Ethereum's Shanghai Upgrade: Key Implications

Annika Lewis: Alright, hello everyone and welcome to Public Live. I'm your host Annika Lewis. Today we're joined by Pooja Rajan, founder of Etherworld and Ethereum community builder who will help us break down the game changing Ethereum upgrade that just happened, which has sparked a rally for the world's second largest cryptocurrency. Pooja, thank you so much for being here.

Pooja Ranjan: Thank you. I'm so excited to be back here.

Annika Lewis: Yeah, very big week. Lots of news to discuss. So plenty to cover today.

First off, can you tell us a little bit about what just happened? So what was the Shapella upgrade? The combination of the Shanghai and Cappella upgrades – what does it accomplish? And why is it such a big milestone for Ethereum?

Pooja Ranjan: Yeah, of course. So Shapella, as you have beautifully explained, is a combination of Shanghai and Capella. So Shanghai executed four core EIPs on the main net, whereas Capella brought some specific changes on the consensus layer. So these four EIPs were EIP-4895, 3651, 3855, and 3860.

The rest three EIDs, which starts from three, most of them are for EVM upgrades, EVM changes, and there was this 36511 coin base, which was a tool to make gas cheaply, cheaper for contract developers, however, EIP 4895, introduced a system level operation to support validator withdrawals. Withdrawals were the key change for this particular upgrade. So many people may know that Ethereum moved into proof of stake back in 2022 with the merge, but the proof of stake work on the chain started back in 2020 with the release of Beacon chain.

The shift towards POS already happened in the past two upgrades. However, it closed the loop with the Shapella upgrade. So in 2020 when it was introduced it was unidirectional; people can only add ETH, become a validator and have their reward in the wallet but that was not realized. Shapella upgrade enabled accessing those rewards and validators can now go in and come out freely. If they want to stay they can come out with partial withdrawals and if they want to completely exit they can come up with the full withdrawal. So that's what the Shapella upgrade brought to the Ethereum Network.

Annika Lewis: Awesome. Thank you for the overview. And I would love to focus a little bit on withdrawals because they were one of the big headlines of this upgrade from what you just shared. And, of course, there were worries, folks had of initial rapid outflows after the upgrade. But just .3% of all 18.1 million tokens staked were actually withdrawn in the 12 hours after the upgrade based on data from Nansen. And so tell us a little bit about your perspective on withdrawals. Are you surprised at the low withdrawal rate? Why do you think stakers are keeping their Ethereum? What do you take away from all this?

Pooja Ranjan: There are a couple of things about it. I think that can be my perspective, which I would like to share with you. First of all, like, when people were trying to activate withdrawal, there was this validator credential change that has to happen before they can enable their withdrawal. So far, only 72 people validated credential has been updated, right at that time, when withdrawal, when this upgrade happened 40,000 credential changes took place. So that is the first thing, the first blocker for validators to withdraw because they have to first be able to change their credential. A message was signed, and many of the validators have already done it, but some of them are still in process. That's part one.

The other two parts are that the Ethereum chain has a churn limit like not everybody can withdraw their money at one point of time, at the same time. So they have to go through a process cue, there are certain limits for the partial withdrawal per day. Similarly, there are certain limits for full withdrawal per day, we try to maintain this protocol there. So we do not put the security of network for a concern at any point of time. There should be a good flow.

So that's there for the second thing. And the most important thing, which I think is with this Shapella upgrade, obviously many validators were able to take out their XX the reward that they have earned over a period of time. And this gives confidence to many others who were planning to take out their money, or were planning to get into the system. So I think the Shapella upgrade gives a lot of confidence to existing and new validators to continue doing their duties as a validator on the network.

Annika Lewis: Awesome, appreciate that rundown. Talking a little bit more about just kind of the withdrawal risk and helping people understand the theory and how it works. So, about 16% of all the ether supply has been locked up in the protocol for staking as of earlier this month, you talked earlier about the Ethereum chain having a turn limit and not everyone being able to withdraw at once. So, what would happen in theory, if stakers decided to withdraw a lot in a large portion of that?

