The successful completion of the Ethereum Merge brings forth the Shanghai Upgrade, also known as EIP 4895.
The upgrade will introduce reduced transaction fees, and the transition to a proof of stake model, and it will also enable withdrawals for staked ETH.
The upgrade acts predominantly as a precursor to the improvements to scalability that the Ethereum Foundation has proposed in the upcoming year.
What is Ethereum Shanghai Upgrade?
The Shanghai Upgrade transition is the network's next upgrade of the Ethereum mainnet. It primarily aims to transition to proof of stake, consequently allowing validators to finally withdraw their staked ETH both partially and fully.
This is a major improvement and will further incentivize the crypto community to shift towards ETH accelerating network participation. As of yet, the pre Shanghai testnet allows for both complete and partial validations to be withdrawn.
The upgrade also introduces Layer 2 fee reductions with the implementation of proto-danksharding aiding in the network's overall scalability and sustainability while also reducing gas fees. Moreover, the upgrade will also introduce EOF, separating code and data, which is significantly helpful for code validation.
The release date of the Shanghai Upgrade is expected to be around March and April.
However, there's no confirmation and developers agreed that this date may be pushed forward to as late as September 2023, especially with EIP-4844 (proto-danksharding) already being delayed to a March 2023 update.
Ethereum Improvement Proposals to Look Forward To
The Shanghai Upgrade consists of a number of EIPs (Ethereum Improvement Proposals). While most of them can be considered as minor upgradations, there are three EIPs that are the most interesting out of the bunch:
EVM Object Format
The Ethereum Virtual Machine object format, commonly referred to as EVM object format or EOF, will essentially upgrade the network to separate code from data.
Highlighted in EIP-3540, this is extremely advantageous for on-chain code validation.
This distinction can also lead to ease of use and a significant reduction in gas fees.
While off-chain tools already deal with existing code, static analysis tools can also benefit from the separation. However, the advantages to the latter are relatively minor.
Moreover, EIP-3670 is also expected to be included in the Shanghai Upgrade, extending the deploy time validation of the separated code section. This allows for unassigned instructions and truncated PUSH requests to be rejected.
Beacon Chain Withdrawals
Stakers who locked their Ether in the network's Beacon chain smart contract were eligible for rewards. Now, EIP 4895 will finally enable beacon chain push withdrawals as operations for all staked ETH.
Moreover, the update will also allow Beacon Chain holders to finally withdraw their rewards, adding an operation that will push all validator withdrawals from the Beacon Chain to the wider Ethereum Virtual Machine (EVM).
Layer 2 Fee Reductions
With rising competition from Solana, it was only a matter of time before the Ethereum Foundation took major steps to combat ever-increasing block sizes. With Layer 2 fee reductions, a maximum limit to CALLDATA in a block is introduced with further proto-danksharding implementations in EIP-4844 which should drastically reduce gas fees on the Ethereum network.
Will Ethereum Fees Decrease After The Upgrade?
Yes, Ethereum fees will decrease after the Shanghai upgrade. This is because the upgrade will equalize block size and also increase overall call-data efficiency in the Ethereum network. Galen Moore, content lead at Axelar had this to say about the reduced gas fees after the Shanghai upgrade:
“When specialized chains can build on a layer-2 like Polygon and reduce the cost of communicating with the base chain Ethereum, that reduces gas prices for users everywhere in the ecosystem — by making it more efficient to scale horizontally in a way that spreads demand.” - Galen Moore
The lower transaction fees is great for the overall longevity of the network. the Ethereum Shanghai update is also expected to introduce a WARM coinbase which will slightly lower fees paid by prominent builders like Flashbots and BloXroute.
While there's no concrete release date for the upgrade in sight, it's quite clear that the crypto community has provided an overall positive response to the public test net.
With staking rewards now soon being able to be withdrawn, its clear that Ethereum will be undergoing a paradigm shift in the upcoming years with the Merge and the Shanghai Update turning into the first two EIPs that will dictate the future of Ethereum and Ether.
FAQ (Frequently Asked Questions)
What is the Ethereum Shanghai upgrade?
The Ethereum Shanghai upgrade is Ethereum's second major upgrade after the Merge which offers critical infrastructure and elemental updates to the blockchain's EVM. This will include reduced gas prices, staked ETH for early client testing of the PoS beacon chain to finally be allowed, and updates to smart contract facilities as well.
What changes are in the Ethereum Shanghai upgrade?
Amongst many other minor changes in the network, Ethereum developers have focused on three key aspects, the EVM object format, allowing staked beacon chain withdrawals and te ability to process more data concurrently on the network lowering gas prices substantially.
Will Ethereum price increase with the Ethereum Shanghai Upgrade?
Yes, akin to most other crypto network updates, the major upgrade should lead to an overall price increase of Ethereum. However, the extent of this increase is yet to be determined. This is because events such as the Merge, which typically lead to an increase have instead led to a gradual drop instead with a price reclaim not in sight as of yet.
What is the release date of the Ethereum Shanghai Upgrade?
According to core developers of Ethereum, the Shanghai Upgrade is expected to roll out in mid-2023, somewhere around March and April. As of yet, there's no finite date for the upgrade with the latest date being September 2023 for the complete rollout.