Ethereum’s Shanghai Upgrade: What is it?

Friday, March 24, 2023

The Shanghai Update is a major upgrade that is set to enhance the Ethereum network in numerous ways. The upgrade will introduce five Ethereum Improvement Proposals (EIPs), with EIP-4895 being the most significant one. This proposal is particularly noteworthy because it will allow the withdrawal of staked Ether for the first time since the Merge.  

The Shanghai Upgrade at a glance:  

  • The Shanghai Upgrade is a hard fork that is slated to take place in March 2023. 
  • After this update, validators can unstake their Ether. 
  • Other EIPs will reduce gas costs. 

Why is staking important on Ethereum?

Since the Ethereum network shifted to a Proof-of-Stake (PoS) consensus mechanism, users need to stake at least 32 ETH to participate in the validation process. This prices a lot of investors out of staking and requires serious technological knowledge, which is why you can delegate this work to a specialized provider such as SMART VALOR. 

The Shanghai Upgrade is important for the network, investors and the digital assets industry because it will enable the withdrawal of staked Ether, much of which has been locked up for two years. Even though some validators might be keen to get their hands back on their assets, Ethereum’s strong position in the DeFi sector, along with consistently high staking yield is a convincing argument not to unstake.  

Validators looking to unstake after the Shanghai fork can do so in two ways. The first is to create something called a “withdrawal credential” which unstakes any rewards accrued in the past two years. The second option is to unstake completely and withdraw all 32 ETH.  

Will the upgrade make Ethereum faster or cheaper?

The upgrade will also feature EIP-3855 and EIP-3860, which will enhance network usage across decentralized finance (DeFi) and non-fungible token (NFT) ecosystems by increasing transaction speeds and reducing costs. This improvement will benefit developers and users, as high gas fees and slow transactions have been a significant concern for Ethereum users. 

How will the fork affect the Ether price?

While the Ethereum Shanghai Upgrade is expected to be beneficial in the long run, it may lead to short-term price declines, as traders might want to note the fall in Ether's price since the merge was pushed in 2022. However, the upgrade will unlock staked Ether, and this could increase the supply of Ether, leading to a drop in prices. 

Despite the potential for short-term price dips, the Ethereum Shanghai Upgrade is a crucial development that will improve the Ethereum network's efficiency and security, benefiting Ethereum stakers and other users in the long run. Overall, the Ethereum Shanghai Upgrade is an essential step towards Ethereum's growth and will help position the network for future success. 

For customers of SMART VALOR: unstaking your ETH will be soon available with the Shanghai update. We at SMART VALOR are constantly monitoring the progress of the upgrade and you’ll get all the updates via our Twitter page.