Published in DataDrivenInvestor
Henrique Centieiro Follow Dec 26, 2022
· 8 min read ·
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The Ethereum team has obviously been very busy working on the network upgrades.Last month, Vitalik Buterin, Ethereum’s co-founder, announced on his Twitter the updated Ethereum Upgrades roadmap with one extra milestone — ‘The Scourge.’ You can read more about it here in my previous article .
Shanghai Upgrade — March 2023 Earlier this month, in the periodic meeting of the Ethereum developer team ‘ AllCoreDevs ,’ the team brought some new updates to the upcoming Shanghai Upgrade, which is set to launch as early as March 2023.
Staked ETH Withdrawal
Shanghai Upgrade will be the next major upgrade after the Merge.Although there will be many other smaller improvement plans included in Shanghai, the highlight falls on the staked ETH withdrawals.
The Merge , which was launched in September, has transitioned Ethereum to the Proof of Stake consensus mechanism.Since then, the network has been validated by ‘stakers’ who are individuals or organizations which have deposited and staked sizable amounts of their ETH, instead of the extremely energy-intensive miners before the Merge .These ‘stakers’ can earn new ETH as rewards for validating transactions and securing the network, with their ETH staked and potentially having their staked ETH ‘slashed’ if there’s any malicious behavior.
However, currently, the Ethereum staking mechanism only allows ETH to be deposited but not withdrawn .
As of now, the amount of ETH locked is over 15.5 million, which is worth around $19 billion according to the current ETH price.The total amount of ETH locked makes up nearly 13% of all the circulating ETH.And they’re stuck there on the network currently until the Ethereum developers grant it a ‘withdrawal’ feature.
Leonardo Dicaprio, ‘It’s not that I don’t want darling, but I can’t.’ Not having the withdrawal function right after the Merge is, however, part of the plan.
According to the Ethereum Foundation, it has structured the upgrades in this manner in order to ‘simplify and maximize focus on a successful transition to Proof of Stake.’ Without having to take care of too many complicated tasks all at the same time.To be honest, this is reasonable enough.
Currently, the ETH stakers can earn around 4.5% APY, but they need more flexibility to unstake or withdraw their ETH token.Back to the basics, one of the many reasons to have Ethereum transitioning to Proof of Stake consensus mechanism is to attract more stakers to the network, which will ultimately have a positive impact on the ETH price.But without the withdrawal feature as of now, it scares a lot of potential stakers away.
With the successful launch of the Merge , the staked ETH withdrawal capability is clearly becoming the top of the core developer’s focus and priority for the upcoming Shanghai Upgrade.This upgrade is known as the EIP-4895 proposal, which will allow those who have participated in staking their ETH into the Beacon Chain to be able to withdraw their funds and staking rewards.In October, the developers released the Shandong testnet as part of the upgrade plan to prepare for the Shanghai Upgrade.
What else is included in Shanghai?
The implementation of The Surge-related Ethereum Improvement Proposals (EIPs) — EIP-4884, was previously planned to be included with the Shanghai Upgrade, introducing ‘Proto-danksharding’ to enhance layer-2 rollup scalability significantly before the full implementation of the major ‘Sharding’ upgrade which is expected to happen sometime over 2023 and 2024.I will talk about EIP-4884 further down below.
Source On the other hand, ‘EVM Object Format (EOF)’, which includes a collection of Ethereum Improvement Proposals (EIPs) including EIP-3540, EIP-3670, EIP-4200, EIP-4570 and EIP-5450 were also previously expected to be included in the Shanghai Upgrade.This set of EIPs focuses on upgrading the Ethereum Virtual Machine (EVM), which is essentially where Ethereum executes smart contracts.
However, the Ethereum core development team has recently confirmed that if the EOF takes too long to implement, they will be postponing this set of upgrades to the fall of 2023, and they have also confirmed the EIP-4884 will only happen right after Shanghai, so that they won’t delay the staked ETH withdrawals.
According to Tim Beiko’s tweet, alongside the Shanghai Upgrade, a set of previously implemented EIPs will be rolled out at the same time including:
EIP-3651: Warm COINBASE EIP-3855: PUSH0 instruction EIP-3860: Limit/Meter initcode What’s worth mentioning is EIP-3651, so-called ‘Warm COINBASE’ (don’t confuse it with the crypto exchange with the same name, it actually refers to the name of the software that the builders use to receive new tokens on the network), which could potentially bring some gas fees reduction for builders when they interact with the network.
Essentially, whenever there are any new transactions happening on the Ethereum network, there is interaction involved with this Coinbase software.
However, currently, the initial transactions always start off more expensive as Coinbase takes time to ‘warm up.’ With the implementation of the new EIP-3651, this ‘warm up’ process will be improved, so the gas fee will potentially be reduced when builders are interacting with the network, hence the name ‘Warm COINBASE.’
What’s happening right after Shanghai’s Upgrade?
Source EIP-4844, also called ‘Proto-danksharking,’ will happen right after the Shanghai Upgrade, according to Tim Beiko’s tweet .It will be another major hard fork on the Ethereum blockchain, which will be a significant upgrade addressing the scaling issue.
This upgrade will also give an important boost to DeFi applications .
This hard fork will ‘shard’ data on the Ethereum blockchain to increase its capacity and improve its efficiency.This is to prepare the network for the next major event — Sharding, which according to the Ethereum Foundation, it’s going to significantly improve the network’s ‘scalability and capacity’ and provide ‘more capacity to store and access data’ through the implementation of shard chains.With that said, it will essentially enable lower transaction fees and high scalability when users interact with the network, making the original blockchain way more attractive to users.
A good illustration of what sharding is: it’s like an excel file with many tabs, i.e., a database with many partitions.Visualize Sharding as an Excel spreadsheet with 64 sheets.
In a nutshell, Sharding will split the entire Ethereum network into smaller partitions known as “shards.” There will be a total of 64 Shard Chains, you can visualize it as an Excel spreadsheet with 64 sheets.Each shard will contain its own transaction history, making it faster and easier to go through transactions.This scaling solution is aimed to further increase the network’s scalability by enabling cheaper Layer 2 blockchains, making it easier for users to operate nodes on Ethereum that help to secure the network and lower the cost of bundled transactions or rollups .
According to Vitalik Buterin, Sharding is the future of Ethereum’s scalability .
Concerns regarding the Shanghai Upgrade: “EVERYONE WILL DUMP THEIR ETH!!!”
Some people in the crypto community have expressed concerns regarding enabling the staked ETH withdrawals feature after the Shanghai Upgrade, that it may trigger a massive ETH sell-off.
I, however, am not too concerned about that.
As previously discussed by the Ethereum Foundation, the withdrawal of the staked ETH will be arranged systematically, which means stakers will have to queue up for it as below:
What this table shows us is that a maximum of 6 validators can withdraw their stake for each epoch (i.e., 6.4 minutes).This means that people will be allowed to withdraw, but it will be slow.
Not to mention that enabling the withdrawal feature can potentially attract more people to stake their ETH to the network as they will no longer need to worry about having their funds locked up with no way to withdraw.
I do, however, wonder if the Shanghai upgrade will be delivered on schedule, as the Ethereum developers did have the tendency to fail to meet deadlines on major network upgrades in the past.But… who cares? Guess it’s always better to get to the goal slowly but surely.Let’s just be patient and keep an eye on their updates.I’m excited, and you?
Here’s a special shoutout to Ms.Bee Lee, for her crucial effort that contributed to creating this article.
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