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16 May 2023

What is Ethereum’s Shanghai Upgrade?

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This article is not intended to be financial, investment or trading advice. This article is for information and solely for education purposes. It does not protect against any financial loss, risk or fraud.

Written by Leandro Pereira

What is Ethereum?

To best understand the Shanghai update, let’s first understand better what Ethereum is.

Ethereum launched back in 2015 and was first conceived in 2013 by Vitalik Buterin, a Russian-Canadian programmer. Having been built on the concept of trust and security, the Ethereum platform is designed to be decentralized with no reliance on a central authority controlling it.

Ethereum serves as an open-source blockchain-based platform for deploying computer programs called Smart Contracts without the need to leverage a central authority. Over time, Ethereum has become one of the most popular blockchain platforms for decentralized applications (dApp) development. It is Ethereum’s native cryptocurrency, Ether (ETH), that facilitates transactions on the platform by charging the dApps for renting its processing power.

Ethereum allows developers to build dApps that can execute complex transactions without the need for intermediaries. Smart contracts are written in Solidity, a programming language designed specifically for the Ethereum platform.

Smart contracts work by executing predefined code when certain conditions are met. For example, a smart contract could be programmed to automatically transfer funds to a seller once a buyer confirms receipt of goods. This eliminates the need for a third-party intermediary, such as a bank or a lawyer, to execute the transaction. Smart contracts are transparent, meaning that all parties involved can see the terms of the contract and the execution of the transaction.

They also have a wide range of real-life applications. One example is in the field of supply chain management. Smart contracts can be used to track the movement of goods from the manufacturer to the retailer, ensuring that they are not tampered with or counterfeited. Another example is in the field of insurance. Smart contracts can be used to automatically pay out claims based on predefined conditions, such as the occurrence of a natural disaster.

What is the Shanghai Update?

If we cast our minds back to The Merge, which occurred back in September 2022, we saw Ethereum transition from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus mechanism. PoS is viewed as more favourably from an energy-efficiency perspective, and therefore seen as more environmentally friendly than PoW. This is due to the fact PoS requires less electricity from a computing power perspective to validate transactions and create new blocks.

As a result of The Merge, all staked ETH was locked. This mean that stakers could not withdraw their original stake or any accumulated rewards until the Shanghai Update.

Launched April 12th, 2023, the Shanghai update, also referred to as the Ethereum 2.0 update, was completed and unlocked the staked ETH. This upgrade to the Ethereum network aims to improve scalability, security, and sustainability. Additionally, the Shanghai update also introduces sharding, which improves the scalability of the network by allowing it to simultaneously process more transactions.


In conclusion, Ethereum is a decentralized platform that enables developers to build dApps using smart contracts. The Shanghai update is a major upgrade to the Ethereum network to enhance scalability, security, and sustainability.

Smart contracts play a key role in the trust and security of the Ethereum platform by eliminating the need for intermediaries and increasing transparency whilst reducing risk of fraud or corruption. Equally, smart contracts have a wide range of real-life applications, from supply chain management to insurance, and are set to play an increasingly important role in the future of decentralized technology.

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