Ethereum Update: Network Activity Highlights, 2023 Scaling Plans, ETH Price Action and More

The mid-September transition to Proof-of-Stake (PoS) consensus was one of Ethereum's most significant achievements in 2022, considering the brutal year it was. That said, a new year has started and goals have been updated to advance the network further. Staked Ether withdrawals and proto-danksharding developments have, in particular, been identified as ecosystem headlines in H1 2023. Ethereum co-founder Vitalik Buterin, in recent Twitter interactions, spelled out his expectations for the blockchain this year. Buterin previously opined in Dec 2021 that Ethereum's end game involves the network serving as the base layer for an EVM-compatible zk-roll up. The latter technology is another area expected to see advancement.

Here are the details and more research updates from core devs and the Ethereum Foundation.

Shanghai/Capella upgrade

The first quarter of 2023 is lined up to deliver implementations of various bits of the Shanghai upgrade, which has a tentative release date of March. The last 2022 AllCoreDevs update published on Dec 13 confirmed that the final contents of the Shanghai/Capella upgrade had been compiled. The purview of the ‘Shapella' upgrade, whose eventual name is not yet confirmed, encompasses three areas – fixes to bring minor improvement, EVM Object Format (EOF) implementation and the main course, withdrawals. Top on the priority list is EIP 4895, which will unlock Beacon Chain staked ether (ETH) withdrawals from the staking contract. Regarding EOF implementations that seek to upgrade the Ethereum Virtual Machine, the featured EIPs include  EIP 4570, EIP 3540, EIP 5450, and EIP 4200.

Taking off the training wheels

EIP-4844 an extension of the Capella upgrade is also lined up for implementation in the fall of 2023 (May/June) as part of scalability initiatives, specifically through sharding. Keen on scaling solutions that promise to unlock Ethereum's power beyond its weaknesses, Buterin told former Coinbase Chief Technology Officer Balaji Srinivasan that he expects to see the blockchain achieve basic roll-up scaling this year. He added that this would mean rolling out EIP-4844 and having roll-ups start taking off the training wheels up to stage 1 as part of the network's ‘The Surge' phase.

This stage is one of the three proposed to determine the maturity level of a project. As of currently, though seeing growing popularity, layer two (L2) solutions still have significant evolution to come. A post by the Ethereum Magicians forum explained that roll-ups, be it zero-knowledge or optimistic, typically use training wheels that allow them to launch early before they are ready to fly. These projects embrace this approach rather than solely relying on fraud proofs or zero-knowledge proofs to ensure the correct execution of transactions and protect against potential attacks. A multi-signature scheme is implemented as a fail-safe; can override and enforce a specific outcome in the event that bugs or errors are detected in the code.

Network scaling remains a priority

As per the proposed schema, Ethereum will have to go through Stage 0, with full training wheels, which requires that all transactions are recorded on the blockchain and users can withdraw their assets conveniently. Then Stage 1, having limited training wheels, must implement a transaction verification method, such as a fraud proof or validity proof scheme, overseen by a security council, to determine the roll-up smart contract's transactions acceptance criteria. Buterin previously quantified what he envisions as a ‘good future' for crypto, pointing out the issues that need solving to get there. In brief, the Ethereum co-creator noted that scalability challenges must be addressed, the user experience enhanced, and privacy improved.

He added that achieving value through payments, store of value, and decentralized finance, success in identity and Sign-in With Ethereum, and the propulsion of DAOs to greater adoption would all characterize this promising future Deliberations around the scope of Cancun, the next upgrade after Shanghai, are anticipated to start later this year as well. Worth mentioning, a consensus was reached in the previous All Core Developers call to delay EOF-related proposals until fall should they become too complex to realize.

Ethereum sinks back into its wonted correlation with Bitcoin

In the market, Ether (ETH) spot price has continued trailing Bitcoin into the new year, extending a multi-month established period of high correlation with the lead coin. The Ethereum native token sealed the year, drifting around its highest correlation level in Q4 2022 despite completing a narrative-changing milestone in the Merge. The Bitcoin 30-day correlation chart with Ethereum and traditional markets (S&P 500 and Nasdaq) featured in Arcane Research's year-end report highlights this correspondence.

ETH/BTC chart. Source:TradingView

The notable period when this correlation figure declined coincides with the Merge conclusion following Ethereum's successful execution of the crowning transition to a Proof-of-Stake (PoS) consensus system. The shift from Proof-of-Work (PoW) defined a brief period of least correlation, but the prior trend resumed not long after. While Bitcoin is projected to move in a less trailing fashion with equities sometime this year, Ether price's re-established sync with Bitcoin is expected to persist. On the chart, this means the correlation figure remains around its current range, > 0.9, amid anticipated declining crypto trading volumes. Glassnode alerts account earlier observed that the number of exchange deposits (7d MA) is currently at a 1-month low of 793.661

ETH exchange deposits. Source: Glassnode Alerts

Meanwhile, the monthly gas consumption for Ethereum by L2 systems surpassed $100 billion for a second consecutive round in December while simultaneously setting a peak figure for 2022.

Source: Dune Analytics

Dune Analytics data shows that gas consumption (validation txs + bridges) reached $117.365 billion last month.

ETH price sub-$1,000 shouts

Ether has changed hands at nearly the same levels in the last 24 hours as traders try to hold onto the precious momentum that the broader market has enjoyed this week. This is especially key to defending the $1,180 level in the face of a looming demand for shorts occasioned by futures trading below fair value. The latter doesn't necessarily imply a retracement in the near term, though. On the three-month ETH/USD 1-D chart, an ascending trend extrapolating to $1,330 in the advanced stages of this quarter appears to be forming. This long projection is, however, only tenable if Ethereum can sustain the current momentum and avoid a slip below the earmarked immediate support zone.

ETH/USD price chart. Source:TradingView

Ether's options market data at the end of December showed that investors have preserved their risk-averse and options traders are uneasy with downside risks. Fulfillment of the buyers' current appetite in the market could potentially set off a price drop. Some analysts have forecasted the price of Ethereum to finally trace back to below the $1,000 mark in the coming months due to squeezed market liquidity and interest rate policies from the US Federal Reserve. Interestingly, investors appear to be mentally prepared for prices falling below the crucial $1,000 in the short term as there is little belief among market makers to hang onto the current support.

To learn more, check out our Investing in Ethereum guide.