Why Ethereum Shanghai Upgrade Matters: Ready to Rumble
WHY UPGRADE IMPORTANT: Staked Pools | Withdrawal Time | Trick Reward
Greater than the Ethereum merge, a new Upgrade called the Shanghai Fork is on the way. The name “Shanghai” is believed to be inspired from the Money Heist series, in which team members were given country names. Nice move, fellas.
Just For Fun: Let’s just hope they don’t accidentally start a real heist and try to steal all the ETH!
Now let’s talk on what will occur in Shanghai Fork.
2021 to 2022
When it comes to POS, Ethereum mining down by 98%, which means that formerly 100 ETH were mined, but now only 2 ETH are mined. Since December 2020, 14% of ETH has been staked, hence the reward was increased by 10%. Gas costs were burned via the EIP 1559 token burning mechanism.
2023
A shadow fork was made in order to TEST the Shanghai Upgrade. This beta test will determine whether or not the Shanghai Upgrade is working. Its outcome has been favorable (Positive).
In 2023, Ethereum will focus on scalability. Its transaction speed is extremely slow, and its high gas prices will be resolved via sharding and layer 2 protocols. The sharding journey is begun, and it is working with the Layer 2 project.
Sharding
Sharding is the process of dividing your network into many networks and completing them in separate transactions. Gas prices will be reduced by 95% to 99% thanks to the layer 2 protocol. You will profit greatly as soon as these things Become LIVE.
Many companies, including Facebook, PayPal, Visa, Nike, Stripe, and Adidas, have integrated with Ethereum layer 2. Polygon is now taking place on a broad scale. Polygon has the potential to push Ethereum to a far higher level in the coming years.
FUD
In 2022, the people who had put a lot of ETH in Ethereum staking, which were in the millions. All of these coins will now be unlocked. Right now, the market condition is such that liquidity is low, and people want funds. It is also possible for users to sell their Ethereum by transferring it to an exchange and then withdraw it in cash.
Many people are already concerned that the price of ETH will fall dramatically as a result of this news. It’s likely to see a lot of volatility.
If you are an Ethereum fan, you should be aware of the upcoming changes that will take place as a result of the Shanghai Fork.
Shanghai Fork
The ultimate goal of Ethereum is to achieve sharding. Many stops will appear in between this route in the form of an upgrade.
In the whole cryptocurrency market, Ethereum is ranked second and has switched from Proof of Work to Proof of Stake. They began updating Ethereum in December 2020. Mining was quite expensive at the time since validators had to pay fees. electricity problems were also discussed on Twitter. There are a variety of reasons why Ethereum switched from Pow to Pos. All of this is being done to address the issue of transaction fees. Since then, Vitalik has been on a mission to find the Sharding treasure.
Vitalik had learned that if the network fees is high, New Projects with low fees may replace Ethereum in the future. As a result, the value of ETH will fall. The comparison between cheap and costly has been going on for millennia and will continue in the future.
Beacon — Merge — Shanghai
“The beacon” begun in 2020, then “The merge,” and now it has reached Shanghai Upgrade. After that, they will gradually get to the point of the sharding when they will entirely merge, at which point Ethereum will Become Economical. Economical means that you will just have to pay a few cents to use the blockchain(ETH’s). This is expected to happen by 2024.
The Ethereum network’s recent Shanghai Fork has raised concerns regarding the large amount of ETH that was locked up for staking in 2020. This significant quantity, approximately 16,441,447 ETH, is worth around 20 billion dollars and is set to be unlocked soon, potentially impacting the market.
Where and Why were so Many Coins Staked?
POS started when Ethereum released the beacon chain. People had started staking ETH, however the restriction was kept that 32 ETH were required for staking. You can become a solo staker with 32 ETH.
Many projects were developed in such a way that users may stake their small number of ETH into the pool of the beacon chain. In this, two Staking pools, Lido and Rocket Pool, became quite famous.
1. Lido
This has a stake of 4.7 million ETH.
2. Rocket Pool
This has a total stake of 369k ETH.
You may estimate how many million dollars’ worth of ETH will be unlocked based on the price of one ETH. The number of solo pools of 32 ETH has yet to be determined. Staking it will yield an annual return of 4% to 5%. The investor who wants to hold for a long period of time will earn a 4% to 5% return, and everyone will happily become a validator by staking ETH.
The price of ETH will fall as a result of the Shanghai Fork; this rumor is baseless.
You will recall The Merge of ETH was announced on September 15, 2022. At the time, the price of ETH was approximately $1600, and it remained rather consistent throughout the event. If Ethereum can handle such a large event so smoothly, then for the Shanghai Upgrade they must have had some planning for validators.
Planning
The validator will get withdrawal in two different ways: partially and fully…
→ Partially Withdrawal
Validators who staked ETH for 3 years can now withdraw some of their staked ETH, with the option to keep part of it locked for ongoing staking and rewards.
→ Fully Withdrawal
Along with the reward, the validator in this scenario also has the option to withdraw Staked ETH.
→ You will not be able to withdraw all of your ETH at once in this case. In this situation, the queue method will be used.
In the Queue method, 6 validators will be able to withdraw the whole amount every 6.4 minutes, and if we calculate it per day then 1350 validators (Full) will be able to withdraw. If calculated numerically, the sum would be 80 million USD or 50400 ETH. Ethereum’s daily trading volume is $8 billion. This sum of $80 million is barely 1% of the total. At this rate, selling pressure cannot be generated.
However, if you decides to initiate a withdrawal, you will be placed in a queue. Due to the limit of 16 ETH per block, this could result in a long queue within the Ethereum network, potentially taking more than 100 days for the withdrawal to be processed. This is a rule for the validator.
Trick Reward
Ethereum pulled off a fantastic trick. As the number of validators declines, so will the payout for staking to maintain the Ethereum network, which is now 5%. That is, if validators decrease, the Staking Reward APY will rise. This will benefit new people who want to become validators since they will see more Staking rewards. Because the price of ETH is relatively low, many people are looking at it as an investment opportunity.
This Shanghai Fork event, like other Ethereum events, will land smoothly. This Upgrade will start in the first week of March.
Supply
Ethereum has a supply of 97 million in 2018 and has grown by an estimated 5 million every year since then. At the end of 2021, the supply was 118 million. The supply had reached 120.52 million at the time of the merger in September 2022. Surprisingly, following the merger, its supply rose just slightly, and it is still only about 120.52 million now because 98% of ETH mining has stopped. Due to the trading of NFTs, the supply of ETH deflated. NFTs trading used to collect gas fees, but it was burned with the EPI-1559 mechanism, resulting in a -0.007% Drop in market supply.
Burning is working so fast that the supply is getting reduced. The Upgrade process is still ongoing, and Layer 2 is working on the project as the amount of NFTs trading increases. Based on this information, Ethereum appears to have a promising future. Ethereum has a good chance of entering a bull run up to the estimated $20000.
WHY UPGRADE IMPORTANT
The Ethereum network needs to upgrade to the Shanghai Fork in order to improve its efficiency, gas limit, block security, and to enable the network to be more scalable and able to handle more transactions.
The Ethereum community is like a cheerleading squad, rooting for the EIP-1559 upgrade to succeed! With many developers and stakeholders working hard to make it happen, they’re like a team of superheroes coming together to save the day.
Clap — Share — Comment — Happily ☻
Disclaimer
This is not a Financial Advice. This article is meant only for educational purpose. I am just sharing my thoughts and analysis based on my many years of experience.
