Ethereum, the world’s second-largest cryptocurrency by market capitalization, is poised to undergo a major transformation with the upcoming Shapella hard fork scheduled for April 12.
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This pivotal event will finalize Ethereum‘s complete transition from a proof-of-work (PoW) to a proof-of-stake (PoS) network, enabling users to withdraw their staked Ether from the Beacon chain for the first time since The Merge took place in September.
The Shapella upgrade, which implements Ethereum Improvement Proposal (EIP) 4895, comes as the leading smart-contract protocol continues to burn Ether at an impressive rate of $5.5 billion per year, according to data-tracking website ultrasound.money.
This trend began 613 days ago with the implementation of EIP-1559, which burns a portion of fees generated through transactions.
However, it wasn’t until Ethereum’s high-profile switch to the environmentally friendly PoS consensus mechanism, known as “The Merge” that the Ether supply began to shrink significantly.
Since then, Ethereum has seen a decrease of 82,924 coins (over $159 million) in its total supply. Had The Merge never occurred, the Ether supply would have increased by an additional 2.33 million coins ($4.5 billion) over the last 208 days or 5.66 million ETH ($10.9 billion) since EIP-1559.
The upcoming Shapella hard fork will not only mark a significant milestone in Ethereum’s development roadmap but also bring an end to the temporary suspension of unstaking Ether.
Staking pools will soon be able to control the release of rewards as staked Ether withdrawals become available in a phased manner.
Major players in Ether staking, such as Coinbase and Lido Finance, have announced their plans for processing unstaking requests. While Coinbase will begin processing requests 24 hours after the completion of the upgrade, Lido Finance anticipates that stETH withdrawals won’t be initiated on the mainnet until mid-May, following code audits and a two-week safety buffer.
Technical on-chain constraints will likely result in potential delays in withdrawal processing. The Ethereum protocol can only process 16 partial withdrawal requests, consisting solely of staking rewards, approximately every 12 seconds. As a consequence, a long queue for withdrawals is expected once Shapella goes live.
Full withdrawals, in which a validator entirely exits the Ethereum blockchain, might also take a considerable amount of time.
The Shapella upgrade, combined with Ethereum’s transition to PoS and the burning mechanism of EIP-1559, has contributed to a significant reduction in the Ether supply.