Layer 2 Blockchain Could Benefit Most From Shanghai Upgrade: Analyst

  • Ethereum and the Layer 2 cryptos would likely grow together, only that the Layer 2 coins would move faster.
  • Smaller market capitalization would support higher volatility among Layer 2 blockchains.

Layer 2 blockchain protocols could become the biggest beneficiaries of the recent Shanghai upgrade on the Ethereum blockchain, according to crypto analyst Aaron Arnold. He observed this during an interactive session with other crypto analysts on the YouTube channel Around The Blockchain.

According to Arnold, Layer 2 blockchains have the potential to outperform Ethereum in the aftermath of the Shanghai upgrade. His primary reason for this prediction is that most of the Layer 2 protocols have smaller market capitalization, therefore, are prone to more volatility. He observed that Ethereum and the Layer 2 cryptos would likely grow together, only that the Layer 2 coins would move faster.

In suggesting a bullish outcome for Ethereum and other altcoins, Arnold noted that the Shanghai upgrade represents an “added feather to the cap” for Ethereum. In his opinion, the crypto community will perceive the upgrade as a step forward for the Ethereum blockchain and the Ethereum foundation.

This perception would further solidify the impression that Ethereum is here to stay, improving the confidence level of the community towards the blockchain. Arnold also expects it to pass as a motivation for Layer 2 protocols built on the Ethereum blockchain, as improved confidence will encourage the adoption of their products.

Ethereum’s Shanghai upgrade sets the stage for more implementations on the network, according to Arnold. He believes the focus will be on the Layer 2 protocols, representing the likely beneficiaries of the recent upgrade.

Ethereum’s Shanghai upgrade went live on Wednesday, April 12, 2023, at 6:27 pm EST. The process finalized Ethereum’s transition to a Proof-of-Stake (PoS) consensus mechanism and unlocked over $34 billion of staked ETH.

With the implementation of the Shanghai upgrade, ETH users who have previously locked their tokens in the staking process can now withdraw them. The withdrawal process is, however, expected to take a couple of days due to demand and limited block space.

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