Ethereum Shanghai Upgrade in a Nutshell (on Apr 12)
The Ethereum network will soon conduct an update called Shanghai. The Shanghai upgrade is named after the Devcon 6 conference that was planned to take place in Shanghai, in 2021 China, but was canceled due to the COVID-19 pandemic. This upgrade brings a significant number of changes to the Ethereum network that aim to enhance its security, scalability, and usability.
- The Ethereum Shanghai Upgrade is a hard fork that is scheduled to take place in April 12, 2023.
- The upgrade will allow stakers and validators to withdraw staked ETH from the Beacon Chain.
- About 16.5 million staked ETH will be available for withdrawal.
- The withdrawal of staked ETH has already been successfully tested on the Zhejiang testnet.
- Shapella (Shanghai + Capella) upgrade successful on Goerli testnet.
- Crypto traders are closely monitoring the potential impact of the Shanghai Upgrade on the market, and there are mixed opinions on whether it will be bullish or bearish.
- The expectation on lower gas fee after the upgrade.
These are currently four Ethereum Improvement Proposals (EIPs) included in the Shanghai upgrade:
EIP-3651 Warm COINBASE
EIP-3855 PUSH0 instruction
EIP-3860 Limit and meter initcode
EIP-4895 Beacon Chain withdrawals
The most notable of the changes is EIP-4895 — the ability to withdraw staked ETH. Expecting April 12, 2023, as the release date for Shanghai’s mainnet launch.
The test launch of Shanghai was successfully implemented on the Goerli test network on the 14th of March 2023.
What can we expect from this upgrade for ETH investors?
ETH investors may have concerns about the potential price impact of the Shanghai upgrade on the network as there may be a large amount of ETH to be unstaked for sale in the market. However, it is important to note that this upgrade is designed to enhance the fundamental aspects of the network, which is expected to benefit investors in the long run.
Soon, ETH investors will soon have the opportunity to stake their ETH, withdraw staked assets, and earn staking rewards, making staking a more attractive investment option. This change will also make staking an eligible investment strategy for ETPs for the first time.
As of February 15, 2023, the expected return on staking ETH is approximately 4% APY, with an estimated unstaking period of 6–8 days. Nonetheless, it is essential to remember that the rewards from staking do not necessarily reflect the entire return on investment, as fees and other costs may impact them.
Why Is the Shanghai Upgrade Being Implemented
The Shanghai Upgrade is being implemented due to Ethereum’s shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) through The Merge in September 2022. This transition means that validators, instead of miners, are responsible for running the network. In order to become a validator, participants must stake 32 ETH. Validators have been staking ETH and earning rewards since the launch of Ethereum’s Beacon Chain, which was the first step toward the transition to PoS.
Previously, validators were informed that their staked ETH would remain locked until the next update to the chain. However, with the Shanghai Upgrade, validators are now able to finally retrieve and benefit from their rewards.
How can Validators unstake their ETH?
Validators who participate in Ethereum 2.0’s Proof-of-Stake consensus mechanism can choose between two options when they want to unstake their ETH. The first option is to use a “withdrawal credential” to withdraw the staking rewards they have accumulated over the years. A withdrawal credential is a cryptographic proof that proves the validator’s right to claim their earned rewards. When a validator initiates the withdrawal process, the Ethereum 2.0 network verifies the validity of their withdrawal credentials before releasing the funds to their wallets.
The second option for validators to unstake their ETH is to completely exit the Beacon Chain by unstaking all of their 32 ETH, which is the maximum allowed per validator. This means that the validator will no longer participate in the Ethereum 2.0 network and their staked ETH will be released from the system. Validators who choose this option will receive any staking rewards that they might have earned prior to exiting the network, as long as they withdraw them before withdrawing their principal.
It’s worth noting that a maximum of 16 withdrawals can be processed in a single block meaning 115,200 validator withdrawals can be processed per day. Also, any amount above 32 ETH earned through rewards does not contribute to the principal meaning the returns cannot be compounded.
