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The Ethereum Shanghai Upgrade unlocked staking withdrawals and marked a major step in Ethereum’s shift from PoW to PoS
Author: Chirag Sharma
Ethereum has always been at the center of innovation in the crypto space. From smart contracts to DeFi, it has consistently set the tone for blockchain development. Yet one of its biggest transformations came not from applications but from the network itself. That moment was the Ethereum Shanghai Upgrade.
For years, Ethereum ran on Proof of Work (PoW), a system where miners secured the network using computing power. While effective, it was expensive, energy intensive, and limited in scalability. The transition to Proof of Stake (PoS) was meant to solve these issues, and the Merge in 2022 laid the foundation. The Shanghai Upgrade in 2023 unlocked the final piece of that transition by enabling staking withdrawals.
This article explores how Ethereum moved from PoW to PoS, why the Shanghai Upgrade mattered, and how it reshaped the network’s future.
Ethereum began as a PoW blockchain, just like Bitcoin. In its early years, this was the only way to secure the network. Miners validated transactions and earned rewards, but as the network grew, so did its problems. Gas fees skyrocketed, transactions slowed during periods of congestion, and concerns over energy usage became louder.
The Ethereum community had long envisioned Ethereum 2.0 as a solution. Instead of relying on miners, it would be powered by stakers who lock up ETH to secure the network. This journey started in December 2020 with the Beacon Chain launch. The Beacon Chain introduced PoS in parallel but without handling transactions directly. It was a live testnet running on real ETH.
The Merge in September 2022 combined the Beacon Chain with Ethereum’s main network. This was historic because Ethereum fully switched from PoW to PoS, reducing energy consumption by over 99 percent. However, there was one big limitation: staked ETH could not be withdrawn. Validators who locked ETH into the system had no way to exit, raising concerns about liquidity.
That is where the Shanghai Upgrade entered the picture. It was the first major upgrade after the Merge and the moment where Ethereum delivered on its promise. Validators finally gained the ability to withdraw staked ETH, whether partially (rewards only) or fully (principal plus rewards).
To put it in context, earlier upgrades like the London Upgrade in 2021 focused on gas fee mechanisms (EIP-1559). The Merge shifted Ethereum’s consensus. The Shanghai Upgrade gave stakers the confidence that their locked ETH was not trapped forever. This created a healthier, more sustainable staking ecosystem.
The Shanghai Upgrade included several Ethereum Improvement Proposals (EIPs). The headline feature was EIP-4895. This proposal enabled staked ETH withdrawals from the Beacon Chain to the execution layer. In simple terms, it meant validators could finally access their ETH.
Here’s a breakdown of what Shanghai introduced:
Why did this matter so much? Because Ethereum had over 17 million ETH staked before the Shanghai Upgrade, worth tens of billions of dollars. Unlocking withdrawals turned Ethereum staking from a one-way street into a liquid and trustable system. Institutions and retail users alike could now stake ETH with confidence.
Shanghai also opened the door for more innovation in staking services. Liquid Staking Tokens (LSTs) like Lido’s stETH or Rocket Pool’s rETH gained momentum. These tokens represent staked ETH but remain liquid, giving users flexibility in DeFi while their ETH continues earning rewards. The Shanghai Upgrade validated the entire LST model.
When Shanghai was approaching, one fear dominated the conversation. If millions of ETH suddenly became withdrawable, would the market face a massive sell-off? Some speculated that validators who had waited for years would immediately dump their holdings.
The reality was different. Instead of a flood of ETH hitting exchanges, many stakers simply rotated. Some withdrew to test the system, while others moved funds into LSTs or restaked with better strategies. Data showed that new validators continued joining, offsetting those who exited. Shanghai actually strengthened Ethereum’s staking ecosystem.
The market reaction was also stable. ETH’s price held strong after the upgrade, defying expectations of a crash. In fact, confidence in Ethereum grew because investors now saw that staking was safer and more liquid. Shanghai reduced uncertainty and proved Ethereum could deliver complex upgrades without issues.
Beyond price, the upgrade had long-term implications:
Shanghai was more than a technical update. It was a confidence-building event that reshaped how the market viewed Ethereum.
The Shanghai Upgrade was not just about withdrawals. It symbolized Ethereum’s successful shift from PoW to PoS. To appreciate this, it helps to compare the two models.
Proof of Work (PoW)
Proof of Stake (PoS)
The decision to move from PoW to PoS was controversial, especially since Bitcoin continues to champion PoW. But Ethereum’s community believed PoS was the only way to scale sustainably and reduce environmental impact.
| Proof of Work (PoW) | Proof of Stake (PoS) | |
|---|---|---|
| Energy Use | High, requires massive electricity for mining | Over 99% lower, eco-friendly |
| Security | Based on computational power | Based on staked ETH value |
| Rewards | Miners earn block rewards, often sell to cover costs | Validators earn staking rewards directly |
| Hardware | Requires specialized equipment (ASICs, GPUs) | Needs ETH and basic validator setup |
| Decentralization Risk | Mining farms can dominate | More inclusive with smaller entry barriers |
| Liquidity | ETH locked in miners’ rigs, operational cost-heavy | ETH staked but now withdrawable post-Shanghai |
The Shanghai Upgrade proved PoS works in practice. Validators could stake, earn, and withdraw seamlessly. The system handled billions of dollars without disruption. This gave Ethereum a clear identity as the most advanced smart contract blockchain, both scalable and sustainable.
The Ethereum Shanghai Upgrade marked a defining chapter in Ethereum’s story. By unlocking staking withdrawals, it solved the biggest limitation of the Merge and gave confidence to validators, investors, and institutions. Instead of triggering chaos, Shanghai strengthened Ethereum’s ecosystem, boosted participation, and set the stage for greater adoption.
But this is not the end. Ethereum’s roadmap continues with the Cancun upgrade and proto-danksharding, aimed at scaling the network even further. Shanghai was a milestone, not the final destination.
As Ethereum continues to evolve, the Shanghai Upgrade will be remembered as the moment where PoS became complete. It bridged trust, liquidity, and innovation, reinforcing Ethereum’s role as the backbone of decentralized finance and the broader blockchain world.
