What Is Ethereum’s Shanghai Upgrade?

The decentralized network has been designed to be immutable and rigid, without any central body behind its key decisions. However, through the Decentralized Autonomous Organization (DAO), some rigid regulations can be evaluated and redesigned to make the network more accessible and efficient. The DAO can implement these changes on the network through a mechanism called “forking”.

The top two cryptocurrency networks – Bitcoin (BTC) and Ethereum (ETH) – have undergone various forms of forking. A forking process can be compatible (soft fork) or incompatible (hard fork) with the previous network version. In most cases, implemented forks are specific in solving issues suggested by the network users. The majority of these implemented forks have improved the scalability and accessibility of top blockchain networks.

Forking as an upgrade mechanism to a blockchain network began on the Bitcoin network back in 2014. It was launched by Mike Hearn and was called Bitcoin XT. This upgrade increased Bitcoin’s network speed from 7 to 24 transactions per second.

Ethereum network has also seen a few upgrades since its launch. This guide will discuss its seventeenth fork upgrade called Ethereum’s Shanghai upgrade.

What Is Ethereum’s Shanghai Upgrade?

The Shanghai upgrade (also known as Shapella) is a hard fork upgrade implemented on the Ethereum network in April 2023. It was designed to give users access to their staked Ether funds. After the Shanghai launch, Ethereum users can stake the tokens without locking them up indefinitely, conduct transaction validations, and receive rewards from newly created tokens. Since 2015, Ethereum has been working steadily to improve the network by implementing over a dozen forks.

Like Bitcoin, Ethereum debuted in the space with a proof-of-work (PoW) validation mechanism. In December 2020, Ethereum began to explore the flexibility of the proof-of-stake (PoS) mechanism by launching a soft fork called Beacon Chain. Beacon Chain coordinated Ethereum users staking exclusively on PoS systems, hitting a target of 524,288 ETH a few days before the launch.

Understanding Shanghai Upgrade

Ethereum’s Shanghai upgrade is basically a combination of various upgrades to the network. Each part of the Shanghai upgrade has a specific issue to solve on the network. Five different Ethereum Improvement Proposals (EIPs) make up the Shanghai upgrade, namely EIP-4895, EIP-3651, EIP-3855, EIP-3860, and EIP-6049.

The fork preceding the Shanghai upgrade, known as “The Merge”, transitioned Ethereum’s proof-of-work into a proof-of-stake network in September 2022 through Beacon Chain. Validators of the Beacon Chain needed to deposit 32 ETH before being able to contribute to the security of the alternative PoS mechanism. At the time of The Merge, there was no way to withdraw staked ETH or accrued gains. The EIP-4895 is considered the most significant EIP in Shanghai upgrade because it allows validators to withdraw their staked funds. The rest of the EIPs lowers gas fees using different techniques.

Despite the implementation of EIP-4895, the total stake of ETH is approximately 16 million ETH. There are two ways of withdrawing from Beacon Chain: partial withdrawal and full withdrawal (unstaking). Validators can use the partial withdrawal to withdraw funds floating over the staked 32 ETH (staking rewards only). Alternatively, they can use the full withdrawal option to withdraw staked ETH alongside the staking rewards.

The Shanghai Upgrade was released with another complementing upgrade called Capella. The combination of Shanghai and Cappella resulted in the alternative name called Shapella. Shanghai improves the execution layer, where transactions occur – while Capella upgrades the consensus – where nodes run the PoS Beacon chain.

Features of Ethereum Shanghai Upgrade

As said earlier, the Shanghai upgrade consists of five different Ethereum Improvement Proposals (EIPs), including EIP-4895, EIP-3651, EIP-3855, EIP-3860, and EIP-6049. Initially, Ethereum developers planned to present EIP-4844 during the release. The EIP-4844 would introduce “proto-sharding” – a database-partitioning technique that would improve transaction speeds across different platforms. It has been scheduled to be implemented in 2024.

