The Ethereum network has recently undergone its first major upgrade, or “hard fork”, since transitioning to a proof-of-stake system. The Shanghai upgrade allows validators to withdraw the staked Ether (ETH) that has been locked in the network. The primary objective of the upgrade is to implement Ethereum Improvement Proposal-4895, which unlocks validator withdrawals. The changes brought on by the upgrade include other significant upgrades that will impact Ethereum app developers and many of the chain’s users.
The evolution of the Ethereum blockchain has seen several significant upgrades since its initial launch in 2015. Some of the most notable upgrades include Frontier, Homestead, Metropolis, Istanbul, Beacon Chain, Berlin, London, and Paris (The Merge). Each of these upgrades has brought various improvements to the Ethereum network across security, efficiency, and scalability, enhancing the overall functionality of the network.
The Shanghai upgrade is set to change the way the blockchain functions, with one key change being a reduction in gas fees for layer-2 solutions like Polygon and Optimism. This update aims to enhance the overall functionality of the blockchain while reducing transaction costs. Another significant change is granting users the ability to access and unstake their Ethereum tokens, which were previously locked in a smart contract when they became validators on the proof-of-stake-based Ethereum blockchain known as the Beacon Chain. This update provides users with more flexibility when managing their staked ETH tokens.
The Shanghai update is expected to positively impact institutional adoption of cryptocurrencies as it addresses concerns about security and reliability. With Ethereum continuing to evolve, institutions need to be aware of potential impacts on investments and understand how to prepare for upgrades. Upgrades can affect assets in a variety of ways, being not always successful or changing the way the network operates, directly impacting assets. Institutions preparing for an upgrade should review available documentation for additional information.
As for how the upgrade could impact investors and ETH prices, the option for full withdrawal may lead to a reduction in the number of validators on the network. The extent of the impact will depend entirely on the number of validators who choose to withdraw. The total value locked on the Beacon Chain could decrease as stakers claim their rewards and unstake their assets, possibly leading to a drop in ETH prices. On the other hand, the unstaking of ETH might attract more investors, resulting in an increase in the amount of ETH staked. The impact of these changes ultimately depends on the actions of the majority of validators regarding their rewards and unstaked assets.