The Ethereum Shanghai Upgrade is a highly-anticipated hard fork for the Ethereum protocol, expected to be implemented in March 2023. The upgrade will allow validators to access their staking rewards for the first time since the launch of the Ethereum Beacon Chain in 2020. The upgrade is significant, given that nearly $26 billion worth of ETH will suddenly be unlocked and made accessible.
Guide: How to buy Ethereum.
What is the Shanghai Upgrade?
The Ethereum Merge to a Proof of Stake consensus mechanism in September 2022 was a landmark moment for the protocol and the wider cryptocurrency industry. The complex transition took multiple years and was first introduced via the Beacon Chain in December 2020. Validators could stake 32 ETH to contribute to the blockchain’s economic security and long-term viability. However, validators were required to lock up their original ETH tokens and any rewards until a later upgrade was implemented. The Shanghai Upgrade is that upgrade.
Ethereum Improvement Proposal-4895 is the flagship change of the Shanghai Upgrade. Investors have been waiting for this proposal to be implemented since staking was made available on the Beacon Chain in 2020. EIP-4895 lets node operators finally access their locked-up tokens, including any rewards they have accumulated.
Approximately 14% of all Ether – equivalent to 16.5+ million ETH, or $26 billion – has been staked in some form. Over 520,000 validators have contributed at least 32 ETH to set up a node validator and start receiving block rewards. However, a significant number of stakers won’t be directly affected by the new improvement proposal as many investors have instead turned to proxy-staking services. Lido (29.2%), and major crypto exchanges Binance/Kraken/Coinbase (26%) control nearly half of the entire ETH staking market.
Considering the tough bear market of 2022-23, the majority of Ethereum stakers are actually running at a loss. This is largely because most staking solutions became available during crypto’s substantial 2021 bull run, when prices were much higher. As of March 2023, only about 31% of ETH stakers are in profit. Most of this 31% began staking at the launch of the Beacon Chain in December 2020, when the price of ETH was ranging between US $400 and 700.
What is the impact of the Ethereum Shanghai Upgrade?
The Ethereum Shanghai upgrade is expected to have several positive impacts on the Ethereum network, including:
- Increased efficiency: The implementation of EIP-1559 will reduce the overall cost of transactions on the network, making it more affordable for users.
- Improved security: The updates to the consensus mechanism will improve the security of the network, making it more resilient against attacks.
- Delay in the difficulty bomb: The delay in the difficulty bomb will give the Ethereum community more time to prepare for the transition to Ethereum 2.0.
- Continued progress towards Ethereum 2.0: The Ethereum Shanghai upgrade is part of a series of upgrades that will eventually lead to the full implementation of Ethereum 2.0. This transition will address some of the scalability and security issues faced by the current Ethereum network.
The Ethereum Shanghai upgrade is a significant milestone in the ongoing development of the Ethereum network. It includes several key features that aim to improve the efficiency, security, and scalability of the network. The implementation of EIP-1559, the delay in the difficulty bomb, and the updates to the consensus mechanism will likely have a positive impact on the Ethereum network.