The Ethereum blockchain finalized its long-awaited-for upgrade, i.e., the Shanghai upgrade, on April 12, allowing validators to retrieve staked coins from the Beacon Chain, launched in 2020 to transition to the Merge. The Shapella Upgrade, as it’s also referred to, produced a substantial inflow of Ether deposits for staking, primarily driven by institutional service providers and investors reinvesting some parts of their earnings upon withdrawal. The current Ethereum price is $1,848.85, as shown by Binance. The Shanghai Upgrade could be bullish for Ether’s worth in the mid-to-long term, as staked ETH accounts for roughly a 7th of the token’s total supply.
The Shanghai Upgrade was postponed one month because Sepolia testnet execution delays. Ethereum decided to delay the “difficult bomb” for about 2-3 months. The nodes that haven’t been upgraded won’t be able to take part in staking and validation because they’re incompatible with the upgraded version. The Shanghai Upgrade is accompanied by the Capella Upgrade, a consensus layer upgrade incorporating various withdrawal features, such as full and partial withdrawals. Ethereum’s Shapella Upgrade is the first major one since the Merge. Next come the Verge, Purge, and Scourge upgrades.
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The Shanghai Upgrade Is the Final Step in The Transition Towards Proof of Stake
In 2022, Ethereum switched from Proof of Work to Proof of Stake, a more energy-efficient framework for adding new blocks of transactions, NFTs, and other information to the blockchain. The Shanghai Upgrade represents the final step in Ethereum’s move to Proof of Stake. EIP-4895 enables validator withdrawals on the Beacon Chain to enter into the Ethereum Virtual Machine; the architecture is push-based rather than pull-based. Validators and stakers can withdraw their 32 ETH from the staking contract, which is expected to improve liquidity. Tokens are redeemable without the need for a decentralized exchange, providing a new source of Maximal Extractable Value.
EIP-4895 is the fundamental development for the hard fork, but it’s not the only new feature/solution to the Ethereum protocol. Another proposed improvement aims to reduce gas fees during periods of high activity. More exactly, the Shanghai Upgrade is poised to reduce gas fees associated with Layer-2 solutions built on the Ethereum network, such as Optimism or Polygon, to benefit developers. EIP-3855 lowers gas fees for developers at large, EIP-3860 lowers developer gas costs in certain situations, and there’s EIP- 6049 that addresses a similar concern. This guide isn’t intended as a technical walkthrough, so we’re going to stop here.
The Environmental Impact of Ethereum Will Be Abolished After the Shanghai Upgrade
The Shanghai Upgrade is a turning point for Ethereum, which can achieve security, decentralization, and scalability. Most importantly, it will end the debate about Ethereum’s environmental impact. The high energy use of blockchain technology has attracted criticism from environmentalists and investors. Ethereum’s former Proof of Work consensus mechanism, the one on which Bitcoin is presently based, consumed staggering amounts of computational power, as opposed to Proof of Stake, which relies on the economic cost of staking coins. Proof of Stake isn’t as wasteful as Proof of Work. The Shanghai Upgrade should put concerns about the cryptocurrency’s stability to rest.
Rather than putting miners to solve complex equations, using fewer validators, chosen on the amount of Ether they hold, would be best. The Proof of Stake blockchain network participants receive rewards proportional to their cryptocurrency. What might happen if one day Bitcoin becomes a Proof of Stake network? Miners would have to adapt to a new way of securing the blockchain and would earn fewer coins overall. Migrating to Proof of Stake won’t lead to the network being manipulated or subverted, yet it’s highly unlikely Bitcoin will make a move.
Although The Shanghai Upgrade Can Cause a Sell-Off, It Can’t Last Long
The Ether staked in the Merge can be unstaked and sold, even if it’s best to commit to them in the long haul. Following the Shanghai Upgrade, there could be massive sell pressure, so the upcoming months will be interesting for Ethereum. Even if there will initially be a sell-off on account of a spike in the available ETH supply, it’s predicted to be a short-term phenomenon. According to the experts, the potential bearish price of Ether could lead to gains in the future. In the medium-to-long term, the upgrade might lead to better price stability. The future of Ethereum is uncertain, alas, so make sure you don’t miss out.
For the past few months, there have been many speculations about how the Shanghai Upgrade could impact the price of ETH. In this context, it’s important to understand that the withdrawal queue allows a limited number of requests per day – 115,200 – and it’s unlikely unstaking will cause a sudden drop in Ether’s price. Validators can expect to wait at least 2 to 3 days for their requests to be processed; some will even have to wait weeks or months to withdraw their funds. The point is that the Shanghai Upgrade doesn’t represent a major shift in the economics of Ethereum.
There are many more issues to be tackled, meaning that other upgrades are coming to the network, namely the Verge, Purge, and Scourge. With the Verge Upgrade, Verkle trees will be introduced in an attempt to increase scalability, resulting in optimized storage and reduced node size. The Purge Upgrade will eliminate historical data from the blockchain network, so congestion will decrease, allowing for more transactions to be processed. It’s unclear how developers will implement the mechanism of storing legacy data. Lastly, the Scourge Upgrade includes everything that couldn’t be fitted previously, avoiding centralization around Maximal Extractable Value.
It’s largely agreed upon that Ethereum’s Shanghai Upgrade has been a success, so investors can put uncertainty behind them. The hard fork is actually a combination of two upgrades, Shanghai and Capella, which is why it’s commonly referred to as Shapella. It’s going to take a while to fully understand the dynamics, and whether this is a bullish or bearish direction, so it’s necessary to be patient. What we know for sure is that Ethereum was facing a scalability issue. It doesn’t have a problem anymore.