Wed April 11

Good Morning. Our Referral program is live. Please see the bottom of the letter for more details 😀 . Ethereum’s Shanghai upgrade will be happening tomorrow and today we will talk about it.

Background And What Is It?

  • Shanghai upgrade will be a hard fork of Ethereum.

  • Ethereum previously utilized a method called proof-of-work to order transactions, which was expensive and consumed a lot of energy

  • In September 2022 they switched to proof-of-stake through a technical update called the "Merge". Individuals who stake Ether can now act as validators for transactions on the Ethereum blockchain and earn income, similar to earning interest on a bank deposit.

  • While users have been able to stake Ether since 2020, they were unable to withdraw it.

  • Shanghai upgrade will allow for staked ETH withdrawals.

  • As of early April, approximately 16% of the total Ether supply, valued at approximately $37 billion, was locked in the staking protocol.

Why Does It Matter?

It's uncertain how many users will choose to withdraw their Ether once it becomes accessible. The value of Ether has been volatile over the years, surging in popularity with both institutional and retail investors, but then experiencing a drop in 2022. In the beginning, the demand for withdrawals is expected to be higher than new staking deposits on Ethereum. However, in the long run, the ability to withdraw staked tokens will likely make Ether staking more appealing since it reduces the risk for those involved. Investors anticipate fluctuations in liquid-staking tokens, which represent staked Ether and can be used in decentralized finance applications for lending, borrowing, and trading coins. Some of these tokens have recently seen an increase in value, but they may also be at risk of falling in value around the time of the Shanghai upgrade in tandem with Ether.

How Quickly Can I Take My ETH Out?

  • Users who wish to withdraw their Ether will need to join queues, the length of which will depend on where their stakes are being held.

  • The withdrawal process may be more complex for those who hold liquid-staking tokens, like Lido. Lido currently holds approximately one-third of all staked Ether and anticipates enabling withdrawals in May.

  • Due to Ethereum's limitations to prevent vulnerability to attacks, it may take several months for Ether holders to withdraw their coins, as too many withdrawals at once could be risky.

What Else?

  • The Shanghai Upgrade will exclude non-upgraded nodes from participating in the staking and validation process.

  • Along with the Capella Upgrade, the Shanghai Upgrade will also bring modifications to the Consensus Layer, resulting in the combined name "Shapella."

  • There are a few other enhancements included in this version that will simplify and reduce the cost of deploying and operating smart contracts for developers, which will ultimately increase the network's usage over time

  • Ever since the Beacon chain was introduced in December 2020, Ethereum staking has been a one-way process. Users can stake their ETH to become a validator, carry out tasks, and earn rewards in their wallets, but they cannot retrieve their staked ETH. Now they will be able to.

    More benefits

    The execution layer of the Shanghai Upgrade will also introduce three additional Ethereum Improvement Proposals (EIPs)

  • PUSHo Instruction: Numerous instructions require offsets as inputs, which are often zero. The PUSH0 instruction will be introduced under this proposal, pushing the constant value 0 onto the stack.

  • Warm Coinbase Addresses: Under the access list framework established in EIP-2929 with the Berlin upgrade, Coinbase payments have become increasingly popular. However, accessing Coinbase is costly since the address is initially cold. This proposal aims to make Coinbase addresses warm at the beginning of transaction execution, reducing expenses for users.

  • Limit and Meter Initcode: An extension of EIP-170, this proposal will limit the maximum size of initcode and ensure that it is charged fairly. It will simplify EVM engines with explicit limits and have a cost system that can be extended in the future.