Ethereum Shanghai upgrade — Key things to know

Myrmidonstaking
4 min readFeb 6, 2023
Photo: Gfinity Esports

Ethereum is set to undergo its first major upgrade in March, named Shanghai, since the long awaited shift to a proof-of-stake consensus back in September 2022. The upgrade, after it is completed, will enable staked ether (ETH) to be withdrawn for the first time since December 2020. In this article, we will explain everything you need to know about the upcoming upgrade.

What is EIP-4895 ?

EIP is short for “Ethereum improvement proposals” and 4895 is the proposal of enabling staked ether (ETH) to be unlocked and withdrawn from the network. Ethereum introduced the beacon-chain in December 2020, which allowed the community to stake its ether (ETH) to help secure the network and hereby earn a staking reward for doing so. Up until “the merge” in September 2022, Ethereum was still secured by miners, similar to Bitcoin, but after its succesful merge, the Ethereum network is 100% secured by validators who stake their ether (ETH). So far, staking Ether has been a one-way transaction, meaning once staked you weren’t able to withdraw it again. The Shanghai upgrade and the EIP-4895 is set to make this possible and unlock all 16 million staked ether (ETH). Among all the important and interesting EIP’s, we believe this is the most important and crucial upgrade to keep an eye on in the near future.

How can I unstake my ETH?

Depending on where and how you staked your ETH, there will be different ways on unstaking and withdraw your ETH. If you chose to stake on a CEX (Centralized exchange) like Coinbase or Kraken, you should pay attention to their respective policy of unstaking once EIP-4895 kicks in. Same goes if you chose a staking-as-a-service provider and remain full custody over your assets. Make sure to follow their policy for unstaking and withdrawals.

If you chose to run a validator, meaning you staked minimum 32 ETH, there will be two ways of unstaking and withdrawing. The first option is to unstake the accrued rewards you’ve been earning from your validator, leaving your validator online to be able to continue its job of validating and keep earning rewards. The second option is to fully exit the beacon-chain, unlocking your initial stake of minimum 32 ETH by sending a voluntarily message to the blockchain that it is removing itself from operation. The unbonding period is for now uncertain, as it depends on how many will unstake at the same time. Only 16 withdrawal request can be done into every slot (which will happen every 12 seconds) and there will be a queue for both full and partial withdrawals.

What else to expect from the Shanghai upgrade?

Beside the explained EIP-4895, which will enable staked ether (ETH) to be withdrawn, four other EIP’s will be introduced. Many would argue that high gas fees (Cost of sending a transaction on Ethereum) is the achilles heel of Ethereum. Therefore, the four smaller EIP’s included in the Shanghai upgrade is related to lower gas fees, mainly for developers. The four EIP’s are named EIP-3651, EIP-3855, EIP-3860 and EIP-6049. If you are interested in reading more about each EIP, I’ve added the link that explains their impact.

Now, its important to mention that Ethereum core developers chose to limit the scope of the Shanghai upgrade, mainly focusing on staked ether withdrawals could be released as soon as possible. As a result, other major upgrades were pushed to later this year, such as “proto-danksharding” that focuses on the scalability of the Ethereum network. More on that in another article.

What to expect after a succesful Shanghai upgrade?

The speculation about what will happen once staked ether will be released has been many. In theory, as a result of more ETH being liquid, we will see a sell pressure. However, many members of the community believes that Shanghai will only encourage more staking, as the uncertainty of when it will be possible to withdraw has been solved.

At Myrmidon Staking, we believe that the overall sentiment will be towards more staking and engagement. 2022 was a tough year for the market with the price for one ETH dropping from its high $4800 to $990. Even though the price recovered to above $1600 as of writing, we believe the community and market anticipate a much higher target, hence the sell pressure won’t be as drastic as some seems to believe. Furthermore, we believe that the Shanghai upgrade also increases the incentives for institutionels players to allocate funds, since they now can risk manage when to deploy and withdraw capital, something they haven’t be able to as of yet. However, bear in mind, the Shanghai upgrade is set to take place in a bear market and with on-going macro uncertainty such as inflation, recession, war etc., we might see some selling pressure on the short term.

Another thing we expect to see is a change in the way investors chose to stake their assets. With 2022 being the year of bankruptcies for many centralized entities, many people lost their money as a result of not being custodians of their own assets. We expect more investors to leave centralized entities once they will be able to withdraw their ETH, and look for staking-as-a-service providers like Myrmidon Staking. Using a SaaS like Myrmidon, investors will be able to stake their ETH by remaining full control over their keys and still earn ETH staking rewards. Myrmidon Staking will be ready to provide ETH staking before the Shanghai upgrade, so if you consider removing your staked ether once Shanghai has been implemented, make sure you follow us for more information.

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