Explained: Ethereum’s Shanghai Fork
What it means & how it may strengthen the Ethereum Network
More than five months after Ethereum’s Merge, the world’s second most valuable blockchain by market capitalization continues to be stable — and appears to not have suffered any significant issues since the enormous technical feat. Now, entering the second month of 2023, preparations are in store for the next significant upgrade of the network, which has been named “Shanghai.”
What is the Shanghai Fork?
While more commonly known only as the Shanghai Upgrade (or Shanghai Fork), the upcoming upgrade of the Ethereum network actually encompasses two upgrades. Upgrade #1 involves a fork on Ethereum’s execution side (named Shanghai), while upgrade #2 is related to Ethereum’s consensus layer side (Capella).
Grouped together, the entire upgrade is more commonly known as Shanghai, with all eyes focused on the part of the upgrade which will enable withdrawals for ETH stakers (EIP-4895). EIP-4895 won’t be all that is included in the upgrade though, a full list of all of the Ethereum Improvement Proposals (EIPs) that will be part of Shanghai can be found here.
Last year’s Merge changed Ethereum from a Proof of Work to a Proof of Stake chain. ETH stakers who wanted to reap the financial benefits of staking were required to lock 32 ETH in order to run a validator on the network. At today’s prices, this is roughly $50K USD — but it is worth noting that validators were able to stake as early as December 2020 (before the Merge). A high entry point would have been close to $150kUSD (which would have taken place around November, 2021).
Naturally, the cost to stake in USD likely gave potential validators pause, especially as the staking model made it such that stakers could not withdraw their funds.
This changes with Shanghai.
Shanghai Fork Predicted in March
Ethereum developers recently agreed to pushing the Shanghai upgrade to the Sepolia test network. Assuming Sepolia tests go well, Goerli will be the final testnet to get the upgrade for final testing before mainnet. If all goes according to plan, Ethereum is expected to get the hard fork next month (March).
With the successful upgrade of Mainnet, validators will finally be able to begin withdrawing their staked ETH. These stakers will have two options — partial withdrawal or full withdrawal. Partial withdrawals will allow validators to withdraw their earned rewards on the network since they began staking. These withdrawals can lower their staked balance all the way down to 32 ETH (which stakers must maintain if they want to continue to remain a validator). Conversely, if validators want to perform a full withdrawal, they may also do so — but then lose their status as a validator of the Ethereum network.
While there are concerns that Shanghai could lead to validators exiting their Ethereum positions — others are convinced that the ability to withdraw will only serve to strengthen the network.
Ethereum remains the leading Proof of Stake network, with interest and activity continuing to be strong during these bear market days. Further, the flexibility that the upgrade offers to potential stakers may actually serve to increase interest in this activity — as these individuals can be assured that their funds are not locked and inaccessible indefinitely. With solid APYs to take advantage of on one of crypto’s most established networks, the flexibility that comes with the Shanghai upgrade may in the end add to the more than half million validators which are currently staking on the network.
Exciting Times Ahead
At PARSIQ, we are excited to see the further progression and advancement of the Ethereum network. As an established Web3 data provider in the industry, we believe these upgrades will only serve to strengthen Ethereum, and its surrounding ecosystem. With more entrants into the blockchain space — from consumers to businesses, we believe updates like these will bring more use cases, more projects, and ultimately, more data, into the space.
With our powerful and efficient Tsunami API, we are looking forward to helping established and newly formed Web3 businesses extract the data they need from the blockchains they need them from. Including Ethereum, BSC, Polygon, Avalance, and now, Arbitrum, PARSIQ has the endpoints you need to power your business.
In addition to being a one-stop solution for data, Web3 projects should be aware of our Data Lakes — which provide customized data solutions for our customers. Leveraging Tsunami, our developers will work with customers to access the endpoints they need, to get the data they want.
Excited to extract data from the blockchain? Want to discuss more about how Shanghai may impact your data needs? For more information on the Tsunami API and custom Data Lakes, reach out to bdteam@parsiq.net.
To check out everything that the Tsunami API can do — check out our docs here. Make sure to bookmark and visit regularly for updates!
