How Shanghai Upgrade is Going to Change Ethereum?

What is the Ethereum Shanghai Upgrade?

Shanghai upgrade is a pre-planned change in Ethereum blockchain. This change or upgrade is a hard fork upgrade. Before you start scratching your head on reading hard-fork, a fork is a term that refers to a change in a blockchain’s protocol. And a fork occurs whenever a community decides to change a blockchains protocol or basic set of rules.

Now coming to hard fork, it is a kind of radical change to a blockchain’s protocol which makes previously valid blocks or transactions invalid or vice versa. This upgrade also requires all users or nodes to switch to the latest version of the protocol.

What Changes Shanghai Upgrade Will Bring to Ethereum?

The major change Shanghai upgrade will bring is that it will allow users to withdraw their staked Ether (sETH). According to reports about 14% of all the ETH are currently staked. This amounts to 16 million tokens with a valuation of $26 billion. This is going to create a huge impact on Ethereum users.

Staking allows users to put their digital assets to work to gain passive income. Other than trading this is also a way to earn money from cryptocurrency. Staking works just like putting money in a high yielding savings bank account. Now with the Shanghai upgrade, users can lock their ETH for an indefinite amount of time and take the leverage of staking.

Why this upgrade?

Currently, ethereum has around 16.3 million tokens staked on the network. Previously staked ETH couldn’t be withdrawn which left users with their stakes locked until they could be released. So the community members and some teams in the crypto industry saw an opportunity to work on this issue. Several projects have started to find a way to easily access staked funds on ethereum. Now users can withdraw ETH funds which they staked on Ethereum as early as December 2020. Unstaked ETH tokens can be sold on the open market.

Other than above stated changes some other developments are also proposed in Shanghai upgrade like reducing gas fees during periods of high activity to benefit Ethereum developers. Some other upgrades are also proposed which are likely to be announced later in 2023. It includes improving Ethereum Virtual Machine (EVM) and breaking or splitting the ethereum blockchain into different ‘shards’ to improve scalability.

Shanghai upgrade is a welcoming event for the crypto community as it paved the way for 16.3 million staked tokens to be sold on open markets. It will potentially strengthen the trust of ethereum users and crypto enthusiasts on the future of cryptocurrencies and blockchain.

It won’t be a surprise if the ETH price rises after the successful upgrade. It happened in the past as well. And so far Shanghai upgrade is looking positive for future investors.

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only, and they do not establish financial, investment, or other advice. Investing in or trading crypto assets comes with a risk of financial loss.