The Ethereum merge was successfully completed on September 15, 2022. As the world geared up to experience how Ethereum would progress in the post-merge scenario, news of the Ethereum Shanghai Upgrade made its way. This news has immediately intrigued investors who are excited to know more. In this article, we’ll take a look at everything you need to know about the upcoming upgrade and how it could affect ETH prices in the future.
Contents of the article:
What is the Ethereum Shanghai Upgrade?
Why is the implementation of the Shanghai upgrade vital?
Trading Opportunities on XT.COM
What is the next upgrade for Ethereum?
What is the Ethereum Merge?
Ethereum Merge is a feature of the Ethereum network introduced in 2020 and designed to bring Ethereum into its next stage of development. Ethereum Merge is a type of Ethereum hard fork that allows Ethereum 1.0 to smoothly transition into Ethereum 2.0 by separating the Ethereum blockchain into two chains: Ethereum 1.0 and Ethereum 2.0. By reinforcing these two separate parts, new technology can be released in Ethereum 2.0 independent from Ethereum 1.0, allowing for faster, safer, and more efficient transactions and larger scalability for the entire blockchain.
Beacon Chain, using a PoS consensus layer, was another network running parallel to the Ethereum chain before The Merge. When The Merge happened, The PoW Ethereum chain merged with the Beacon Chain, which means that blocks on Ethereum will only be produced through the Beacon Chain using its PoS consensus model. In doing so, the governance of the chain moved away from a resource-intensive mechanism and became more environmentally, socially and governance (ESG) friendly.
What is the Ethereum Shanghai Upgrade?
Ethereum’s Shanghai Upgrade (also called the Shanghai Update or Shanghai Fork) includes five different Ethereum Improvement Proposals (EIPs). Although the Ethereum Shanghai upgrade incorporates multiple EIPs, the headline improvement will be EIP-4895: Beacon Chain Push Withdrawals as Operations. In essence, the proposal grants validators the ability to withdraw staked ETH that’s been deposited into the Beacon Chain since December 2020, when the Beacon Chain was originally introduced. Ultimately, EIP-4895 plans to grant long-term ETH stakers and HODLers extra liquidity as they can finally withdraw their ETH after more than two years of staking with negligible gas fees.
Four other improvement proposals (EIP-3651, EIP-3855, EIP-3860, EIP-6049) all tackle high gas fees, slow transaction processing time, and the overall performance of the network. Shanghai will be paired with another upgrade called Capella. While Shanghai is the update on the execution layer (where transactions take place), Capella will enable the update on the consensus layer (where nodes run the Proof of Stake Beacon chain).
Withdrawal process
There is approximately 16 million staked ETH that will be available for withdrawal by validators once the Shanghai Upgrade goes live. However, there will be a waiting time for validators to access the ETH they wish to unstake, since there is only a single queue for both full and partial withdrawals on the blockchain. In each slot (which occurs every 12 seconds), only 16 partial withdrawals can take place. Validators have two options for unstaking their ETH. First, they may create a ‘withdrawal credential’ to unstake their staking rewards accumulated over the past years. Second, validators may also exit the Beacon Chain completely by unstaking all of their 32 ETH, the maximum allowed per validator.
Why is the implementation of the Shanghai upgrade vital?
The first reason is the reduction in gas fees for layer-2 solutions. These solutions, like Polygon, Optimism, etc., run on top of Ethereum, and the reduction in gas fees is a welcome benefit. These have already sped up Ethereum transactions and made them cheaper. With this addition, it can become even cheaper.
Before this upgrade, those who wanted to join the new PoS Ethereum Beacon chain to validate had to pledge a given sum of ETH into a deposit-smart contract. These ETH would remain locked in even after the Merge. The Shanghai update looks to release these locked-in ETHs, and people may slowly start taking back their staked ETH tokens.
Ethereum is the smart contract supporting the largest blockchain network. The Shanghai upgrade looks to further this and make advancements in the field.
Could ETH price soar again?
Why ETH Could Rally
Staking is a key issue here when discussing the movement of ETH price. With the implementation of the Shanghai network upgrade, our bullish argument would be that we can expect more users to HODL and stake their ETH as adoption rises. This would drive Ethereum’s staking ratio up as users who were previously fearful because they could not withdraw their ETH can now proceed to enjoy additional yield without the downside of lower liquidity. In this regard, we can certainly expect ETH to rise in price as large-scale institutions buy and stake their ETH to earn a respectable APY of about 5% without sacrificing liquidity.
From lowered gas fees to fewer failed transactions, the upcoming Ethereum Shanghai upgrade fixes various nagging issues that have constantly affected users and developers. By getting these fixes in before the big EIP-4844: Proto Danksharding implementation, the Foundation ensures minimal delays as they prepare themselves to ship the Surge update.
Why ETH Could Crash
On the bearish side of things, the crypto market as a whole is still not out of the woods as big institutions continue to out themselves as victims of the Terra Luna and FTX contagion. Macroeconomic factors are also bearish as US inflation still remains far from its 2% target and the Federal Reserve continues to hike interest rates. These factors might pressure original ETH stakers from December 2020 to sell their staked ETH and gain more liquidity so the rest of their portfolio can stay afloat during the crypto bear market.
