The Ethereum ecosystem is set for a major shift as the highly anticipated Shanghai upgrade draws near. The upgrade will activate Ether (ETH) withdrawals from Ethereum’s Beacon Chain, a milestone for the Ethereum network that shifts it from proof-of-work to proof-of-stake consensus. The change introduced validators as the new “miners” of the network, with staking ETH becoming a key component in maintaining the network. However, staked validators have been unable to withdraw their holdings from the Beacon Chain, which changes with the Shanghai upgrade.
The Shanghai upgrade will not only activate staking withdrawals but also feature five Ethereum Improvement Proposals (EIPs) aimed at correcting overpriced and underpriced operations. EIP-4895 will enable users to withdraw from the Ethereum staking contract, which had previously been locked. EIP-3651 changes the price of accessing the coinbase address of a validator, allowing users to pay the validators directly in specific conditions, while EIP-3860 applies a new cost to the initcode intended to ensure handling that contract creation is costed appropriately. Finally, EIP-3855 creates a new PUSH0 opcode, which costs 1 byte of data storage and will bring gas costs for developers down.
The Shanghai upgrade is set to unlock 17.6M ETH, or over $28 billion, and is expected to have significant ramifications for supply flows and the price of ETH. The upgrade will create fundamental changes to Ethereum’s market structure, and some believe that a successful network upgrade will spur more deposits, leading to bullish market activity. Others, however, believe that large portions of the staked ETH supply, now in excess of 17.5 million ETH, will be withdrawn and sold.
The effect of the Shanghai upgrade on cryptocurrency markets and the value of ETH is still unclear. However, there is a shift in focus for the upgrade to prioritize validator withdrawals, which has led to the postponement of some EIPs to the Cancun upgrade, set to follow Shanghai later in 2023. This includes improvements that will lay the foundation for sharding, namely “Proto-Danksharding” EIP-4844.
The Shanghai upgrade is scheduled to take place on the Ethereum mainnet in early April, with the Goerli test network carrying out the Shapella upgrade on March 14. The upgrade is highly anticipated and will mark a significant milestone for the Ethereum network, signaling a shift to proof-of-stake consensus and enabling staked ETH withdrawals.