Ethereum Shanghai Upgrade On April 12: How It Will Be A Major Relief For ETH Stakeholders

The biggest impact of the Shanghai Upgrade will be seen in unlocking the stakes, which remained staked until March this year.

After the successful completion of the Merge of the Ethereum main-net in September 2022, the Ethereum blockchain is expected to witness the Shanghai Upgrade sometime on April 12 this year. The Ethereum blockchain will sever its links to the crypto mining at 19.27 Eastern time tomorrow. Crypto enthusiasts are planning special parties in order to view and enjoy the grand event. Among the crypto circle, the Shanghai Upgrade is largely considered to be one of the most significant events for the ETH community since the Merge. In this article, we explain everything you need to know about the Ethereum Shanghai Upgrade.

But before that, let's understand the Merge a little better. 

What Was The Merge?

Last year, the Merge took place as the Ethereum blockchain successfully made its transition from the proof-of-work (PoW) to proof-of-stake (PoS).

The network went through a shift without any major hiccups, causing hardware-based miners to be replaced by validators staking Ethereum. They engaged in staking to ensure transaction processing and to help add blocks in order to maintain the network.

One of the significant changes of the Merge was a drastic fall in the consumption of power. It helped Ethereum bring down its energy utilisation by almost 99 percent, reported CoinTelegraph.

What Is Ethereum Shanghai Upgrade?

The Ethereum Shanghai upgrade, also known as 'Ethereum Shanghai Fork', is a series of changes and upgrade in the Ethereum blockchain network, scheduled to take place sometime in March or April this year. These major changes is believed to have decisive economic effects on the customers, investors, and the organisation itself.

Around five Ethereum Improvement Proposals (EIPs) are expected to be introduced, with EIP-4895 going to be the major one. This is because the Ethereum Shanghai Upgrade will help unlock staked Ethereum to facilitate withdrawals. It is a big relief for the Ethereum community as the stakes can be unlocked after two years.

However, there are other proposals in the Shanghai Upgrade pertaining to Ethereum Virtual Machine (EVM) and Ethereum Object Format (EOF).

EVM is a software component containing all the blockchains compatible with it. This has Ethereum Classic (ETC), which includes over 120 operation codes as it ensures decentralised programmability on the networks. EOF is a group of proposals regarding improvements that have accumulated over the years. However, it forms a consistent and logical sound upgrade for the Ethereum Virtual Machine.

What Could Change After The Ethereum Shanghai Upgrade?

As mentioned earlier, the biggest impact of the Upgrade will be seen in unlocking the stakes. Over $17 million Ether remained staked until March this year, following the Ethereums' Merge event. The imminent upgrade will ensure the complete unlocking of these stakes. 

Although the customers can withdraw amounts, there will be a limitation of ETH 43,200 per day. This also means that validators will not migrate at a large scale from the network. 

How Will Shanghai Fork Affect Ethereum Stakeholders?

Ethereum has a history of slow transactions with high fees. The recurring issues of slow transactions and high fees were seen more often after the Decentralised Finance (DeFi) saw a boom, which subsequently caused an increase in Transactions Value Locking (TVL) on the chain.

In addition to that, non-fungible tokens (NFTs) rise also led to not-so-good experiences for its users and stakeholders.

However, after scheduled Shanghai upgrade, the transaction speed is expected to increase and fees might get reduced. The changes could lead to better performance and flexible staking for the stakeholders.

How Will It Affect Traders, Investors?

Traders are expected to witness the price hike due to the Shanghai upgrade. The supply and demand of the product may see a significant change.

Primarily, more users will stay and come back after the transaction fees are reduced. Ethereum has for long been considered the "rich people's chain." This notion and barrier will break after the costs are brought down. When it comes to investors, it will become a risk-free trade and investment opportunity. This will happen as a result of Ethereum becoming the blue-chip asset in the cryptocurrency industry.

Commenting on the matter, CoinSwitch Crypto Ecosystem Lead Parth Chaturvedi said, “The upcoming Ethereum upgrade, referred to as Shapella, is a combination of two major upgrades, Shanghai and Capella, and is set to occur on April 12. It is the first simultaneous upgrade of Ethereum's execution layer (Shanghai) and consensus layer (Capella), and will enable staked ETH withdrawals.”

Chaturvedi further said, “In terms of market performance, as a run-up to Shapella, ETH prices have outperformed BTC in the last two weeks.”

He also said there is a bullish sentiment that after the upgrades, ETH staking will become more efficient which will attract new capital to enjoy the staking rewards. However, he agreed the flip side of the argument is this will result in a massive supply overhang, which has been locked for over two years and will be sold by investors. 

Although, this might not be the case as all the staked ETH isn't being released at once. He concluded there might be some heightened volatility in ETH because investors will try to evaluate and understand the trend, behaviour and impact of this upgrade.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.