In anticipation of this, the Ethereum Foundation has set a hard limit of about 40,000 ETH that can be unlocked each day. This will hopefully ease the selling pressure and reduce short-term ETH volatility.
Trading Opportunities on XT.COM
On XT.COM, you can easily trade ETH, the native token of the Ethereum blockchain. You can also trade tokenized versions of ETH and ETH Leveraged Tokens (e.g., ETH3L, ETH3S). In addition, Ethereum futures trading is available on XT futures trading platform.
Ethereum (ETH) spot trading (eth/usdt): Ethereum spot trading is a form of financial transaction that allows users to access and utilize the current market spot price of Ethereum. It is an accessible and efficient way to profit from trends within the cryptocurrency markets, as spot trading does not require leverage and margins. Spot trading with Ethereum involves buying or selling digital assets when there are fluctuations in the price of Ether.
Ethereum (ETH) margin trading (eth/usdt): Ethereum margin trading is an investment technique that allows investors to borrow money from lenders in order to buy more Ethereum than they would typically be able to purchase at one time. By leveraging their own funds, margin traders are able to increase the size of their positions and potentially generate higher returns on their investments. However, margin trading inherently carries high levels of risk when compared to traditional investment strategies as traders may be exposed to greater potential losses if the value of their position decreases. As such, margin trading should only be used by experienced investors who are comfortable with the risks involved.
Ethereum (ETH) ETF trading (eth3l/usdt, eth3s/usdt): ETFs are exchange-traded funds that track underlying assets such as stocks, bonds, commodities and currencies. Ethereum ETF trading allows traders to take advantage of Ethereum’s volatility while keeping their investments within a regulated environment, which is not possible with traditional cryptocurrency investments.
Ethereum (ETH) USDT margined perpetual futures (eth/usdt perpetual futures): Ethereum USDT margined perpetual futures are a variation of derivatives contracts. Unlike traditional futures which expire at a certain date, perpetual futures don’t have expiration dates and settle using the spot market index price instead. Users who use perpetual futures can therefore get perpetual leveraged exposure to the Ethereum-USDT pair while paying no fees for holding onto their positions beyond the initial margin.
Ethereum (ETH) USDT margined quarterly futures (eth/usdt quarterly futures): Ethereum USDT quarterly futures are a type of investment instrument that allow investors to capitalize on quarterly price movements in order to realize speculative profits. Unlike traditional contracts, quarterly ETH USDT futures provide traders with the opportunity to make predictions about quarterly prices without needing to purchase expensive quarterly options or suffer from fixed expiration dates, allowing traders to take advantage of upcoming market moves more easily.
Ethereum (ETH) Coin margined perpetual futures (eth/usd perpetual futures): Ethereum Coin margined perpetual futures is a type of derivative that has been gaining popularity among financial traders recently. These perpetual futures contracts allow an investor to speculate on the future value of ether, without the time-limitations usually associated with other types of derivatives. By leveraging their assets, investors can access higher leverage than traditional margin and receive payouts based on market performance.
Ethereum (ETH) Coin margined quarterly futures (eth/usd quarterly futures): Ethereum quarterly futures offer investors the chance to purchase an asset with a quarterly expiry. This allows traders to benefit from price movements over the quarterly cycle with lower minimums, and tighter spreads. There are a variety of financial instruments, such as coins margined quarterly futures or futures contracts, that allow traders to capitalize on quarterly price swings. These instruments offer larger leverages than traditional stocks, providing investors with greater opportunities for profit. At the same time, they also expose investors to higher levels of risk as markets can quickly turn against them if they’re not careful.
ETH/USDT Futures Grid Trading: Ethereum futures grid trading is an innovative form of futures trading that uses computer algorithms to identify short-term trading opportunities in ethereum futures markets. This approach takes advantage of the hedging opportunities created when a futures trader places buy and sell orders within predetermined ranges, or grids. By analysing the movements of ethereum futures contracts, traders can create financial strategies that capitalize on both short-term price trends and long-term market changes.
What is the next upgrade for Ethereum?
The EIPs included in the Shanghai upgrade will be a good step toward achieving sharding later in 2023. Sharding is extremely important to improve higher transaction throughputs as the chain will be able to perform “parallel processing.” Sharding is expected to be achieved in two stages in 2023 and 2024.
The first stage brings better data availability to the Ethereum blockchain. Combining that with the rollup feature that layer-2 chains like Polygon and Immutable X are able to perform could help achieve several thousand transactions per second on Ethereum.
There is still a debate as to whether the second stage should allow shards to be smarter with each of them holding their own smart contracts. This upgrade will also enable communication between shards. However, the precise nature of this stage is still under discussion and is likely to change once zk-SNARKs are introduced on the Ethereum blockchain.
During his speech at the Ethereum Community Conference in July 2022, Vitalik Buterin hinted at quantum resistance as one of the key milestones for Ethereum. However, achieving the right architecture around sharding and zk-SNARKs should keep the Ethereum community busy and excited for the next couple of years.
The Bottom Line
All things considered, it's clear that there’s a lot riding on the success of this upcoming upgrade for Ethereum - not just for those trading cryptocurrency but also for developers building applications on top of it as well! Not only should we expect improved scalability & lowered transaction fees but if all goes according to plan then potentially even another surge in price similar to what happened back in 2017! With so much promise surrounding this upgrade - now’s definitely not a bad time at all to get involved with Etheruem!
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