<p dir="ltr">On October 15, 2022, Ethereum developers announced the launch of Shanghai upgrade testnet called Shandong testnet, serving the testing process for the Shanghai upgrade - Ethereum's next major upgrade after <a href="https://www.builder.news/crypto-insights/the-merge-a-pivotal-event-for-ethereum" alt="The Merge: A pivotal event for Ethereum" title="The Merge: A pivotal event for Ethereum" target="_blank" rel="" class="">The Merge</a> event. Shanghai upgrade is getting so much attention because it will include the EIP-4895 proposal, allowing those who have participated in staking ETH into the Ethereum 2.0 contract to withdraw funds and staking rewards. In addition, the Shanghai upgrade also includes another notable proposal, EIP-4844, which will introduce a proto-dank sharding solution to help reduce transaction fees on Layer-2 rollups. Discover in detail about this <strong>Ethereum hard fork</strong> through the article below.</p><h2>Shanghai upgrade explained</h2><h3>What is Shanghai upgrade?</h3><p dir="ltr">Before implementing modifications relating to <a href="https://www.builder.news/crypto-insights/the-surge-Bx7A3" alt="The Surge: Ethereum Scalability Booster" title="The Surge: Ethereum Scalability Booster" target="_blank" rel="" class="">the Surge</a>, core developers have chosen to focus on the <strong>Ethereum Shanghai upgrade</strong>, which is the next significant upgrade for the Ethereum network. The Shanghai upgrade will ensure that there are few delays and problems as they get ready for the Surge upgrade, which is an upgrade path that increases the blockchain's maximum transaction per second (TPS). The Ethereum Shanghai Upgrade will implement the following proposals: EIP-4895, EIP-3860, EIP-3855, and EIP-3851. The Shanghai upgrade date is anticipated in <strong>March 2023</strong>.</p><h4>EIP-4895</h4><p dir="ltr">Allowing validators to withdraw staked tokens is the most significant change made by the Shanghai upgrade, and it is in line with Ethereum Improvement Proposal-4895, or EIP-4895. Since September 2022, when the Merge started the process of switching Ethereum's consensus method from proof of work to proof of stake, validators have been especially important to the Ethereum blockchain. Following the Merge, validators must invest <strong>32 ETH</strong> in the chain to be eligible to participate in validating blocks. Each ETH staked increases a validator's chance of obtaining block rewards. Almost 16 million ETH have been staked by validators to aid in the mechanism's security.</p><p dir="ltr">Validators had to lock up their ETH as well as any incentives they had won during The Merge until a later chain update. Even though the Merge occurred in 2022, validators have been staking ETH since December 2020. The Beacon Chain, which uses proof-of-stake as its mechanism, was launched around this period.</p><h4>Other EIPs</h4><p dir="ltr">The Shanghai upgrade's main development is EIP-4895, although there are also a number of other smaller EIPs included. For the benefit of Ethereum developers, these additional suggested enhancements aim to lower gas fees during busy times. These include <strong>EIP-3651</strong>, which suggests reducing gas costs for <a href="https://www.builder.news/crypto-insights/mev-maximal-extractable-value-Jw7sG" alt="MEV (Maximal Extractable Value): How miners and third parties exploit the networks" title="MEV (Maximal Extractable Value): How miners and third parties exploit the networks" target="_blank" rel="nofollow" class="">Maximal Extractable Value</a> payments when accessing the COINBASE address (COINBASE here is a software that allows developers to receive new tokens), <strong>EIP-3855</strong>, which aims to reduce gas costs for developers generally, <strong>EIP-3860</strong>, which caps developer gas costs in certain situations, and <strong>EIP-6049</strong>, which addresses a similar issue.</p><h3>Shanghai upgrade timeline</h3><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11edb366ecee05ef8e59028438497b73.jpg" alt="Shanghai Upgrade timeline" title="Shanghai Upgrade timeline" width="600" height="360"></p><p dir="ltr">There has been a significant advancement for the Ethereum Shanghai upgrade since testnet Shandong went operational in late 2022. These development reports demonstrate that the Ethereum Foundation is on schedule to bring out its committed March network upgrade.