Key Takeaways:

• Ethereum Shanghai upgrade will allow validators to withdraw their staked ETH
• The Shanghai upgrade is scheduled for the second half of 2023 with no fixed date yet
• Approximately 14% of the entire ETH supply valued at $26 billion is staked presently

It is less likely that you haven’t heard about the Shanghai upgrade in the last few days. Understanding in-depth and knowing everything about is a different story – a story that this blog will help you understand today.

TL;DR Version: The long-awaited Ethereum completed its Shanghai upgrade on April 12, 2023, at 22:27 UTC after which Ethereum validators who had been staking ETH on the beacon chain since 2020 can withdraw ETH.

History of Ethereum Upgrades

The Merge in September 2021 was the first of the many major upgrades which shifted Ethereum from the Proof-of-Work (PoW) to the Proof-of-Stake (PoS) chain. Since the inception of Ethereum in 2015, it has undergone several upgrades all in the direction of transitioning Ethereum into the future with lower gas fees, faster transactions and scalability.

The Shanghai fork upgrade will make the Ethereum network more scalable, more secure, and more sustainable.

Ethereum Upgrades

Ethereum is undergoing several upgrades over the past few years. A brief of those upgrades can be found in the table below:

Source: https://ethereum.org/en/history/

Ethereum Shanghai Upgrade: Explained

The Shanghai upgrade is a culmination of several Ethereum Improvement Proposals or EIPs that aim to improve the network’s scalability and efficiency. According to Ethereum.org “The Shanghai upgrade brings staking withdrawals to the execution layer. In tandem with the Capella upgrade, this enables blocks to accept withdrawal operations, which allow stakers to withdraw their ETH from the Beacon Chain to the execution layer.”

The Ethereum Shanghai upgrade  also referred to as “Shapella,” was executed on April 12, 2023. The upgrade was triggered at 22:27 UTC, and finalized at about 22:42 UTC.

After the upgrade, Ethereum validators are able to withdraw their staked ETH either partially or completely. Partial withdrawal refers to when validators only withdraw the ETH rewards earned from validating the transactions while complete withdrawal refers to withdrawing the staked 32 ETH along with the rewards.

How will the Shanghai Upgrade make Ethereum more scalable?

Ethereum Shanghai upgrade is a cumulation of several EIPs that aim to improve the Ethereum network on several parameters.

Gas Fees: Whenever anyone mentions the scalability of the Ethereum network, a high gas fee is often the first to be mentioned. With this Shanghai upgrade Ethereum it is expected a reduction in the gas fees that will help the layer-2 scaling solutions like Polygon, Arbitrum, Optimism, and so on to scale further by making them cheaper and faster.

Withdrawal of Staked ETH: Ethereum community is staking ETH from as early as 2020 to become a validator on the Ethereum network. This staking ETH was locked through the smart contract even after the completion of ‘The Merge’ on the beacon chain. With this upgrade, validators are able to withdraw the ETH rewards along with staked 32 ETH.
Let's dive into the specifics of the EIPs and what improvements they will bring to Ethereum.

EIP-4895: Beacon chain push withdrawals as operations

This proposal allows the validators to withdraw their staked ETH from the beacon chain. Presently, validators have staked roughly 16 million ETH valuing at ~$34 billion (as of April 13, 2023) to secure the mechanism. The Merge required the validators to lock their ETH and the rewards generated from validating the block on the network.

EIP-3651: Warm COINBASE

This proposal will reduce Network fees for some of the key Network participants called builders. COINBASE here is the name of the software that Builders use to receive new tokens on the network and not the cryptocurrency exchange. Every new transaction on the platform needs to interact with the COINBASE software multiple times. The first interaction costs more as the software needs to warm up and then the fees decline as the interactions increase.

However, with the introduction of EIP-3651, the COINBASE software will

remain warm, to begin with thus requiring a lower gas fee to access it.

EIP 3855: PUSH0 instruction

This proposal is designed mainly for the Ethereum developers, which will help them reduce gas cost. The technical details of which can be found here.

EIP-3860: Limit and meter initcode

This is another Ethereum developer-centric EIP which will cap developer gas costs in certain scenarios. The details of EIP-3860 can be found on ethereum.org.

