Keeping Up With Ethereum’s Upgrades

If there’s one thing that we’ve learned about cryptocurrencies in the relatively short period of time since they’ve been around is that they’re constantly changing and evolving. Nothing stays the same for too long – prices swing from one day to another, leading to regular cycles of rise and decline – also known as bull and bear markets – innovative projects emerge, new coins enter circulation, others fade into obscurity, and so on. This is to be expected from an industry that was invented a little over a decade ago and is still going through the typical growing pains.

All in all, digital currencies are pretty exciting and thought-provoking for both users and spectators, and Ethereum is a good example of that, not only because of its innovative nature but also because of the numerous updates it has experienced since its inception. As the leader of the altcoin pack and the second-largest crypto in the market after Bitcoin, Ethereum is hugely popular among crypto enthusiasts and has found its way into many investing portfolios. Crypto is listed on major exchange platforms like Binance, so anyone can buy Ethereum with ease.

However, people are finding it a bit difficult to keep up with the constant upgrades that the network has gone through in recent times and understand what’s behind these changes. So, in this article we’re going to shed some light on Ethereum’s recent and upcoming upgrades, to give you an idea of what’s going on behind the scenes.

⚡ The Merge

Ethereum was launched back in 2015 by a group of researchers led by programmer Vitalik Buterin, as a scalable, programmable, secure, and decentralized blockchain platform, having Ether (ETH) as its native coin. Since then, the platform has grown and expanded significantly, creating an entire ecosystem around it. Obviously, regular upgrades were necessary for the network to reach its current state. Some brought bigger changes than others, but none of them was quite as important as the Merge.

Completed in September 2022, the Merge was a lot more than a simple upgrade – it was an overhaul that represented a major milestone in Ethereum’s history, marking the switch from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) protocol. This means that the way transactions were verified and validated changed completely, so the upgrade targeted the very core of the network. When Ethereum relied on PoW, miners had to compete with each other and were required to solve complex cryptographic equations in order to approve transactions, add them onto the blockchain, and be rewarded with coins.

With PoS, there is no competition as the process happens differently: validators are randomly selected by the algorithm to confirm transactions and create new blocks, thus earning rewards and securing the network. Users that stake 32 ETH, or multiples of 32 ETH can participate in validating blocks and increase their chances of receiving block rewards. Therefore, miners were replaced by stakers, changing the entire infrastructure of the platform.

A lot of users wondered why there was a need for Ethereum to change the PoW model that they have been using since the very beginning. While the mechanism did function perfectly in terms of validation efficiency, it also required massive amounts of computational power which also translates into massive amounts of energy, so the mining process was anything but sustainable – an issue that many crypto-critics were becoming increasingly vocal about. Besides, it was always the developers’ intention to adopt a PoS model, but it simply wasn’t possible at the time they launched the platform.  

Almost eight years later, the dev team finally managed to put their plan into action. First, they launched the Beacon Chain, a PoS consensus layer that ran in parallel with the PoW-based Mainnet, the original execution layer. Then, when the Merge was scheduled to take place, the Mainnet united with the Beacon Chain, and the network permanently shifted to the PoS consensus protocol. 

The Merge reduced the network’s energy consumption by up to 99%, turning Ethereum into one of the most sustainable cryptos in the market, while also enhancing its security. Devs announced that after the completion of the overhaul, a series of smaller upgrades were going to follow – the surge, verge, purge, and splurge, each of them addressing different key aspects and areas of the network and supporting its evolution.

⚡ The Shanghai upgrade

The Merge was the biggest step Ethereum took on the path to sustainability, but it wasn’t the final piece of the puzzle. The switch to a PoS mechanism had numerous implications, and the most important of them has to do with withdrawing the staked ETH that users have invested in order to take part in the validation process. At the moment, validators are still not able to retire their staked funds.

Enter the Shanghai upgrade. The upcoming update that is scheduled to take place in March this year will implement EIP-4895, giving users the possibility to unlock their funds and withdraw them from the system. Before the upgrade comes into effect, users will have the chance to test it at the end of February.

While this is generally regarded as a positive step in the network’s evolution, there are certain concerns regarding the financial implications of the upgrade. So far, validators have staked nearly staked 16 million coins, which accounts for a seventh of the total ETH supply. The staking process started long before the Merge was completed when the Beacon chain was launched in 2020. After the Shanghai fork, users will be able to retire their assets freely and use them as they see fit. So, even if Shanghai is a relatively small upgrade compared to the Merge, the impact it will have on the supply-demand dynamic and the network as a whole will be considerable.

In addition, Shanghai is not the only update scheduled for 2023. Developers have other improvements in the works that will unfold later this year, so there are many more interesting developments to keep your eyes on in the near future.