Shanghai: a glimpse of Ethereum’s next update

A new update is on the way for the most important multipurpose blockchain in the crypto universe, Ethereum. That hard fork would be ready to be implemented in March 2023. It would likewise be the biggest to be applied to the network since the Merge late last year.

This new step by developers is composed of several functions that the network will now have. The most important of these has to do with the release of funds. It involves more than 16 million ETH that have been locked up in stake form on the network for about two years. These funds will be “withdrawable”, which presupposes the definitive step towards staking in the full sense of the word.

Other features of the update relate to gas commissions for creators. Thus, transaction (gas) commissions, which are usually high, will now be reduced in cost for those who contribute to the network. Other gas-related functions are also included in Shanghai.

On the other hand, some analysts believe that the implementation of this fork has a potential bearish push for the price of ETH. This is the Ethereum blockchain’s native token, which, at the time of writing, trades at a price of $1,522 per coin.

The features of the new Ethereum update

Like all previous cases of updates to this network, Shanghai is composed of several Ethereum Improvement Proposals (EIPs). EIPs are the particular enhancements that come bundled in a hard fork package. Each one brings a new function that will be applied to the layer to change the way the blockchain had been running.

For this new update, a total of five EIPs are set to be new. As already mentioned, the most important of them is EIP-4895, which consists in releasing the funds in the network in the form of staking. Since the change from PoW to PoS will be made, the security of the network does not depend on the miners, but on the funds of the validators. In that sense, it was imperative to keep those 16 million ETH from users locked since the end of 2020.

Now that this critical period is coming to an end, another one of falls could start for the price of the coin. That’s more than 16 million Ethers, plus almost 2 million ETH generated in the form of rewards. With a portion of those funds in the market, downward pressure could send the price of ETH plummeting. However, the opposite could be the case.

The latter means that Ethereum’s upgrade would make the staking process more complete and people would not fear being locked in for two more years. Thus, validation periods would be much shorter and attractive to investors who want to earn passive income with this new way of generating Ethers.

Staking is a financial form that is openly applied in the digital currencies market. Particularly, it is common among decentralized finance applications (DeFi) and also among centralized exchange (CEX.) options

Fewer gas payments by developers

The other important part of this hard fork has to do with gas on the blockchain. Gas is the fee paid by network users every time they make a transaction within the Ethereum blockchain. In times of high traffic, the network becomes congested. Bottlenecks force people to pay a higher gas limit to see their transactions concluded sooner.

This is one of the main obstacles that stand in front of creators on that network. Therefore, the developers opted to lower the pressure of commissions to block creators and other people who contribute to the improvement of the blockchain.

“With the implementation of the Beacon Chain validators had the option to start staking their coins on the network. That was the step prior to The Merge upgrade, which consisted of combining the mainnet with the Beacon Chain.”

With the EIP-3651, it is intended to make access to Coinbase less expensive (it has nothing to do with the exchange of the same name). This is software used by validators and block creators on the network. “This EIP corrects a previous oversight about the cost of accessing the Coinbase address and provides some additional benefits to users and developers that open up new use cases,” expresses Matt Nelson of ConsenSys consulted on Coindesk.

Thus, the Ethereum upgrade becomes an arrival point that makes it more developer friendly.

Other gas-related EIPs

Apart from 3651, other proposals are included in Shanghai that improve the situation with gas tariffs in the network. For example, EIP-3855 generates a code called Push0. Precisely, this allows gas tariffs for developers to be lower.

The EIP-3860, performs a related function, which is to put a ceiling on the cost of commissions for programmers. This interacts with “initcode”, a code whose function has to do with the development of smart contracts. These are the basis of multi-purpose blockchains like Ethereum. The latest in this package is EIP-6049.

In the network there is a code called “Autodestruct”. EIP-6049 leads to it being deprecated and developers are notified. This is also directly linked to gas tariffs. This implementation is not the last in the immediate blockchain path. However, it is a decisive one for Ethereum to complete one of the most spectacular cycles in the history of virtual currencies.

Following this Ethereum update, so-called “proto-danksharding” would be implemented later in 2023. This consists of an advanced functionality to improve the scalability of the blockchain. To achieve that task, the network would be divided into several “shards” or fragments. The implementation of this scalability enhancement was scheduled for early this year. However, Shanghai seems to be more urgent, forcing it to be delayed.

Ethereum’s developers are divided over the update

At the other end, it is noted that the update is not without controversy. For some developers, the same is being applied without attending to all the details. This would be a dangerous situation that would compromise the stability of the network. As reported by some specialized media, developers are divided on the early implementation of this hard fork.

As a result, some network developers believe that the update is being rushed for pressure reasons. In other words, the release of staker funds would be the reason for the Shanghai rush. Those in charge would be scared of a wave of public pressure from the owners of the coins that have been blocked for about two years.

One should not lose sight of the fact that those 16 million coins are equivalent to about $25 billion at the current token price. “We don’t seem to be thinking about the long-term health of Ethereum,” expressed Micah Zoltu, one of the core developers. Some of the most concerned developers recommend not to apply EIP-4895 in Shanghai.

That implies that the March Ethereum update should not include the release of staker funds. Instead, they believe that applying it on the next hard fork “Cancun” would be more prudent to avoid so-called “technical debt”. This equates to future problems that may be caused by an upgrade that puts speed over perfection.

Fact: the next network testnet for the Shanghai preparation, Sapolia, will be implemented on February 28 and can only be tested by developers.