Although 2022 has been a terrible year for crypto, Ethereum has brought hope to the space, and one of the biggest surprises the network presented us in 2022 is the successful implementation of the Merge. Ethereum stated it would switch to PoS in its whitepaper published back in 2014, but no one thought that it’d take eight long years to implement that transition. Eventually, the Merge was completed on September 15 this year, and Ethereum also shifted from PoW to PoS, laying the foundation for its future scaling.
Though Ethereum pulled off the transition, the network still faces several problems. For instance, the Merge hasn’t reduced the Gas, meaning that users still have to pay expensive fees. Additionally, with or without the Merge, users can only deposit ETH and cannot withdraw their ETH holding. These are all concerns that Ethereum must tackle in the future. Today, let’s take a glimpse into that future and check out the changes that Ethereum might go through in 2023 as it grows and evolves.
Expectation 1: Shanghai Upgrade
The last Ethereum AllCoreDevs in 2022 was held on December 8. At the meeting, Ethereum core developers agreed on the scope of the next network upgrade, i.e., the Shanghai Upgrade. As the first major Ethereum upgrade since the Merge, the Upgrade will be a bellwether of investment behaviors in the coming months.
The content of the Shanghai Upgrade differs from that previously rumored. Primarily, EIP-4844 is postponed, and EIP-1153 and EIP-2537 are not included in the Upgrade. At the moment, nine EIPs will be part of the Shanghai Upgrade for sure, involving staking withdrawal, the EVM Object Format (EOF), and some optimizations. Here, we will focus on staking withdrawal, which is the top concern of most users.
Staking withdrawal, which is at the center of the Shanghai Upgrade, corresponds to EIP-4895, which will, based on the consensus information on the Beacon Chain, introduce a system-level “operation” to support validator withdrawals that are “pushed” from the Beacon Chain to the EVM. With EIP-4895, validators can make partial or full withdrawals (no difference in priority), but for security concerns, there will be a cap on the withdrawal amount. In the coming months, validators will be able to try out the whole staking withdrawal process on several testnets, and you can keep an eye on them if you’re interested.
According to the latest information provided by the core developers, the Shanghai Upgrade is likely to be completed in March 2023, the first test that Ethereum will need to pass next year.
Expectation 2: Private transfers on the mainnet
In reality, no one is willing to disclose their assets or transfer records, but with the open, transparent distributed ledger provided by blockchains, we can easily monitor every movement of an address. Meanwhile, many hackers in the blockchain space tend to exploit the information of users. Every day, hundreds of thousands of transactions take place on Ethereum, one of the largest crypto payment networks in the world, and for some Ethereum users, private transfers are urgently needed. Additionally, Ethereum developer Tim Beiko also suggested that he hopes Ethereum L1 could come with privacy functions.
Though it is easy from a technical perspective, the difficulty lies in policies. Previously, the Tornado Cash crypto mixing protocol was sanctioned by OFAC. At the same time, the lack of regulation revealed by the fall of FTX will encourage national regulators to improve their crypto oversight. Such policy factors will be the biggest obstacle for the Ethereum mainnet to pursue privacy.
That being said, in an interview with Bankless in October 2022, Vitalik Buterin mentioned that Ethereum developers intend to achieve four major goals in 2023, namely: scalability, privacy, base-layer censorship resistance, and account abstraction, and we look forward to privacy features on Ethereum.
Expectation 3: Ethereum Layer 3
Layer 3 (L3) can be regarded as another layer built on top of L2. In the early days, there were two ways to scale a public chain: 1) L1 scaling: scaling conducted on the existing chain; 2) L2 scaling: building another layer on top of the chain so that some transactions would be hashed and executed on that extra layer.
Despite the market recognition, L2 solutions are subject to apparent flaws, including limited composability, decentralized liquidity, and the time required for transferring cryptos between different L2s. Meanwhile, for future projects that may require highly customizable application scenarios, it would be best that a new independent layer will be there to provide the relevant services, which is the job of L3.
At present, there hasn’t been any single product with phenomenal influence, but as L3 solutions mature, the space might be able to offer hit apps like TikTok.
In a nutshell, for Ethereum, 2023 will present both challenges and opportunities.
