What is Ethereum’s Shanghai Update?

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  • Ethereum’s Shanghai update is theoretically just a few weeks away
  • This is the first major update since the merge last year
  • What is the Shanghai update and how will it impact you?

Ethereum’s Shanghai update is due to take place next month, and there is great excitement over it from many in the crypto community, especially those who have signed up to stake it. Why exactly are they so excited, and what will the Shanghai update bring? Let’s find out.

What is the Shanghai Update?

In September 2022, Ethereum completed its transition from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) mechanism. The merge of the Ethereum mainnet with the PoS Beacon Chain started the ball rolling for those who wanted to engage in the staking aspect of Ethereum’s new format, but all staking rewards have been locked ever since staking started.

This issue has been resolved with the Shanghai update (EIP-4895), which will introduce withdrawal functionality. This means that those who sent their coins to the Ethereum staking contract and those who signed up to a third-party service will receive their funds, five months after staking began. At-home stakers will receive their coins straight into their wallets, while those who signed up using third parties should wait for announcements from their staking provider as to how and when the coins will arrive.

Ethereum developers agreed on January 5, 2023, to implement the upgrade as a network hard fork in March 2023, with a public test network with the Shanghai update becoming available for users to test towards the end of February.

Will ETH Dump?

Some have been concerned that the mass release of some 16 million coins will result in the price of ETH dumping, but this is unlikely for a number of reasons. Firstly, these early stakers are Ethereum supporters, so they probably won’t just dump their tokens at the first opportunity. Secondly, the returns haven’t exactly been spectacular, and the vast majority of stalkers are small holders who will only receive a small amount each. They would have to sell en masse for a dump to occur.

Finally, if the crypto market is still in an uptrend when the coins are released then there is less chance of people selling the moment they get them, waiting for a higher price.