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Ethereum‘s Shanghai Upgrade

April 11, 2023

On the 12th of April, Ethereum blockchain will implement two upgrades Shanghai and Capella (together known as Shapella). It will finalise the move to the proof-of-stake consensus mechanism, which started with a Merge upgrade in 2022.

Ethereum Shanghai Upgrade

What is the Ethereum Shanghai Upgrade?

As you know, Ethereum moved from the PoW (proof-of-work) to the PoS (proof-of-stake) consensus mechanism last year. However, until now, neither staked ethers nor rewards received for staking ethers could be withdrawn. As a result, they can neither be sold nor exchanged, limiting the liquidity of staked ethers.

The current Shanghai upgrade will unlock ethers staked in the validator nodes on the beacon chain by allowing their withdrawals. On the one hand, it will create a liquidity event, which can drive prices down as more than 15% of all ethers were locked to support the move to the proof-of-stake consensus. In fiat terms, this amounts to more than 31 billion USD. On the other hand, it will make staking much more attractive as staked ethers could be easily withdrawn anytime without needing to lock them for a long time.

What is happening next?

Also, Ethereum development moves to the next stage as its developers will be able to focus on scalability issues. This new stage of the Ethereum development is called Sharding. Once implemented, it will enable a higher number of transactions per second and will ensure higher scalability of Ethereum‘s blockchain.

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