Shanghai Upgrade: A Major Milestone In Ethereum
By Manoj Dharra
Finally, the Shanghai upgrade, the most-awaited milestone in the history of Ethereum’s (ETH) so far is set to take place on April 12 . The historic development will place the second largest virtual digital currency from Proof-of-Work (PoW) to Proof-of-Stake (PoS) protocol on blockchain thus enabling the holders to unstake their ETH locked on the network. The upgrade is expected to significantly reduce gas fees, improve the network’s scalability, and enhance the speed of the Ethereum network. The Shanghai upgrade includes several other Ethereum Improvement Proposals (EIPs), notably EIP-3855 and EIP-3860, which may incentivize development by reducing, or capping, transaction fees for developers.
Although the move may trigger an increase in price volatility as validators may queue up to withdraw and sell staked ETH, analysts feel the protocol is so designed that it can prevent such a short-term mass exodus of validators.
On Apr 12, thanks to this Shanghai upgrade, Ethereum token holders will be able to unstake their assets for the first time. With this increased access to holdings, the validators are expected to take maximum advantage of the situation.
Validators are network participants who stake (deposit) 32 ETH, receiving 5% annualized rewards from newly issued ETH in exchange for securing the network. Currently, 562,000 validators have staked 18mn ETH and received 1.1mn ETH as rewards.
The 19.1mn ETH staked and rewarded has been locked-up since Oct’20 and would not be accessible until the execution of the Shanghai or Shapella upgrade (a name coined from a mix of Shanghai and Capella), which is more of a continuation of the previous Merge upgrade of September 2022.
The primary concern around the Shapella event is that validators may withdraw and sell staked ETH, which accounts for 16% of the total ETH supply. However, market participants do not expect a significant number of validators to initiate full withdrawals, given the fact that the network’s protocol limits as to how many full withdrawals can be processed at any given point of time.
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