Ethereum is launching on Wednesday a public testnet containing a simulation of its latest – and much-anticipated Ethereum Shanghai upgrade.
The Zhejiang public testnet will allow any Ethereum user to simulate withdrawing their staked ETH. Once the Shanghai upgrade goes live – slated for sometime in March – ETH stakers can then fully remove their staked funds as validators.
In December 2020, Ethereum launched ETH staking: where users can deposit ETH to become network validators in order to help authenticate on-chain transactions. These validators are then rewarded newly-generated ETH as pay, having since staked almost $26 billion worth of ETH on the blockchain.
To stake on Ethereum, a minimum amount of 32 ETH, or at writing, approximately $50,000 is required to be temporarily locked on the network to create a validator node to secure the network and validate its transactions.
The $26 billion is locked until Shanghai goes live, where staked ETH withdrawals are made possible.
The Shanghai upgrade’s release date has been much debated over, with Ethereum core developers conflicted on how and when the upgrade should happen. Some core devs have begun voicing concerns that it’s a bit too early for an upgrade, fearing public criticism at the expense of a potentially compromised network in the long run.
“It feels like we’re not thinking about the long-term health of Ethereum,” core developer Micah Zoltu expressed in an all core developers’ call in January. “We’re thinking, ‘How do we do what the public wants, today?’”
It’s typical for Ethereum’s devs to roll out public testnets in anticipation of software upgrades to build the blockchain further – but its developers expect the Zhejiang testnet to receive massive attention.
Users familiar with running commands can test out running a node on the Zhejiang testnet with this guide.
The Shanghai upgrade is anticipated to go live this March, with some believing it may be pushed back to April.
What to watch for in the Ethereum Shanghai Upgrade
Many believe that being able to withdraw ETH will be of particular interest to intermediary crypto firms like Coinbase, Binance, Lido, and Kraken – all popular platforms for users to participate in ETH staking pools in order to share a stake within the network.
JP Morgan analysts have speculated that ETH staking withdrawals may give Coinbase a chance to get back up on their revenues, estimating that retail investors on Coinbase post-Shanghai upgrade may bring the exchange between $225 million and $545 million per year.
The Shanghai launch will bring billions of dollars of passive income to the table for grabs – and intermediary firms like exchanges and staking services are ensuring that their ETH withdrawal services are functioning as intended in order to gain added interest.
ETH validators can withdraw their staked ETH from the beacon chain, directly from Ethereum. However, those who are staking through liquid staking protocols like Lido, Coinbase, and Rocket Pool aren’t able to use the direct ETH withdrawal feature.
As of writing, 13.81% of the total ETH in circulation is being staked – and the Shanghai upgrade will unlock that massive amount of liquidity. Traders and investors should keep an eye out on the percentages of the ETH that’s staked out of the coin’s total supply. Some speculate that some platforms may even unlock $200k and more after Shanghai.
With the Shanghai upgrade, ETH users are now offered more options to stake, promoting a freer ETH market. Users can now choose to use liquid staking protocols for ETH, or stake ETH directly with ETH. In turn, this brings more chances for ETH users to react to staking demand directly, which can potentially reduce artificial price controls and circulation of ETH.
Although market effects are uncertain, the Shanghai update is an important milestone in Ethereum’s Proof of Stake mechanism – and some believe that the demand for ETH will increase even more.
Expect long withdrawal queues following March 2023, watch the amounts of coins in stake and circulation, and act wisely.