Shanghai Hard Fork: All you need to know to get ready for it.
The ETH Merge that we all witnessed last September was one of, if not the most significant crypto event of 2022. As you can imagine, huge network upgrades don’t just happen overnight: preparations for such radical changes can take years of hard work. But why does it matter now? And why was it called The Merge anyway?
Well, there’s one thing that we need to understand about how Ethereum was able to switch from proof-of-work to proof-of-stake with minimal service interruption. It was made possible by simultaneously running two networks: the existing PoW mainnet that has been running since the Genesis, and the fresh and new PoS network on an additional layer called the Beacon Chain.
Since the Beacon Chain’s creation on December 1, 2020, validators have been staking their ETH to keep the network running. And from the very beginning they were fully aware that the ETH they stake, as well as any rewards they would get from staking, would be locked without a possibility to withdraw. The Shanghai Hard Fork is when this will change.
What it is about
The long-awaited update is just around the corner, set to happen in March 2023 We will know the exact time (or rather block) when it gets announced closer to the upgrade. The hard fork will be the first big upgrade since The Merge, hence it is getting a lot of attention.
The Shanghai Hard Fork introduces a few changes, but the biggest one is the Ethereum Improvement Proposal 4895, or EIP-4895 for short. This update will allow Ethereum network’s validators to finally withdraw the 16 Million ETH currently staked, some of which has been locked since the creation of the Beacon Chain in 2020.
Even though Shanghai also covers other bases like reducing gas fees for developers building on the blockchain, it is undeniable that the change that has users at the edges of their seats is EIP-4895 enabling validators to unstake their ETH after more than two years.
What to expect
The reason why every ETH holder should pay attention to the Shanghai Hard Fork is simple: if that ETH can be withdrawn, it can also be sold. For this reason it is better to keep an eye on the market and the percentage of coins staked out of the total supply. Especially considering that out of the whole amount locked, 1M ETH is staking rewards accrued by validators, so some traders believe this is going to create considerable selling pressure.
From a more optimistic point of view, this upgrade will make staking ETH much more appealing. The fact that after the hard fork ETH holders will have the opportunity to simply earn by staking Ethereum instead of having to use additional solutions like liquid staking protocols, that can make the demand for ETH higher and actually push the price up.
If you are running a validator node on ETH 2.0, your patience will soon be rewarded: you’ll be able to withdraw your funds, as well as the rewards you have accumulated through it!
Although the effects that the EIP-4895 may have on the current market are still unknown, it will likely be impactful, so we recommend keeping a close eye on ETH prices in March, and to at all times manage your trading positions with precaution to limit your exposure and risk in relation to developing news and price movements
We are excited for it, and so should be you! As thrilling and unpredictable as the Shanghai Hard Fork is, it is a great leap for Ethereum 2.0, offering a fully functional staking mechanism available for anyone and everyone in the ecosystem.