EIP-6049: Deprecate SELFDESTRUCT

This proposal deprecates SELFDESTRUCT by discouraging its use and warning about a potential future behavior change. You can read about it more here.

Impact on the Future of Investors

The Ethereum Shanghai network upgrade is going to make improvements in efficiency, security, and scalability which will make the network more valuable and increase the demand for Ether. It is expected to create a positive impact on the investors.

The upgrade is also likely to attract more developers and users to the Ethereum network, increasing the demand for dApps and other services built on this blockchain. This, in turn again will drive the value of the network, and have the potential to provide a positive return on investment for investors holding ETH or ERC-based tokens.

Impact on the Future of the Ethereum Network

Ethereum Shanghai Upgrade is paving the way forward for the next important scaling upgrade called Proto-Danksharding” (EIP-4844). Sharding, which has been the focus of the Ethereum community since it moved to proof-of-stake, is a multi-phase upgrade that is aimed to improve Ethereum’s scalability and capacity. It will enable layer 2 solutions like Arbitrum and Polygon to offer even lower fees while using the Ethereum network.

“Sharding refers to the splitting of data blocks into smaller parts called shards which can act in an independent state, meaning a unique set of account balances and smart contracts.” Source

Impact on Ethereum Price

Some speculations believe that the Shanghai hard fork (upgrade) will make the withdrawal of staked ETH possible from the network. It can result in validators pulling their ETH and abandoning the network. This can lead to a downtrend in the ETH price.

Presently, only 33,610 ETH had been withdrawn from the Beacon chain in the ~24 hours of withdrawals being able. Ethereum processes 16 withdrawals in every block (which occurs every 12 second), it amounts to 115,200 ETH withdrawals in a day.

Source: beaconcha.in

However, with the growing DeFi space and the increasing dominance of Ethereum in it, some analysts believe the above outcome is unlikely. Furthermore, after the Ethereum Shanghai network upgrade, validators will be able to withdraw their staked assets and rewards freely without having to lock the significant amount of 32 ETH which was roughly worth $150,000 during its ATH.

Ethereum has moved up nearly 80% since the beginning of 2023 and it is beginning to form a very positive technical pattern on the charts. And, within the first 24 hours of the Ethereum Shanghai Upgrade going live - ETH prices have gained over 10% and breached past the crucial psychological resistance level of $2000. It is now trading over $2100 and is very close to breaking out of the accumulation zone.

Additionally, the ETH price is at its highest point in the past eleven months and is very well positioned to continue its rally further above. Even from current levels, if the positivity continues we could see a run-up to near $2200 levels before seeing some correction due to profit booking. But ultimately, things are looking very well for the largest altcoin by market capitalization.

Conclusion

The Shanghai upgrade in itself was an important upgrade that will pave the way for the upcoming major upgrades like SURGE, VERGE, PERGE & SCOURGE. This upgrade was necessary to address critical issues facing the network, such as efficiency, security, and scalability. Amidst these upgrades, eyes were still believed to be fixed on the EIP-4895 which allowed the ETH validators to de-stake their Ethereum for the Beacon chain.

Ethereum is the base of the major DeFi dApps built, and with the growth and innovation in DeFi, Ethereum is expected to continue its growth and popularity. Okto is another DeFi app built on Ethereum (among other blockchains) which aims to empower users in DeFi through its secure multi-chain and 1000+ swap and earn options for the users.

FAQs

1.What is the next upgrade for Ethereum?

Sharding is the next upgrade planned for Ethereum which is expected to happen in the latter half of 2023.

2. How long will the Ethereum 2.0 upgrade take?
Ethereum 2.0 is a series of upgrades that will take at least 2 years for completion. The Merge was the first major upgrade in the series which shifted Ethereum from Proof-of-work to Proof-of-stake.

3. How will the Ethereum Shanghai Upgrade impact investors?

It is very difficult to predict the crypto market but the Ethereum Shanghai upgrade will make withdrawals of staked ETH during the Merge possible, it will also reduce gas costs for developers which are all positive changes thus, it is expected to have a positive impact on investors.

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