Headline: What is the Shanghai hard fork in Ethereum?
Body: Ok, just a bit of a reminder of what a “hard fork” is. Hey, HEY, don’t go there, this is a family show. A fork indicates that a change has been made. Let’s take cellphones. When you restart your cellphone, this is like a soft fork. But, assume that you always had Apple products, but you got a really good deal on a Droid phone. Suddenly, you’re in a new cellular ecosystem. This is akin to a hard fork. (Though, I grant you, the Shanghai Hard Fork DOES sound like some sexual position, only achieved by circus performers.)
So, what IS the Shanghai Hard Fork?
In this change, the Ethereum blockchain transitions into a proof-of-stake network. This is important as before the fork, this was a proof-of-work network, and that was highly inefficient. Going forward, the validators are now able to make substantial money as they validate transaction blocks. This transition will be rather gradual, but the biggest changes have already been made, per the co-founder of Ethereum. The next challenge seems to be scalability. Currently, the validators will have to stake 32 ETH (roughly $58,000) but with liquid staking, MANY investors can pool their ETH with a 3rd party and collectively obtain an interest in a validator. As of the present date, Lido, a liquid staking firm, along with Coinbase, Kraken and Binance control almost half of Bitcoin.
This all sounds good, but, the fear is that the ETH being used to stake the transactions within the Beacon Chain will now be available to withdraw. This is happening at the same time as several exchanges in the US are being liquidated, and with this many potential withdrawals, a panic is not out of the question.
The Shanghai hard fork also introduces several changes in policy that add up to lower gas fees for developers. One could imagine that this will encourage development of applications within the environment.
The Verdict
As time goes on, the only constant is change. This has always been true, and remains true in cryptocurrency. Some changes are good, some are not. But, I think I would have to argue that the Shanghai hard fork is good for everybody, as proof of stake is eminently more sustainable for the environment. Just, if you do decide to play in the Ethereum sandbox, please do your level best to not be the one who gets forked.
A D V E R T I S E M E N T
REFERENCES
Ethereum’s Shanghai Upgrade Is Complete, Starting New Era of Staking Withdrawals (coindesk.com)
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.