In March, Ethereum will experience its first significant upgrade since moving to a proof-of-stake system in September. Upon completion of the upcoming “Shanghai” upgrade, 16 million staked ETH will be accessible to the validators who help run the network.
The primary purpose of Shanghai is to execute Ethereum Improvement Proposal-4895, which releases validator withdrawals. Moreover, the full list of modifications for the update has been finalized, and it contains other improvements that will definitely be recognized by Ethereum app creators and a lot of the platform’s users.
What is EIP-4895?
The focus of Shanghai is EIP-4895, allowing Ethereum(ETH) validators to retrieve the 16 million ETH they have staked so far in order to support the security of the network.
When Ethereum underwent its Merge upgrade and switched its consensus protocol from proof-of-work (PoW) to proof-of-stake (PoS), validators replaced miners in the task of adding blocks to the blockchain. To qualify as a validator, one must put forth 32 ETH as collateral. This ETH acts like a lottery ticket, with more staked ETH increasing one’s chances of being chosen to propose the next block of Ethereum transactions and consequently collecting network rewards.
Before signing up to be validators on the PoS blockchain, they were informed that their staked ETH and any rewards earned would stay inaccessible until an update was made to the chain. Validators have been staking ETH and gathering rewards since December 2020 when Ethereum initiated its PoS “Beacon Chain” in its first move towards the Merge. Now those validators will finally be able to retrieve their stake.
What is the significance of the Shanghai hard fork?
EIP-4895 is the primary emphasis of the upgrade, since stakers may want to draw out their rewards acquired during the last two years or gain more control over their assets due to the volatility in crypto markets during this past year.
The PoS blockchain has been running smoothly since its launch, but stakers have had to keep their funds locked for the Ethereum network to stay up and running. Now, with the mechanism that will allow them access to their staked ETH, full proof-of-stake blockchain functionality is available, giving stakers more control over their rewards and what they can do with them.
What is the process for a validator to withdraw their ETH?
Once Shanghai is up and running, validator operators have two ways to remove their ETH from staking. The first is configuring a “withdrawal credential” which will automatically unstake the rewards you’ve accrued as a validator. Alternatively, you can fully exit the Beacon Chain and de-stake all 32 ETH by having your validator send out a message that it’s leaving the blockchain.
Marius Van Der Wijden, a developer at the Ethereum Foundation, told that when it comes to accessing ETH you want to unstake, the timing depends on how many people are withdrawing at any given time. Up to 16 partial withdrawal requests can be processed every 12 seconds and both full and partial withdrawals have a shared queue in the blockchain. Nevertheless, it is unlikely that all validators will leave because staking offers a new opportunity for Ethereum and those who use its services.
Will crypto traders rush to sell their ETH?
As the dawn of unlocked ETH arrives, crypto traders are keeping tabs on how the market will act. Some traders think that when staked ETH is freed, there could be a selloff, while others speculate that Shanghai will motivate more staking.
Presently, there is a total of 1 million ETH of earned rewards accessible to be taken out when Shanghai goes live. Traders will be observing if the released ETH will be rapidly liquidated and if it influences the ETH value downwards.
What else is in the Shanghai hard fork?
The four minor EIPs in Shanghai are connected to gas fees – a kind of charge that users pay for executing transactions on the Ethereum blockchain. When the demand is high, gas fees can be pricey, and so Ethereum developers are attempting to include systems that will reduce costly gas fees for those constructing on the blockchain.
EIP-3651 suggests reducing the gas cost for accessing the “COINBASE” address, a tool used by validators and block makers. (Note: This has nothing to do with Coinbase, the cryptocurrency trading platform.) Matt Nelson, a Product Manager at ConsenSys, states that such a code change could enhance Maximal Extractable Value (MEV) payments as well as other user experiences.
“This EIP corrects a previous oversight on the cost to access the COINBASE address and gives some added benefits to users and developers that open up new use-cases.”
– Nelson
Other EIPs in the package are:
- EIP-3855 – creates a code dubbed “Push0” that will lower gas costs for developers
- EIP-3860 – puts a cap on the gas cost for developers when interacting with ‘initcode’ (a code used by developers for smart contracts)
- EIP-6049 – will notify developers of the depreciation of a code known as “SELFDESTRUCT,” which also relates to reducing gas fees
What’s next for Ethereum after the Shanghai hard fork?
The developers decided to limit the size of Shanghai, mainly so withdrawals of staked ETH could be returned quickly. Consequently, some major modifications to the Ethereum protocol were deferred until the third quarter of 2023.
The technique is referred to as “proto-danksharding,” a rather imposing name which actually just means a process of increasing the blockchain’s capacity by breaking it into multiple networks, or “shards.”
The Ethereum Virtual Machine (EVM) will also be receiving Object Format (EOF) enhancements, including a few minor upgrades.
