April is a pivotal month for Ethereum, the second-largest cryptocurrency. Following The Merge in September, which altered the consensus mechanism, the next update is named Shanghai. Let’s delve into the significance of this upgrade for Ethereum and the transformations it will introduce to the blockchain.
Shanghai Update Enables ETH Staking Withdrawals
In December 2022, Ethereum founder Vitalik Buterin expressed optimism for the network in 2023. The eagerly-awaited Shanghai/Capella hard fork occurred on April 12, 2023, allowing withdrawal of staked ETH funds under the new Proof-of-Stake consensus. For the first time, Ethereum users can access their staked assets and rewards, a significant milestone.
Deposits began in November 2020, before the launch of the Beacon chain, and until now, stakers couldn’t access their ETH or rewards. Recently, Ethereum exceeded 500,000 validators, a notable figure given the locked-up assets. As of March 2023, over $17 million in ETH was staked post-Merge, implying many will want to unstake. However, daily withdrawal limits of 43,200 ETH prevent a mass exodus of validators.
The Shanghai Upgrade: Enhancements and ETH Staking Withdrawals
The Shanghai upgrade, sometimes referred to as Shapella, is a collection of enhancements for the Ethereum network that together create a significant impact. The Shandong testnet in 2022 served as a precursor to the scheduled launch. Among the various updates in Shanghai, the most notable one, outlined in EIP-4895, enables ETH stakers to withdraw both their staked Ethereum coins and accumulated rewards — a feature long desired by Ethereum users and the broader crypto community.
Additional proposals in the Shanghai upgrade pertain to the Ethereum Virtual Machine (EVM) Object Format (EOF), a software component found in all EVM-compatible blockchains. EOF houses over 120 operation codes that provide decentralized programmability to networks. If these proposals cannot be executed on time, developers plan to delay their implementation until later in the year to prevent hindering ETH unstaking.
EIP-4844, a proposal that introduces “proto-danksharding” and lays the groundwork for the much-anticipated sharding upgrade in 2024, will not be part of the March 2023 release. This upcoming proposal aims to enhance scalability through sharding, a database partitioning method that allows platforms to handle more transactions per second.
ETH Surges Past $2K After Successful Upgrade
After the network’s successful update in April, the price of ETH surged past $2,000 on Thursday for the first time in eight months, reflecting investor confidence in the wake of the long-awaited Shanghai upgrade. Ethereum experienced a gain of over 10%, reaching a high of $2,130.30, its highest level since May 2022.
Nonetheless, numerous crypto analysts maintain that the abrupt increase in Ether’s value isn’t solely attributable to the Shanghai upgrade. Instead, they suggest that an earlier rise in Bitcoin’s price contributed to the overall market growth.
It is important to acknowledge that, in the weeks preceding the Shanghai upgrade, investors displayed a mix of optimism and caution. Similar to Ripple, Ethereum has drawn the attention of stringent regulators like the US Securities and Exchange Commission. The new upgrade’s provision for unlocking staked Ethereum may potentially invite increased regulatory scrutiny.
A consensus among many crypto analysts is that the upgrade is beneficial for Ethereum in the long run, as it offers greater liquidity to Ether investors and stakers, potentially spurring a shift in institutional involvement. Nevertheless, there was noticeable ambiguity regarding the upgrade’s impact on the cryptocurrency’s price. Prior to the update, it was uncertain how many users would choose to liquidate once their Ether became accessible. However, we now have some figures.
Based on the data, there was a 2.7% fall in deposits, amounting to 17.52 million ETH, and 84,000 ETH were withdrawn on April 13th. About 10,000 tokens were processed each hour. Interestingly, most withdrawals were categorized as ‘reward’ rather than ‘principal.’ This suggests that the majority of people opted for partial withdrawals to reap staking gains while continuing to participate as validators.
Shanghai Upgrade Enables Proto-Danksharding
The Shanghai Upgrade plays a vital role in Ethereum’s future, as it represents a critical milestone in the Ethereum 2.0 roadmap and is essential for facilitating the upcoming significant scaling upgrade, ‘Proto-Danksharding.’
Danksharding, a novel sharding architecture proposed for the Ethereum network, derives its name from researcher Dankrad Feist. This innovative design features notable simplifications compared to earlier alternatives. While previous sharding frameworks mainly focused on expanding transaction capacity, danksharding adopts a rollup-centric approach by allocating more space for ‘blobs’ of data, which the Ethereum protocol does not attempt to interpret. The sharding upgrade is anticipated to be introduced in the summer or fall of this year, with more plans from the Ethereum blockchain set to be revealed shortly.
Originally published at https://stealthex.io/blog/ethereum-shanghai-upgrade/ 👈