What is the Ethereum Shanghai Upgrade, and How Will it Affect You?

February 10, 2023

Bitcoin

What is the Ethereum Shanghai Upgrade, and How Will it Affect You?

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The upcoming Ethereum upgrade, dubbed the Shanghai Hard Fork, is set to take place in March 2023, unleashing a slew of exciting new changes to the Ethereum network. One of the most significant updates is the implementation of EIP-4895, which empowers validators to reclaim their ETH, which has been staked since December 2020. With over 14% of the entire ETH supply currently being staked, this amounts to a whopping 16 million tokens worth over $26 billion.

In addition to the staking changes, the Shanghai fork also brings in several other EIPs, designed to streamline gas costs for Ethereum developers. However, one notable omission is EIP-4844, which aimed to shard the Ethereum blockchain into multiple chains for improved scalability.

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What is EIP 415?

EIP-4895 is the key player in the Shanghai upgrade, granting validators the ability to withdraw their staked ETH. This is a crucial step in the evolution of Ethereum’s consensus mechanism, which recently shifted from proof-of-work to proof-of-stake with the Merge. The new consensus mechanism requires validators to stake 32 ETH in the chain, increasing their chances of receiving block rewards.

Since December 2020, validators have been staking ETH in support of the Ethereum network, with 16 million ETH currently being staked. The Merge imposed a lock-up on these staked tokens and any rewards earned until a later chain update. The Beacon Chain, which operates on a proof-of-stake mechanism, was released in December 2020 and marked the start of the staking journey for Ethereum.

What Is the Ethereum Shanghai Upgrade?

The Ethereum Merge, a defining moment in Ethereum’s history, was successfully executed on September 15, 2022, leaving the cryptocurrency community buzzing with excitement about what was next for the blockchain. The original post-Merge upgrade schedule, dubbed the Surge, Verge, Purge, and Splurge, has been revised by Ethereum’s core developers, who have opted for a detour in the form of the Ethereum Shanghai upgrade.

The Shanghai upgrade promises to be a game-changer for Ethereum, incorporating multiple Ethereum Improvement Proposals (EIPs) aimed at streamlining the network and minimizing delays before the launch of EIP-4844. The centerpiece of the upgrade is EIP-4895, also known as the Beacon Chain Push Withdrawals as Operations. This proposal gives validators the power to withdraw their staked ETH locked up in the Beacon Chain since December 2020. This move is expected to grant long-term ETH stakers and HODLers much-needed liquidity, allowing them to access their ETH with minimal gas fees after more than two years of staking.

Along with EIP-4895, the Shanghai upgrade also includes several other EIPs poised to transform Ethereum for the better. These include

EIP-3860: Limit and Meter Initcode – which limits the maximum size of Unicode and solves out-of-gas exceptions on Ethereum.
EIP-3855: PUSH0 Instruction – a new instruction for the EVM that shrinks the size of smart contracts and optimizes contract code.
EIP-3651: Warm COINBASE – making block building cheaper and reducing gas fees for network participants. It also allows for builder-proposer separation, reducing the cost of failed transactions for traders executing complex trades.

The Ethereum Shanghai upgrade has the potential to elevate Ethereum to new heights and bring a brighter future for the network.

Why is the Ethereum Shanghai Upgrade Sparking Conversations?

The Ethereum community has been abuzz about the Shanghai upgrade, but for those unfamiliar with the significance of this event, it’s understandable to question why all the hype. Before delving into the reasons behind the excitement, let’s look at what happened after the Merge was completed.

Before the implementation of EIP-4895, staking ETH was a one-way investment. Users had to lock up their ETH for a set period to receive an attractive APY reward. Additionally, they were required to have a minimum of 32 ETH to participate in the validation process.

However, this all changed with the advent of Staking as a Service and Pooled Staking options, which made it easier for average retail crypto investors to participate in staking ETH. This led to the rise of popular staking platforms like Stakewise, Lido, and Rocket Pool.

While staking ETH came with its risks, such as reducing liquidity and exposing users to counterparty risk, many investors took the Ethereum Foundation’s promises to heart and trusted that their staked ETH would eventually be withdrawable from the Beacon Chain. And with the Ethereum Shanghai upgrade paving the way for the highly anticipated Surge upgrade, the excitement surrounding it is palpable.

When will investors unstake their assets?

Investors can unstake their ETH once the Ethereum Shanghai upgrade is implemented and live on the main network. Based on current plans and developments, this is expected to occur in Q1 2023, with the start of the Shanghai Public Testnet scheduled for February 2023. The target release date is March 2023, but this is subject to change and may vary depending on the progress of the upgrade. It’s always advisable to monitor official channels for the latest updates and developments.

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