Ethereum's Upcoming Upgrade Faces Potential Delays; Post-Shanghai Network Activity Down

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JPMorgan analysts expressed their concerns regarding Ethereum’s underwhelming network activity since the introduction of the Shanghai upgrade back in April. While the upgrade did notably shift the system from proof-of-work to proof-of-stake, resulting in an incredible reduction of over 99% in energy consumption, the anticipated rise in network activities fell short. Additionally, there was a surge in staking, with ether staked experiencing a 50% increase after the upgrade. However, this rise hasn’t been mirrored in terms of daily transactions, active addresses, or the total value locked (TVL) in DeFi protocols.

the increase in network activity has been rather disappointing

The slowdown in Ethereum’s activity might be attributed to several setbacks experienced over the past year, including the collapse of Terra and FTX, uncertainty in U.S. regulatory measures, waning interest in crypto among institutional investors, and a dip in venture capital funding. Despite the positive implications of the Shanghai upgrade, which allowed for the withdrawal of staked ether, these adverse factors seem to have overshadowed its benefits.

Furthermore, Layer 2 networks on Ethereum have shown inconsistent results. Optimism, for instance, has seen a spike in activities, while Arbitrum’s traction has declined. Notably, both networks witnessed a drop in TVL following the Shanghai upgrade. Analysts also spotlighted potential centralization issues with Ethereum, particularly highlighting the liquid staking protocol Lido’s significant market dominance.

Dencun: Ethereum’s Next Big Step?

Despite this less than stellar news, Ethereum enthusiasts and industry experts are now keenly anticipating the EIP-4844 upgrade, colloquially known as Dencun. This upcoming upgrade, officially named Deneb-Cancun, aims to tackle Ethereum’s scalability challenges by implementing the EIP-4844 proposal.

Tim Beiko, a representative from the Ethereum Foundation, during a recent consensus-layer meeting, voiced concerns regarding a potential delay in rolling out Dencun on the mainnet. Given that the upgrade hasn’t been launched on public testnets like Goerli, Sepolia, and Holesky, there are apprehensions about its implementation before 2024, especially if it doesn’t debut on a public testnet by the upcoming Devconnect conference in November 2023. With the upgrade still in the “devnet phase” and the year fast concluding, the developers are gearing up for a test on “Devnet 9” before moving on to the public testnet stage.

🚀 #Ethereum 's Next Upgrade: Dencun, Potential Delay to 2024? 🌐
Could this #pump $ETH in the coming months?🚀

A thread🧵
🧵1/9 pic.twitter.com/Pec7vBHp29

— Maxø1st🙇🏼‍♂️ (@Maxo1st) September 22, 2023

Dencun Unpacked

Dencun will revamp Ethereum’s twin mainnet layers: the execution layer responsible for smart contract functionalities and the consensus layer that hinges on blockchain consensus through staking. The namesake of the upgrade, Deneb-Cancun (Dencun), originates from the separate designations for each layer’s upgrade: Cancun for the execution layer and Deneb for the consensus layer.

The highlight of the Dencun upgrade is EIP-4844, also termed proto-danksharding. This is set to escalate Ethereum’s scalability, potentially surpassing the capabilities of existing Layer 2 frameworks. The proposal will empower Ethereum nodes to temporarily store and retrieve off-chain data, meeting the storage demands of blockchain applications. The expected outcome? Enhanced network efficiency and decreased transaction costs. Proto-danksharding is essentially a precursor to the eventual implementation of danksharding, a system that uses data blobs for storage, rather than subdividing the Ethereum blockchain into multiple shards. These data blobs, which are temporary data packages, can hold more data than traditional blocks.

Will Investors Still be Interested?

How will Ethereum perform in this coming bull market, given the myriad of other projects that aim to solve similar problems, often in better ways? That question will remain to be seen.

We have recently reported that CoinShares, has recently called Ethereum as the “least favored digital asset” among large-scale exchange-traded product (ETP) investors, which came as as the crypto has seen an outflow of approximately $108 million this year, a record among digital currency among big players.

According to the report CoinShares released recently, Ethereum faced an exodus of $4.8 million with North America seems to be leading the pack in the sell-off, with the U.S. and Canada shedding $12.3 million and $17.6 million respectively in the last week alone. Germany was the forerunner in Europe, recording a sell-off of $20 million.

And yet, not all is doom and gloom. As the coming upgrades materialize, they will bring some incredible benefits to the network. While other cryptos may be “cooler”, for now, Ethereum still remains the coin with the second large market capitalization, and a fairly safe asset for investors who are less risk adverse and concerned with fundamentals. It is also often the case that when the news is at its bleakest, that is when the turnaround point is around the corner. In this case, Ethereum might have a bright future.