We don’t get very many updates to our traditional financial system. Guess that’s what makes them ‘traditional’, but cryptocurrency is a recent innovation that continues to innovate. While the big name in crypto that kicked it all off is obviously Bitcoin, it’s important to look at newer cryptocurrencies and what ideas they are bringing to the blockchain.
One rather large and important innovation in the world of cryptocurrency is “Proof -of-Stake”, a significant change from Bitcoin’s “Proof-of-Work” system. Cryptocurrency critics often point to a Proof-of-Work blockchain as being wasteful, with its consensus determined through “mining”. Crypto mining is an energy intensive process. Proof-of-Stake is much more energy efficient, which may make crypto adoption more feasible around the globe.
While there are certainly pros and cons to either method, Ethereum’s founders see big advantages in the Proof-of-Stake system. At the end of 2020, Ethereum began its transition to Ethereum 2.0 (ETH2), switching from Proof-of-Work to Proof-of-Stake. This transition is an ongoing process over two years later.
The most recent update and step in this transition is being referred to as “Shapella”, a portmanteau of the code names for two official upgrades that happened simultaneously on April 12: Shanghai and Capella.
When ETH2 was first made available, users were not able to withdraw their staked funds. You could still hold and transfer ETH2, but if you chose to stake your holdings, they would be locked into until a future update. Staking is of course a vital part of a Proof-of-Stake system, which involves leveraging the crypto you own to validate transactions. Users are rewarded for staking their assets, which is a bit like earning interest on the funds. But with the switch to ETH2, staking funds were locked until this recent update, Shapella, and now users for the first time in over two years can unlock their Ethereum funds.
Ethereum isn’t done innovating, though. More updates are planned to improve the efficiency and security of the network, all part of the roadmap. But Shapella was perhaps one of the most anticipated, particularly because so many Ethereum users had their funds locked up in staking. About $34 billion worth of Ethereum had been locked up due to staking. People were certainly eager to see what the unlocking would mean for the network, with some worried it would lead to massive dumping of Ethereum on the open market.
This doesn’t seem to have played out, though. It is still early, but surely anyone waiting to exit their Ethereum position would have done so by now. In fact, the price of Ethereum has seen about a 5% jump after the update. Ethereum has been increasing slowly in price since the beginning of 2023 as well.
Importantly though this update serves as a case study in what makes cryptocurrency better than traditional systems. The ability to adapt and improve is a big selling point, and something we don’t really see with traditional money. It’s been around long enough that whatever innovations were possible have probably already been implemented, and of course centralized banks have their own motivations for sticking with what works (for them).
Decentralized finance though is free from any centralized authority and can instead focus on real improvement, along with having the technology and innate processes for implementing it. Sure, it might take a couple of years. Blockchains are big beasts, after all, but they aren’t immutable and can adjust to meet the needs of a modern society.
Whether Ethereum or other networks, the very concept of a blockchain upgrade is a huge point for cryptocurrency in general, and every time a large cryptocurrency goes through a successful update that improves upon what came before, it’s going to benefit everyone. While Ethereum is the big innovator in the cryptocurrency space right now, there are plenty others following suit and even tinkering with their own innovations. Who knows which one might unlock some great new potential with cryptocurrency!