Ethereum has now fully transitioned into a Proof-of-Stake (PoS) from a Proof-of-Work (PoW) protocol following the Shapella Upgrade which took place in April 12 2023.
Proof-of-stake took a bit of time, but the loop is finally complete!
Happy Shapella, Happy withdrawals
Congrats— dannyryan (@dannyryan) April 12, 2023
The upgrade marks a major milestone for Ethereum since it began the transition almost 2 years ago and 7 months since ‘The Merge’ was activated drastically reducing the energy consumption of the network.
The Shapella upgrade has seen the following Ethereum mainnet layers code upgraded:
- The Beacon Chain – Ethereum’s consensus layer
- The Execution Layer
The main upgrade, dubbed ‘Ethereum Improvement Proposal (EIP) 4895,’ enables users to access and potentially unstake the over 18 million $ETH staked on the Beacon Chain while optimizing transaction fees on the network. Users who staked their $ETH will get their original 32 $ETH and any accrued rewards or penalties.
Moving forward, $ETH supply will become truly deflationary as more of it will be burned over being created. If the Merge had never occured, the supply of Ether would have increased by over 5 million since the last EIP-1559 upgrade.
Following the successful upgrade, the price of Ethereum shot past $2,000 for the first time since May 2022. This was largely as a result of an increase of near 100,000 in the number of $ETH tokens staked on the Ethereum blockchian, the largest one-day increase in nearly 2 months.
The Price of $ETH continues to increase following the Shapella Upgrade. #Ethereum #EthereumUpgrade pic.twitter.com/gtlIjhdDCf
— BitKE (@BitcoinKE) April 14, 2023
When more ETH tokens are locked up in staking contracts, this increases the scarcity of unstaked ETH tokens that can be traded across cryptocurrency exchanges thus boosting the price of $ETH.
As of April 13 2023, slightly more than 18.2 million (~15% of total supply) ETH tokens are currently locked up in staking.
The $ETH price is expected to benefit from the upgrade as:
- More $ETH is taken out of supply and into staking contracts
- The $ETH supply continues to deflate due to token burns
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