Shanghai Upgrade Meaning

What is the Shanghai Upgrade?

The Shanghai Capella Upgrade, also known as Shapella Upgrade, is an improvement on the Ethereum network that grants users access to their staked Ether. The upgrade took place in April 2023. It was first triggered in a public testnet called the Zhejiang testnet in February 2023 to simulate staking withdrawals.

This update was a planned hard fork. It implemented the Ethereum Improvement Proposal-4895 (EIP-4895), which encoded the new unstaking policy on the protocol. 

Why was the Shanghai Upgrade Implemented?

The Ethereum network completed the shift to a proof-of-stake (PoS) algorithm from its previous energy-intensive proof-of-work (PoW) in September 2022, in an upgrade known as The Merge. The Shanghai Upgrade marked the final step towards the shift to a PoS consensus mechanism. Now, instead of competing to complete complex mathematical equations, validators can stake Ether to participate in validating transactions, which .

The upgrade is primarily intended to boost liquidity for validators who want to withdraw their digital assets from the Beacon Chain. In the Beacon Chain users could stake 32 ETH to perform operations on the protocol, become validators, and earn rewards, but they could not withdraw their staked funds or rewards. The Shanghai Upgrade (EIP-4895) fixes this issue by adding the ability to withdraw or unstake funds. 

Another incentive behind the upgrade is to lower gas fees for developers and Ethereum’s layer-2 protocol users. The Shanghai Upgrade has also been dubbed “Push 0” or EIP-3855. The upgrade includes the Ethereum Improvement Protocol 3860, which brings technical improvements to the protocol’s smart contract feature. EIP-3860 limits the maximum size of the initcode (the code used by smart contract developers) to 49152 to ensure the initcode is fairly charged.