06 Apr Everything You Need to Know about the Shapella Upgrade
Ethereum (ETH) Network’s Shapella upgrade is coming and has already become one of the most anticipated upgrades to Ethereum after the famous Ethereum Merge. It is the final stage that will allow Ethereum’s Proof-of-Stake (PoS) network validators to unstake ETH previously locked in a smart contract on Ethereum’s Beacon Chain.
Staked ETH Withdrawals to Activate on April 12. Why not Earlier?
Let’s start by examining how we arrived at our current situation and why staking withdrawals were not enabled during the Ethereum transition from Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism.
As was explained in our previous blog post dedicated to the Ethereum Merge, the upgrade was divided into two phases to avoid changing the algorithm to PoS in one massive and potentially dangerous upgrade. It was needed to reduce the number of significant changes taking place simultaneously, thus securing an established network that processed trillions of dollars in value every year.
The two most critical stages were the launch of the Beacon Chain and the Merge. The Beacon Chain’s introduction in 2020 created the groundwork for the transition by establishing a separate PoS consensus layer that ran alongside the Ethereum PoW chain.
The early release of the Beacon Chain allowed sufficient time to accumulate enough ETH to secure the network before settling real-value transactions. It also allowed for the testing of the new PoS consensus model with actual funds for quite a long period.
Despite knowing they would be unable to withdraw their ETH for some time, the initial network participants contributed millions of ETH to secure the Ethereum PoS network.
As we all know, the next significant step was marked by the Merge itself, which successfully combined the PoS consensus layer with the execution layer, enabling the complete removal of PoW.
Undoubtedly, the Merge was the most significant change to Ethereum to date, and due to its importance to many applications running on the blockchain, it had to be implemented without any downtime. To reduce the risk of failure, the scope of the Merge upgrade was limited, and no other features were included in the upgrade aside from the PoW to PoS transition.
Withdrawals were the most significant feature impacted: customers have not been able to unstake their staked ETH. While validators have been able to exit, there was no mechanism allowing them to withdraw previously staked ETH, which necessitated the need to facilitate withdrawals in the upcoming Shapella upgrade.
What is Ethereum (ETH) Network’s Shapella Upgrade?
The Shapella upgrade combines amendments to Shanghai Ethereum Virtual Machine called Shanghai and the consensus layer called Capella and includes changes to the Engine API that links the two layers. After Sepolia and Goerli transitions, client teams have scheduled the Shapella upgrade for mainnet activation.
Ethereum developers claim that the upgrade will finally enable this end-to-end unstaking flow and pave the way for staked ETH withdrawals to activate on the mainnet.
Apart from enabling validators to withdraw their staked ETH, the upgrade also introduces new functionality to both the execution and consensus layer and implements the following Ethereum Improvement Proposals: EIP-3651, EIP-3855, EIP-3860, EIP-4895, and EIP-6049, known as standards that designate potential features or new processes for Ethereum.
The Ethereum Foundation has announced that the Shapella network upgrade will activate on the Ethereum network at epoch 194048, scheduled for 22:27:35 UTC on 12/04/2023 and is expected to reduce gas fees, improve the network’s scalability and enhance the speed of the Ethereum network. Let’s see.
Bitfinex will support the Shapella Upgrade and soon after it’s completed, Bitfinex customers will be able to make unstaking requests from their Bitfinex account and regain full access to their entire balance. Bitfinex’s role in this upgrade will be to pass unstaked Ether to customers when it’s released by the protocol.
Bitfinex functionality including trading, deposits and withdrawals, will not be affected with the upgrade.
How will the Shapella Upgrade Influence the Adoption of Staking in the Crypto World?
As thousands of people will soon become free to enter and exit staking positions and withdraw their staked ETH at any time, some analysts believe it may drive a new wave of interest and a sharp increase in staking adoption.
According to the leading data provider for staking and crypto-growth tools, Staking Rewards, Ether is one of the biggest networks, utilising the Proof-of-Stake consensus mechanism by staked capitalisation. It has more than $35,6 billion of all tokens participating in staking, which is now more than 15 percent of its supply locked up.
On the online forum hosted on the Staking Rewards platform, the representatives of liquid staking derivatives protocols StakeWise, Lido and Rocket Pool were discussing the further development of the institutional ETH staking post-Shanghai upgrade.
After an almost four-hour discussion, they summarised that the upcoming Shapella upgrade “massively de-risks staking for institutions,” anticipating that investors will stake more than 50 percent of Ether’s supply in the coming years.
Shapella Upgrade: Better Late than Never
Leading up to the Shapella upgrade, Ethereum developers have diligently worked on the proposal, testing, and fine-tuning the network’s features. The Ethereum community has been actively discussing these forthcoming improvements on social media and other platforms, showcasing their enthusiasm and support.
Without any doubt, the Shapella upgrade marks another essential milestone in Ethereum’s journey, ensuring that the platform remains competitive and meets the evolving needs of its users.
As the crypto community eagerly anticipates this landmark event, they can expect a more efficient, secure, and user-friendly Ethereum network come April 12.