With the “Merge” and the accompanying change to proof of stake, the Ethereum blockchain received arguably the most crucial and largest upgrade of all time on September 15. With “Shanghai”, however, the next upgrade is already just around the corner.
After a month-long break, Ethereum developers met last Friday for their 148th All Core Developers (ACD) meeting. Chaired by Tim Beiko of the Ethereum Foundation, the developers discussed the plans for Shanghai.
Together, they found consensus that Shanghai should include, at a minimum, the withdrawal of staked ETH (EIP 4895) and three other minor network optimizations (EIP 3651, 3855, and 3860). In addition, the core developers reached an agreement to further review EIP 4844 and Ethereum Virtual Machine Object Format (EOF) code changes for a possible inclusion in the Shanghai upgrade.
Another much-discussed update that some developers are looking to include in Shanghai is what is known as proto-danksharding, EIP 4844. Proto-danksharding is a preliminary version of sharding that introduces a new transaction type to Ethereum. It can be used to settle batches of transactions from layer 2 rollups in a cost-effective manner.
However, representatives from Besu and Nethermind expressed concerns about implementation readiness, stating that the complexity and scope of the code change is not yet well defined.
What Impact Will Ethereum’s Shanghai Provide On Price?
Considering the fact that currently around 15.51 million ETH are staked, which corresponds to around 12.7% of the total supply, the Shanghai upgrade could exert enormous selling pressure.
Shanghai could give investors their first opportunity to unload their ETH, some of which have been staked for two years. Even if half of all staked ETH retained their status, the selling pressure from the other half would be enormous.
Two crucial factors for the Ether price recently were the high proportion of illiquid ETH through the lockup of ETH and EIP-1559, also known as the “ultra sound money” upgrade. The upgrade implemented a fee burn mechanism on August 05 that wipes out the ETH base fees paid to record transactions on Ethereum.
This causes the ETH supply to decrease whenever more ETH is destroyed through fee burn than is created through ETH issuance.
When Shanghai?
Core developers have not yet agreed on a date for the upgrade. Depending on how proto-danksharding progresses, doing a hard fork with only staked ETH withdrawals and the smaller EIPs could mean Shanghai part one arrives in February 2023. Thus, Shanghai part two, which will then focus exclusively on proto-danksharding, would be integrated into the mainnet in September.
In contrast, bundling all EIPs in one hard fork could mean that Shanghai happens “sometime in June or July”.
Ahead of today’s FOMC meeting, ETH investors seem to remain cautious. The price is moving below the 200-day moving average, but above the 100-day moving average.