Ethereum Shanghai Upgrade, Starting New Era of Staking Withdrawals

The Shanghai/Shapella fork implemented EIP-4895, which allows the validator to withdraw ETH that has been staked since as long as December 2020. Read further to know more. 

The upgrade on the blockchain, also known as ‘Shapella’ was triggered at 22:27 UTC, and the network is now processing withdrawal requests. Ethereum’s Shanghai upgrade, also known as the Shapella upgrade, is a hard fork that took place on April 12, 2023. One of the biggest developments associated with the fork is that it enables stakes and validators to withdraw assets from the Beacon Chain- a blockchain launched in 2020 to transition to the ‘Merge’. Shapella is a portmanteau word for ‘Shanghai’ and ‘Capella’ two of the proposed Ethereum Improvement Proposals. The current value of all staked Ether is over $26 billion because staked Ether accounts for about a seventh of the total supply of the token, or roughly 16 million coins, this has massive implications. The current value of all talked Ether is over $26 billion.

Ethereum Shanghai Upgrade

Ethereum Shanghai Upgrade

The most important development of the Shapella upgrade is allowing validators to withdraw staked tokens is in line with the Ethereum Improvement Proposal or EIP Validators that have staked around 16 million ETH as a way of helping to secure the mechanism. Validators have been especially crucial to Ethereum’s consensus mechanism from proof-of-work to work to proof-of-stake. According to the new rules post-Merge, validators that stake 32 ETH in the chain can then participate in validating blocks, and each staked ETH ups the likelihood of a validator receiving block rewards.

Ethereum Shanghai Upgrade

The Merge required that validators lock up their ETH as well as any rewards they earned until a later chain update. Even though the Merge took place in 2022, validators have actually been staking ETH since December 2020. It was at this time that the Beacon Chain,  relying on proof-of-stake as a mechanism, was released.

Ethereum Shanghai Upgrade

The most notable development of the Shapella hard fork for validators is that they can finally unlock all their staked ETH. So, validators could theoretically get in line to recover their staked tokens and pull them from the system. Some analysts view this outcome as unlikely, however, given Ethereum’s dominance in the DeFi space and the strong staking yield. Further, after the Shapella upgrade validators will be able to withdraw staked assets freely, so they won’t have to worry about locking up a significant sum of money for an indeterminate amount of time.

Ethereum Shanghai Upgrade

Validators that do wish to unstack ETH after the Shapella fork can do so in a couple of ways. One is to create a withdrawal to unstack any rewards accrued in the last several years.  The second and more consequential option is to exit the Beacon Chain completely by unstacking all 32ETH.

Ethereum Shanghai Upgrade

Shapella remains a relatively small upgrade, particularly compared to the Merge. But it will have the potential for a significant impact on those with staked ETH on the chain. And other upgrades to the Ethereum protocol are likely to come later in 2023, including some aiming to improve the Ethereum Virtual Machine and another hoping to split the blockchain into several different ‘shards’ in order to enhance scalability. This last proposed improvement, known as EIP4844, had at one point been considered for inclusion in the Shapella upgrade, though it was later pushed back. Thank you for being a patient reader.

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Ethereum Shanghai Upgrade

Ethereum Shanghai Upgrade

Shreya Gupta

Contract Specialist with 3 years of experience in end-to-end Contract Lifecycle Management for clients with global and domestic operations.

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