Ethereum Shanghai Upgrade: What You Need to Know
The Ethereum Shanghai Upgrade is a hard fork that will enable ETH stakers and validators to withdraw their staked ETH from the Beacon Chain. This upgrade is expected to have major benefits, such as boosting transaction speeds while lowering gas fees.
In this guide, we take an in-depth look at what the Ethereum Shanghai Upgrade is, what you need to know about it, and why it’s important. Read on to find out more.
What is the Ethereum Shanghai Upgrade?
In September 2022, Ethereum underwent a major upgrade known as The Merge. This upgrade enabled Ethereum to merge with the Beacon Chain to become one chain and upgrade to the proof-of-stake (PoS) consensus mechanism from the proof-of-work (PoW) mechanism. This update meant that the chain’s governance emigrated from a resource-intensive method to a more environmentally-friendly mechanism.
Simply put, Ethereum’s network would rely on validators and not miners. Despite PoS being more environmentally friendly, it was dependent on Ethereum’s staking process. ETH holders, therefore, needed to stake no less than 32 ETH so as to take part in the consensus mechanism with a yield that’s currently slightly over 5%.
Ergo, the Shanghai Upgrade, which is expected to occur sometime in March 2023, is a hard fork and Ethereum’s first major upgrade since The Merge. In addition, the upgrade is anticipated to have some economic implications. But before we get ahead of ourselves, let’s take a deep dive into what the upgrade is and its features.
Also dubbed as the Ethereum Shanghai Fork, the upgrade features five Ethereum Improvement Proposals (EIPs) that will be launched as part of the update. This new upgrade to Ethereum’s network, besides having several updates, the most anticipated EIP is EIP-4895, which is aimed at allowing both validators and stakers to withdraw the ETH they had staked for the last two-plus years from the Beacon Chain.
The Beacon Chain upgrade took place in December 2020 and introduced staking to the Ethereum network, all while laying the foundation for future upgrades. Besides EIP-4895, the Shanghai Upgrade will also feature:
While the Shanghai Upgrade features several notable EIPs, the update has no mention of EIP-4844. EIP-4844, also known as the Sharding Upgrade, is expected to occur between 2023 and 2024, and it will not only permit the scaling of the Ethereum blockchain via sharding but will also reduce Ethereum’s network fees.
Why is the Ethereum Shanghai Upgrade important?
When the Ethereum blockchain was launched back in July 2015, the Bitcoin blockchain was the only blockchain it could try to emulate and get inspiration from. The result? The Ethereum blockchain suffered from various trifling features that succeeding blockchains, such as Solana and Polygon, have been able to address.
For starters, the Ethereum blockchain has struggled with high transaction fees and slow transaction speeds during periods of high usage. This came to light following the boom of the decentralized finance (DeFi) and non-fungible token (NFT) sectors that occurred between 2021 and 2022.
But, with the shipping of the EIP-3855 and EIP-3860, the Ethereum blockchain is expected to improve. EIP-3855, for instance, is expected to help with the transaction speeds, while EIP-3860 will help to reduce the high transaction costs. This is expected to improve the user experience as well as the network utilization across the DeFi and NFT space for both Ethereum developers and users.
Additionally, users will have more flexible staking. This could result in an increase in ecosystem stakeholders which could, in turn, boost the network and help the chain long-term. As a result, the Shanghai Upgrade will allow Trust Wallet users to enjoy much more affordable staking options, as it’s anticipated that there will be an increase in the demand for liquid staking, which can be utilized across DeFi products.
Besides staking ETH, users with staked ETH will be able to withdraw their ETH to their Trust Wallet ETH address while still being able to buy, send, receive, and store ETH in their Trust Wallet.
Notably, users who hadn’t staked ETH on the Beacon Chain will not be affected in any way by the upgrade. They will still be able to carry out their ETH transactions on their preferred crypto exchange or a trusted crypto wallet such as Trust Wallet.
Recap of the Ethereum Shanghai Upgrade and its importance
There are roughly 16 million staked ETH that will become available for withdrawal once the Shanghai Update goes live. However, there will only be one single queue for both partial and full withdrawals on the Ethereum blockchain. Validators on the chain will be able to withdraw only their staking reward or withdraw all their staked 32 ETH. Withdrawing all the staked ETH will result in one exiting the Beacon Chain completely.
Whatever option the validators go for, it remains unclear the kind of impact the upgrade will have on the price of ETH and the crypto market in general. Still, this does not take away from the improvements that the update is supposed to have on the Ethereum network. The reduced transaction fees and increased transaction speeds are expected to enhance the user experience while making staking more affordable, thus opening it up to more investors. This will make the Ethereum chain a lot more attractive to developers and users alike.
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