Everything you need to know about Ethereum’s Shanghai hard fork and why it matters

Ethereum network is preparing for the Sepolia testnet at 4 pm UTC on February 28 and the Shapella hard fork in March 2023. The combination of Shanghai and Capella hard forks marks a milestone in developing the largest altcoin in the crypto ecosystem. The upcoming testnet is critical to ETH holders and is expected to influence the altcoin price. 

Also read: Ethereum price hints at pullback as centralization risks are likely to emerge after Shanghai upgrade goes live

What is the Ethereum Shanghai hard fork?

Ethereum’s Shanghai hard fork is a key developmental upgrade for ETH, slated for March 2023. It marks one of the biggest developments for the Ethereum network, enabling stakers and validators to withdraw assets from the Beacon Chain.

The Beacon Chain staking contract went live in 2020, and about a seventh of Ethereum’s total supply has been staked. Ethereum token unlock is the most important development in the hard fork, lined up as Ethereum Improvement Proposal (EIP) 4895. 

The Merge required that validators lock up their ETH and any rewards they earned until a later chain update. This kept a huge percentage of Ethereum’s supply off exchanges. This reduced the selling pressure on ETH across cryptocurrency exchanges worldwide. 

Also read: Ethereum deflation rate is accelerating by the day: Here’s what to expect from ETH price

Ethereum Sepolia testnet and Shapella hard fork: What to expect

Before the Shanghai upgrade is deployed on the Ethereum mainnet, developers have scheduled testnets. Sepolia is the second-last testnet that will test withdrawals by validators and other features that will be enabled on the mainnet. 

The private testnet will allow developers to test smart contract functions using a special testnet currency called Sepolia ETH. Only approved entities can operate validator nodes on Sepolia testnet’s new consensus layer. 

The success of the Sepolia testnet could ensure that Shanghai hard fork is on track. The Shapella hard fork, a combination of two: execution and consensus layer forks Shanghai and Capella, will activate on the Sepolia testnet at 4 pm UTC. 

Developers have mentioned that the much-awaited upgrade is scheduled after months of testing, and it follows The Merge in the developmental journey. Shapella will enable validators to withdraw their stake from the Beacon Chain to the execution layer. At the same time, it will introduce new functionality to both the execution and consensus layer.

Also read: Will Ethereum bulls regain control of ETH with massive exchange outflow?

What are the key EIPs of the Shanghai hard fork?

Four small EIPs included in the hard fork related to gas fees, the transaction cost paid to the Ethereum blockchain. During the high activity, gas fees can be expensive for users; developers are therefore focused on introducing a mechanism to reduce high gas fees for those building on the blockchain.

The following four EIPs are bundled in the Shanghai hard fork:

• EIP-3651: proposes to access the “COINBASE” (no relation to the crypto exchange) address, a software used by validators and block builders at a low gas cost. 
• EIP-3855: Creates a code dubbed “Push0” that lowers gas cost for developers. 
• EIP-3850: Introduces an upper cap on the gas cost for developers. 
• EIP-6049: Reduces gas fees for developers. 

To find out how the Ethereum price could react to the Shanghai hard fork, check this out.