Ethereum Shanghai update - staking and all the necessary information

Calling the update Ethereum Shanghai, the developers plan to include several Ethereum Improvement Proposals (EIPs) that will minimize any delays before the launch of EIP-4844. Curious to know which EIPs will be included in the upcoming Shanghai update? Here's how it will change Ethereum for the better in the long run.

After the grand merger of Ethereum was flawlessly executed on September 15, 2022, the cryptocurrency market was seized with enthusiasm as everyone wondered what would happen next with Ethereum. Presumably, the Ethereum upgrade schedule after the merger was to follow the pattern of Surge, Verge, Purge, and Splurge. Recently, the developers of the Ethereum core decided to move away from their original plans.

What is the Ethereum Shanghai network upgrade?

The Ethereum Shanghai network update is the next major Ethereum network update that the core developers have decided to work on prior to implementing updates related to Surge. Since Surge is an upgrade path that increases the maximum transaction per second rate (GST) blockchain, Ethereum developers said that the Shanghai update will ensure minimal delays and problems in preparation for the Surge update.

Although the Ethereum Shanghai update includes several EIPs, the main improvement will be EIP-4895: Beacon Chain Push Withdrawals as Operations. Essentially, this offer provides validators with the ability to withdraw staked ETH that has been deposited into Beacon Chain since December 2020, when Beacon Chain was originally introduced. Ultimately, EIP-4895 plans to provide long-term ETH stalkers and HODLers with additional liquidity as they can finally withdraw their ETH after more than two years of being in a staking with negligible gas fees.

Along with EIP-4895, there are several more EIPs that are also planned to be implemented as part of the Ethereum Shanghai upgrade. These include:

  • EIP-3860: Limit and Meter Initcode - the proposal limits the maximum initcode size to 49152 and applies an additional 2 gas per 32-byte chunk of initcode. Essentially, this solves the problem of no-gas exceptions in Ethereum.
  • EIP-3855: PUSH0 Instruction - This EIP introduces a new instruction for the EVM that helps reduce the size of smart contracts and optimizes the contract code.
  • EIP-3651: Warm COINBASE – Not to be confused with the similarly named centralized cryptocurrency exchange, this proposal reduces the cost of building blocks and separates builders and suppliers. At the same time, gas fees will be reduced for network members, and traders who use builders to complete complex transactions will no longer have to pay for unsuccessful transactions.

When will investors be able to withdraw their ETH from staking?

Currently, Ethereum developers are planning a release in the first quarter, and the start of the Shanghai public testnet is expected in February 2023. At the current pace of development, everything seems to be going according to plan, with regular updates listing March 2023 as the target release date.

Why is everyone talking about the Ethereum Shanghai upgrade?

If the Ethereum Shanghai update is just a harbinger of the much more important Surge update, the average investor might wonder why there is so much buzz around its launch. To understand this, you must first understand what happened in the Ethereum community after the introduction of Merge.

ETH staking problem

Prior to the introduction of EIP-4895, staking ETH was a one-way street. In order to receive the APY reward, users had to lock up their ETH for a certain amount of time. To participate in the validation process, users had to place a minimum stake of 32 ETH.

Users with less free capital could choose the options “Taking as a Service" or "Pooled Staking“, which simplified the process stacking and opened ETH betting to the masses. Since staking ETH has become easy and convenient for the average retail crypto investor, this has led to popular staking platforms such as Stakewise, Lido and Rocket Pool.

Ultimately, staking ETH was a calculated risk; participants could earn additional profits, but at the same time reduce their liquidity and expose themselves to the risk of counterparty risk. Despite not being able to withdraw ETH at the time, many investors took the words of the Ethereum Foundation to heart and believed that in due time they would be able to withdraw their deposited ETH from Beacon Chain.

A feud on ETH, but it quickly resolved

Following the implementation of the Merge, the Fund began publicly showing a rough timeline that indicated when it would be possible to withdraw ETH from Beacon Chain. Unfortunately, somewhere along the way, these dates shifted as developers became ambivalent about the exact launch date for the Ethereum Shanghai upgrade. This became the backbone of Ethereum FUD as the Ethereum Foundation was publicly condemned for this dubious, non-transparent decision.

To the relief of many bulls and ETH investors, the developers seem to have managed and stuck to the originally planned timeline. Shandong's experimental testnet went live in October 2022 and allayed many concerns as it successfully and seamlessly activated selected Shanghai-related EIPs. With the amount of ETH in stakes approaching the 16 million mark, it's safe to say that ETH staking will become even more popular over time thanks to the cashout flexibility implemented in the Ethereum Shanghai update.

Can the price of ETH skyrocket again?

Why ETH is waiting for a rally

Staking is a key issue when discussing ETH price movement. With the implementation of the Shanghai network upgrade, our bullish argument is that we can expect more users to use HODL and ETH staking as adoption grows. This will drive up the Ethereum rate ratio as users who previously feared they would not be able to withdraw their ETH will now be able to enjoy additional returns without compromising liquidity. Due to this, ETH can be expected to rise in value as large institutions buy and stake ETH to earn a decent yield of around 5% without compromising liquidity.

The upcoming Ethereum Shanghai update addresses various issues that have plagued users and developers alike, from lower gas fees to fewer failed transactions. Due to the fact that these fixes will be made before the release of the big update EIP-4844: Proto DankshardingThe Foundation guarantees minimal delays in preparing for the release of the Surge update.

Why ETH Might Crash

On the bearish side, the crypto market as a whole is still not out of the woods as major institutions continue to claim that they have been victims of the Terra Luna and FTX infection. Macro factors are also bearish as US inflation is still far from its 2% target and the Federal Reserve continues to raise interest rates. These factors could put pressure on original ETH holders from December 2020 to sell their ETH and get more liquidity so the rest of their portfolio can stay afloat during the crypto bear market.

Anticipating this, the Ethereum Foundation has set a hard limit of 40 ETH that can be unlocked every day. This will hopefully ease the selling pressure and reduce the short-term volatility of ETH.

Сonclusion

For many ETH investors and traders, all eyes will be on its execution as the main developers strive to make the Ethereum Shanghai upgrade as smooth as possible. While this network update may not be as important as the merger, it sets the stage for future updates.

The upgrade of Ethereum Shanghai will affect how retail and institutional investors interact with ETH, as now that withdrawals from the Beacon Chain are possible, they will consider the bet a viable one. Ultimately, this paints a brighter future for Ethereum as a whole as it continues to prove its viability as a blue-chip cryptocurrency project. Who knows, maybe in the long run, Ethereum might even be able to prevent bitcoin from taking the top spot on the market cap list and flipping.

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