Frequently Asked Questions About Ethereum Shanghai Upgrade
After the Ethereum network’s flawlessly executed upgrade called The Merge on 15 September 2022, which transformed the Ethereum network into a new consensus Proof-of-Stake algorithm, the entire crypto community is eagerly awaiting to see what’s next.
In all likelihood, the community around Ethereum will see another major upgrade called Shanghai as early as March this year, which will bring several interesting improvements and changes. For this reason, Fumbi has prepared a list of frequently asked questions and answers related to this upgrade.
What Is the Ethereum Shanghai Upgrade?
Ethereum Shanghai Upgrade is the next major upgrade to the Ethereum network that the developers decided to work on before implementing the improvements related to the Surge development phase. Since Surge is an essential part of the Ethereum upgrades that will improve the overall throughput of the Ethereum network, the developers had decided to implement the Shanghai Upgrade before implementing the Surge, setting the stage and fixing any issues before the Surge upgrade.
The Shanghai upgrade was originally supposed to include a number of other eagerly awaited upgrades, including proto-danksharding, which is a simplified data sampling process that would make transactions on the second layer (L2) of Ethereum significantly cheaper and faster. However, proto-danksharding was eventually dropped from this upgrade.
What Changes Will the Shanghai Upgrade Bring?
Although the Ethereum Shanghai upgrade includes several improvements, its most important component will be EIP-4895: Beacon Chain Push Withdrawals as Operations
The proposal essentially allows validators to select the staked ETH that has been inserted into the Beacon Chain from December 2020 until now. Ultimately, EIP-4895 intends to provide additional liquidity to long-term ETH stakers as they will be able to withdraw their ETH from the staking contract after at least 2 years.
In addition to EIP-4895, the upgrade will include several other changes in the form of Ethereum Improvement Proposals (EIPs):
- EIP-3860: Limit and Meter Initcode – The proposal limits the maximum size of the initcode parameter to 49152. This essentially addresses cases of lack of gas fees in Ethereum network interactions.
- EIP-3855: Instruction PUSH0 – This EIP introduces new instructions for the Ethereum Virtual Machine (EVM) to help reduce the size and optimize smart contract codes.
- EIP-3651: Warm COINBASE – This design makes block creation cheaper and separates block builders and proposers. This will reduce gas fees for network participants, and traders using block producers to execute their transactions on Ethereum will no longer have to pay for failed transactions.
Which Improvement Is Considered the Most Important?
The most important part of the upgrade is EIP-4895, which will allow validators to withdraw their staked ETH from the deposit contract.
From the launch of Beacon Chain in December 2020 until today, participation in ETH staking has only been one-way, meaning that if someone wanted to stake their ETH and collect staking rewards, they had to lock their ETH into the protocol indefinitely and give up liquidity. The minimum for starting a validation node in the network was 32 ETH, which is why, especially in the beginning, Ethereum staking was not open to everyone. However, new alternatives quickly emerged, such as liquid staking or pooled staking, which were able to solve this problem, thanks to which anyone could participate in staking. More than 16 million ETH with a total value of over $25 billion has been locked into the staking contract over the past two years.
However, with the changes, validators will be able to withdraw their staked ETH along with the accumulated rewards from the contract, which is considered an important step forward in the development of the Ethereum network.
How Can This Event Affect ETH?
Part of the crypto community is concerned that allowing ETH and reward withdrawals from staking may create selling pressure and weaken the security of the Ethereum network. After a long wait, many entities may decide to realize their profits.
However, the community behind Ethereum expected and counted on similar reactions. For this reason, a limitation is set in the Ethereum network, allowing validators to release just over 40,000 ETH per day from the staking contract into circulation. The main reason for this restriction is to keep Ethereum stable and not compromise the network’s overall security.
However, changing the way staking will work on the network will certainly affect investor interactions on the Ethereum network. It is assumed that some investors will realize their profits over time while others will move their ETH from on-chain staking to liquid staking.
Will the Upgrade Affect Fumbi Users?
No. Owners of the Ethereum (ETH) cryptocurrency in Fumbi will not be affected in any way by this upgrade. Fumbi does not currently carry out any activity related to the staking of the Ethereum cryptocurrency, so the purchase and sale of the Ethereum cryptocurrency will proceed under standard conditions.