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Ethereum Shanghai Upgrade: What you need to know

ETH-mergeThe Shanghai upgrade is a set of changes to the Ethereum protocol that will allow users to unstake, or withdraw, their staked ether (ETH).

Before the Shanghai upgrade, any ETH dedicated to staking remained locked within the Ethereum blockchain. The Shanghai upgrade will include a change to the Ethereum protocol that allows this staked ETH to be unlocked for the first time.

Shanghai is the first major change to the Ethereum blockchain after its transition from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism.

This transition process, known as The Merge, laid the technical foundation for future scalability improvements on the Ethereum blockchain.

Have more questions about Ethereum’s transition from proof-of-work to proof-of-stake? Check out our beginner’s guide to The Ethereum Merge.

What will the Shanghai upgrade include?

There are currently four Ethereum Improvement Proposals (EIPs) included in the Shanghai upgrade:

The most notable of the changes is EIP-4895.

This EIP allows users who staked their ETH in order to maintain Ethereum’s new proof-of-stake “Beacon Chain” to withdraw or “unstake” their funds for the first time.

On December 8, 2022, the Ethereum core team held an All Core Developers (ACD) meeting. The Ethereum team agreed to target March 2023 as the release date for Shanghai’s mainnet launch. However, this is a tentative date based on the assumption that the Zhejiang, Sepolia, and Goerli testnets are successful.

Shanghai + Capella = Shapella

A second hard fork will also be taking place alongside Shanghai, called Capella. This is why you might see “Shanghai/Capella” or “Shapella” mentioned simultaneously in the run-up to the network upgrade.

Now that Ethereum has a proof-of-stake execution chain and a consensus chain (Beacon Chain), new changes can require hard-forking both layers.

In this instance, Shanghai references the upcoming execution chain hard fork, while Capella references the consensus chain hard fork.

How the Shanghai upgrade impacts Kraken clients

Kraken has no control over the success of the Shanghai testnet or when the Shanghai upgrade may take place. For U.S. clients impacted by the Securities and Exchange Commission’s recent decision regarding Kraken’s on-chain staking program, Kraken will return all staked ETH to their spot wallets after the Shanghai upgrade takes place.

Following the hard fork, Kraken clients who staked their ETH will be able to withdraw their assets for the first time. Because there may be a high demand in a concentrated period of time from ETH stakers looking to access their coins, unstaking could take a few hours. Kraken also has no direct control over ETH unstaking time frames, as the unstaking feature operates according to the withdrawal conditions set by the Ethereum development team.

Useful official links

These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, stake, or hold any digital asset or to engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your crypto assets and you should seek independent advice on your taxation position.

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