How does the Shanghai Upgrade affect my ETH?
In terms of how the Shanghai upgrade will affect investors holding ETH on various platforms, here is a perspective from each:
Flynt Finance
Flynt Finance does not offer staking services for ETH, so investors holding ETH on Flynt Finance should not be affected by the Shanghai upgrade. Their ETH holdings should remain safe and unaffected.
Cryptocurrency Exchanges
Some cryptocurrency exchanges offer staking services for ETH, which allow investors to earn rewards for staking their ETH on the exchange. The Shanghai upgrade should not affect investors’ ability to withdraw their staked ETH from the exchange. However, investors should check with their exchange to see if any changes are required to their staking arrangements as a result of the upgrade.
Individual Wallets
Investors who hold ETH in personal wallets, such as Ledger or Trezor, should not be directly affected by the Shanghai upgrade. Their ETH should remain safe and available for transactions. However, investors who wish to participate in staking on the new Ethereum 2.0 network will need to transfer their ETH to a new wallet that supports staking on the new network.
Liquid Staking Derivatives (eg. Lido, Rocket Pool, etc)
The Shanghai upgrade may affect liquidity staking derivatives, as it will change the underlying consensus mechanism used by the Ethereum network. Investors who hold liquidity staking derivatives should check with the platform or exchange where they are held to see if any changes are required to their positions as a result of the upgrade.
In summary, while the upgrade should not directly affect investors’ ability to hold and transact with ETH, those who participate in staking or hold liquidity staking derivatives may need to check with their platform or exchange to see if any changes are required as a result of the upgrade.
Staking alternatives on Flynt Finance!
Staking ETH can be complex and time-consuming, particularly if you are looking to stake 32 ETH for a yearly return of only 4–6%. Flynt Finance offers an alternative solution with the ETH Covered Calls x3 strategy. By staking just 0.01 ETH, you can experience returns of up to 30% APY without having to manage to stake on your own.
The ETH Covered Calls x3 strategy involves systematically selling weekly call options that are far out of the money, with the collected premiums being automatically compounded every week.
How to start your subscription
Backtesting results indicate that if you had held 100 ETH from 1 January 2020 until 31 December 2022 (1095 days) using the ETH Covered Calls x3 strategy, you could have potentially earned 90.39 ETH. You can review the trade performance history screenshot from 8 March 2023.
Disclaimers : The main results are from a backtest, ie a simulation based on historical data. We did however try to model it as conservatively as possible. This is a very aggressive strategy; we use a lot of leverage and options on crypto. Make sure you understand the risks. This post is not financial advice and please remember past performance does not guarantee future results.
Final Remarks
The Shanghai upgrade is a crucial development in the ongoing evolution of the Ethereum network. This upgrade is expected to significantly improve the network’s security, scalability, and user-friendliness, while also simplifying the process for developers to contribute to its development. This makes it a significant milestone for users, developers, and investors to follow in the coming months.
Despite its potential benefits, it remains unclear how the Shanghai upgrade will impact Ethereum’s short-term price or the withdrawal process. However, it is an essential step towards the full functionality of Ethereum’s PoS network, and it is eagerly anticipated by the crypto community. Developers are also excited about upcoming upgrades to scale the network, such as sharding.
It is important to note that this article provides information for educational purposes only and should not be taken as legal, tax, financial, investment, or other advice. Flynt Finance does not endorse, invite, or solicit the purchase, sale, or investment of any crypto assets. As with any investment, the value of crypto assets can fluctuate, and past performance is not a reliable predictor of future performance. Therefore, it is crucial to conduct due diligence and research before making any investment decisions. Additionally, buying and selling crypto assets may result in taxable events, including capital gains tax, depending on your jurisdiction. It is important to conduct thorough research and due diligence when evaluating a crypto asset to make the best possible investment decisions, as you will be solely responsible for any investments.
