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Current State of Ethereum in 2023

The Shanghai Update, scheduled for March 2023, will allow staked ETH to be withdrawn. ETH supply is overall in a deflationary state, and Ethereum developers.

Posted January 25, 2023

Ethereum after merge illustration
Ethereum after merge illustration

The Shanghai Update, scheduled for March 2023, will allow staked ETH to be withdrawn. ETH supply is overall in a deflationary state, and Ethereum developers are working hard to support a series of four upgrade stages.

At the time of writing, it’s been a little over 3 months since the Merge, one of Ethereum’s most anticipated upgrades in 2022. Of course, the progress is far from over, and the Ethereum core developers have many more updates to serve this year.

We’ll take a look at the current state of Ethereum in 2023. We’ll also have a look at the updated roadmap that will pave the way for more exciting upgrades within the next few years.

What is Ethereum? Learn the basics of Ethereum with our guide.

What’s in store for Ethereum in 2023?

Shanghai update – staked ETH can finally be withdrawn

The most anticipated update for this year according to many ETH investors is the Shanghai update, which is expected to go live in March. In this update, staked Ether can finally be unstaked (i.e. withdrawn)  from the mainnet. 

Currently, and since the launch of the proof of stake Ethereum chain in 2020, staked ETH is considered an illiquid asset. This is because there is currently no way to unstake them, for network security reasons

Meanwhile, “liquid staking” services like Lido have been a popular choice for users to easily stake ETH and receive a “deposit receipt” called stETH (staked ETH tokens). This token bears an almost equal value to the actual ETH being staked.

Illustration of staked ETH unlocked and withdrawn from one of these deposit lockers.
Staked ETH will be liquid in the upcoming Shanghai update. Photo by regularguy.eth on Unsplash.

The ability for staked ETH to be withdrawn meant that stETH tokens could be somewhat more stable and less likely to drop in price due to impatient stakers. 

For the Ethereum network, the ability to unstake ETH could also encourage more ETH holders to stake ETH as they become more confident with the fact that they could unstake their ETH at any time. This is good for overall network security on Ethereum.

ETH supply is overall consistent

Ethereum is unlike Bitcoin in that it has no supply limit. Theoretically, over a long span of time, if demand for Bitcoin increases, the price of each unit of Bitcoin would increase.

Ethereum was designed to have no supply limit so that there would be enough ETH in supply to encourage adoption, to pay for miners (before the Merge), and now to reward validators.

Related: What is Bitcoin (BTC)?

The total supply of ETH over time since the ETH burn update.
The total supply of ETH over time since the ETH burn update. Source: ultrasound.money.

However, with the introduction of the ETH burn mechanism in 2021, the issuance rate of ETH can actually decrease with increasing network activity.

In other words, as adoption grows and activity increases, more ETH will be burned, thus limiting the maximum supply of ETH — making the coin deflationary, like Bitcoin.

You can find more information about the rate of ETH burned on the network by visiting https://ultrasound.money/.

Ethereum scaling solutions are competing

While there is still some work to do on the Ethereum mainnet to increase transaction speeds, companies are racing with each other to offer layer-2 scaling solutions. 

Apart from major L2 networks such as Polygon, Loopring, Arbitrum, and Optimism, there are innovative networks that are testing new concepts such as zero-knowledge proofs and parallel chains that can talk to other blockchains.

Illustration of Ethereum layer 2 nodes working together.
Ethereum will still keep Layer 2 networks alive as it helps speed up its network. Source: Ethereum.org.

Ethereum is envisioned to run hundreds of thousands of transactions per second. It will be able to do so when network sharding technologies arrive on Ethereum.

Even by then, Ethereum would still be very much compatible with today’s scaling solutions — they could still contribute more throughput for Ethereum in the future.

What will come after the Merge?

Ethereum will undergo five major phases with interesting names after the Merge — Surge, Verge, Purge, and Splurge

Surge — the speed upgrade

Network sharding is Ethereum’s weapon of choice to scale to 100,000 transactions per second. Essentially, the network will be split into as many as 64 shards. In each shard, a cluster of validators process transactions in parallel with clusters in 63 other shards. 

This parallel transaction processing is akin to increasing the number of gates in a toll booth of a highway. Sharding could come into play in 2023 or 2024, depending on the result of rigorous testing and improvement of the system through this year..

Verge — saves validator memory space

Running a validator node on Ethereum can be rewarding, but the setup is also quite expensive. Not only do they need to stake 32 ETH; they also must allocate the right hardware so that the node works smoothly without downtime — and subsequently punished by slashing.

The Verge phase reduces the amount of blockchain data that validators have to store for transaction validation purposes. It does this by introducing a new data structure called a Verkle tree — a modified version of a Merkle tree that blockchains like Bitcoin typically use.

This means validators can run a node with a lower hardware requirement, making it more economical to run a node in the long run.

Purge — becoming lightweight

Similar to Verge, the role of Purge is to minimise memory load on the client side, by pruning excess historical data on the blockchain.

This doesn’t mean that data would get deleted from the blockchain after some time. However, this means that only fewer services in the world would store the complete and full historical data of the Ethereum blockchain.

This will also help minimise network congestion, as validators themselves can process each transaction without back-checking the entire blockchain history. 

Splurge — extra features

As the name suggests, at this phase, Ethereum devs can go on a “development splurge” to include features that are currently considered low priority. A series of upgrades will combine improvement proposals that don’t exactly fit in with the high priority upgrade phases. 

Ethereum's roadmap after the Merge.
Ethereum’s roadmap after the Merge. Source: Vitalik Buterin on Twitter.

Takeaways

It would still take a few years until Ethereum reaches the final stage of this five-part upgrade schedule. By then, as Vitalik Buterin noted, the Ethereum network would look very different to what we see today. 

Ethereum is a bustling and busy network with many applications built on top of it. Enhancing the network further will increase its chance of becoming a standard global decentralised computer.

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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.

Last updated January 24, 2023

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