Exploring the Ethereum Shanghai Upgrade: What to Expect

The Ethereum blockchain is set to undergo a major upgrade on April 12, 2023, known as the Ethereum Shanghai upgrade. This upgrade will introduce several improvements to the network, including an enhancement to the Proof of Stake (PoS) consensus mechanism. In this blog post, we'll take a closer look at what you can expect from the Ethereum Shanghai upgrade.

Since the Merge, the PoS consensus mechanism has become essential to the Ethereum network. It helps secure the blockchain by requiring network participants to stake their ETH to participate in the network's transaction validation process. The Ethereum Shanghai upgrade will further enhance the PoS mechanism by introducing the EIP-4895 feature. This feature will allow network participants to withdraw their staked ETH and rewards, which was not possible before. This means that users who participate in staking can unstake their assets and withdraw their rewards, providing greater flexibility to network participants.

Recap: The Merge, Ethereum’s most recent previous upgrade in September 2022,  assembled two separate systems: A new consensus layer (where staked Ether lives) with an execution layer (where ‘regular’ unstaked Ether lives). However, in order for ‘free’ staked Ether to be withdrawn from the consensus layer, the Ethereum team needed to ensure it was safe for staked Ether (stETH) to be securely withdrawn from one layer to the other. This required a new Ethereum network operation type to be created: EIP-4895. EIP-4895 allows stETH to be converted to regular Ether on the execution layer via the EVM (Ethereum virtual machine) so it can be sent to the staker’s Ethereum address of choice.

In addition to the improvements to the PoS mechanism, the Ethereum Shanghai upgrade will introduce several other enhancements. One of the most significant changes is the reduction of transaction fees. The Ethereum network has been facing high transaction fees for quite some time. This change is expected to make the Ethereum network more affordable and accessible to more users.

The Ethereum Shanghai upgrade will also optimize smart contract codes for developers, making it easier for them to create smart contracts and decentralized applications (dApps) on the Ethereum network. This change is expected to increase the efficiency of the network and make it easier for developers to build on top of the Ethereum blockchain.

Furthermore, the Ethereum Shanghai upgrade is expected to improve the overall network scalability and throughput. These improvements are crucial for supporting the growth of the Ethereum network, especially as more applications are built on top of it.

Importantly, there is no action required on your part if you are a holder of Ethereum. The Shanghai upgrade is a technical improvement being made to the entire network and does not require you as a user to transfer, send, or upgrade your personal ETH holdings.

Overall, the Ethereum Shanghai upgrade significantly improves the Ethereum network and is expected to provide users with greater flexibility, accessibility, and efficiency. The introduction of the EIP-4895 feature will allow network participants to withdraw their staked ETH and rewards, and the reduction of transaction fees will make the network more affordable for a broader range of users. With these improvements, the Ethereum network is poised to become an even more attractive option for dApp development and cryptocurrency transactions.

At NDAX, we are excited about these upcoming changes and look forward to seeing the Ethereum network continue to evolve and improve. We will keep our users informed of any developments related to the Ethereum Shanghai upgrade and will work to ensure a smooth transition to the upgraded network.

Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.