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LONDON, April 13 (Reuters) - Cryptocurrency investors are facing delays to withdraw funds deposited on the Ethereum blockchain after its major software upgrade, highlighting persistent headaches for Ethereum which aims to have the technology widely used for instant payments.

The software upgrade, known as "Shapella," was set to unlock more than $30 billion worth of ether , the second-biggest cryptocurrency, which investors had deposited on the Ethereum blockchain in return for interest.

Ether rose above $2,000 for the first time since August 2022 on Thursday .

Until Wednesday's upgrade, investors could not withdraw funds they had deposited via this method, known as "staking", on the Ethereum blockchain.

As of Thursday, ether worth around $1.4 billion was stuck in a withdrawal queue, blockchain data firm Nansen said.

The delays are an example of the limits in the transactions that Ethereum can process, highlighting its potential shortcomings as it strives to become a widely-used financial infrastructure.

The Ethereum Foundation, a body that speaks for the network and describes itself as a "non-profit organisation dedicated to supporting Ethereum", did not comment.

The delays are due to limits in the amount of transactions the blockchain can process, Nansen analyst Martin Lee told Reuters via email. It can process approximately 1,800 validator withdrawals, or 57,600 ether worth of exits per day, he said - that's approximately $115 million.

The limits on validator withdrawals were in place for security reasons, Lee said.

"In an extreme scenario, if theres no limits, and a large majority of validators exit, the Ethereum network would be vulnerable to attacks and bad actors," he said.

Ethereum has grown popular for offshoots of the crypto market such as so-called decentralised finance or NFTs, but it has yet to become used in mainstream payments, finance or commerce.

The major Binance exchange said users would be able to withdraw their ether from its staking product from April 19, and that it may take "15 days to several weeks" to process these transactions.

"Due to the processing limitations on the Ethereum network, Binance will set a daily ETH redemption quota for each Binance user," Binance said on its website.

Nansen's Lee said the backlog will likely take weeks to clear, after which depending on what the average daily "unstaking" amount is, it would take just hours or a couple of days.

Reporting by Elizabeth Howcroft, editing by Tom Wilson and Emelia Sithole-Matarise

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the money driving "Web3".

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Crypto investors face delays in withdrawing funds after Ethereum ... - Reuters