Ethereum Shanghai Upgrade scheduled for second half of 2023: Everything you need to know

Key Takeaways:

• Ethereum Shanghai Upgrade scheduled for second half of 2023.
• This is the next major upgrade to the Ethereum network after the highly anticipated Merge took place last month on 15th September.

Read more on: Ethereum developers proposals for Shanghai Upgrade

Ethereum Merge: A recap

Before we get into Ethereum’s Shanghai Upgrade, let’s recap what happened a little over a month ago. On the 15th of September, 2022 – Ethereum – the largest smart contract capable blockchain network underwent one of the biggest transitions to ever happen in any crypto in history. The Ethereum network underwent something called the Merge which transitioned this behemoth of a network, second largest in the world by market cap – from a proof-of-work to a proof-of-stake consensus mechanism.

This is the first step in a long plan to transition Ethereum into the future, where gas fees are low, transaction speeds are high, at least at par with its competitors and eventually maintain its position as the biggest smart contract capable blockchain platform out there.

Read more: Ethereum Merge

Ethereum Shanghai Upgrade: Explained

Very simply, Ethereum Shanghai Upgrade is set to introduce a bunch of critical updates and elemental changes to Ethereum in the blockchain’s EVM functionalities. Prior to the actual release, the Ethereum Foundation released on 14 October, 2022 a pre-Shanghai testnet for the same. This testnet, also known as ‘Shandong’ will be used to test and finalise the Ethereum Improvement Proposals (EIPs) that are expected to be rolled out in the actual Shanghai Update.

Why is Ethereum Shanghai Upgrade important?

Well, it is important due to several reasons and I will list them out for you below. However, it must be noted that these are calculated assumptions made with the available data. We will keep this section updated as we get more information regarding the upgrade.

• Gas fees: One of the biggest things that the Ethereum Shanghai Upgrade is expected to bring about is to reduce gas fees for layer-2 solutions running on top of Ethereum, for example Polygon, Optimism and the likes. These L2 solutions make using Ethereum faster and cheaper and this upgrade could potentially make it even cheaper to transact on the Ethereum blockchain.
• Withdrawal of staked ETH tokens: So ahead of the Ethereum Merge, all those who were interested to become a validator in the new PoS Ethereum Beacon chain, they had to stake a certain amount of ETH to a deposit smart contract which was locked in with the contract even after the Merge happened. But now with the Shanghai Upgrade, we may see the lock-in be released and those who had staked their ETH tokens may be able to unstake them.
• Updates to smart contract facilities: This is another important update that can be expected out of the Shanghai Upgrade. Ethereum being the single largest smart contract capable blockchain network has to stay ahead in terms of development.

Here’s a GitHub repository post regarding the same with some additional information too.

Source: Github.com

With the Ethereum Shanghai Upgrade around the corner: How is it going to affect investors?

As discussed in the article above, the Ethereum Shanghai Upgrade is the next most awaited development to take place on the Ethereum blockchain network. Now there are a couple of reasons why this is so highly anticipated, especially after the Ethereum Merge that took place last year on 15 September, 2022 – however, there is one that is definitely going to take up headlines in the space.

Simply put – Ethereum Shanghai upgrade, specifically the EIP-4895, will allow ETH stakers to remove their staked funds as validators. This is significant because back in December 2020, when the proof-of-stake Beacon chain was launched – participants on the Ethereum network who wanted to be a part of Ethereum 2.0 as validators had to stake a minimum of 32 ETH tokens which was practically going to be locked up for an indefinite period. Once you had staked the 32 ETH tokens, these validators weren’t allowed to pull their funds out whenever they wanted to.

Now this begs the question – what effect will this move have on you? Well that actually depends upon the situation you are in, or rather the kind of participant you are on the Ethereum network. If you are simply a validator on the Ethereum PoS chain, you will now be able to pull your staked ETH tokens and sell them off if you wanted to. 

How will the Ethereum Shanghai Upgrade affect ETH prices?

Continuing from the above thought – if you are a trader or an investor in the ETH token, the story changes a little bit. While it cannot be said for certain, the implementation of EIP-4895 could have certain ramifications on the price of the token. This is because according to data from Staking Rewards, 14.09% of all eligible ETH tokens have been staked. Thus when staking withdrawals are opened up, this could amount to a significant liquidity flooding back into the open market, putting some downward pressure on ETH prices. However, that is assuming that the entirety of the 14.09% of ETH tokens are immediately pulled out and sold off – which in retrospect seems highly unlikely. Thus, for traders and investors, keeping a vigilant eye on the percentage of ETH coins staked would be sound advice. 

On the other hand, things could also move in the opposite direction as ETH could become more attractive to users due to its improved liquidity. Those who didn’t want to go via liquid staking protocols would now have a chance to directly stake ETH with Ethereum. 

However, one overarching positive thing that can be taken out of this is that while locking up coins is a means to make the process more secure, it could be also looked at as a means of artificial control and thus a removal of that cap could bring about more balance and equilibrium in the market. 

Read more: Ethereum Price Prediction