Ethereum, the much-publicized cryptocurrency, is expecting another upgrade to occur. The new feature is scheduled to air on the 12th of April, 2023, and it is one of the most awaited Ethereum improvements. The update is a mix of the Shanghai and Capella developments, which is now referred to as Shapella. That’s because the Shanghai upgrade is part of the execution process, while Capella works on the consensus mechanism; therefore, the two technologies merge to create an easier way to withdraw Ethereum.
Regarding price concerns, investors are advised to be cautious with transactions until the update settles. Still, after that, Ethereum may acquire greater stability since more staking options will be introduced. As the updates continue, users will leverage plenty of benefits, from introducing institutional investors on the platform to an upcoming bullish market.
As the upgrade gets closer, let’s see what we should expect and how it will develop.
How does Shapella work?
The upcoming hard fork that will occur on the Ethereum blockchain changed its terminology as a way to include both aspects of the system’s protocol. That’s because the execution layer provides the environment for applications and smart contracts to operate and will undergo the Shanghai update. Soon, the execution layer will allow the ecosystem and technology for users to withdraw staked ETH, increasing liquidity and competitiveness.
On the other hand, the consensus layer comprises all updates on the blockchain, which are set to improve transaction speed, reduce costs and increase security. This side of the network will go through the Capella update and boost full and partial withdrawals.
The blockchain’s two sides need to commence to help Ethereum move forward and speed-staked ETH from the Beacon Chain to the EVM. The update tests didn’t run smoothly, as testnet validators didn’t have their clients updated before the previous fork, which they’ve been incentivized for after that.
What are partial and full withdrawals?
One of the core features that Shapella will ensure is the ability to withdraw full and partial staked ether. Full withdrawals require another validator for the user to exit the active validator system, which cannot be undone. After some time, the rewards can be revoked and sent to the validator’s withdrawal address.
On the other hand, partial withdrawals are automatic, but only with amounts over 32 ETH. That’s because when validators earn consensus rewards, their balance increases, but if the 32 Eth amount is exceeded, the validator does not earn other incentives.
Of course, there is a limit set for both partial and full withdrawals. Per block, there are 16 allowed for now, but this is only an estimate and might change over time, depending on how users and the platform respond to the update.
How do current vs new stakers prepare for this update?
Current stakers who have already provided a withdrawal address, which is necessary for the staking deposit, don’t have to do anything in addition to be eligible to leverage this update. The ones who didn’t might need to update their withdrawal credentials, for which Ethereum’s community ensures guidance. Stakers can also use their validator index number to see if they still need to update these details.
On the other hand, new stakers must provide an Ethereum withdrawal address when generating their validator keys. It would be best to do it soon because it can prevent the need to update them again or unlock funds.
How frequently will stakers get their rewards?
At least for now, in a single block, there can only be a maximum number of 16 withdrawals. Assuming there are no missed slots, around 115,200 withdrawals can be processed daily, but only to the eligible validators. Therefore, it might take around four days for 400,000 withdrawals, for example, while 800,000 can take up to a week to be delivered. Of course, the process might be slowed down as the number of validators on the network increases.
Why is staking a critical process in the Ethereum blockchain?
Staking came as a solution to the old PoW system that was recently changed with PoS. It involves users actively participating in transaction validation, which is an improved mining system. Staking has plenty of advantages for validators and developers, too, such as gaining passive investment. Basically, staking ETH means having tokens to validate the blockchain so that they earn more or less around 1 ETH per year. At the same time, staking is less risky than other investing actions because staking ether is a safer option than investing in other cryptocurrencies.
The previous challenges that staking had, mainly the inability to withdraw incentives and dealing with high fees, will now be solved. At the same time, other fewer occurrences that might disadvantage validators are receiving penalties for being offline or validating incorrect transactions. Plus, there are risks involved when staking with a crypto exchange or a staking service since staking options are custodial. In this case, the exchange or services holds the validators’ ETH, exposing them to hacks and counterparty failure.
Four ways to stake ETH
Beginning to stake requires users to own 32 ETH to activate a personal validator, and there are four ways to leverage the benefits of staking:
- Solo home staking is the most impactful, ensuring complete control and rewards. However, a strong computer might be necessary, and it needs to be continuously connected to the internet;
- Staking as a service only requires a set of validator credentials, signing keys and ETH as you use the services of a provider for the hardware part;
- Pooled staking is a popular choice as pooling is a safer and less risky option for beginner validators;
- Centralized exchanges provide staking services for users who don’t want to hold ETH, but it’s the least impactful option and trusted choice;
The Shapella update is expected to make some waves and change the way cryptocurrencies are perceived. Once validators can withdraw their incentives, the prices will likely rise. Overall, we’re excited about the upcoming upgrades, as the previous one, the Merge, was a success.