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March 29, 2023

The Shanghai Upgrade Is a Turning Point in Making the Ethereum Blockchain More Scalable

Following the Merge in September 2022, Ethereum is planning to introduce meaningful improvements, such as making staked Ether available for withdrawal. Since the launch of the Beacon Chain in December 2020, which serves as a consensus layer for the Ethereum network, those seeking to become validators had to lock at least 32 ETH in the contract, meaning that roughly 10% of the total Ether supply is locked in the consensus layer deposit contract. The upcoming Shanghai upgrade is going to solve that problem. The Shanghai Upgrade is planned for the second half of 2023 – it’s been scheduled for March, and the expected outcome is a change in ETH coin price.

The Ethereum Shanghai Upgrade Is Set to Introduce Several Critical Changes

The Shanghai Upgrade is a long-overdue change to Ethereum’s proof-of-stake consensus mechanism. Before the upgrade is deployed to the Ethereum Mainnet, developers have scheduled testnets. Sepolia is currently the second-largest testnet, providing users with a safe and secure environment for testing smart contract functions. Only authorized persons can run validator nodes on Sepolia’s new consensus layer. Please continue reading to discover the key features of Ethereum’s Shanghai Upgrade.

Investors Who Staked Their Ether to Support the Merge Will Be Able to Withdraw Their ETH

Ether owners can take part in the validation of the Ethereum network by staking their tokens, which helps maintain and secure the operation of the blockchain. After activating the validator node, the staker takes on responsibility for data storage, transaction processing, and the addition of new blocks. EIP-4895 is the primary focus in March, a feature that allows validators to withdraw their ETH from the Beacon Chain and further prepare for sharding. Roughly 16 million staked tokens will be available for withdrawalTo successfully unstake your ETH, set up a withdrawal credential using a mnemonic phrase that only you know.

Gas Fees Will Be Cut for Network Participants and Traders Using Builders to Execute Trades

Besides EIP-4895, there are several Ethereum improvement proposals in the hard fork, which will increase the popularity of the blockchain while also improving its security. The Shanghai and Capela (Shapella) hard fork will be initiated on the Sepolia testnet, introducing new functionality as far as execution and consensus is concerned. EIP-3651 will introduce the “Warm COINBASE” address to save gas fees, so accessing COINBASE will no longer be overpriced. In case you didn’t know, initial interactions cost more gas fees because the address needs to “warm” up. Once the address is warmed up, it costs less to access COINBASE. ETH developers are to activate the Shapella hard fork on Sepolia on February 28.

The Code Known as SELFDESTRUCT Will Deprecate by Giving Developers A Warning

SELFDESTRUCT is a function of the Solidity smart contract used to terminate agreements on the blockchain. In the case of a malicious contract, the bytecode is removed from the Ethereum network; all remaining funds are sent to a designated address. Including a SELFDESTRUCT function in a smart contract is a sensible security practice because it offers protection against cyberattacks. EIP-6049 will eliminate the SELFDESTRUCT opcode in an effort to reduce gas fees, refunding a portion to the developers. Cleaning up the contract code from the blockchain is beneficial, but the Ethereum community leverages negative gas fees to incentivize the SELFDESTRUCT function.

Traders Are Curious to Know What Will Happen to ETH Price After the Next Network Upgrade

It’s hard to tell whether the Shanghai Upgrade will lead Ethereum on a bull or bear run. If more users in the crypto community refrain from selling their digital assets, buying to hold indefinitely, this will cause the equilibrium price to fall, as the quantity supplied will decrease. On the other hand, some investors will want to cash out on their staking positions to gain more funds, possibly exiting from the Beacon Chain. Ether can be sold on almost any exchange or marketplace for Bitcoin, other altcoins, or fiat currency. Even if validators withdraw and sell their digital assets, they’ll want to maintain their staking balance to earn more yields.

Nothing is set in stone. What is certain is that more upgrades need to be implemented for Ethereum to reach its full potential, in other words, to become more scalable, more secure, and more sustainable. The Shanghai Upgrade will introduce much-needed solutions, kick-starting another cycle of innovation, which in turn can attract more participants. At the end of the day, the Shanghai Upgrade is just one of the many steps that will transform the Ethereum blockchain. It might not necessarily result in ETH sell pressure, as some have predicted. It’s important to view this upgrade as part of a broader evolution that will make Ethereum more functional.

Wrapping It Up

The Shanghai Upgrade was launched on the Zhejiang testnet, which imitates a chain that is post-merge. The Zhejiang fork has gone well, meaning the upgrade is right on the horizon, and developers will move on to the Sepolia and Goerli testnets. There’s no news regarding an exact date, though. Zhejiang is remarkable because it includes all the code for the Shanghai Upgrade, not to mention that it was the first testnet to triumphantly simulate staking withdrawals (there were no reports of glitches or major problems). ETH developers are confident that everything will go according to plan.

The following upgrade, Sharding, will enhance Ethereum’s scalability and capacity. Separating the chain into smaller chains will allow the network to process transactions more efficiently, so the blockchain can scale while maintaining privacy and security. Of course, there are some hurdles that need to be addressed. Sharding could begin at some point in 2023. Danksharding is the new approach suggested by Ethereum, introducing considerable simplifications; it doesn’t rely on the use of “chains” but on “blobs”, which contain large amounts of data. Stakers in the network will be assigned to shards work on.

All in all, some price volatility is expected once the Shanghai Upgrade is complete. Whether it remains or stabilizes, only time will tell. Other updates are months, if not years, away.

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