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What is Shanghai’s hard fork on Ethereum?

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On April 12, 2023, Ethereum will undergo its first major upgrade, also called a Shanghai hard fork, since September when it switched to a proof-of-stake system. Ethereum’s upcoming “Shanghai” upgrade will allow validators to withdraw 16 million staked ether (ETH) once it is complete. So, what exactly Shanghai hard fork is? Let’s explore it in the following blog.

Shanghai hard fork: what is it all about?

The primary focus of the Shanghai hard fork upgrade is EIP-4895, as Stakers may wish to cash out any rewards they’ve earned over the past two years. Although the PoS blockchain has been live for a while, it still needs to be fully featured. For the blockchain to function properly today, Stakers need to commit to holding their funds locked to keep Ethereum operating. Now, by unlocking staked ETH, the proof-of-stake blockchain can operate fully. In other words, stakeholder funds and rewards are now under their control and can be spent however they wish.

EIP-4895 – what does it mean?

Ethereum Improvement Proposal – 4895 (EIP-4895) is a significant development of the Shanghai upgrade that will allow validators to withdraw staked tokens. When changing the consensus mechanism from PoW (proof-of-work) to PoS (proof-of-stake), the network started utilizing validators to add blocks to the chain instead of miners. Validators are required to stake thirty-two ETH with the blockchain to perform the block validation. The staked ETH acts as a lottery ticket. The number of staked ETH is directly proportional to the chances of the validator being selected to present the successive block of chain and gain network rewards.

As part of the PoS agreement, validators were informed that their earned rewards and staked ETH would remain locked until a subsequent chain update. As a result, those validators can now cash out their stakes.

Is it possible for a validator to unstake its ETH?

Yes, there are different ways for unstaking ETH after the Shanghai hard fork goes live. For example, setting up the “withdrawal credential” automatically unstake the rewards the user has earned from their validator. Another option is to leave the Beacon Chain and unstake all thirty-two ETH by requesting that the validator voluntarily remove itself from the chain.

A developer at the Ethereum Foundation, Marius Van Der Wijden, said that it depends upon the number of users that will unstake at a time and how soon you can access the ETH.

What’s next for Ethereum?

Developers kept the scope of the Shanghai hard fork relatively small so that the withdrawals of the staked ETH can be released instantaneously. As a result, some major changes to the Ethereum protocol will be pushed in the 3rd quarter of 2023 from Shanghai.

One is proto-dank sharding, which refers to splitting the blockchain network into multiple chains or “shards” to make it more scalable.

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