Ethereum Launches Shanghai Upgrade
After a long wait, Ethereum has finally released a new upgrade called Shanghai. This upgrade has been highly anticipated by the crypto community for one main reason: it will allow ETH holders to unstake their coins from validators.
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In September 2022, Ethereum developers announced the release of the Ethereum Shanghai Capella upgrade. Also known as "Shapella," this upgrade enables the withdrawal of ETH from validators. Since the launch of Beacon Chain, which runs on PoS (Proof of Stake), in December 2020, those who wanted to be validators in Ethereum PoS had to deposit 32 ETH or more into the network, which was then locked indefinitely. This newest upgrade was announced on March 16, 2023, and was implemented on April 12, 2023. In addition to the EIP-4895 upgrade, it includes other minor EIPs (Ethereum Improvement Proposals) focused on reducing gas fees during periods of high activity to assist Ethereum developers, such as EIP-3651, EIP-3855, and EIP-3860.
Shanghai will bring the following upgrades:
- EIP-3651: Warm COINBASE (here, COINBASE is the name of the software, not the exchange. Its aim is to reduce gas fees associated with payments, for maximum extractable value)
- EIP-3855: PUSH0 instruction (reduction of total gas costs)
- EIP-3860: Limit and meter initcode (limiting the cost of gas for developers)
- EIP-4895: Beacon chain push withdrawals as operations (unstaking ETH)
- EIP-6049: Deprecate SELFDESTRUCT (note to developers: This code reduces gas charges and can cause code degradation)
Unstaking ETH will be dynamic and depend on the number of active validators at any given time. Approximately 16 million staked ETH will be available for withdrawal, but access to them will require waiting in a single queue for both full and partial withdrawals (up to 16 withdrawals can be made during a single block, which takes around 12 seconds to process).
There will be two options for unstaking your ETH:
- Creating a "withdrawal credential" to unlock staking rewards accumulated in previous years
- Unstaking all ETH and leaving the Beacon chain
This applies to unstaking ETH coins directly from the validator. The release planning for staked ETH varies among each staking service provider. Coinbase previously announced that it would process requests to withdraw staked ETH for its users about 24 hours after the completion of Shanghai. On the other hand, Lido informed its stakers that they will not be able to withdraw their staked ETH until the protocol undergoes another update in May, 2023.
Since the launch of the Beacon Chain in December 2020, more than 18 million ETH (approximately 15% of the total ETH supply) has been staked. Now that Shanghai is live, approximately 1.1 million accumulated ETH rewards can be immediately withdrawn. Market analysts were concerned that unlocking ETH stored on the Beacon chain could trigger a rush of stakers liquidating their coins. CoinDesk also reported that there could be additional selling pressure from entities facing financial stress. For example, bankrupt crypto lender Celsius Network could sell its 158,176 staked ETH balance to recover some for its creditors. Meanwhile, U.S. crypto exchange Kraken was recently fined by the SEC (Securities and Exchange Commission) and may unwind staking on all its 1.2 million ETH.
Four days after the upgrade, we can see that unstaking is happening, but not at a miraculously fast pace. As of April 17, 2023, 17.28 million ETH is still staked, which isn't much different from the original 18 million ETH. While there have been some withdrawals, there have also been deposits. It will take some time to see how this trend continues. However, the price has reacted in the opposite direction to what most of us thought it might and has begun to strengthen above the 2,000 USD mark. You can track deposit /withdrawal statistics related to staking on this page.
It's certainly great news that we can finally withdraw our ETH. After a long wait and constant delays, we're finally at the stage where we can move forward with our plans. Of course, many of us were quite frustrated that our ETH was locked up and we couldn't do anything with it until the upgrade was completed. However, we're finally released from this situation and can use our ETH at our own discretion.