BigONE Insights: All You Need To Know About The Ethereum Shanghai Upgrade

The Ethereum Shanghai hard fork upgrade in March 2023 is designed to provide Ethereum cryptocurrency network users with access to their staked ether (ETH) funds for the first time, which is a significant change for the platform. These assets have been assigned to Ethereum’s PoS Beacon Chain network backbone, allowing ETH holders to stake the tokens without locking them up indefinitely, perform transaction validations, and receive rewards in the form of newly created tokens. Ethereum’s design goals include scalability, programmability, security, and decentralization. It is the blockchain of choice for developers and ventures creating blockchain-based technology that will change the way many industries operate and how we live our daily lives. Ethereum began with a proof-of-work (PoW) validation mechanism, but with the launch of the Beacon Chain in December 2020, it began its transition to a proof-of-stake (PoS) validation mechanism. Ethereum entered a new era with the Beacon Chain coordinating user staking, which is only possible on PoS systems. The Beacon contract reached its target of 524,288 ETH a week before the launch. In this article, we would look at the most recent upgrade, and what to expect.

Understanding the Shanghai Upgrade

The Shanghai upgrade is actually a series of upgrades for the Ethereum network, and, collectively, their effects are significant. The Shanghai hard fork is set to go live this month. Shanghai comprises several upgrades, but the most impactful one allows ETH stakers to remove both their staked ETH and the rewards accrued. This has long been sought by Ethereum users and the crypto community at large. This change is established in the EIP-4895 proposal.

In addition, the Shanghai upgrade also has several other proposals related to the Ethereum Virtual Machine (EVM) Object Format (EOF), which is a software component of all EVM-compatible blockchains that contains more than 120 operation codes that give decentralized programmability to the networks. However, developers have said that if these can’t be implemented in time, they will be postponed until later in the year to avoid delaying the unstaking of ETH.

What Next For Ethereum After Shanghai?

As of March 2023, more than $17 million in ETH had been staked following the Ethereum Merge, implying that many people will want to unstake their ETH. However, withdrawal amounts will be limited to around 43,200 ETH per day. This prevents a large number of validators from leaving the network. It would not be surprising if the price of ETH rose following a successful upgrade. This has happened before, and everything appears to be on track for the Shanghai hard fork.

What Is The Importance Of The Shanghai Upgrade?

The first reason is a reduction in gas fees for layer-2 solutions. These Ethereum-based solutions, such as Polygon and Optimism, benefit from lower gas fees. These have already increased the speed and decreased the cost of Ethereum transactions. It may become even more affordable with this addition. Previously, anyone wishing to validate on the new POS Ethereum Beacon chain had to deposit a certain amount of ETH into a deposit-smart contract. These ETH would be locked in even after the Merge. The Shanghai update appears to be releasing these locked-in ETHs, and people may start reclaiming their staked ETH tokens gradually.

Conclusion

While the release of Ethereum tokens in conjunction with the Shanghai upgrade is widely regarded as a bearish event, new information suggests that this may not be the case. Given that Ethereum staked in pools such as Lido is experiencing unrealized losses, ETH holders are unlikely to sell their holdings despite token unlock.

According to CryptoQuant data, 60% of ETH staked is in the red. This equates to 10.3 million unrealized ETH tokens. When token holders have unrealized profits, the selling pressure on the asset increases. When investors have the potential for extremely high profits, selling pressure is generally high. When many assets are unstaked simultaneously, it is common for some investors to want to cash out their profits, creating selling pressure. l. Ethereum’s price is unlikely to fall because there is little selling pressure — token prices fall when selling pressure increases.