</p><p dir="ltr">To start testing the new EIPs in a closed environment, the team first succeeded in copying the blockchain and creating a shadow fork. The shadow fork was successful because it quickly identified small bugs with Ethereum nodes that were utilizing the well-liked node software Geth execution client.</p><p dir="ltr">The most recent progress report includes information about the launch of the newest Zhejiang testnet. It replaces the testnet used in Shandong. This is because Shandong's launch featured some EIPs requiring EVM Object Format (EOF) that, due to time and resource limitations, will not be implemented with the Shanghai network update.</p><p dir="ltr">The newest Zhejiang testnet aims to enable staked ETH withdrawal testing in a more precise environment that applies a similar load to the Ethereum network. Withdrawals for staked ETH should ideally proceed without a hitch as they are put through stress tests and simulated network attacks. Zhejiang offers <em>"a wonderful opportunity for all tools to test out how they wish to collect, display, and use the withdrawal information</em>," according to Ethereum Foundation developer Parithosh Jayanthi.</p><p dir="ltr">On February 1st, 2023, the Zhejiang testnet was recently made accessible. Then, six days later at epoch 1350, the Shanghai+Capella testnet will be activated. It's the time when consumers can risk-free deposit validators, practice Boneh-Lynn-Shacham (BLS) digital signature alterations, and leave. Also, upon quitting the validators, users will be able to change 0x00 credentials to 0x01 and select a withdrawal address as they test partial and full withdrawals.</p><p><em><strong>&gt;&gt;&gt; Read more:&nbsp;</strong></em><a href="https://www.builder.news/crypto-insights/what-comes-next-after-the-merge" alt="What comes next after The Merge?" title="What comes next after The Merge?" target="_blank" rel="" class=""><em><strong>What comes next after The Merge?</strong></em></a></p><h2>Who will be affected by Shanghai upgrade?</h2><h3>Ethereum stakeholders</h3><p dir="ltr">In the past, Ethereum had issues with transaction speed and cost. This is apparent now that the transaction value locked (TVL) on the chain has increased as a result of the decentralized finance (DeFi) growth. Bad user experience and high gas costs have been made worse by the growth of nonfungible tokens (NFTs) and the mania to manufacture NFTs into 2021 and early 2022.</p><p dir="ltr">EIP-3855 and EIP-3860 are anticipated to be released as part of the upgrade, in addition to EIP-4895, which focuses primarily on Ethereum stakers. Both EIP-3855 and EIP-3860 aim to speed up transactions and lower transaction costs, respectively.</p><p dir="ltr">Given that some of these ecosystems were adversely affected by high gas prices and delayed transactions, these changes should contribute to improving network usage across DeFi and NFTs. Because of these problems, projects had switched to alternative chains like Solana or Ethereum layer-2 scaling solutions like Polygon. With these modifications, these projects and more recent ones view Ethereum more favorably.</p><p dir="ltr">The long-term benefit to the chain may come from more flexible staking, improved performance, and an increase in ecosystem stakeholders.</p><h3>Ethereum validators</h3><p dir="ltr">The Shanghai hard fork's most significant improvement for validators is that they can now access all of their staked ETH. Hence, validators may perhaps form a line to retrieve their staked tokens and remove them from the system. With Ethereum's hegemony in the DeFi market and its high staking reward, several analysts, however, believe that this scenario is unlikely. Furthermore, validators won't have to worry about keeping a sizeable chunk of money locked up for an extended time following the Shanghai upgrade because they will be free to withdraw staked assets. At its peak, 32 ETH was worth roughly $150,000.</p><p dir="ltr">After the Shanghai fork, validators that do want to unstake their ETH will have some options. One would be to develop a "<strong>withdrawal credential</strong>" to unstake any incentives accumulated over the previous few years. The second, more serious choice is to unstake all 32 ETH and completely leave the Beacon Chain.