It’s official: here’s the Shanghai update of the Ethereum blockchain, where the world’s second most popular crypto, Ether, is native, and with this update, Ethereum says goodbye to crypto mining.
Not only that, this is also Ethereum’s first major update since The Merge. Let’s see in detail what it means.
Ethereum’s Shanghai update: besides mining, what will change?
Ethereum’s Shanghai update took place just before 6:30 PM (ET), marking the first major change since The Merge last year.
Specifically, the hard fork implemented Ethereum Improvement Proposal (EIP) 4895, allowing users and validators to withdraw their staked Ether (ETH) on the network.
Developers will monitor any issues with the completion of the update, as indicated in a YouTube stream.
The Shanghai/Capella (or Shapella) update was released on the mainnet at block 6,209,536.
In addition to the withdrawal mechanism, the developers have optimized the network gas fees for certain transactions, as previously noted by the core team on GitHub.
Importantly, this event marks a significant change for Ethereum because of its potential impact on the ecosystem, including unlocking previously inaccessible funds.
Indeed, now that withdrawals have been enabled, the network has finally completed its transition to consensus.
Obviously, the platform’s decision to fundamentally change its operations and become more sustainable has reignited the debate about Bitcoin‘s environmental impact.
In addition, Shapella’s upgrade introduced two types of withdrawals for staked ETH: partial and total. Partial withdrawals will automatically distribute ETH to validators, ensuring that their balance remains at the 32 ETH required to maintain validator status.
Full withdrawals, on the other hand, result in the validator shutting down and withdrawing the entire staked balance.
Will the impact of Ethereum withdrawals lead to price fluctuations?
With the withdrawal mechanism enabled, Ethereum should provide users with more flexibility in managing their resources. However, the release of ETH could lead to short-term price fluctuations.
However, not all of the 18 million ETH ($33 billion) staked on the network will be available for withdrawal all at once, due to limits on the amount that can be withdrawn.
In any case, it is not ruled out that the ability to access these previously locked funds could lead to price fluctuations.
We see that Ether is now priced lower than when many users were staking their holdings, hence it is possible that these holders do not want to sell at a loss, although there is no certainty.
Alexander Esin, CEO of P2P.org staking company, said the following about the potential impact on the market:
“The majority of ETH holders are under water at the current market price, and the majority of these holders are committed to Ethereum for the long term. We believe that most of the ETH withdrawn can be returned to new validators to increase the rewards.”
Ethereum’s Shanghai update reignites debate on sustainability of mining practice
As anticipated, this new Ethereum update will cause the blockchain to cut its ties with cryptocurrency mining. But what does this mean?
We see that with the old system, Proof-of-Work (PoW) mining, the right to process a series of transactions and earn a reward in cryptocurrencies is determined by a kind of “race” whose goal is to solve a mathematical problem.
Hence, the more computing power “miners” employ to solve a given problem, the better their chances of winning the race. In contrast, the new system adopted by Ethereum, Proof-of-Stake (PoS), does not involve competition or miners.
In fact, the winner is determined through a lottery. The greater the amount of Ether deposited on the network, the greater are also the chances of getting the equivalent of a winning ticket.
Consequently, by demonstrating that a major blockchain can move from one system to another, Shanghai is bound to reignite the debate about the sustainability of the practice of mining.
A practice that today still is the basis of Bitcoin, the world’s most traded cryptocurrency. Not coincidentally, Cambridge University data reported that in 2022 Bitcoin’s network consumed 107 terawatt-hours of energy, a figure equal to that of the Netherlands and of which only slightly more than 25% came from renewable sources.
Before The Merge, Ethereum consumed an amount of energy that was about two-thirds of that used by Bitcoin. However, the move away from mining has reduced the network’s consumption by at least 99.84%, according to analysis by Alex de Vries, a data scientist at De Nederlandsche Bank.