Shanghai update in Ethereum network – what it is, activation date

Etherium has flaws. To fix these flaws, the team released a series of updates. One of these was The Merge, which took place in September 2022. As a result, the blockchain switched from the Proof-of-Work consensus mechanism to Proof-of-Stake. Now the project is gearing up for the next update called Shanghai. The hardfork will not only allow validators to move their assets out of staking, but will also improve the security and efficiency of the network.

What is the Shanghai update in Ethereum

Ethereum is a decentralized platform based on blockchain technology. The project has been developing at a steady pace since its launch in 2015. It was originally built on the Proof-of-Work (PoW) consensus mechanism. After an update called The Merge, Etherium switched to the more energy-efficient Proof-of-Stake (PoS) algorithm.

However, the blockchain suffers from scalability issues. Etherium operates at a speed of just 30 TPS. Network congestion due to the sheer volume of transactions often leads to delays and high gas prices. Ethereum Foundation is actively working on the long-awaited Shanghai to solve these problems.

The improvement is expected to take ETH out of the steakage, reduce gas fees, increase the scalability of the blockchain and make it more efficient in processing transactions.

The project team launched the Shandong testnet in October 2022. It allowed developers to scrutinize all the offerings (EIPs) expected in Shandong.

What improvements are included in Shanghai

The upgrade is important for the network and investors. “Shanghai” implements a number of Ethereum enhancement proposals (EIPs). The most significant one is EIP-4895. It will bring out ether that has been blocked in the smart contract since the introduction of Beacon Chain (in December 2020). The table lists the EIPs that are also part of “Shanghai”.

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The developers also wanted to roll out the EIP-4844 offering, a prototype of Danksharding. This is another technique aimed at making the blockchain more scalable by dividing the network into smaller groups or “shards” that can conduct transactions in parallel. EIP-4844 will allow more data to be processed simultaneously, reducing gas charges and improving the overall performance of the blockchain. However, Danny Ryan, one of the developers of Etherium, said in December 2022 that Shanghai would be deployed without this proposal.

When the Shanghai update will happen

“The merger took place on September 15, 2022. The network switched from Proof-of-Work to Proof-of-Stake. Next month, which is April 12, 2023, the final phase of The Merge will take place – the Shanghai update. Thanks to the upcoming hardfork, validators will be able to withdraw assets locked in a smart contract.

Shanghai was originally scheduled for an earlier date. However, on March 14, a hardfork occurred on the Goerli test network. Tim Beyko, the lead developer of Etherium, explained that time had to be set aside to verify the results of the testnet. The update was pushed back to April.

What will become of Ethereum after Shanghai

The Shanghai update is an important event. It brings several new features and improvements to the Ethereum ecosystem. This is a major change for the network, which holds the largest market share in the decentralized finance (DeFi) market with a total blockchain value (TVL) of $29.38 billion in March 2023. “Shanghai” will affect different aspects of the blockchain.

How the update will affect validators

The hardfork will unlock ETH. This means that validators will be able to withdraw their frozen assets. However, experts say this scenario is unlikely, given the high yield of staking Ether and its dominance in the DeFi ecosystem.

In addition, Shanghai will allow assets to be withdrawn at any time. Users no longer have to worry about ETH being blocked for an indefinite period.

In March 2023, there are more than 500k validators. Now they can take back their coins. There are two ways:

• Full withdrawal feature. In this case, the validator takes back all 32 ETH they have transferred to Beacon Chain, including rewards. Once complete, the user is no longer part of the staking program.
• Partial Withdrawal. This feature allows validators to take away rewards and some amount of assets. However, there is a condition – at least 32 ETH must remain in the staking to keep the node running. That is, a validator who places 40 ETH can claim the steaking reward and pick up another 8 coins. In this case, the user continues to participate in the program.

What happens to the price of ETH

As of March 2023, about 16 million coins (about 13% of the total) are locked in the smart contract. When the withdrawal opens, the amount of ether in circulation will increase. According to the law of supply and demand, this will lower the value of the asset. However, investors are usually more focused on fundamentals to determine the fair price of the cryptocurrency in the future. Since Shanghai is a significant event in the history of Etherium, the update will arouse the interest of market participants.

In addition, ETH withdrawals will not be available immediately. Validators will be able to withdraw coins in small installments.

Due to the unstable nature of the cryptocurrency market, it is impossible to accurately predict how the ETH rate will react. But previous examples have shown that during every major update, the value of Ethereum either held or rose. The price of ETH soared from $1060 in July 2022 to $1900 in August. At the time of the Merger, the cryptocurrency was trading at $1700.

Will fees decrease

Efirium has always suffered from slow transactions and high fees. Before The Merge, users had speculations about the change in fees, but unfortunately, they didn’t come true. Now investors are hoping that Shanghai will live up to their expectations.

The main change introduced by the Shanghai update concerns the mechanism for determining the price of gas. Developers are introducing special algorithms that are less prone to commission increases and network congestion. Shanghai will reduce the block size and also improve the overall efficiency of data transfer in Etherium. This is expected to reduce the cost of the most commonly used operations, such as contract creation and function calls.

Conclusions

Shanghai is a highly anticipated event for the Ethereum community, and for good reason. With the introduction of EIP-4895 and other significant changes, the network will become more efficient, cost-effective, and environmentally friendly. “Shanghai” aims to improve the performance and scalability of Ethereum. It will allow the withdrawal of blocked ETH, reduce gas fees, and increase transaction processing efficiency.