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Explained: All you need to know about Ethereum's latest Shapella upgrade

Regarded as the last milestone in the cryptocurrency's multi-year shift from proof-of-work (PoW) to proof-of-stake (PoS) consensus, Shapella will make earlier staked Ethereum more liquid

Cryptocurrency

Photo: Reuters

Raghav Aggarwal New Delhi

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Last week, the developers of Ethereum announced that they have completed an upgrade called "Shapella". Called the final milestone in Ethereum's multi-year transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus, it will make earlier staked Ethereum more liquid.

What is "Shapella"?

The term "Shapella" is derived from the words "Shanghai" and "Capella". These are two of five Ethereum Improvement Proposals (EIPs) that will be upgraded in the process. The upgrade will change the way Ethereum works. EIP-2565, EIP-2929, and EIP-2718 are the other protocols which will be upgraded.

The upgrade was completed on April 12.

What changed after Shapella?

In September last year, Ethereum underwent a major upgrade called "The Merge", in which the network transitioned from a proof-of-work to a proof-of-stake consensus. Users were rewarded for "staking", and not selling, their Ether and participation in the validation of the network.

In staking, the investors can freeze their tokens on the cryptocurrency's network. In return, they can earn rewards. The staked tokens are used to develop a system to validate the transactions on the database, unlike PoW, where data has to be entered by miners.

However, it was a one-way street. To date, 18 million Ethereum tokens have been staked on the network, valued at $33 billion. The users were not able to withdraw their holdings.

Shapella has enabled "unstacking" Ether. Shanghai will create a new transaction type that will allow stakers to withdraw their balances, while Capella will enable the network to accept a withdrawal request.

Users were immediately allowed to withdraw their Ether token. Some 57,600 Ether tokens per day can be withdrawn through full withdrawals and partial withdrawals.

Moreover, as it reduces the need to enter data by miners, staking brings down energy consumption. Now with Shapella, more investors will be encouraged to stake their holdings as it will be easier to withdraw.

What happened after the Shapella upgrade?

After the upgrade, Indian crypto investors flocked to invest as well as withdraw Ethereum. Major Indian crypto exchanges like WazirX and CoinDCX saw significant spikes in Ethereum trading.

In the past seven days, Ethereum has jumped 9.28 per cent and was trading at $2,097 on Tuesday, according to coinmarketcap.

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First Published: Apr 18 2023 | 4:03 PM IST

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