</p><h3>Liquid Staking Providers</h3><p dir="ltr">Users used to have 2 ways to join the staking program on Ethereum before the Shanghai Upgrade. The first way is to stake at least 32 ETH and become a validator of Ethereum network. However, not everyone has enough 32 ETH. All the staked ETH assets will be locked. And the other way is to use protocols belonging to the <strong>Liquid Staking Derivates group (LSDs)</strong> such as Stakewise, <a href="https://www.builder.news/project-review/lido-dao-review-what-makes-lido-the-best-ethereum-staking-platform-RQriU" alt="Lido DAO review: What makes Lido the best Ethereum staking platform?" title="Lido DAO review: What makes Lido the best Ethereum staking platform?" target="_blank" rel="" class="">Lido</a>,&nbsp;<a href="https://www.builder.news/crypto-insights/frax-finance-liquidity-war-H3rkG" alt="Frax Finance and the war of liquidity" title="Frax Finance and the war of liquidity" target="_blank" rel="nofollow" class="">Frax Finance</a>&nbsp;and&nbsp;Rocket Pool. The user locks ETH (doesn't need 32 ETH) to the protocol and gets back stETH,&nbsp;frxETH or rETH, .. (depending on the protocol). This is a synthetic asset (from the Derivatives array) generated from the original ETH. Users can use them to participate in other DeFi activities provided by the protocol such as lending, yield farming, as collateral, etc.</p><p dir="ltr">With the second way, users have freed up liquidity. However, these are only assets that are derived from the amount of ETH that has been staked. And they are limited to some of the protocols that support these properties.</p><p dir="ltr">After the Shanghai upgrade, users have the option to withdraw their ETH (mainnet) from the Beacon Chain network instead of just depositing and staking. This helps users to be more active (deposits) in investment asset management. This is an opportunity for new users to choose to stake their ETH.</p><p dir="ltr">After the end users, the “<strong>Staking as a Service</strong>” team projects specializing in providing LSD services will benefit the next. Users who previously hesitated not to stake ETH (due to fear of long lock-up time) are new potential customers of these LSDs projects. This is also the reason for the price growth of this group of tokens: LDO, RPL, SD, etc.</p><p><em><strong>&gt;&gt;&gt; You might also concern:</strong>&nbsp;</em><a href="https://www.builder.news/crypto-insights/how-the-merge-affects-investors-etIkc" alt="How The Merge affects investors?" title="How The Merge affects investors?" target="_blank" rel="nofollow" class=""><em><strong>How The Merge affects investors?</strong></em></a></p><h2>Where will ETH price go?</h2><h3>ETH price since The Merge</h3><p dir="ltr">Despite The Merge's impending arrival, the price of ETH fell precipitously in the first half of 2022 as cryptocurrency markets turned negative, particularly in the wake of the May collapse of the terraUSD stablecoin (UST) and the LUNA token that it was paired with.</p><p dir="ltr">The coin price increased following the release of information on The Merge's completion, so on September 15 it was traded at roughly $1,640. However, the price quickly fell in the following 24 hours, and by September 16, 2022, it was worth roughly $1,450.</p><p dir="ltr">Even the announcement that financial firm Fidelity would begin allowing its clients to trade ether could not stop the price from further declining on October 21, 2022, and reaching approximately $1,285. ETH was the second-largest cryptocurrency at the time, according to that metric, with a market cap worth roughly $156 billion.</p><p dir="ltr">On October 31, following the announcement of the Google node system and a general uptick in the cryptocurrency market, at least in part due to crypto enthusiast Elon Musk's acquisition of Twitter (TWTR), ETH was traded at a high of $1,630.45. The coin was still the second-largest cryptocurrency at that time, with a market valuation of roughly $194 billion.</p><p dir="ltr">The ETH price reached over $1,580 on November 7 with a market cap of $193 billion, but by November 9 it had fallen to a low of $1,083.29. Then on December 14 is at $1,346.17, its highest level since FTX's demise. However, on December 21, it dropped to trade at roughly $1,215 amid reports that Visa had proposed allowing ETH holders to make automatic payments directly from their cryptocurrency wallets.</p><p dir="ltr">The price of Ethereum coin stayed around the $1,200 mark for the next two weeks or so, completing the year at $1,194.20 before recovering significantly in January. A rally was witnessed with the price breaking through to $1,563.74, and it fluctuated in the $1,500s for the next week or two. It surged beyond $1,600 for the first time since November on January 18 and there were further peaks and troughs, with it sliding to $1,530.80 on 25 January, before recovering and going past $1,700 for the first time since August on February 2, boosted by the opening of Shanghai upgrade testnet. However, the coin dropped down after that, valued at about $1,670 on February 8, 2023 before reaching a peak of $1,732.80 on February 15. Now it is trading at around $1,660 (February 23, 2023).