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What to expect after Ethereum's Shanghai upgrade? 

The Ethereum network has undergone several significant upgrades and improvements throughout time. These aimed to boost its functionality, security, scalability, and, ultimately, transaction speed, all while bringing a number of technical enhancements to the system. The Shanghai upgrade was deployed two years ago and completed last year in September, symbolizing an important project for Ethereum's 2.0 roadmap. The network employed a Proof-of-Work model until the update, which required miners to validate transactions necessitating high computational power. The transaction from a Proof-of-Work network to the Proof-of-System one is completed through the "Shanghai-Capella" upgrade. In addition, this step permits withdrawing staked ETH, which wasn't possible until the project was concluded. 

In light of these events, crypto enthusiasts are understandably wondering if this can bring good news for the Ethereum price. It's no secret that a dramatic slump in the cryptocurrency market marked the most of 2022. Like all other cryptocurrencies, ETH fell from its heights, making investors consider whether they should put investing on pause or drop it sharply. The crypto market has struggled through difficult conditions set to end together at the beginning of this year. In 2023, Ethereum regained some of its lost shine, seeing its price go up more than 6% in the hours after the Shanghai upgrade was completed. It has overcome its $2,000 resistance for the first time since May of 2022 and remains stable, inflicting hope and pushing investors to try to forecast future fluctuations in order to decide whether it's now the proper moment to diversify their finances with this asset.

The Ethereum's Shanghai upgrade fuels market optimism, as it's observable by looking at the cryptocurrencies' prices. In light of this long-awaited event, let's uncover the implications of these undertakings. 

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What is the Shanghai Upgrade?

To gain a glimpse into the future and understand how the Ethereum system is impacted, it's essential to take a few steps back and start deciphering the concept. The much-anticipated Shanghai Upgrade, or Shapella as it's also known, has brought significant improvements to the platform. For the first time, the users of the Ethereum network can unlock and withdraw their staked ETH funds, using it to their liking. This is a significant step, as some of them were inaccessible since the "deposit contract" was launched in 2020. 

Some pundits believe the update may increase the selling pressure on the token, as over one million rewards became accessible. Bank of America pointed to rising volatility owing to exchange inflows and the impact of the previous update on the asset's price. At the same time, others deem the event as the impulse needed to increase the institutional interest in Ethereum. 

So far, the Shanghai upgrade has completed the transition to the Proof-of-Stake consensus mechanism. In light of raising environmental awareness, the event puts a spotlight on Ethereum and removes some of the concerns regarding the lack of sustainability in the crypto sphere, as this system is regarded as a more environmentally-friendly and energy-efficient method to verify transactions. Validators no longer use a lot of computational resources to confirm blocks, as they used to in the Proof-of-Work mechanism. Instead chosen randomly according to the amount of Ethereum staked. 

Ethereum's developer team addresses the environmental energy crisis by enabling "sharding". Essentially, this concept can be regarded as dividing the mainnet into "shards", or smaller blockchain pieces. This results in increased room to process transactions, consequently reducing the fee rates.

What are Ethereum Improvement Proposals?

While allowing owners to access and withdraw staked ETH funds is the primary goal of the Shanghai upgrade, other mechanisms will be implemented to lower gas costs for developers:

  • EIP-3651

  • EIP-3855

  • EIP-3860

  • EIP-6049.

What's next after the upgrade?

Ethereum's co-founder, Vitalik Buterin, disclosed the future ambitions for Ethereum's roadmap last year. After the Merge was successfully completed, other upgrades of the network are set to tackle the problems left unsolved. 

The Verge

The Verge update introduces Verkle trees in order to decrease the already-large amounts of data stored on validators' devices, enabling smaller proof sizes. This proposition aims to enable stateless clients – a concept still in its infancy as developers keep researching it. The outcome desired is to decrease the more demanding requirements to run nodes, boosting the resilience and decentralization of the system. 

More sophisticated cryptography is needed to implement Verkle trees, but it will eventually pave the way for the tremendous potential for significant scalability gains. They'll optimize storage and allow participants to validate transactions on the network without needing plenty of space on their devices to store data. Instead of verifying each "sister node", a single proof is sufficient to demonstrate every parent-child relationship. 

The Purge

The Purge will bring several upgrades to eliminate the old history and optimise the Ethereum network in time. This update lessens the strain on the system, as removing historical data will reduce congestion on the network, which enables the procession of more transactions at a time. According to Ethereum's co-founder, around 100,000 transactions/second will be processed after the upgrade, impressively more compared to the 29 TPS possible at the moment.

Vitalik Buterin also includes the "Scourge" as the final phase Ethereum will undergo. This is an effort to improve transaction inclusion by boosting the trustworthiness of the blockchain and making it more appealing to potential verifiers. 

Rearranging or adding specific transactions on the network generates profits known as maximal extractible value (MEV). MEV bots help searchers improve MEV, a task that is accomplished by front-running transactions or carrying out malevolent assaults to steal funds from users. 

Final words

As you can see, Ethereum completed its most ambitious update so far - the Shanghai upgrade. The update's main goal is to permit validators to withdraw staked ETH funds that have been inaccessible for the past two years. In addition to this, there are constant efforts in the bid to enhance the scalability, efficiency, and transaction speed of the Ethereum network.

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