Ethereum’s transition to a proof-of-stake consensus model continues with the launch of the Shapella Upgrade, marking a significant step forward in the merging roadmap.
Ethereum started moving toward a proof-of-stake (POS) consensus model eight months ago. The renowned cryptocurrency is currently moving forward with its merging roadmap by launching the Shapella Upgrade.
Last year around this time, the cryptocurrency market experienced a total collapse. The price of Ethereum was $2800 at the beginning of May 2022. The value had decreased by more than $1000 by the end of the month, and the market never recovered. However, the market as a whole experienced a similar bear market, thus Ethereum was not alone in its suffering. Before they got better, things only grew worse. However, many are attributing the cryptocurrency’s peak year so far in 2023 to the Shapella Upgrade hype.
What then is Shapella?
According to Ethereum, “Upgrades to the execution layer follow Devcon city names and those to the consensus layer follow star names,” Shapella is a combination of the execution and consensus layers, Shanghai and Capella. Shanghai, the site of Devcon 2, and Capella, the brightest star in the northern constellation of Auriga, are combined to form the word “Shapella.”
The update becomes operational on April 12, 2023. Simultaneous upgrades were made to both layers. While Capella upgraded the consensus layer/clients, Shanghai upgraded the execution layer/clients. The fact that validators can now withdraw ETH from the Beacon Chain and send it back to the execution layer is arguably the most significant change brought about by the update.
“Since the Merge, which combined the Ethereum mainnet with the PoS Beacon Chain, users have been unable to withdraw their staked funds,” said Jan-Jaap Jager, CEO of Chainstack, a provider of Web3 infrastructure. This problem is fixed by Shapella, allowing investors greater freedom and control over their investments.
This upgrade won’t affect ETH holders’ digital or hard wallets unless notified otherwise by their exchange or wallet provider.
Why is this such a big deal?
The update is significant for prospective investors, according to Kadan Stadelmann, CTO of Komodo, an open blockchain platform: “As of April 11th, there are currently over 18 million ETH being staked. Even if this amounts to less than 7% of the total amount of Ethereum currently in circulation, a sell-off may occur. The majority of the entire staked amount has remained locked for more than a year, which is the key factor. Since then, the market has undergone a significant transformation, and many investors may be waiting to sell their investments.
On the other hand, given that unstaking will be feasible moving ahead, more users may start to stake ETH. Furthermore, customers now have more freedom in how they can spend their staked money because to the growth of liquid staking.
External effects on the cryptocurrency market
Over the past month, ETH’s value has grown 20.73 percent, but experts warn that this may be the calm before the volatility storm crypto consumers are familiar with.
Eric Chen, CEO and co-founder of Injective Labs and a significant contributor to Injective, believes the Shapella enhancement will have a major impact on Ethereum and the crypto community. Withdrawal functionality will immediately increase ETH circulation. However, staking derivatives will reduce market volatility in response to the supply shock.
“Additionally, the circulating quantity of ETH will be much less in the mid to long term as institutions and regular users now view staking as one of the only realistic alternatives to earn low-risk income on ETH with quick access to liquidity. The Ethereum network will become much more secure, decentralized, and economically dynamic as a result of this.
However, EIP-3651, EIP-3855, and EIP-3860 will enhance Ethereum development outside the market. They will also reduce gas costs and hassle for users and developers using Ethereum’s execution layer. Ethereum will reach its potential with these modifications. It will help it become one of the largest and most lucrative blockchain networks worldwide.
Shant Kevonian, CEO and co-founder of web3, agreed with Chen: “The improvement is likely to reduce gas expenses for developers.” It may also motivate other cryptocurrencies to use more environmentally friendly consensus methods, which would help the crypto community grow.