Ethereum’s Shanghai upgrade ends! New Era of staking withdrawals begins

Ethereum’s Shanghai upgrade ends! New Era of staking withdrawals begins

Time Stamp: April 13, 2023 7:12 AM
Ethereum’s Shanghai upgrade ends! New Era of staking withdrawals begins PlatoBlockchain Data Intelligence. Vertical Search. Ai.

SNEAK PEEK

  • Shanghai, a hard-forking upgrade to Ethereum, has completed the network’s transition from PoW to PoS.
  • Staking services have their own timelines in terms of the release of staked ETH withdrawals. 
  • Various technical improvements in the Shanghai upgrade are expected to enhance the transactional side of ethereum.

Shapella, Ethereum’s Shanghai hard fork, is finalized to allow withdrawals for those who have staked their ether to protect and authenticate blockchain transactions. Triggered at 22:27 UTC,  the Shanghai upgrade was finalized at around 22:42 UTC.

According to beaconcha.in, after half an hour of the upgrade activation, over 285 withdrawals in epoch 194,408 were processed for over 5,413 ETH. 

The highly expected hard fork has been distinguished by Ethereum community’s members as a legendary achievement; thereby, completing its multi-year transformation into a complete PoS network. 

At the time when Shanghai hard fork was activated, the price of ETH was largely flat and over 4000 people transformed into a Shapella Mainnet Watch Party that was organized by Ethereum Cat Herders.

Ethereum blockchain’s co-founder Vitalik Buterin said during the livestream that they are in a stage where the difficult and fastest elements of the Ethereum protocol’s transition have ended. Some remarkable things are yet to be done though they can be carried out securely at a slower pace.

Buterin added that scaling is going to be the next concern for the blockchain to handle after Shanghai. He mentioned that not resolving scaling before the forthcoming bull run will make people stuck in paying $500 transactions. On the other hand, if there are no Verkle Trees before the upcoming bull run, things are likely to suck though it is a relatively smaller concern than $500 transactions. 

Analysts of the digital asset market have wondered for months whether or not the Shanghai hard fork is going to serve as the catalyst for a crash or a price recovery. Will the success lead to jump in market sentiment or will stakers redeem ether simultaneously and speed towards dumping their holdings are other concerns they have been thinking over. 

At the time of Ethereum undergoing the Merge, the project released a new breed of validators to continue the functioning of the blockchain. Though the PoS consensus mechanism led to a decrease in the energy of Ethereum consumption by 99%, developers thought that under PoS, the network will have increased protection and allow increased decentralization.

In a November 2020 blog, Vitalik Buterin wrote that PoS will result in “higher wealth concentration over the long term.” Reason behind this is that in PoS, ether is essential to stake and one can acquire more ether via staking. However, in PoW, even though one earns ether, they still require outside resources to do so. 

To be a part of the block validation process and protect the Ethereum network, validators must stake a minimum 32 ETH by sending them to a smart contract where the funds are locked. Staking more ETH means more chances of proposing a block of data transactions to be validated on the blockchain. When a block is proposed by a validator and other validators approve it, an additional reward is given to the validator. 

It is not possible for all to have this much amount of ether to stake a full 32 ETH. Therefore, liquid staking providers act as an alternative. Having said that, users who wish to participate in staking can give any amount of ETH and third-party providers will stake that particular ETH followed by running the validators on the collective of clients behalf. 

Largest liquid staking provider Lido controls over 23% of all ETH staked. Kraken, Coinbase and Binance are other major crypto exchanges that control another 22% of staked ETH.

Validators can unstake in many ways though the two major forms include partial withdrawals and full withdrawals.

Partial withdrawals were accessible when the upgrade was activated and enabled users to get hands on their much-awaited rewards instantly. In a single slot, Ethereum can process 16 partial withdrawal requests. Hence, the withdrawal queue can take hours depending on the number of requests. 

Barnabas Busa, a DevOps Engineer at the Ethereum Foundation, said that most probably, there won’t be any partial withdrawals in the first few epochs since the first few hundred validators are all 0x00. 

Full withdrawals went live at the same time and enabled validators to completely unstake their 32 ETH besides any rewards collected by them. Exiting the chain means stopping the participation in the block chain validation as well as stopping the contribution to the network’s safety. 

As full withdrawals don’t happen on their own, validators must send a message to the blockchain to be added to the queue if they wish to exit.

Previously, Coinbase shared beginning processing withdrawal requests for their stakers over24 hours after Shanghai gets completed. Lido said that stakers won’t be allowed to recover their withdrawals until the protocol undergoes another upgrade in May.

Ever since the Beacon Chain went live in December 2020, 18 million plus ETH has been staked. With Shanghai being live, over 1.1 million resulting ETH from rewards can be withdrawn immediately. 

Market analysts fear that the unlocking of ETH that’s deposited in the Beacon Chain may lead to a rush by stakers to liquidate their tokens.

Certain market analysts think that selling pressure for ETH will be distributed over several days.  Also, the withdrawal queue would enable buyers to observe and estimate the selling pressure.

No doubt staked ETH withdrawals are the major priority of Shanghai, below listed four smaller mechanisms to Ethereum will enhance gas fees for developers. 

  1. EIP-3651: It accesses the “COINBASE” address at a lower gas cost. 
  2. EIP-3855: It allows “Push0” to lower gas costs for developers.
  3. EIP-3860: It caps gas costs for developers in case they use ‘initcode.’
  4. EIP-6049: It will alert developers about the depreciation of “SELFDESTRUCT” which curbs gas fees.

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