Ethereum Network Activity Declines Following Shanghai Upgrade, JPMorgan Analysts Say
According to analysts at JPMorgan, the Ethereum blockchain network has experienced a significant decrease in network activity and other on-chain metrics since the Shanghai upgrade in April. The analysts highlighted a decline in Ethereum’s daily transactions, daily active addresses, and total value locked (TVL) in decentralized finance (DeFi) protocols on the network. Although the shift from proof-of-work to proof-of-stake resulted in a drastic reduction in energy consumption and increased staking, the increase in network activity has been disappointing.
Factors Influencing Ethereum’s Decline
The decline in Ethereum activity can be attributed to various factors that have persisted over the past year. These include incidents involving FTX and Terra, regulatory uncertainties and enforcement actions in the U.S., declining institutional interest in cryptocurrency, and reduced venture capital investment. JPMorgan analysts believe that these negative factors may have had a more significant impact than the positive effects of the Shanghai upgrade on Ethereum’s network activity. Additionally, Ethereum has shown poor price performance compared to Bitcoin recently.
Ethereum Enthusiasts Look to Sharding for Network Boost
The crypto community is hopeful that the EIP-4844 upgrade, known as protodanksharding, will lead to a significant increase in Ethereum network activity. However, JPMorgan analysts caution that persistent negative factors in the crypto industry continue to pose challenges. Protodanksharding is an initial phase towards the eventual adoption of danksharding, which introduces data-containing blobs to accommodate more data on the Ethereum blockchain.
Ethereum Community Questions JPMorgan’s Observations
Some members of the Ethereum community have raised concerns about JPMorgan’s observations. They argue that JPMorgan is only considering Layer-1 (L1) transactions and not taking into account the improvements made by Ethereum Layer-2 solutions. These Layer-2 solutions have shown significant progress and should not be overlooked.
Another issue facing Ethereum is the concentration of validators on the network. With nearly 800,000 active validators, there are concerns about network latency and sustainability. Christine Kim from Galaxy Research believes that Ethereum is approaching an unsustainable number of active validators, which is causing network latency to become a problem.
Should Ethereum Investors Be Worried?
The price of ETH has already come under pressure and is currently trading below $1,600. However, there is potential for Ethereum futures ETFs to be introduced to the market in October, which could act as a catalyst for driving the price of Ethereum higher.
Hot Take: Ethereum Faces Challenges Despite Upgrades
Ethereum’s network activity has declined following the Shanghai upgrade, disappointing analysts at JPMorgan. Negative factors such as incidents, regulatory uncertainties, and reduced interest in cryptocurrency have outweighed the positive effects of the upgrade. The crypto community remains optimistic about future upgrades like sharding, but challenges persist. The concentration of validators and network latency pose concerns for Ethereum’s sustainability. Despite these challenges, the introduction of Ethereum futures ETFs could provide a boost to its price. Overall, Ethereum continues to face obstacles on its path to growth.
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