The Ethereum Shanghai update is the one that will unlock the ETH staked in the previous upgrade. With these versions, also known as the Shapella update or EIP-4895, staking rewards can also be claimed. Also, users can stake without worrying about when their assets will be withdrawn.
What is Ethereum Shanghai (Shapella) Update?
The Ethereum Shanghai upgrade is a hard fork and the first major upgrade of the protocol since The Merge in 2022. With the Shanghai update, users will be able to withdraw staked ETH from Beacon Chain. Following the ETH Shapella, also known as the EIP-4894 update, approximately 16 million staked ETH will be ready for withdrawal.
How this will happen is described in the ‘Ethereum Improvement Proposal’ (EIP-4895), which will allow validators to withdraw staked ETH until December 2020, when the Beacon Chain is first launched.
In addition to EIP-4895, there are several other EIPs in the Shanghai fork, most of which are aimed at lowering gas costs for Ethereum developers.
The changes included in the Shanghai update are:
- EIP-3651:Hot COINBASE
- EIP-3855:PUSH0 instruction
- EIP-3860:Limit and counter start code
- EIP-4895:Beacon Chain push withdrawals as transactions
- EIP-6049:SEFDESTRUCT
However, Shapella does not include EIP-4844, which would allow scaling of the Ethereum network via sharding. “Sharding” is a scalability solution that divides the entire network of a blockchain into many smaller networks called shards.
When is the Shanghai Update?
The Ethereum Shanghai update will arrive on April 12, 2023. Initially, the network upgrade was scheduled for March 2023. Its main purpose is to allow stakers and validators to withdraw staked ETH from the Beacon Chain.
Ethereum moved its consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS), known as The Merge, in September 2022. This required the network to rely on validators rather than miners to run it. To become an Ethereum validator, participants must stake 32 ETH. The network has informed potential validators that its shares will remain locked until the next update on the chain.
The Shanghai upgrade, known as Shapella, will also allow these locked shares to be purchased. Users will finally be able to cash out their rewards.
How Will Withdrawals With Ethereum Shanghai Work?
There are approximately 16 million staked ETH that will be ready to be withdrawn by validators once the Shanghai upgrade goes live. However, as there is only one queue for both full and partial withdrawals on the blockchain, there will be a waiting period for users to access the ETH they want to redeem. In each slot (occurs every 12 seconds), only 16 partial withdrawals can occur.
Validators have two options to get their ETH back. First, they can create a “withdrawal document” to reclaim their accumulated staking rewards in past years. Secondly, validators can exit the Beacon Chain completely by reclaiming all 32 ETH, which is the maximum allowed per validator.
Will Shanghai Update Affect ETH Price?
With the new update, it is wondered how the Ethereum price will be affected. As a new era begins in unlocked ETH, crypto investors are discussing the potential impact of the Shanghai update on the market. While some investors claim that the post Shapella Ethereum selling wave could be triggered, others state that the upgrade will encourage more staking.
Currently, there are 1 million ETH rewards waiting to be withdrawn with the Shanghai upgrade. Although it is not yet clear in which direction the market will go, it is expected that users will turn their existing ETH into cash. This could bring down the Ethereum price. So the Ethereum Shanghai update could lower the Ethereum price.
For Ethereum Shanghai Update Specification click here.
