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Shanghai is live: The completion of Ethereum’s transition to Proof-of-Stake





  • Ethereum completed the activation of the Shanghai/Capella hard fork, enabling the withdrawal functionality for staked ether and lowering gas costs.

  • This concludes Ethereum's successful transition to Proof-of-Stake, strengthening the security and decentralization of the network.

  • Enabling withdrawals could attract more attention from institutional investors seeking ETH's "risk-free rate." This could result in more ETH being locked up, thereby reducing its circulating supply and potentially driving up its price in the long run.

  • The next Ethereum upgrade, Cancun, is expected to take place in the second semester of this year and aims to optimize data storage and further reduce transaction costs for Ethereum Layer-2s.


Almost seven months after the successful Merge, Ethereum activated its latest network overhaul, the Shanghai/Capella hard fork, on April 12, 2023, at 10:27 PM UTC. The event enabled the withdrawal functionality for staked ether (ETH), in addition to incorporating a handful of functionalities that, all else equal, lower gas costs and make it cheaper to use the Ethereum blockchain. The upgrade went through without any hiccups, consolidating the series of successful network hard forks that are materializing the Ethereum roadmap, with more than ~70% of active validators upgrading their nodes’ softwares prior to the validation slot in which the activation took place.


Shanghai concludes Ethereum’s transition to Proof-of-Stake


After Shanghai, Ethereum concludes its successful transition to Proof-of-Stake (PoS), finishing eight years of development and research that have finally brought the network to its intended consensus mechanism. This is yet another demonstration of the commitment of core developers in bringing continuous improvements to Ethereum, in its path towards greater adoption and better user experience over the long run.

In the coming days and weeks, it will be crucial to monitor the movement of funds in and out of the Ethereum validation set to gain insight into how investors, especially institutions, are responding to staking. These institutions can now confidently seek the "risk-free rate" in the crypto market by locking in their ETH, with the knowledge that it can be redeemed later (although there may be some wait times due to entry and exit queues).


Why does it matter to investors?


Over the long haul, it’s expected that the number of staked ETH will grow, strengthening the security and decentralization of the Ethereum network, reducing the liquid circulating supply of ETH and potentially driving its price higher. While there has been much debate regarding the potential volatility and negative impact that withdrawals can have on ETH’s price in the first few weeks following the upgrade, as ETH consolidates as an asset that generates flows to investors through staking, the token steadily becomes more appealing as a productive digital good, making it more similar to traditional assets and allowing conventional investors to gain more confidence in valuing the second largest crypto asset in the industry.


What’s next for Ethereum?


The next Ethereum upgrade is called Cancun, expected to take place in the second semester of 2023, which, among other things, will implement some data optimization improvements (known as Proto-Danksharding) allowing for second layer solutions built atop Ethereum (such as rollups Arbitrum and Optimism) to reduce even further transaction costs. This will enhance the end-user experience on Ethereum, with second layers becoming more performant and allowing cheaper interactions with decentralized applications and transfer of assets. In summary, Ethereum’s roadmap continues to materialize, showing that the network has what it takes to continue thriving and leading the smart contract platform space.



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