The "Shanghai Upgrade" is the first significant upgrade after the merger of Ethereum, which means the opening of Ethereum's pledge and withdrawal function, and also means that Ethereum will ultimately cut off its connection with encrypted "mining".The "Shanghai upgrade" is of great significance for the future development of DeFi (decentralized finance): promoting the decentralization process of the Ethereum network will also help usher in the DeFi 3
The "Shanghai Upgrade" is the first significant upgrade after the merger of Ethereum, which means the opening of Ethereum's pledge and withdrawal function, and also means that Ethereum will ultimately cut off its connection with encrypted "mining".
The "Shanghai upgrade" is of great significance for the future development of DeFi (decentralized finance): promoting the decentralization process of the Ethereum network will also help usher in the DeFi 3.0 era of "Farming as a Service".
Ethereum founder Vitalik Buterin (far right) delivered a speech at the "Shanghai Upgrade" viewing party.
The Ethereum blockchain completed an important upgrade at 22:42 on April 12, UTC, allowing users to withdraw tens of billions of dollars of native token Ethereum (ETH). This upgrade, known as "Shapella", is the first important upgrade of Ethereum after its merger, and is also a necessary step for its consensus mechanism to change from proof-of-work to PoS.
The completion of this upgrade signifies the activation of Ethereum's pledge withdrawal function, allowing pledgers to decide whether to continue pledging based on their own needs and market conditions. It also means that Ethereum will ultimately cut off its connection with encrypted "mining".
Bi Lianghuan, a researcher at the European Cloud Chain Research Institute, stated to Pengpai Technology (www.thepaper. cn) that the "Shanghai upgrade" of Ethereum is of great significance for the future development of DeFi (decentralized finance). The "redemption mechanism" brought about by this upgrade is an important measure to promote the process of Ethereum network decentralization, and will also help usher in the DeFi 3.0 era of "Farmingasserve".
Ethereum is finally able to withdraw funds
Since 2020, users can pledge Ethereum, but cannot withdraw it. Previously, at least 32 Ethereum coins could be pledged, and if verifiers attempted to maliciously disrupt the network, the 32 Ethereum coins or a portion of them pledged would be confiscated.
As of early April, approximately 16% of the total supply of Ethereum (worth approximately $37 billion) was locked in the agreement. Pledge means holding tokens or coins in an encrypted wallet to support blockchain operations, such as processing transactions, storing data, and adding new blocks to the blockchain.
After the merger of Ethereum, the pledged Ethereum coins on the beacon chain still cannot be extracted and can only continue to receive interest rewards. Pledgors are unable to flexibly use or trade the Ethereum they have locked onto the beacon chain, nor can they exit the pledge process. This is a great inconvenience and risk for the pledger, and also limits the liquidity and scalability of the Ethereum network.
This "Shanghai upgrade" will allow users to extract pledged Ethereum and unlock over 16 million Ethereum pledged online in the past two years. But it is not a one-time unlocking of the total amount, but rather a diversion of validators who withdraw tokens within weeks to months, in order to prevent the occurrence of a "liquidity cliff". It is reported that the interest rate of the pledge will also increase based on the loss of the total amount of pledge, which will bring new growth in the market and form a dynamic balance. Bi Lianghuan stated that through the upgraded "redemption mechanism", the full operation of PoS blockchain can become a reality, which means that the pledgor can ultimately have control over personal funds.
Technology media "Wired" reported that this upgrade fundamentally changes the way transactions are verified and network security is maintained. Under the new PoS system of Ethereum, "mining" has become history. The greater the computing power invested in the past, the easier it is to obtain Ethereum. Now, a lottery like method has become a new method: in PoS, there is no need to consume electricity for calculations, but the right to package blocks is obtained by mortgaging tokens. When a transaction occurs, the system rewards the nodes that package and verify blocks, with the reward source being the newly issued or unlocked tokens. This means that the more Ethereum a person locks onto the internet, the greater their chances of winning the lottery.
