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What You Need to Know About the Ethereum Shanghai Upgrade

Ethereum-branded gold coins are stacked in two piles, with one coin facing forward displaying the Ethereum logo.

Crypto investors are buzzing about the Ethereum Shanghai upgrade, and you may be wondering what the upgrade does and why it’s important. Second in fame (and market cap) only to Bitcoin, Ethereum often makes its own headlines, and is a  popular holding for BitcoinIRA customers.

Let’s look at the background behind the ETH Shanghai Upgrade, how it works, and what it means for cryptocurrency enthusiasts.

Background of the ETH Shanghai Upgrade

Ever since the well-known and landmark Ethereum Merge event occurred in September 2022, Ethereum has operated as a fully functional proof-of-stake blockchain, transitioning its consensus mechanism from one driven by physical hardware mining to validating and staking, and rendering it over 99% more environmentally friendly.

As tech savvy investors may already be aware, however, the evolution of Ethereum does not end there. The Ethereum (ETH) blockchain is an ever-evolving decentralized payments network, app platform, and open-source development project, and the next batch of features and upgrades due is known as the Shanghai upgrade.

What the ETH Shanghai Upgrade Will Do

The Shanghai upgrade, scheduled for April 12, brings a variety of improvements, foremost among them the ability to un-stake Ethereum for the first time. The significance of this is noteworthy – while the Ethereum network only became fully proof-of-stake with the Merge, it has been possible to stake Ethereum to its Beacon Chain (and earn rewards) in preparation since as far back as 2020. Before Shanghai, these funds were locked; post-upgrade, it will be possible to un-stake, and thus potentially sell these assets and rewards, which comprise approximately 14% of the Ethereum supply currently.

Thankfully, while some profit-taking may occur, the deluge one might expect is unlikely – ETH staking offers significant yield, incentivizing the behavior to continue in an ongoing fashion. Because staking to validator nodes (which verify transactions and secure the network in place of miners post-Merge) is an essential part of how Ethereum now operates, investors can rest assured this serves as a worthy catalyst for investors and holders to stake for years to come. Since stakes will no longer be locked moving forward either, there’s little rush to take any particular action.

Being the first major upgrade to Ethereum since the Merge, naturally Shanghai brings more changes than just unlocked stakes. Other EIPs (Ethereum Improvement Proposals) included are EIP-3651, which aims to reduce gas costs for developers, as does EIP-3860; meanwhile, EIP-3855 looks to decrease the size of smart contracts and optimize contract code. Data-sharding, a milestone upcoming feature (EIP-4844) that will distribute network traffic across data sampling “blobs” to scale Ethereum, is notably absent from the Shanghai release, though this is understandable; the technology is a large piece of Ethereum’s long-term scalability roadmap, and may end up warranting its own dedicated upgrade.

What Does the ETH Shanghai Upgrade Mean for My Retirement Account?

For those investing in ETH in their retirement accounts, it’s important to know that sentiment-driven price moves surrounding this event may occur. Investors can strategize their position size based on their investment goals and risk tolerance.

Overall, these and related exciting new developments may, in time, level up ETH to transaction rates comparable with the digital fiat landscape, and incentivize adoption by spreading the benefit of decentralized money creation amongst the public. This stands in stark contrast with the central banking model that dominates today, which can result in non-democratically selected policies and at times undesirable results, such as rampant inflation.

ETH is one of the 60+ cryptocurrencies available for trading within BitcoinIRA, the first and leading cryptocurrency IRA platform. With partners like BitGo and Digital Trust as part of its security-first model,1 Americans can safely trade cryptocurrencies in an IRA with potential tax benefits.

1 Security may vary based on asset chosen and custody solution available.

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