Ethereum's Shanghai (Shapella) Upgrade Explained
The Beacon Chain was introduced in 2020 to facilitate the transition to the "Merge." The term "Shapella" is a combination of two Ethereum Improvement Proposals - "Shanghai" and "Capella".
The Shanghai part was about an upgrade on the Execution side and the Capella part was an upgrade on the consensus side.
With staked Ether comprising roughly 1/7th of the total token supply, equivalent to approximately 16 million coins, the implications are enormous. The total value of staked Ether currently exceeds $26 billion.
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What is EIP-4895?
EIP-4895 or Ethereum Improvement Proposal-4895 was a crucial development in the Shapella upgrade, allowing validators to withdraw staked tokens.
Validators play a significant role in securing the mechanism, having staked approximately 16 million ETH since the Merge transitioned Ethereum's consensus mechanism from proof-of-work to proof-of-stake in September 2022.
Validators who stake 32 ETH in the chain can participate in validating blocks, and the likelihood of receiving block rewards increases with each staked ETH under the new post-Merge rules.
After the Merge in 2022, validators were required to lock up their ETH and rewards until a subsequent chain update.
However, validators have been staking ETH since December 2020, when the Beacon Chain, using proof-of-stake as a mechanism, was introduced.
What does it mean for Validators?
The Shapella hard fork allows validators to withdraw all staked ETH. While some analysts view this as unlikely due to Ethereum's DeFi dominance and high staking yield, validators can freely withdraw staked assets after the upgrade without locking up a significant sum of money for an indeterminate amount of time.
Validators have two ways to unstake ETH after the Shapella fork. They can create a "withdrawal credential" to access their earned rewards, or they can exit the Beacon Chain entirely by unstaking all 32 ETH.
What are the Other Improvements brought by the Shanghai Upgrade?
EIP-4895 is the main focus of the Shapella update, but it also includes several other EIPs. These small improvements are aimed at reducing gas fees for Ethereum developers during peak hours.
These include EIP-3651, which lowers gas costs to pay for maximum mining value, EIP-3855, which aims to reduce gas costs in general, EIP-3860, which limits developing gas costs, and EIP-6049, which deals with a similar issue.
Although the Shapella update is smaller than the Merge, it can still have a significant impact on staked ETH.
More updates are expected later in 2023, including those aimed at improving Ethereum's virtual machine and scalability with the EIP-4844 proposal for blockchain fragmentation.
This proposal was initially considered for Shapella, but was postponed.
If you liked this, check out our article on ETH 2.0.
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