Pooja Ranjan: Large portion here can be the maximum that they have earned plus the deposit that they have made on the network. I think the average is somewhere around 34 ETH per validator on the network as of now. So, if again, the validator decided to take out all that means they are making full withdrawal at any particular time that they are willing to make that withdrawal and they are signaling about it. With the process of withdrawal there is another process going on in parallel is becoming a validator. If we take a look at the chart like I had data for the month of February, we have a good amount of validators also getting in. 

So, with that churn limit, we definitely do not see the network in threat at any point because they would not allow too many validators to come out of the chain at any single day. And at the same time, there are validators who are also getting into staking as I mentioned. I am taking a look at the dashboard by Metrica which is supported by Ethereum. So, if we can take a look here, you can see that as validators are coming out, they are also getting in so security is there. The loop is closed, which means the function is working properly. So I think people will be getting confident only instead of losing that and when they decide to come out you know, they also have limited options.

What they can do with the Eth they want to take out either they can trade it to you know, get into some other cryptocurrency or in cash that or they can keep it in their own wallet like E-wallet but there's no point keeping it with them in their wallet and not doing anything with that. There is another option that is coming up is like staking with the help of a liquid staking pool. That's another option. But again, with a liquid staking pool, people will also come as validators into the system. So yeah, I don't see a threat yet. Obviously there, there's a lot of confidence getting in.

Annika Lewis: Right. And for those on the call, who are perhaps less familiar with Ethereum and ETH staking, can you talk a little bit about what the incentives are for people to keep their Ether staked even now that the Shapella upgrade is complete?

Pooja Ranjan: So, the minimum requirement is if you want to become a solo staker, of course, the minimum requirement is 30 ETH that you have to deposit on the network. However, if you do not have the study of ETH, there are multiple options available in the ecosystem. You can go with as I mentioned, like the liquid staking pools. So, for becoming a solo staker also, you need to have a set of, you know, technical help also to run both nodes execution node and consensus node on your own like on your on your home or wherever you want to do that and make sure that they are online at all points of the network.

However, if you are not technically skilled enough to participate in the network as a solo staker, you can definitely take advantage of the staking services provided there are different kinds of staking services liquid staking is quite popular, because that also gives you the advantage of making use of the Eth while you have already staked like there are like they provide a token that pool token that you can be using in place of ETH. So there are other services, I think going with the services is a good way to get involved and make money. But if you want to make a real contribution and want to learn the network more, it would be a good idea to do solo staking. There are 10 clients available, five on the execution side and five on the consensus side. And they all have discord channels, they are willing to provide all kinds of support. So that's always less risky. But yeah, there are multiple options people can use.

Annika Lewis: Got it. And do you anticipate the unlocking of staked Ether and the rewards that will be paid out is going to attract intensified regulatory pressure from the SEC or how do you think about that and the change that just happened?

Pooja Ranjan:  We are aware Kraken and Coinbase are definitely having some regulatory pressure right over there. But I am not sure if that's because of the unlocking of ETH that could be with their process like the way they would like to operate in the United States. This depends on the government. But I highly doubt that locking unlocking will in any way affect the government policy over here because locking unlocking is an individual's choice and if they are participating in a blockchain that depends on the government of that location where he or she is living, right? So I don't think they’re interrelated. That's what I meant to say here. 

Annika Lewis: Yeah. All right. So zooming out a little bit, just into kind of Ethereum’s journey more broadly. How does this upgrade position Ethereum for more long term success and mainstream adoption?

Pooja Ranjan: Right. So, as I was mentioning, like Ethereum, proof of stake was kind of a dream for Ethereum people who started them back in 2015. They always wanted to have proof of stake. It took time like it took a lot of years to be here. Finally, we are having a full cycle of Ethereum validators here. I think now we have a complete system built up. Now what we need to do is improve the present system. We need to improve the present blockchain and that's what is our next priority.