The following are the Ethereum Improvement Proposals (EIPs) released under Shanghai upgrade in April 2023:

• EIP-4895. This EIP is considered the most significant EIP because it allows validators to withdraw their staked ETH. These validators deposited 32 ETH to assist the new Ethereum mechanism. At the time of staking, they could not withdraw their staked funds or accrued interest.
• EIP-3651. It provides lower gas costs when validators are accessing their “COINBASE” address while trying to carry out Maximal Extractable Value (MEV) payment. (COINBASE is software used by validators, and it is not related to the popular cryptocurrency exchange).
• EIP-3855 introduces a code called “Push0”, which would lower costs for developers.
• EIP-3860 cuts gas costs for developers who use “init code”, a special type of code used for smart contracts.
• EIP-6049 is an EIP that notifies developers if a code called “SELFDESTRUCT” depreciates. It also helps to reduce gas fees.

Other upgrades include Tangerine Whistle (2016), Spurious Dragon (2016), Constantinople (2019), Istanbul (2019), Muir Glacier (2020), and Beacon Chain (2020). The remaining Ethereum upgrades include Beacon Chain Upgrades – Altair (2021) and Bellatrix (2022), Berlin (2021), Arrow Glacier (2021) and Gray Glacier (2022).

Ethereum’s Past Upgrades

Since its inception in 2015, Ethereum has undergone several forking processes. The Shanghai upgrade Is the seventeenth upgrade to be implemented on the Ethereum network. The following are a few of the sixteen upgrades preceding the Shanghai upgrade:

1. Frontier Thawing. This upgrade was launched in 2015. It changed the gas limit for transactions by introducing the difficulty bomb. Through Frontier, the Ethereum gas price was set to 50 shannon (0.05 szabos, or 0.00000005 ether). This fork prepared Ethereum for a future proof-of-stake model.
2. Homestead. The homestead upgrade consists of three different EIPs introduced in 2016. The EIPs include E1P-2, EIP-7, and EIP-8, which mainly aimed to change protocols and networking on the Ethereum network. This upgrade increased the ability of the network to undergo further upgrades in the future.
3. DAO fork. The DAO fork is one of the most spectacular forks to occur in the Ethereum ecosystem. It was implemented to recover and return hacked funds to the original owners. In 2016, Decentralized Autonomous Organization (DAO) gathered $150 million worth of Ethereum as a venture capital firm. Unfortunately, a few months after their launch, $60 million worth of Ether was stolen. This fork gave rise to Ethereum Classic after a group of developers and users failed to reckon with the forked version.
4. Byzantium. This is a hard fork containing eight upgrades, including E1P-140, EIP-658, EIP-196, EIP-197, EIP-198, EIP-211, EIP-214, EIP-100, and EIP-649. The series of upgrades reduced block mining rewards delayed the difficulty bomb and gave room for layer 2 solutions. It was launched in 2017.
5. London. The London Upgrade was launched in 2021. It included EIP-1559, EIP-3198, EIP-3529, EIP-3541 and EIP-3554. These EIP collectively introduced a new fee structure to Ethereum, reduced refunds, and rejected new contracts starting with OxEF byte.
6. Paris popularly known as “The Merge” was launched in 2022. It completed the transition of Ethereum from a proof-of-work to a proof-of-stake. It was designed to have minimal impact on how Ethereum functions for end users, smart contracts, and dApps.

Ethereum’s Future

Ethereum is an open, secure, and decentralized network designed to be scalable and programmable. Shanghai upgrade, the latest upgrade, has silenced the community’s doubt about their staked ETH.

According to Ethereum founder Vitalik Buterin, there will be future phases of the Ethereum upgrade, including The Surge, The Verge, The Purge, and The Splurge.

• The Surge will help implement a technology called sharding which would improve scaling on the Ethereum network.
• The Verge will introduce proofs targeted at reducing data usage and increasing the efficiency of the Ethereum network.
• The Purge will slough off the amount of historical data stored by a transaction node.
• The Splurge will include several upgrades that would augment the four preceding phases.

Bottom Line

Although the Shanghai upgrade is less significant compared to The Merge, it serves as a complementary fork to Ethereum’s switch from PoW to PoS. The Shanghai upgrade has reduced the relatively high gas fees on the Ethereum network and granted validators permission to unstake or partially withdraw their stake funds. The number of upcoming forks is endless as many more improvements will grace the green pastures of the Ethereum network.