ETH’s Shanghai update: Assessing what it means for the Ethereum ecosystem

2022 has been a busy period for the Ethereum community with many updates already released. The ETH 2.0 is expected to be launched in June 2022. But that is not it. The All Core Developers of the Ethereum blockchain has released the preliminary specifications of the latest update called Shanghai.

What is the Shanghai update?

Shanghai comprises of three major changes along with several small ones. The first is the EVM Object Format (EIP-3540). It introduces the separation of code and data. This separation is especially beneficial for on-chain code validators (like those utilized by layer-2 scaling tools, such as Optimism). It also introduces new contract code section types to solve complicated features such as Account Abstraction, control flow in EVM, and EIP-3074.

After several attempts, Ethereum has finally announced the Beacon chain withdrawal on its blockchain. There are a variety of security concerns around staked ETH eligible for withdrawal. The update would facilitate the consensus layer to handle the security concerns and ensures safe passage for transactions.

The third major change is the Layer 2 Fee Reductions, anticipated by many developers because of increasing competition by Solana and Cardano. This EIP helps to balance out the increasing block sizes. It proposes a maximum cap to the amount of CALLDATA in a block. It is a simple change with significant fee reductions on Layer 2. The EIP-4844 also lays the founding bricks for a full sharding implementation to further reduce Layer 2 fees.

The news did not end there with the AllCoreDev team ending the announcement with,

“Expect another update in a month or two. In the meantime, we’ll also have the chance to discuss all of this face to face at Devconnect — see you in Amsterdam ????!”

Will Shanghai delay the Merge?

The soft fork comes after the grand Merge which has its own list of upgrades on the Ethereum network. But the Merge is finally set to happen in June 2022 with the team pressing further on its release,

“Our main priority remains The Merge, with a renewed focus on testing. Over the next month, we are hoping to finalize implementations, run multiple short-lived devnets, and gather feedback from application, infrastructure and tooling providers.”