</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11edb366ecee0ca68e59028438497b73.jpg" alt="ETH price" title="ETH price" width="600" height="289"></p><p class="prosemirror-p-center"><em>(Update on 23rd ‎February ‎2023, ‏‎05:20 PM)</em></p><h3>ETH price prediction after the Shanghai upgrade</h3><p dir="ltr">Market volatility was increased by the previous Ethereum update, which traders took advantage of. With exchange stocks of Ether decreasing fast, traders may see yet another jump in price heading to the Shanghai upgrade. The decline in Ether's price since the Merge was pushed through in 2022 is something short-term traders should want to take note of. Perhaps not much has changed following this upgrade. Another thing to bear in mind is that, following the Shanghai upgrade, Ethereum users who haven't been able to withdraw their staked Ether in more than two years will be able to do so.</p><p dir="ltr">With approximately 16.4 million ETH staked, if any of that materializes, it might increase the supply of Ether and drive down prices immediately following the Shanghai upgrade. The price of any asset, including cryptocurrencies, stocks, bonds, and commodities, is mostly determined by the connection between supply and demand, which is a fundamental economics premise.</p><p dir="ltr">It's also important to remember that ETH withdrawals will only be possible in tiny amounts, even though downside risks for price action after the Shanghai update exists due to staking withdrawals. For instance, after the upgrade, traders who want to withdraw their Ether will only be allowed to unstake gradually. This could reduce the price risk for ether. Yet, the short-term outlook for the market could be adversely affected by the concern over rising supply.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11edb366ecee10ac8e59028438497b73.jpg" alt="ETH supply" title="ETH supply" width="600" height="249"></p><p class="prosemirror-p-center"><em>(Source: Ultrasound.money)</em></p><p dir="ltr">According to data from Ultrasound.money, the supply of ETH now (February 23rd, 2023) has decreased by more than 30,000 ETH compared to the time of The Merge event in September 2022, helping <strong>Ethereum to achieve a deflation rate of up to</strong> <strong>0.065%/year</strong>. Compared to a month ago, the supply of ETH decreased by more than 28,000 ETH in February. This is the highest ETH decline since Ethereum switched to using the Proof-of-Stake consensus mechanism, switching from mining to staking coins to validate transactions on the network. Proof-of-Stake has both reduced the amount of electricity consumed by 99% of the network and reduced the annual ETH generation from <strong>+3.481% to -0.065%</strong> as it is now.</p><h2>Closing thought</h2><p dir="ltr">All eyes will be on its implementation for many ETH investors and traders as the Ethereum core team is working to complete the Ethereum Shanghai upgrade as smoothly as possible. Although this network upgrade may not be as significant as The Merge, it does set the stage for further improvements.&nbsp;</p><p dir="ltr">With the ability to withdraw funds from the Beacon Chain now available, the Ethereum Shanghai update will alter the way institutional and retail investors interact with ETH. While Ethereum continues to establish itself as a successful blue-chip cryptocurrency project, this eventually portrays a more optimistic future for the platform as a whole. Who knows, over time, Ethereum might even be able to challenge Bitcoin's dominance of the market cap list and achieve <a href="https://www.builder.news/crypto-insights/will-ethereum-flip-bitcoin-0PJRS" alt="The Merge Is Near: Will Ethereum Flip Bitcoin?" title="The Merge Is Near: Will Ethereum Flip Bitcoin?" target="_blank" rel="nofollow" class="">the Flippening</a> (The term "Flippening" refers to the hypothetical moment of Ethereum overtaking Bitcoin as the biggest cryptocurrency).&nbsp;</p><div class="pr-block-special"><strong>Disclaimer:</strong><br>This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

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Shanghai upgrade: Will it cause ETH price to bounce back?