The Shanghai Update Will Upgrade The Ethereum Virtual Machine

The Shanghai Update

In March 2023, the next Ethereum upgrade will be going live. The Shanghai upgrade will contain a list of EIPs, but most importantly, it will enable staking withdrawals. The staking withdrawal upgrade is called EIP-4895 and will allow all staked ETH in the Ethereum 2.0 contract to be withdrawn and potentially sold. At the time of writing, there is currently over 15 million ETH staked in the beacon contract. This means that 18 billion dollars of ETH will hit the market when the Shanghai upgrade goes live.

Does this mean that everyone will sell their Ethereum? The short answer is No, but what it does mean is that there is potential for more selling pressure. The reason there is more selling pressure is that there are billions of Ethereum that have been staked for the last three years. The stakers that have Ethereum staked for so long are the most likely to take profit when withdrawals go live.

Apart from beacon chain withdrawals, Ethereum developers will also upgrade smart contracts and gas fees. At first, developers planned on releasing EIP-4844 but later decided against it because they wanted to make sure staked Ethereum withdrawals were completed on time.

EIP-4844 would have introduced Proto-Danksharding. This is a new kind of transaction type to Ethereum, which accepts "blobs" of data to be persisted in the beacon node for a short period. Blobs are similar to traditional transactions, only that they carry an additional piece of data blobs, and Blobs are generally quite extensive but are cheaper than traditional data.

While this upgrade would lower gas fees tremendously, they will delay it. Other EIPs will be released with the Shanghai update.

EIPs being released

The proposal includes EIP 3540, EIP 3670, EIP 4200, EIP 4570, and EIP 5450. In addition, five EIPs focus on upgrading Ethereum Virtual Machine, the staging area where smart contract codes are deployed. Though the developers agreed on eight EIPs to build for the Shanghai hard fork, not all might ship.

Significance Shanghai update

Ethereum underwent one of the most significant transitions ever happening in any crypto in history called the Merge. The Merge was responsible for transitioning Ethereum from a proof-of-work to a proof-of-stake consensus mechanism.

The Shanghai upgrade is set to introduce critical updates and fundamental changes to Ethereum in the blockchain’s EVM functionalities.

Firstly, transactions on the Ethereum blockchain could get faster and cheaper with a cheaper gas fee.

Secondly, Withdrawal of staked ETH tokens will give a chance to incoming validators who stake their ETH to deposit a smart contract that was locked in to be able to unstake them.

Lastly, updates to smart contract facilities will make Ethereum, the largest smart contract-capable blockchain network, stay ahead in development and crypto trends.