Ethereum, the second most valuable cryptocurrency by market capitalization, has recently gone through a huge change with the release of the Shanghai upgrade. This upgrade which was officially launched on the 20th of August, 2024 brought several changes to the network in an effort to improve the network’s performance, capacity and security. The Shanghai upgrade is especially timely for Ethereum as it remains to be the foundation for DeFi and smart contracts.

Among the most awaited changes in the Shanghai upgrade is the integration of EIP-4895 that proposes a new approach to Ethereum staking withdrawal. Before Shanghai, the stakers of Ethereum could not unstake their ETH which limited their liquidity and slowed down the overall usage of Ethereum 2. 0. With the new upgrade, stakers are now allowed to withdraw their ETH and the corresponding rewards; this has improved the flexibility of staking on the Ethereum network.

Moreover, Shanghai also presents EIP-4884 that improves the transaction processing rate and minimizes the gas fees by adopting a new transaction compression mechanism. This change is anticipated to help to reduce congestion on the network and make the transactions cheaper for the users. It also comes with several enhancements in the execution of smart contracts and enhancements in Ethereum’s virtual machine to enhance the effectiveness of dApps.

DeFi has been one of the fastest-growing sectors in the Ethereum ecosystem with billions of dollars trapped in different DeFi platforms. The Shanghai upgrade is expected to accelerate this growth even more by solving some of the main problems of DeFi platforms. Since gas fees are reduced, and the transaction speed is improved, DeFi applications can provide their services at a lower cost to their users.

Furthermore, the possibility of stakers being able to withdraw their ETH is expected to lure more people into Ethereum’s staking pool. This could potentially result in enhanced security of the network and also more decentralisation, which will further solidify Ethereum’s dominance in the DeFi space.

After the successful upgrade that was the Shanghai upgrade, Ethereum’s market price has been on the rise, which is an indication of more investors’ confidence. The community has welcomed the upgrade and has noted that it solves several problems that have been present for a long time and puts the foundation for future improvements.

However, some analysts argue that although the upgrade is a big step, it is not without its problems. New mechanisms and optimization techniques can also lead to the emergence of new technical problems or new loopholes. As usual, the Ethereum development community will have to be ready and adapt to any new issues that may arise.

The Shanghai upgrade is not the first and definitely not the last step in Ethereum’s development. As more developments and enhancements are expected in the upcoming future, Ethereum is all poised to strengthen its position as one of the top platforms for blockchain applications. In the future, as the DeFi market keeps developing, the Shanghai upgrade will probably be a significant factor that determines the future of DeFi.