Ethereum News
What is ‘Shapella’ and How Will it Affect Ethereum Users?
The Ethereum protocol support team has confirmed that the hard fork for the Shapella upgrade will occur on April 12, 2023, after a successful testnet transition. Shapella is the new name for the Shanghai upgrade, which includes changes to the execution and consensus layers, as well as the Engine API.
But what exactly is the Shapella upgrade, and how will it affect the Ethereum users? Let's see!
Journey to the Shapella Upgrade
In 2015, Ethereum emerged as a ground-breaking blockchain platform founded by Vitalik Buterin. Its introduction of smart contracts paved the way for a new era of decentralized applications, and Ethereum continues to evolve through constant upgrades to enhance security, scalability, and efficiency.
The latest major update, Serenity, also known as ETH2.0, is a multi-stage transformation that introduces sharding to the network and shifts the consensus mechanism from PoW to PoS. By doing so, Ethereum can increase speed and scalability, opening up exciting possibilities for its future.
In 2021, the deployment of Ethereum's London hard fork and EIP-1559 was a significant milestone toward Eth 2.0. These changes also reduced the supply of ETH and put deflationary pressure on the network.
The launch of Phase 0 of ETH2.0 in December 2020 marked the introduction of the Beacon Chain, which produced the first block on the PoS chain. Then, on September 15, came ‘the Merge,' which officially changed the network's consensus mechanism to PoS.
Now, Shapella is the next significant upgrade after ‘the Merge' that will introduce several changes to the Ethereum network, including the ability to withdraw both staked ETH and rewarded ETH. This is expected to increase liquidity on the network and provide more opportunities for stakers to earn rewards.
Shapella = Shanghai + Capella
Shapella, a combination of the Shanghai and Capella upgrades, is a crucial step towards fully implementing Proof-of-Stake, which promises significant user benefits.
On April 12, the Ethereum mainnet will undergo the Shapella hard fork, allowing Ethereum validators to withdraw their Ether from the Beacon Chain. This will be made possible by Ethereum Improvement Proposal EIP-4895, which will “push” staked Ether from the Beacon Chain to the Ethereum Virtual Machine (EVM), also known as the execution layer. The activation of Shapella is scheduled for epoch 194,048, which is set for 10:27 pm UTC.
While partial and full withdrawals will be enabled, measures have been put in place to prevent a flood of Ether from disrupting the market. Currently, there are 17.81 million Ether staked on the Beacon Chain, which means nearly $32 billion can be unlocked incrementally overtime at the current price of $1,800.
Despite a delay in the last testnet run due to validators not updating their client software, Ethereum core developer Tim Beiko is confident that validators will update their software for the mainnet due to economic incentives.
Besides allowing for staked ETH withdrawals, this upgrade aims to improve the network's scalability, reduce transaction costs, and increase overall efficiency. And as the Ethereum ecosystem continues to evolve, understanding the implications of this new upgrade is crucial for all stakeholders.
Shapella is a protocol upgrade that seeks to address the network's existing limitations by reducing transaction costs and increasing scalability. This upgrade will mark Ethereum's full transition to the PoS consensus mechanism, allowing users to fully utilize the benefits of Proof of Stake.
PoS is more efficient and environmentally friendly, requiring less computational power and energy consumption and making it easier for more participants to join the validation process.
Another important aspect of the Shapella upgrade is that it will allow the introduction of shard chains to the main network. These are individual chains that will allow for parallel transaction processing, increasing the network's overall throughput capacity.
With the introduction of shard chains, Ethereum users will be able to process a significantly higher volume of transactions per second (TPS), improving the network's overall efficiency.
Besides increasing the network capacity to up to 100,000 TPS to address the current network congestion and delays, PoS also improves security by requiring a minimum of 16,384 validators, making the network more decentralized and secure.
In the meantime, the Ethereum Foundation has doubled the rewards for any bugs found in the Shapella code to anywhere between $2,000 and $250,000.
Billions of Locked ETH Finally Free to Use
The ability to withdraw staked Ether for the first time ever is the most significant change introduced by the Shapella upgrade. This long-awaited development will allow users to free up their funds for other purposes and could potentially increase the adoption of staking.
