Ethereum Shanghai Upgrade: What to Expect

Ethereum Shanghai upgrade is a change made to the Ethereum blockchain by letting validators unstake their ETH, adding a staking withdrawal feature, and preparing one of the proposals owned by Ethereum, EIP-4884.

January 20, 2023
Key Takeaways:
  • The Ethereum Shanghai upgrade will allow withdrawals for ETH validators from Beacon Chain and prioritize enabling staking withdrawals.
  • The Ethereum Shanghai upgrade is planned to be released in March 2023.
  • Since the Shanghai upgrade was announced, several tokens powering various liquid staking protocols are enjoying a big rally since early January 2022.

After successfully migrating consensus through Ethereum Merge last year, the developments made by the Ethereum blockchain team don't just stop there. Now the Ethereum blockchain is making changes to its blockchain again with the Ethereum Shanghai upgrade. What changes will occur in this upgrade? Can this change have a significant impact on Ethereum? 

What Is Ethereum Shanghai Upgrade?

The Ethereum Shanghai upgrade is an essential next step after the development team successfully migrated the consensus from Proof-of-Work to Proof-of-Stake consensus. This upgrade itself is one part of the Ethereum roadmap. The change that the Ethereum Shanghai upgrade will make is to allow withdrawals for ETH validators from Beacon Chain.

The core dev team of the Ethereum blockchain has chosen to prioritize enabling staking withdrawals through the Shanghai upgrade before making changes to The Surge regarding Ethereum Improvement Proposal (EIP)-4884. The Surge is a series of changes the Ethereum development team will make after the Ethereum Merge.

Bram van Oosterhout/Pexels

What Is an Ethereum Improvement Proposal?

Ethereum Improvement Proposal (EIP) is a document or proposal that contains new standards that can be embedded in the Ethereum blockchain network. The EIP usually includes a summary of network improvements and standards that need to be implemented within the Ethereum network.

According to Tim Beiko, part of the Ethereum core developer, the ultimate consensus was to focus on Shanghai first to avoid potential delays if EIP-4844 needed to be prepared in time.

EIP-4844, also known as the proto-danksharding proposal, is the proposal to introduce a new method to help divide the information needed in a transaction, such as verification rules and the transaction format, without actually implementing any sharding. The primary purpose of EIP-4844 is to reduce gas fees on the network.

With the new EIP implementation that will be implemented on the Shanghai upgrade, this won't be the case anymore and thus lowering gas fees when builders interact with it.

Ethereum Shanghai Upgrade Release Date

The Ethereum Shanghai upgrade is planned to be released in March 2023. This change is undoubtedly eagerly awaited by Ethereum validators. Because of this change, Ethereum validators can make staking withdrawals easily.

Based on data from BeaconChain, since the Shanghai upgrade was announced, the number of Ethereum validators has increased. Even today, the number of Ethereum validators has reached almost 500,000.

Source: BeaconChain

Will Ethereum Shanghai Upgrade Affect ETH Price?

The Ethereum Shanghai Upgrade could impact the ETH price. It doesn't only affect the ETH price, as well as other tokens related to the changes made by the Shanghai upgrade.

One example is several tokens powering various liquid staking protocols are enjoying a big rally since early January 2022. For instance, Lido Finance (LDO) and Rocket Pool (RPL) have already posted significant gains.

In January 2023, LDO prices went up from US$ 0.95 at the beginning of January to US$ 1.89 at the time of writing. So does the RPL, which has increased from US$19.78 on January 1, 2023, to US$31.9 at the time of writing.