The Ethereum Shanghai update, known as the Shapella update, is a hard fork. One of the biggest achievements associated with the fork is that it will allow stakers and validators to withdraw assets from the Beacon Chain.
Shapella is a combination of the words “Shanghai” and “Capella”. This terminology arose because the Ethereum protocol consists of two layers: execution and consensus. At each level, updates have different names. The execution layer is called Shanghai hard fork, and the consensus layer is called Capella. The combination of these two words led the developers to the idea of using the Shapella acronym.
To understand the meaning and difference between these two levels, you need to understand the Ethereum architecture before the network underwent the latest update – The Merge.
The old blockchain was based on the proof of work (PoW), also known as the runtime layer. After the authors of the Ethereum protocol launched the proof-of-stake (PoS) chain, also known as the consensus level, the developers decided to switch to it completely. But this turned out to be too difficult a task, so it was decided to merge the two blockchains together (hence the term “Merger”).
These layers have different functions that help develop the entire Ethereum blockchain. The execution layer is the space where all smart contracts and protocol rules live, and the consensus layer is responsible for ensuring that validators follow all the rules.
What is the Shanghai hard fork in Ethereum?
Ethereum is a decentralized platform based on blockchain technology. The project has been developing at a steady pace since its launch in 2015. Initially, it was built on the Proof-of-Work (PoW) consensus mechanism. After The Merge update, Ethereum switched to the more energy-efficient Proof-of-Stake (PoS) algorithm.
However, the blockchain suffers from scalability issues – Ethereum operates at a speed of only 30 TPS. Network overload due to the huge volume of transactions often leads to delays and high gas prices. The Ethereum Foundation is actively working on the long-awaited Shanghai hard fork to solve these problems.
A hard fork is a network upgrade that results in nodes no longer accepting the old version of the blockchain. Such radical upgrades require all nodes in the network to upgrade to the latest protocol, permanently separating themselves from previous versions of the blockchain. Changes can be initiated by developers or demanded by stakeholders, and in most cases they reflect new rules established by these parties.
Stakeholders in the Ethereum community are looking forward to the Shanghai blockchain hard fork, as the technical updates that will take place on the network will change the entire ecosystem and give holders the long-awaited opportunity to unlock access to their ETH cryptocurrency.
What improvements are included in Shanghai
The improvements are expected to bring ETH out of staking, reduce gas fees, increase blockchain scalability, and make it more efficient in transaction processing. The most important development of the Shanghai Update, which allows validators to withdraw tokens put into staking, corresponds to the Ethereum-4895 or EIP-4895 improvement proposal.
Validators have staked around 16 million ETH to help secure the mechanism, which has been particularly important for the Ethereum blockchain since September 2022 when the process of switching Ethereum’s consensus mechanism from proof-of-work to proof-of-stake began.
Instead of solving computational puzzles using specialized mining hardware, users were able to contribute 32 ETH to the staking and become validators of the network.
Since the merger, which merged the main Ethereum network with the Beacon Chain PoS, users have not been able to withdraw funds from the staking. The Shanghai update (EIP-4895) solves this problem by introducing a staking withdrawal feature.