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Background
Since December 2020, when Ethereum launched its Beacon Chain, so began the networkâs herculean push to shift to be more scalable and sustainable. The Beacon Chain brought the networkâs move to a Proof of Stake (PoS) consensus mechanism, where users stake ETH to securely validate transactions on the Ethereum blockchain. The Beacon Chain itself is essentially Ethereumâs new consensus layer, and came in full effect as a result of an event called âthe Mergeâ.
As a result, the Ethereum network fully functions as a Proof of Stake network, and its old Proof of Work (PoW) consensus mechanism is no more. Now holders of at least 32ETH can stake that ETH to become full validators or stake through staking solutions like Lido (LDO) and Rocket Pool ($RPL). Thus far however, there is no way to unstake oneâs ETH and get the generated rewards. Which is where the Shanghai upgrade comes in.
What is the Shanghai upgrade?
For more information, read our article on Ethereumâs Shanghai Upgrade.
The Shanghai upgrade allows for the unstaking of staked ETH. Not only in recent years has staking become a preferred method of securing networks due to its higher transaction throughput and low carbon footprint, it has also become a favored method of receiving passive income. Without the need to purchase prohibitively expensive mining equipment as with PoW networks such as Bitcoin, anyone can purchase as much or as little of a token used in a PoS network and start receiving rewards. And with the Shanghai upgrade, people who have staked ETH can receive their long-awaited rewards.
When does Shanghai go live?
The release date at the time of writing is April 12th, 2023, a mere 10 days away, and the anticipation is palpable. So far, according to the Etherscan page for the Beacon deposit contract, over $32billion ETH has been staked. A lot of this staked ETH is done through intermediaries like the aforementioned Lido, with the liquid staking platform coming in at ~5.6million ETH staked, around 31% of the total share of staked ETH (Dune Analytics). Other platforms include various exchanges. All in all, this is a strong showing considering the fact that none of the ETH staked so far can be unstaked before Shanghai.
What do I need to do?
If you staked your ETH through a staking solution like Lido and Rocketpool, thereâs really nothing you need to do except mark your calendars. Depending on who you stake with, withdrawal will be available at a later date. For instance, users of Lido will be able to withdraw their ETH around the middle of May, 2023.
Lido on Twitter: "While the goal was to be ready for the Goerli hardfork this evening, the target date for the Lido upgrade has been pushed back to next week.It is estimated that Node Operators will need 3-4 weeks to fully implement and test validator exits once the upgrade goes live. / Twitter"
While the goal was to be ready for the Goerli hardfork this evening, the target date for the Lido upgrade has been pushed back to next week.It is estimated that Node Operators will need 3-4 weeks to fully implement and test validator exits once the upgrade goes live.
Itâs important to note that the date for withdrawal varies based on what platform one has staked with, so be sure to do your due diligence and check when your ETH is slated to be available.
On the other hand, for those that are staking on their own as full validators, they need to do a teeny bit of preparation. Validators must provide a withdrawal address and have it registered to their account on Ethereumâs Beacon Chain. Once they are set up, they can perform a partial withdrawal or a full withdrawal. A partial withdrawal being any ETH that is in excess of the needed 32ETH. A full withdrawal refers to an exit from staking altogether.
What this means in the grand scheme of things and possibilities going forward
Itâs impossible to talk about this monumental upgrade without acknowledging the story it is a part of. Itâs no question that Ethereum is the most popular and preeminent smart contract and dApp platform. But for it to remain that way, the network needs to be retooled from its low-efficiency former self. When Ethereum operated with a PoW consensus mechanism it had extremely low transaction throughput which, due to Ethereumâs extreme popularity, brings network congestion and much dreaded gas fees that users have to pay for every single transaction.
And so we have the need to embark on a journey to make a better, more efficient network. First it started with a transition to Proof of Stake, as mentioned earlier. This made it so that the network became more decentralized and less prone to attack. Now we are about to witness a change that will bring withdrawal functionality to ETH staking, which will of course make staking a worthwhile endeavor. All of this is to make the platform more scalable and decentralized and find a way around the âblockchain trilemmaâ.
So all of this is to make Ethereum a better network. But for who? While it absolutely benefits everyone who uses the network, it should be pointed out that it especially helps developers. By making transactions faster and cheaper, Ethereum will make creating, deploying and running dApps much easier. In turn, this should attract even more developers and make the ecosystem that much more robust.
So on this journey towards a better network, what do we have to look forward to? One of the next big upgrades on the docket is a concept called sharding. It refers to the act of splitting data horizontally across a bunch of different databases, reducing the stress on any one database. In Ethereumâs case, it would mean creating shardchains that can process transactions without containing the entire ledger of the Ethereum network. While the recent upgrades arenât seen as having an immediate effect on throughput, sharding is very much aimed at improving that. This sort of upgrade is contained in the EIP-4844.
Itâs been a long journey to get here, marked with just as many growing pains as milestone achievements. The road ahead is even longer, with much to be excited about on the horizon. For now, though, all we can do is sit back and watch as history is about to unfold.
Shanghai gets a date of release! What you can look forward to and how to prepare. was originally published in The Poloniex blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.