Ethereum Shanghai Upgrade & ELLIPAL

As one of the earliest wallets to support Ethereum, ELLIPAL has always been actively involved in building the Ethereum ecosystem. We have prepared Ethereum upgrade-related information to help everyone better understand its related concepts and how to securely store ETH using the ELLIPAL cold wallet.

What is Ethereum Shanghai Upgrade?

As a major update to the Ethereum blockchain, one of the main goals of the Ethereum Shanghai upgrade is to enable the withdrawal of ETH that has already been staked in smart contracts on the Ethereum Beacon Chain.

Background

The Ethereum Merge, completed last year, is a major upgrade that the Ethereum community has developed and tested over several years. In 2020, Ethereum launched the Beacon Chain, which uses the Proof-of-Stake consensus mechanism, and the Beacon Chain began operating in parallel with the Ethereum main chain. The Proof-of-Stake consensus mechanism allows blockchain networks to maintain normal operations and process transactions by having network nodes lock up cryptocurrencies instead of mining through miners. After the Beacon Chain operated successfully for some time, the Ethereum blockchain was smoothly merged. Simply put, the Ethereum Merge combines the original execution layer of Ethereum with the new Proof-of-Stake consensus layer (i.e., the "Beacon Chain"). Under Ethereum's Proof-of-Stake mechanism, nodes that verify transactions and produce blocks must lock up at least 32 ETH. In addition, there are multiple staking service providers on the market that can accept users' delegated ETH for locking and provide rewards. This design avoids relying on the energy-intensive Proof-of-Work mining model and reduces Ethereum's energy consumption by over 99.9%. On September 15, 2022, Ethereum successfully implemented the merge, but the technical difficulty was extremely high. After completion, Ethereum ushered in its next major upgrade: the Shanghai upgrade. Ethereum's core developers have set around April 12, 2023 as the official date for the Shanghai mainnet upgrade.

What makes the Ethereum Shanghai Upgrade so important?

Lowering Gas Fees

One of the expected impacts of the Shanghai upgrade is to lower Gas fees for Layer-2 solutions operating on the Ethereum blockchain, such as Polygon and Optimism. These similar Layer-2 solutions have made Ethereum faster and cheaper to a certain extent, and the Shanghai upgrade will further optimize Gas fees for transactions on Ethereum, supported mainly by the following two Ethereum Improvement Proposals (EIPs):

• EIP-3651: Changes the "COINBASE" address from a cold address to a hot address. Currently, direct transactions with COINBASE are becoming increasingly popular because they allow for conditional payments, providing benefits such as implicit cancellations. However, accessing COINBASE is expensive because under the access list framework introduced in EIP-2929, COINBASE is calculated for gas cost based on cold address access costs, which are relatively higher than hot address access costs.
• EIP-3855: Adds the PUSH 0 instruction that pushes the constant 0 onto the stack. Currently, only PUSH 1-PUSH 32 instructions that push constants from 1 byte to 32 bytes onto the stack exist, and pushing the constant 0 onto the stack requires using the PUSH 1 0 instruction, which consumes 3 gas in runtime and an additional storage cost of 2 bytes at a cost of 2*200 gas. Currently, about 11.5% of PUSH instructions push a constant 0 onto the stack, and after adding the PUSH 0 instruction, a certain amount of gas fee savings can be achieved.

Withdrawing staked ETH

Withdrawal: Implemented through a joint upgrade between the execution layer and the consensus layer, there are two withdrawal rules: "partial withdrawal" and "full withdrawal". Partial withdrawal only withdraws the profit portion, while full withdrawal involves exiting the validator node, with both profit and staked amount being withdrawn. There is no priority difference between these two withdrawal methods, and they will be automatically executed as long as the necessary conditions are met:

• Necessary conditions: The Validator has the 0x01 Credential (active validator deposit proof, currently possessed by 42% of validators).
• Partial withdrawal condition: The validator is in active status and has a balance greater than 32 ETH.
•  Full withdrawal condition: The validator is in Withdrawable status (which usually means that the validator has already exited the network).

