Ethereum launches testnet for Shanghai upgrade: Here’s what is next

Staked ETH withdrawal and lower gas fees are some of the developments expected with the next critical improvements for the Ethereum network, the Shanghai upgrade. The testnet version, dubbed Shandong, is now live.  Developers can now begin working on the implementations; a process expected to continue until September 2023. 

This is the first major update since Ethereum’s consensus switched to Proof-of-Stake (PoS) in September after the Mainnet and Beacon Chains merged.

Moreover, the coming upgrade introduces an elemental change to Ethereum Virtual Machine (EVM), the technology that powers the network smart contracts. EIP-3540, or EVM object format, is one of the community’s most-anticipated updates since it separates coding from data, which could be beneficial for on-chain validators. Galen Moore, content lead at Axelar, told Cointelegraph about the proposal:

“From my perspective, EIP 3540 is the most significant upgrade proposed for Shanghai. It’s a further step toward interoperability within the Ethereum ecosystem. Currently, Layer-2 networks on Ethereum use a cumbersome code validation process. EIP 3540 separates code and data, making that process more efficient. It’s especially good news for the growing ecosystem of Polygon Supernets — dAppchains built on Polygon Edge.”

Another expected proposal is EIP-4895, which will allow staked ETH and earned rewards withdrawals via the Beacon Chain. In order to ensure network stability, validators with staked ETH currently cannot withdraw funds directly. 

Related: Does the Ethereum Merge offer a new destination for institutional investors?

Among the proposals under consideration, the upgrade will also introduce changes to layer-2 protocols, reducing gas prices by equalizing block sizes and increasing calldata efficiency in the network. Moore also noted:

“When specialized chains can build on a Layer-2 like Polygon and reduce the cost of communicating with the base chain Ethereum, that reduces gas prices for users everywhere in the ecosystem — by making it more efficient to scale horizontally in a way that spreads demand.”

As previously reported by Cointelegraph, the Merge was the first step in this five-part process, which has since been elaborated upon by a number of Ethereum developers, ecosystem participants and commentators. The key change of the Merge is the drastic reduction in power consumption, reducing Ethereum’s energy usage by 99%. 

Additional steps to come include the Surge, an important step in increasing the scalability of the blockchain’s ability to store and access data, followed by the Verge, Purge and Splurge. The last three steps in Ethereum’s ongoing development and set to take place over the next few years.