgrade is not only causing excitement, but also concern that large investors may dump their ETH on the market when they can get their hands on their tokens for the first time in over two years, in some cases.

However, the narrative of a dump is a myth as most people still don’t know how the exit queue works. Researcher Westie posted a thread via Twitter to explain the mechanism.

According to him, the withdrawal period on Ethereum works dynamically and is not static like on other PoS networks (where there is a fixed withdrawal period for stakers, which on Cosmos, for example, is set at 21 days).

This Is Why An Ethereum Dump Won’t Happen

The period depends on how many validators drop out at a given time. In addition, Ethereum validators who exit the validator set must go through two stages: the exit queue and the withdrawal period.

The initial queue is determined by the number of all validators and the quotient of the churn limit, set at 2^16 (65,536). Assuming there are 500,000 validators, the churn limit would be set at 7 according the analysis:

500,000 / 65,536 = 7.62, which rounds down to 7.

This means that as the number of ETH validators increases, the churn limit also increases. It increases by 1 in each interval of 65536 (above the minimum threshold). Once a validator has successfully passed through the exit queue, the validator must also wait for a queue time based on when the validator is slashed.

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“If the Ethereum validator was not slashed, this withdrawal period would take 256 epochs (~27 hours) If they were slashed, it would take 8,192 epochs (~36 days). This large discrepancy is meant to disincentive bad actors,” according to the analyst. Based on these parameters, Westie concludes:

If ⅓ of the entire validator set were to try and exit in one day, it would take at least 97 days to complete. To expect the same withdrawal time as most Cosmos chains, 21 days, it would take between 6.3% and 7.2% of the validator set to be in the exit queue at one time.

Nevertheless, the calculation is only an estimate. As the analyst explains, forecasting is difficult. However, there is a high chance that the queue will be very long at first, 70 days or more, because there is recycling of validators, according to the researcher.

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Ethereum Hits Monthly High And Turns Deflationary Again

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The reason for this is that large players need to change their current Ethereum participation situation, as many of the practices from two years ago are now outdated – with better staking solutions available.

“However, over time I expect it to converge to a small but sustainable amount. I don’t expect the withdrawal period to be as large as Cosmos’ over a long enough time period, but we will certainly get a better gauge once the withdrawals are live,” the researcher says.

For the Ethereum price, this means that the chance of a dump because all stakers sell their ETH at the same time is close to zero. At press time, ETH was trading at $1,568, approaching the crucial weekly resistance around $1,600.

Ethereum ETH USD
ETH price at key resistance, weekly chart | Source: ETHUSD on TradingView.com

Featured image from Milad Fakurian / Unsplash, Chart from TradingView.com

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Jake Simmons
Jake Simmons

Jake Simmons

Jake Simmons, a dedicated crypto journalist, has been passionate about Bitcoin since 2016 when he first learned about it. Through his extensive work with NewsBTC.com and Bitcoinist.com, Jake has become a trusted voice in the crypto community, guiding newcomers and seasoned enthusiasts alike towards a deeper understanding of this dynamic field.

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His mission is simple yet profound: to demystify Bitcoin and cryptocurrencies and make them accessible to everyone.
With a professional career in the Bitcoin and crypto scene that began right after graduating with a degree in Information Systems in 2017, Jake has immersed himself in the industry. Jake joined the NewsBTC Group in late 2022. His educational background provides him with the technical prowess and analytical skills necessary to dissect complex topics and present them in an understandable format. Whether you are a casual reader curious about Bitcoin or an investor seeking to navigate the latest market trends, Jake’s insights offer valuable perspectives that bridge the gap between complex technology and everyday usage.

Jake is not just a reporter on technological trends; he is a firm believer in the transformative potential of Bitcoin over traditional fiat currencies. To him, the current financial system is on the brink of chaos, propelled by unchecked government actions and flawed Keynesian economic policies. Drawing from the principles of the Austrian school of economics, Jake views Bitcoin not merely as a digital asset but as a crucial step towards rectifying a failing monetary system. His libertarian views reinforce his stance that just as the church was separated from the state, so too should money be freed from governmental control.

For Jake, Bitcoin represents more than just an investment; it's a peaceful revolution. He envisions a future where Bitcoin fosters a sustainable and responsible financial framework for generations to come. His advocacy is not about opposition but about evolution, about laying the groundwork for a system that prioritizes transparency and equity over secrecy and inequality.

As a journalist, Jake’s articles are crafted with the precision of a scholar and the passion of a true believer. He provides not only news but also thoughtful analysis that connects the dots between daily developments and larger economic theories. His work is a beacon for those lost in the technical jargon often associated with crypto discussions, illuminating the practical implications and benefits of these technologies.

In summary, Jake Simmons is not just reporting on a revolution; he wants to be part of it, fully committed to enhancing public understanding and adoption of Bitcoin and cryptocurrencies. His work is more than just a collection of articles; it’s a resource, a guide, and a companion for anyone ready to explore the potential of this digital frontier. Whether you are taking your first steps into crypto or are a veteran looking to stay on top of the latest trends, Jake’s insights provide clarity and foresight in an often unpredictable industry. Join him on this journey to reshape the world of finance, one post at a time.

You can engage with his latest takes on Twitter: @realJakeSimmons.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality
Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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