Bi Lianghuan stated that in addition to the "redemption mechanism", the upgrade of Shapella is also aimed at improving the transaction speed and reducing costs of blockchain, while promoting the development of DeFi. The proposed improvements to the content included in the Shapella upgrade can help drive the development of Layer 2 (Layer 2), an expansion technology on Ethereum, resulting in faster transactions and lower transaction costs.
Shapella is a merged vocabulary of Shanghai and Capella. The upgrade of Ethereum still follows the previous naming convention. The upgrade of the execution layer is named after the city hosting the Devcon conference, while the upgrade of the consensus layer is named after the galaxy. Capella is the brightest star in the northern constellation of Auriga.
Possible hidden dangers
Although the "Shanghai upgrade" has brought new features, there may also be certain hidden dangers.
In addition to pledging, the "Shanghai Upgrade" also includes some other improvements and repairs, which may affect the handling fees and income distribution of the Ethereum network. For example, the proposal to reduce refunds, EIP-3529, may lead to an increase in transaction fees for some contracts or transactions, thereby affecting users' usage costs and experience; The proposal EIP-3074 for authorizing delegation calls may introduce some new security risks and attack methods, requiring users and developers to be more cautious and attentive.
It is reported that in a recent code test, transaction confirmation took much longer than expected, as many computers processing the process did not undergo software upgrades. Nevertheless, Ethereum developers have a good record in seamless software changes. Another risk is that in the broader Ethereum blockchain, some nodes holding pledged Ethereum coins may lose access keys to the tokens, leading to users being rejected.
In addition, since the merger, Ethereum has been subject to scrutiny by regulatory agencies including the United States Securities and Exchange Commission (SEC), which stated that certain services that provide cryptocurrency pledge proceeds are equivalent to illegal securities issuances. This "Shanghai upgrade" may lead to increased scrutiny by allowing for the release of the pledge of Ethereum.
This event has received significant attention in the field of encryption and may have a significant impact on the price of Ethereum. Since the beginning of the year, the price of Ethereum has risen from around $1200 to around $1900, an increase of approximately 50%. When the "Shanghai upgrade" was triggered, the price of Ethereum remained basically unchanged.
Energy Dispute over Mining
The "Shanghai upgrade" proves that large-scale blockchain can be transferred from one system to another, sparking a debate on whether Bitcoin still supports the feasibility and sustainability of "mining" at present. According to data from the University of Cambridge, the Bitcoin network consumed 107 terawatt hours of energy in 2022, equivalent to the consumption of the entire country in the Netherlands, with only about a quarter of it coming from renewable energy.
Before the merger, Ethereum consumed approximately two-thirds of the energy of the Bitcoin network. According to Alex deVries, a data scientist at DeNederlandscheBank and founder of the encrypted emission data source company Digiconomist, Ethereum's abandonment of mining reduced energy consumption by at least 99.84%.
The issue of energy consumption is the Achilles' heel of Bitcoin, "said Devries." A simple fact is that as Bitcoin prices rise, energy consumption issues will also worsen. The more money miners earn, the more they usually spend on resources such as hardware and electricity
But many Bitcoin enthusiasts question the description of the Bitcoin network as high energy consumption and carbon intensive, stating that 'mining' is increasingly driven by renewable energy. Moreover, they believe that PoS tends to be centralized, concentrating influence and wealth in the hands of the wealthy, and avoiding centralization is precisely the original intention of creating cryptocurrencies.
Nowadays, the 'mining' field is dominated by large companies, some of which are listed companies such as Marathon Digital and Riot Blockchain, which operate vast facilities. The largest mine has a power output exceeding 700 megawatts.
In June 2021, the National Development and Reform Commission, the People's Bank of China, and other departments jointly issued a notice calling for strengthening the supervision of the entire industry chain upstream and downstream of virtual currency "mining" activities, prohibiting the addition of new virtual currency "mining" projects, and accelerating the orderly exit of existing projects.
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