Withdrawal queue

Currently, there are over 500,000 nodes on Ethereum, and a maximum of 1,800 nodes can be withdrawn per day. Based on a calculation of $1,600 and 32 ETH, this means that up to $2.88 million worth of Ethereum can be withdrawn per day. Assuming that 10% of nodes want to withdraw, the queue would take approximately one month. In addition, the more nodes there are, the larger the withdrawal volume, or vice versa. Moreover, joining Ethereum as a validator also requires queuing, and the daily entry and exit volumes follow the same algorithm, which allows Ethereum's consensus mechanism to maintain a stable and orderly soft landing.

Effects on Stakers and Investors

Stakers

• Improved network efficiency: The Shanghai upgrade introduces the EIP-1559 mechanism, which can increase transaction confirmation speed and network throughput, thus making stakers' earnings more stable.

• Lower inflation rate: The Shanghai upgrade also includes a "difficulty bomb" delay mechanism, which will slow down block time growth and lower the inflation rate. This means that stakers may receive fewer ETH rewards but can also help protect network security.

•  Increased competitiveness: The Shanghai upgrade also introduces a Proof-of-Stake (PoS)-based consensus mechanism and improves validator efficiency. This will encourage more participants to join the validator ranks, increasing the decentralization of the network while also increasing the competitiveness of staking.

Investors

• Upgrade in Ethereum blockchain performance, security, and functionality: If this upgrade is successfully implemented, it may increase Ethereum's attractiveness and value proposition to investors, thereby having a positive impact.

• The Shanghai upgrade focuses on opening up the function of withdrawing staked Ether, which could lead to sell-off activities by Ether investors and related market participants.

However, this upgrade contains withdrawal limits and queueing mechanisms. Ethereum will impose withdrawal limits for staked Ether on the Ethereum Beacon Chain, allowing only six validator nodes to withdraw staked Ether every epoch, approximately every 6.4 minutes. Based on this estimate, after the Shanghai upgrade, Ethereum will only allow around 43,200 Ether to be withdrawn per day. According to estimates, if all stakers on the Beacon Chain withdrew their staked Ether tokens and there were zero new stakers, the process would take approximately 300 days. Additionally, according to the Ethereum Foundation, the withdrawal rate limit will be adjusted based on the total amount of staked Ether. Apart from the upgrade mechanisms themselves, major ETH 2.0 protocols offer a minimum of nearly 4.8% staking APY and have room for significant growth. If stakers exit, there may be a greater influx of new stakers. In fact, according to Dune Analytics, only about 16% of stakers have been in a profit-making state since staking began, and it is inferred that most stakers will not immediately withdraw their staked assets for sell-off. Therefore, it is unlikely that the market will experience significant sell-off events.
 

Ethereum’s Upgrade Path

Source from：@trent_vanepps

About Ethereum Shanghai Upgrade & ELLIPAL

Protect your Ethereum assets with the most trusted ELLIPAL cold wallet. Cold storage wallets are typically encrypted devices that offline store users' Ethereum assets, providing an extra layer of security to resist evolving threats from being connected to the internet. The ELLIPAL cold wallet directly supports the ETH upgrade and will soon support ETH staking.

Air-gapped

• The device is designed for complete network isolation and uses offline cold storage, with no online components or ports.

• It can never be connected to the internet, providing absolute protection against remote and online attacks.

• Private keys are stored securely offline and will never be exposed to the internet, ensuring maximum security. 

Anti-disassembly

• The Ellipal cold wallet has several anti-disassembly features, including tamper-evident stickers, specialized screws, and a one-piece metal body design.

• The device's self-destruct mechanism triggers if the external casing is forcibly opened, erasing all sensitive data stored on the device.

• These features work together to protect the integrity of the Ellipal cold wallet and prevent unauthorized access or tampering with the device.

How to manage your Ether (ETH) and tens of thousands of ERC20 tokens?

How it works？

• Enter transfer details in the ELLIPAL mobile app to generate an Unsigned Data QR Code.

• Use the ELLIPAL cold wallet to scan the Unsigned Data QR Code and sign the transaction.

• Scan the Signed Data QR Code on the ELLIPAL cold wallet using the ELLIPAL app to confirm the transaction.