There have been concerns that once the hard fork is activated, a large amount of Ethereum will be unstaked and sold to markets. However, experts believe anticipated outflows are unlikely to create major selling pressure.
With withdrawals subject to a queue and a two-tier withdrawal system limiting the amount of ETH that can be withdrawn at once, the impact on ETH's price is expected to be limited.
There is a two-stage process that validators will have to go through in order to withdraw their stake, including an exit queue and a withdrawal period. Also, those who want to access their staked ETH withdrawals have two options: partial withdrawals and full withdrawals.
Partial withdrawals are the excess profits one has after 32 ETH or earned rewards, and full withdrawals are when you remove the entire balance, including the 32 ETH, from the blockchain. It is important to note that if you are running your own validator, ensure you have installed the correct withdrawal credentials.
But how soon can stakers access their rewards after the upgrade? There are different ways to stake ETH on Ethereum, and the ability to withdraw rewards will depend on how staking is done.
So, while Shapella will automatically unlock the ETH rewards for validators, it will be up to service providers or staking pools to determine when to release the rewards.
As such, stakers need to check with their providers on the timeline for staked ETH withdrawals, as each service provider may have different policies.
For instance: Coinbase has announced that it will process withdrawal requests about 24 hours after the completion of Shapella. Meanwhile, Lido, the largest liquid staking protocol, has stated that its users holding stETH will not be able to retrieve their ETH until the protocol goes through an upgrade in mid-May.
This timeline is due to the necessary security checks the protocol must undergo. Rocketpool, another decentralized staking protocol, on the other hand, has not confirmed when it will allow users to unstake their ETH.
But remember, to take advantage of the Shapella upgrade, both stakers and non-stakers who operate nodes are required to upgrade their nodes to the latest Ethereum client versions. All the major Ethereum clients, including Lighthouse, Lodestar, Nimbus, Prysm, and Teku, support the Shapella upgrade.
While there may be some short-term challenges associated with the upgrade, the long-term benefits are expected to outweigh any potential downsides.
With increased network usage, demand for Ether is expected to rise, potentially driving the price of Ethereum higher. Overall, Ethereum's move to PoS is a positive development for the network and its users, with increased efficiency, security, and scalability.
What's Ahead?
The future of Ethereum seems to be bright, with several upgrades and developments planned beyond the Shapella upgrade. The Ethereum Foundation has shifted its focus to developing the network, with the implementation of scaling solutions such as ZK-rollups and sharding being the primary goals.
Ethereum co-founder Vitalik Buterin has stated that the challenges surrounding Eth 2.0 are increasingly about development, which will only grow over time. He has also revealed his vision for the future of the network with planned upgrades named the surge, verge, purge, and splurge.
The surge upgrade will bring sharding to Ethereum, enabling cheaper layer-2 blockchains and faster transaction processing. The Verge upgrade will implement Verkle trees and stateless clients, making it easier for users to become network validators without requiring extensive data storage on their machines.
The purge upgrade, on the other hand, will involve a purge of old network history to simplify the Ethereum protocol and reduce the amount of space required on a hard drive. Lastly, the splurge upgrade will bring exciting developments to the Ethereum network, although specific details have not been provided yet.
While the future of Ethereum seems to be promising, with several upgrades planned to improve scalability, security, and decentralization on the network, it's worth noting that the industry is dynamic, and changes to the roadmap may occur as the Ethereum Foundation works to meet the challenges of the future.
Conclusion
In conclusion, the Shapella upgrade is set to bring significant changes to the Ethereum ecosystem. The upgrade's focus on scalability, efficiency, and reducing transaction costs is expected to positively impact the network and its users.
With the introduction of PoS, shard chains, and EVM and gas fee structure improvements, the Ethereum network will be better equipped to handle the increasing demand for decentralized applications and transactions.
More importantly, the Shanghai upgrade is anticipated to be a significant milestone for the network, enabling more users to participate in staking and providing additional benefits for those who do.
Not just individuals but also institutions will be able to take advantage of high staking interest rates compared with traditional banking, and as more users become validators and learn more about the PoS blockchain, this participation could then expand to broader crypto market participation.
