Ethereum’s Shanghai Upgrade – The Next Milestone in the Network’s History 

As crypto enthusiasts may already know, Ethereum is known in the cryptocurrency sphere as the world’s programmable blockchain and the second-largest crypto by market cap and popularity after the all-time leader Bitcoin. These are quite remarkable achievements for a digital currency that is less than a decade old. 

However, Ethereum’s devs have no plans to stop here. Things evolve fast in the crypto industry, and Ethereum is a good example of that. After the network’s biggest-ever upgrade, known as the Merge, was completed on September 15th last year, it was already announced that a series of smaller upgrades will follow in order to boost scalability, security, and sustainability, and hopefully increase the Ethereum price. So, here we are now, eagerly waiting for the much-anticipated Shanghai upgrade to come into effect and see what follows.  

Initially, the update was supposed to happen later this year, somewhere in September, but it was moved to an earlier date and is now expected to take place in March, with testing for the upgrade beginning in February. The news comes in a time of relative instability for cryptocurrencies. Approximately one year ago, digital currencies, including Ethereum, entered a period of steep decline with the onset of the crypto winter, dominated by crashes, scandals and other less-than-favorable events that weakened investors’ confidence and trust in this new asset class. What crypto lovers need right now is a beacon of hope, and Ethereum’s Shanghai upgrade might provide a ray of sunshine in this grim situation.  

What will the Shanghai upgrade bring to the table? 

A lot of people are wondering what the Shanghai upgrade entails and what changes it will bring to the network. For those who are not familiar with Ethereum’s evolution, we need to back up a little and explain where it all started. 

In September 2022, when the Merge finally came into effect, Ethereum switched from an inefficient and energy-intensive Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) protocol. This basically changed how transactions are validated on the network. The Initial PoW model relied on miners to solve cryptographic puzzles in order to verify transactions and add them onto the blockchain, and that required massive amounts of energy. 

With the PoS mechanism that replaced it when Ethereum’s original execution layer, called the Mainnet, merged with the Beacon Chain, users who want to become validators need to stake 32 ETH instead of solving complicated mathematical equations. Several validators are chosen randomly, and if they verify the block correctly, they are rewarded with coins. This method has helped reduce the network’s energy consumption by up to 99%, making it infinitely more sustainable than its previous version while also adding an extra layer of security.

However, the Merge did not cover all the aspects and implications that came with the new PoS mechanism, leaving validators unable to retire their staked funds. This is the issue that the Shanghai upgrade aims to address in the following months by allowing users to unlock the ETH they’ve staked in order to become validators. Before the implementation of the update in March, users will be given the possibility to test it at the end of February.   

The Shanghai upgrade is just one in a series of updates that are meant to improve the network’s functionality. These are known as Ethereum Improvement Proposals or EIPs. Anyone who has the necessary technical knowledge and expertise can write and put forward an EIP to bring changes to the network. These proposals are then evaluated, and if they are approved, they can turn into an upgrade. Therefore, the Shanghai upgrade started out as EIP 4895 and will soon become another important milestone in the network’s evolution. 

There have been plenty of discussions about how the update will affect traders, investors and the crypto community as a whole. While for stakers, things are pretty clear, as they’ll be able to withdraw their staked funds, it’s still difficult to anticipate all the consequences that this change will trigger.  

A lot of analysts have brought into question the impact that the Shanghai upgrade might have on ETH’s price and the supply and demand dynamics. So far, over 13% of all ETH coins have been staked. With the completion of the Shanghai upgrade, more coins will enter into circulation, thus improving liquidity. It would be rather presumptuous to make price predictions at this point, but it will be interesting to see what happens price-wise once these coins hit the market and traders are finally able to use them as they see fit. That’s why experts are currently keeping a close eye on the staked ETH funds.

Criticism surrounding the upgrade 

As with any other improvement made to Ethereum’s network, the Shanghai upgrade is meant to fix an existing issue and have an overall positive effect. However, the soon-to-be-tested update has gotten its fair share of criticism over the past few weeks for several reasons. 

The biggest issue critics have encountered has to do with the chosen date for the upgrade. As mentioned previously, the update was supposed to take place later this year, but developers decided to rush things a bit and launch it in March. This has attracted several negative reactions, as some developers have expressed concerns that the upgrade is being rolled up sooner than necessary due to public pressure to unlock the staked funds. 

A vocal minority of devs is saying that this haste might have long-term negative effects on the network, suggesting that there might be technical issues going under the radar because of the recent deadline. According to their calculations, the upgrade would have required at least an extra two to four weeks of preparation before being implemented to ensure everything is under control. It’s basically a matter of speed over quality, and some say Ethereum’s team chose the first. 

If the predictions regarding Ethereum’s Shanghai upgrade will come true or not remains to be seen in the months to come, so it’s worth keeping a close eye on the network and its future developments.