Ethereum to launch Shanghai Upgrade in March 2023

2022-12-22, 07:14

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**[TL; DR]**
🔹 The Ethereum blockchain will implement the Shanghai upgrade in March 2023.

🔹 Examples of Ethereum improvement proposals (EIPs) the developer will implement are WARM Coinbase (EIP-3651), EVM object format (EIP-3540) and Ethereum Virtual Machine Format code (EIP-4844).

🔹 The Ethereum Shanghai fork will result in less transaction fees and higher processing speed.

🔹 After the ETH upgrade the stakers will be able to unstake and withdraw ETH.

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## Introduction
The Ethereum blockchain has been implementing changes during the year to improve its functionalities and get greater community support. In September 2022, it launched the Merge which laid a base for other ETH upgrades. The next major improvement to the network is the Shanghai Ethereum Upgrade earmarked for March 2023.
 
## Background to the Shanghai Update
Early in 2022, Vitalik Buterin laid a road map to upgrade the Ethereum blockchain to overcome the underlying challenges such as high energy consumption, scalability problems and exorbitant transaction cost.

Already, in September 2022 Ethereum upgraded its network through the Merge which shifted the blockchain from the proof-of-work consensus mechanism to the proof-of-stake one. This upgrade reduced its energy consumption by over 90% thereby luring many investors.

However, the Ethereum Merge was just one of the essential upgrades to increase the network scalability, efficiency and cost-effectiveness. One of the much awaited Ethereum upgrades to increase the capability of the network and increase its adoption is the Shanghai upgrade. Investors expect that once launched it will help the Ethereum blockchain to serve more purposes as well as push the price of ETH up.

According to information available after the 151 Core Developers Ethereum Meeting, held on 8 December 2022, the next Ethereum Hard fork called the Shanghai Upgrade will take place in March 2023.
 
## The Shandong Testnet
The launch of the Shandong Testnet on 18 October 2022 confirmed the progress the developers have made towards the launch of the Shanghai Ethereum upgrade. The Ethereum Foundation Java_script_ Team shared the information on Twitter, giving hope to the Ethereum community.

![](https://gimg2.gateimg.com/image/article/1671693348111.png)
<center/>Shandong Testnet Launch- Twitter</center>

The Shandong enables the developers to experiment with the Shanghai upgrade before it is launched. With this, the team is able to test the potential of the EIPs and solve sticking issues.

## Scalability is the focus of the Shanghai ETH upgrade
As noted earlier on, the Shanghai update will solve several challenges which the network is currently facing. Nevertheless, the primary objective is to solve the scalability problem the network is facing. The team aims to increase the capability of the blockchain to handle high transaction volumes, arising from the launch of different decentralized applications (dApps) on its infrastructure.

The network’s ability to handle an increase in transactions will result in higher demand for its products and Ether (ETH). Sadly, its current inability to handle a greater volume of transactions leads to lower speed and higher transaction fees.

Basically, the Shanghai upgrade will introduce danksharding which increases the number of transactions it processes within a period, say 1 second.  With Danksharding, the network increases the blob spaces of data rather than splitting the network into shards.

Structurally, the network will verify large volumes of transactions after sampling a few pieces of the data. Another advantage of danksharding is that it supports many layer-2 protocols which will bundle transactions before relaying them to the Ethereum blockchain. For instance, it will support oracles such as Chainlink and roll up protocols like Arbitrum.

The ultimate effect is a cheaper and a quicker network. Ethereum will introduce Proto-danksharding improvement proposal 4844 (EIP-4844), authored by Dankrad Feist and the Ethereum co-founder Vitalik Buterin.

Shanghai will encompass several secondary Upgrades
Apart from introducing shards, the Shanghai update will implement several Ethereum improvement proposals (EIPs) such as WARM Coinbase (EIP-3651), EVM object format (EIP-3540) as well as reviewing the Ethereum Virtual Machine Format code (EIP-4844).

## Implementation of EIP-4895 proposal
The Shanghai Ethereum upgrade will include the implementation of the EIP-4895 proposal which will enable the investors who staked ETH in the Ethereum 2.0 contract to unstake and withdraw it.

Since 2020, many investors staked their ETH in order to participate in the PoS validation process. Nonetheless, they are unable to withdraw their staked ETH until the implementation of the EIP-4895 proposal. Currently, the investors have staked a total of over 15.5 million ETH, with a monetary value of more than $19 billion.

![](https://gimg2.gateimg.com/image/article/1671693333222.png)
<center/>Cumulative Staked ETH- Dune</center>

As you note from the graph, more than 15.5 million ETH is staked in Ethereum 2.0.

## EVM Object Format" (EOF)
The Shanghai Update will introduce the EVM object format (EIP-3540) which brings elemental changes to the blockchain's EVM functionalities. By the way, the Ethereum virtual machine format is “the execution environment that deploys smart contracts on Ethereum.”

The changes to the EVM include separating the data from the code which will help to reduce the gas for contract development. Also, the developers will introduce a new contract code which will enable the system to solve complex features such as Account Abstraction and control flow in EVM. Once the team implements the above changes it will be easy to make further improvements to the EVM in the future.

Through the Shanghai hard fork the developers will make changes to the COINBASE addresses. In fact, it will label the address,”WARM” instead of “COLD” to reduce gas fees paid to the builders. This will also enable the network validators to collect transaction fees when validating the blocks.

As we know, the builders are one of the most important participants in the network since they organize transactions in a specific order before forwarding them to the validators for inclusion in the blockchain. Currently, the traders pay high transaction fees to the builders for their transactions to be confirmed fast. Therefore, after the implementation of WARM Coinbase (EIP-3651) there will be a reduction in this fee.

How Shanghai Ethereum Upgrade affect ETH Staking
The success of the Shanghai upgrade means that many investors will be able to unstake ETH from Ethereum 2.0. Depending on the users’ response after the upgrade, if many investors unstake their ETH, we may witness an increase in its circulating supply and trading volume on exchanges.

Nevertheless, the decrease in staked ETH also depends on its market price and the prevailing holding mentality. If its price increases, many investors will likely unstake and sell their ETH. However, if its realized price is higher than its market value the trading volume may be low and the quantity of staked ETH remains high.

How the Shanghai Upgrade may affect the Price of ETH
The upgrade may affect the price of ETH in either ways. It may rise or fall depending on the market dynamics at that time. There is a possibility that the ETH upgrade may lead to higher selling pressure if many investors unstake and sell their ETH. This is in view of the fact that over 15.5 million ETH is staked.

There are other factors that can cause ETH to rally strongly after the Ethereum Shanghai fork date. First, the upgrade will lead to fast transactions and lower gas fees on the Ethereum network. Secondly, ETH transaction processing on layer-two blockchains such as Arbitrum and Optimism will become simple which may lead to higher adoption of ETH.

These factors, in addition to an increase in confidence in the blockchain, may trigger a spike in the price of ETH.
 
## Conclusion
According to the developers, the Shanghai Upgrade Ethereum date will be in March 2023. They will implement several Ethereum improvement proposals (EIPs) such as WARM Coinbase (EIP-3651) and EVM object format (EIP-3540). The benefits of the upgrade include faster transactions and lower gas fees. Investors also anticipate a rise in the [Ethereum price](https://www.gate.io/trade/ETH_USDT).
 
Author: **Mashell C.**, Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.

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