Ethereum’s Shanghai Upgrade

Among the notable events that happened in the Crypto World in 2022 was Ethereum’s Merge which took place in September. The most popular altcoin switched from the Proof-of-Work (PoW) to the Proof-of-Stake (PoS) consensus mechanism. 

However, the blockchain has ambitious plans regarding further improvements of the system. In this article, we are going to see what the team has implemented already and what their vision for the future is.

What changed for Ethereum in 2022?

Throughout that year, Ethereum (ETH) was preparing for the Merge with a number of tests. Eventually, on September 15, the platform shifted to the PoS consensus layer called Beacon Chain.

By doing so, the network lowered energy consumption by over 99% and prepared the system for future improvements of the Mainnet that are supposed to enhance scalability as well as make transactions cheaper.

Before this major change, on September 6, Ethereum implemented the Bellatrix update, which was the last preparation step for the Merge. Even though the result made some of the users and experts worry – 9% of the blocks went offline, in the end, everything passed without any major hiccups.

What does the Shanghai update include?

The Shanghai update's priority is allowing stakers and validators to withdraw staked ETH. It is scheduled for March 2023.

Previously, the developers also wanted to implement Ethereum Improvement Proposal (EIP) 4844 together with the update. The main point of the proposal is so-called proto- (or mini-) danksharding – a new type of transaction that accepts smaller chunks of data called "blobs".

The advantage of these blobs is that they are more manageable and take up less space on the chain. What is more, they are supposed to improve scalability and prepare the whole system for the Sharding upgrade coming in 2023 or in 2024.

However, it was decided in December that the EIP-4844 will be implemented later in 2023 because it might not be fully prepared by March, whereas the team prioritizes the Shanghai update above other things.

Apart from withdrawals, the upgrade is going to introduce some other proposals to enhance the Ethereum Virtual Machine, such as a new format of contract, code/data separations, etc. The team decided to go for them instead of EIP-4844 because these changes are not as deep, so in case they do not finish on time, the team will manage to return to the old system easily.

For example, one of the proposals is called Warm COINBASE. It does not have any associations with the well-known cryptocurrency exchange; it is connected to the software which allows builders to get new tokens.

Here is how it works: in order to finish a transaction it is necessary to interact with the software several times. Those transactions are more costly at first because the coinbase has to warm up. When the proposal is implemented, this will change, and interacting with the software and using Ethereum, in general, is supposed to become cheaper.

Conclusion

Numerous updates and ideas on how to enhance the system focus mainly on increasing scalability and reducing the cost of operations on Ethereum. These problems probably exist for all layer 1 blockchains to various degrees. If in the next year or two Ethereum will be able to solve them or at least have significant improvements, it will attract even more developers and customers to the network, furthering the gap between the project and its competitors.

We at SimpleSwap are glad to keep an eye on further developments of the project and invite you to read our article about the ETH Roadmap.