So the next upgrade that we are hoping to have would be based on scaling obviously, the proposal, inactive discussion and maybe ready for dev nets as well is EIP 4844. That will help layer two projects to maybe interact with the chain and be able to scale Ethereum transactions as well. So that's next. 

And I think there could be few other improvements to be done. We would probably propose builder separation to try to make it more decentralized to the set of validators, proposers, relayers so we can make sure that security is never at threat. But if we talk about a system and ecosystem that can be, you know, running in parallel or the present ecosystem, Ethereum blockchain has already provided that with the Shapella upgrade.

Annika Lewis: Right. And zooming out a little bit more to kind of more of the mainstream adoption piece, do you believe that Ethereum will eventually surpass Bitcoin as the most dominant cryptocurrency and what do you think is still left? What would it take for that to happen?

Pooja Ranjan: Surpassing Bitcoin – that's an interesting question. I would like to share my take on that. So I believe that Bitcoin is the number one currency because of its total market price like shares that it contains, as well as the value that it has, right? But if you look at the user, you would see Etherum  has more distributed users. Multiple projects are running on top of Ethereum blockchain. Projects are trying to interact with Ethereum Blockchain. So I'm definitely confident here that Ethereum may, in the long run, be ahead of Bitcoin definitely in terms of user base.

Price wise, it's hard to predict because a lot of things are associated with it. Ethereum transactions require gas, we are trying to figure it out and gas is again, the ETH there. So a lot of things to be taken care of. I am not in a position to talk about the price. But from users perspective and mainstream adoption. I think it's already ahead in the race.

Annika Lewis: Yeah, awesome. All right. Well, before we wrap up Pooja, anything else you'd like to share or anything else we should be aware of coming up for the Ethereum community?

Pooja Ranjan: I would say that people need to be here, if we want this to be the most decentralized network. Ethereum has a good user base, but this contributor base can never be enough. We want the mainstream people to join us and for that they have to join and make the contribution in the way they can make. There are multiple opportunities Ethereum protocol gets into a lot of research – there are a lot of research findings going on. 

If you would like to learn more about Ethereum, pick up the topics that people are working on. Join us as an intern. Ethereum also has this EPF - Ethereum Protocol Fellowship program, join those programs if you are a developer, if you are a researcher or a PhD institution, reach out to contribute your research work. There's a lot of opportunity to get involved. Obviously, you can make money by becoming validated and earning rewards as well. And trading is another thing, but you become a part of the network, by your way, the way you like. 

So, look forward to what we are doing here. There's lots of new changes coming up as I was mentioning about 4844. Account abstraction is already out there EIP 4337 so wallet and these types of smart contract developers can start taking a look at this proposal and may implement it in their projects. There are a lot of opportunities out there. Stay tuned. All the best to everyone. I hope Ethereum will become a big success with the help of you all.

Annika Lewis: Awesome. Thank you Pooja and before we drop, if folks want to follow you, where can they follow you to hear more about what you're talking about with respect to Ethereum?

Pooja Ranjam: As I mentioned, I'm a part of Ethereum Cat Herders. So ETH Cat Herders discord is one of the best places where people can come and chime in and share their questions, comments, concerns related to Ethereum blockchain or Ethereum protocol. I'm also available on Twitter at poojaranjan19, so you can follow me on most of the social media Twitter, Telegram and all so yeah, I'm available there as well.

Annika Lewis: Awesome - well thank you so much for being here and for talking about this very important upgrade with all of us. I know I learned a lot and I'm sure everybody else did too. Once again, this was Pooja Ranjan and founder of Etherworld and Ethereum community builder. Thanks, everyone. Have a great weekend and we'll be back with you soon.

Pooja Ranjam: Thank you so much.