What is Shapella Upgrade in Ethereum (ETH): Guide

Shapella upgrade is set to go live on the Ethereum (ETH) network at epoch 194,048, or on approximately April 12, 2023. For the first time ever, since the launch of the Ethereum (ETH) deposit contract in March 2020, stakers will be able to withdraw («unstake») their deposits.

What is Shapella, and why is it crucial?

Shapella hard fork is the most anticipated network upgrade for Ethereum (ETH) in 2023 and one of the most crucial events in the crypto segment in recent months. The second largest blockchain is on the eve of its most radical tokenomic change in three years.

• Shapella is an upgrade on the Ethereum (ETH) network designed to allow users to withdraw their deposits from staking contracts; previously, they were not able to «unstake» their ETH coins;
• Shapella’s agenda includes changes to the execution layer (Shanghai), consensus layer (Capella) and the Engine API;
• Ethereum’s (ETH) Shapella upgrade is set to be activated on April 12, 2023, at about 10:27 p.m. (UTC);
• Shapella’s influence on the ETH price might be controversial; the possibility of unlocking funds derisks Ethereum (ETH) staking, but it might also trigger selling pressure on ETH;
• Ethereum (ETH) node operators should upgrade their client software; upgrades for all versions of consensus and execution layer software are ready.

As such, the Ethereum (ETH) community is anticipating the activation of Shapella as it is a watershed milestone in Ethereum’s (ETH) progress toward full-fledged proof-of-stake (PoS).

What is proof of stake?

Proof of stake is a type of network consensus on decentralized systems, where network participants guarantee their contribution by staking (locking, «freezing») the native cryptocurrency of this network. In proof-of-work (PoW) systems, the computational power of mining equipment is an analogue of staking in proof-of-stake (PoS) systems.

Compared to proof of work, the proof-of-stake consensus is considered to be more inclusive, nature-friendly and democratic; in PoS, there is no need to buy costly and sophisticated mining computers in order to verify transactions on the network.

Proof of stake (PoS) is the basis for a number of consensus times, including proof of authority (PoA), delegated proof of stake (DPoS), liquid proof of stake (LPoS) and so on. Ethereum (ETH) and Cardano (ADA) are the largest proof-of-stake (PoS) blockchains in 2023.

What is staking in Ethereum (ETH)?

Initially, Ethereum (ETH) launched as a proof-of-work (PoW) network that operated similarly to Bitcoin (BTC). However, the transition toward proof of stake as the more technically advanced, attack-resistant and eco-friendly network was included in its roadmap.

In Q4, 2020, a deposit contract was launched for Ethereum (ETH) stakers: everyone was able to join the staking processes locking 32 Ethers (ETH) as a minimum deposit. As this sum is too big for ordinary Ethereum (ETH) users, some services — liquid staking derivatives platforms — started working as intermediaries to allow enthusiasts with small deposits to also take part in Ethereum (ETH) staking.

By default, Ethereans were not able to withdraw their coins from deposit contracts. As a result, it amassed a massive sum of over 18 million ETH, or $33.8 billion in equivalent.

Shapella is coming: Brief guide

By press time, Shapella upgrade has been successfully activated on all Ethereum (ETH) testnets; everything is ready for its mainnet activation scheduled on April 12, 2023.

What is Shapella?

Derived from «Shanghai» (the city-host of Devcon 2 conference), and «Capella» (the brightest star in the northern constellation of Auriga), Shapella is the name for the hotly anticipated Ethereum (ETH) upgrade. It is set to affect both the consensus layer («Capella» part) and execution layer («Shanghai» part).

Image by Ethereum Foundation

Activation of the opportunity to «unstake» Ethers from deposit contracts is the main part of Shapella: once it is live, stakers are able to withdraw their ETH from staking.

Besides that, Shapella includes a number of minor changes to Ethereum’s (ETH) codebase; largely, they are also associated with withdrawal processes.

As an ETH holder/staker, what do I need to do?

Mostly, the preparation procedures should only be considered by the operators of nodes and stakers. Ordinary users do not need to do anything with no regard to the type of service they store their ETH coins on.

At the same time, the operators of nodes should upgrade the software builds they are using. For instance, validator nodes should upgrade both Consensus and Execution clients to the following versions:

For Consensus layer releases:

Lighthouse v4.0.1

Lodestar v1.7.0

Nimbus v23.3.2

Prysm v4.0.0

Teku v23.3.1;

For Execution layer releases:

Besu v23.1.2

Erigon v2.42.0

Go Ethereum (Geth) v1.11.5

Nethermind v1.17.3

If an operator misses an update, their nodes would synchronize with a deprecated version of Ethereum (ETH) blockchain and would not be able to work with the post-Shapella network.

How will Shapella affect ETH price in the short term?

Simply put, nobody knows; there are two theories about the potential effects of Shapella activation on the Ethereum (ETH) price.

First, it will increase selling pressure on the network. Many fresh Ethers (ETH) will be unlocked and eventually released on the market. Some of their holders will be interested in selling them, so it could be a dangerous bearish catalyst.

At the same time, as explained by top analyst Chris Burniske, the opportunity to unstake Ethers (ETH) will be a huge derisking factor for investors: with no withdrawal option, they would have to reduce the flexibility of their portfolios. As such, there is no consensus about the effects of Ethereum Shapella on ETH price dynamics.

However, as covered by U.Today previously, the Ethereum (ETH) community is optimistic about ETH in the short term: Shapella inches closer to activation amid the ETH price spiking above eight-month highs.

Closing thoughts

Scheduled on April 12, 2023, the Ethereum Shapella upgrade activates the opportunity to unstake ETH from the main contract. All node operators are required to upgrade the software packs they are using.

Ethereum Shapella has both bullish and bearish effects for the ETH price in the short term, cryptocurrency analysts claim.

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