Ethereum’s Shanghai Upgrade “Shapella” Complete, Ethereum up 6%

Ethereum has completed a major upgrade called the “Shanghai hard fork” (or “Shapella” for short).

This upgrade is a big deal because it now allows users who have “staked” their Ethereum (ETH) to withdraw it and redeem their rewards.

That’s right, you can finally access your hard-earned ETH! So, let’s dive into what this upgrade means and how it will impact the Ethereum network.

In a blockchain network, users need to secure and confirm new data blocks. In a proof-of-stake system like Ethereum, users stake their cryptocurrency as a guarantee that they will do this.

Last year, Ethereum moved away from its original proof-of-work consensus mechanism (like Bitcoin uses) to a proof-of-stake system. However, until now, users were unable to withdraw their staked ether or receive rewards they had earned.

New Era of Staking

The Shanghai hard fork is a significant milestone for the Ethereum community as it completes the network’s multi-year transition to a full proof-of-stake system.

During the upgrade, over 285 withdrawals (worth around $10 million) were processed within half an hour of activation. The price of ETH remained mostly unchanged during this time.

In his own view, Vitalik Buterin, the co-founder of Ethereum, thinks that the most difficult and fastest parts of the network’s transition are now over, but there are still significant things to be done at a slower pace.

According to Vitalik Buterin, the co-founder of Ethereum, the next challenge for the blockchain network after the Shanghai hard fork will be scaling. This means making transactions faster and cheaper. He explained that if scaling isn’t addressed before the next bull run, people will end up paying high transaction fees (as much as $500 per transaction).

Buterin also mentioned Verkle Trees, which are a data structure used in cryptography that can help improve the efficiency of the Ethereum network. He suggested that not having Verkle Trees before the next bull run would be a smaller problem compared to the high transaction fees.

Validators

When Ethereum moved from its old proof-of-work consensus mechanism to the new proof-of-stake mechanism via the “Merge” hard fork, it introduced a new type of user called “validators.” These validators keep the blockchain running and make it more secure and decentralized. The goal of the Ethereum community is to have an army of many individual node operators instead of just a few large ones, which is more feasible with proof-of-stake.

The Shanghai hard fork not only enables users to withdraw their staked ETH but also introduces four Ethereum Improvement Proposals (EIPs) to improve gas fees for developers. These EIPs will enable better payments for users, lower gas costs for developers, cap gas costs for developers, and notify developers about the depreciation of certain code that reduces gas fees.

Shanghai: Unstaking is now available

Validators have different options for unstaking their ether (ETH) from the Ethereum network. There are two main types of unstaking: partial withdrawals and full withdrawals. In a partial withdrawal, validators take out the rewards they earned from staking but leave the originally staked ether in place.

Solo stakers who run their own validators needed to migrate their credentials to a 0x01 withdrawal credential to be able to do partial withdrawals automatically. When the Shanghai hard fork was triggered, partial withdrawals became available immediately, allowing users to receive their rewards. However, Ethereum can only process 16 partial withdrawal requests in one slot, which happens every 12 seconds. Depending on the number of requests, the queue for withdrawals could take hours.

According to Barnabas Busa, a DevOps Engineer at the Ethereum Foundation, there may not be many partial withdrawals during the first few epochs (time periods) since the first few hundred validators are still using the old withdrawal credential set. These validators are called genesis validators and joined the network when the Beacon Chain first went live. They may be more interested in continuing to secure the network rather than cashing out their rewards.

Full withdrawals involve redeeming both the original staked ether and any rewards earned by validators. This type of withdrawal became available at the same time as partial withdrawals when the Shanghai hard fork was triggered. By fully unstaking their 32 ETH and rewards, validators exit the chain and stop participating in the block validation process, which means they no longer contribute to the network’s security.

Unlike partial withdrawals, full withdrawals don’t happen automatically. Validators who want to exit need to send a message to the blockchain to get added to the queue.

Staking services such as Coinbase and Lido have their own timelines for releasing staked ETH withdrawals. Coinbase announced they would start processing withdrawal requests for their stakers about 24 hours after the Shanghai hard fork was complete. On the other hand, Lido stated that stakers won’t be able to retrieve their withdrawals until the protocol goes through another upgrade in May.

Improvement in Gas fees

While staked ETH withdrawals are the main focus of Shanghai, there are also four smaller mechanisms to Ethereum (known as Ethereum Improvement Proposals or EIPs) that will improve gas fees for developers.

EIP-3651: which accesses the “COINBASE” address, a software used by validators (no connection to the popular exchange), at a lower gas cost. This code change to the blockchain could improve Maximal Extractable Value (MEV) payments for users;

EIP-3855: which enables “Push0,” a code that will lower gas costs for developers;

EIP-3860: which caps gas costs for developers if they use ‘initcode’ (a code used by developers for smart contracts); and

EIP-6049: which will notify developers of the depreciation of a code known as “SELFDESTRUCT,” which also reduces gas fees.

Disclaimer

This article is not meant to encourage buying or selling any financial instruments, including digital assets like Bitcoin or Ethereum. It is also not an endorsement of any trading strategy related to these assets.

The article is purely for informational purposes and is based on publicly available factual information. It does not provide personalized investment advice, and it has been prepared without considering the individual financial circumstances and objectives of the readers.

Investors who want to evaluate specific investments and strategies related to digital assets should seek professional advice.