Explained: Ethereum’s Shanghai update and what it will mean for users

On September 15, Ethereum successfully transitioned to the proof-of-stake (PoS) consensus mechanism. The update, widely referred to as The Merge, was one of the biggest, most-anticipated events in the cryptoverse. However, it was only the first milestone on the network’s eventual goal of achieving 100K transactions per second (TPS). The next most important update on the cards is the Shanghai upgrade.

And it seems like the developers at the second largest blockchain network are hard at work, announcing the “early” launch of the Pre-Shanghai testnet on October 14. The testnet, called “Shandong”, will be used to test and finalize the Ethereum Improvement Proposals (EIPs) that should be included in the Shanghai Update.

“We are happy to announce the launch of an early Pre-Shanghai testnet we are calling “Shandong”. This is an experimental testnet run in cooperation with EF DevOps, which activates a set of selected Shanghai-considered EIPs for early client testing,” said the Ethereum Foundation JavaScript Team.

The Shanghai update is expected to go live in the second half of 2023 and should introduce several improvements to the network. Two of these improvements, perhaps the most important ones, are EIP-4895 and EIP 4844. Let’s look at these improvement proposals and what they mean for users.

EIP-4895 is perhaps one of the most anticipated upgrades to be introduced with the Shanghai update. It will allow users to withdraw their staked ETH. Since Ethereum developers introduced the staking feature on the network’s beacon chain, more than 13.4 million ETH has been locked with the network. That translates to almost $18 billion and 11 percent of ETH’s total circulating supply.

However, users cannot unlock their staked ETH or staking rewards until the Shanghai upgrade is completed. Moreover, even after the Shanghai upgrade, it is expected that only 43,200 ETH can be withdrawn per day to prevent mass withdrawals that would leave Ethereum vulnerable to attacks.

The second most anticipated EIP that’s expected to be released with the Shanghai upgrade is EIP-4844, or proto-danksharding. This is a beta version of a roll-up mechanism that would allow transaction processing to be offloaded from the Ethereum mainnet and processed on layer-2 networks such as Arbitrum and Optimism. It would enable the blockchain to verify large chunks of transactions by only sampling small pieces of the data.

As you can imagine, this will speed up the network’s throughput and possibly even reduce gas fees. However, this is a rather large update, and it may not be plausible to include this EIP in the Shanghai upgrade. At the same time, an official Ethereum post on sharding states 2023 as the ETA for this update. This indicates that EIP-4844 could well go live with the Shanghai upgrade or shortly after.

The Shandong testnet will run trials for several EIPs, but the two mentioned above are the ones to watch out for. They will create a huge difference in the user experience and usher in a new age for the second largest blockchain network in the world. However, only time will tell whether or not these updates will occur and when.