When and how Ethereum reduces fees and becomes faster

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The Shanghai Ethereum upgrade, which is the next major upgrade after the Merger, is scheduled to be completed in the second half of 2023.

This is a milestone for the network as it will bring significant benefits. First of all it will allow ETH holders, who have been staking for years, to systematically withdraw it and thus make Ethereum more scalable and faster.

Reduction of fees

In addition to improving scalability, the upgrade will also include some minor Ethereum enhancements, including EIP-3651, EIP-3855 and EIP-3860. Among all the upcoming improvement proposals, EIP-3651, called WARM Coinbase, will reduce network fees for some of the key participants, called manufacturers.

“Coinbase” is the name of the software that manufacturers use to receive new tokens on the network. Each new transaction on the platform must interact with the Coinbase software multiple times. The first interaction costs more as the software has to “warm up” and then the fees decrease as the interactions increase. However, with the introduction of EIP-3651, the Coinbase software will remain “warm” at first, thus requiring a lower fee charge to access it.

The block builders

As the name suggests, the builders are responsible for packaging Ethereum transactions into blocks, thus called block builders. These transactions are then forwarded to the validators, who put them in the correct order on the blockchain.

These builders are paid by traders to arrange the transactions into a block in a specific order, meaning that traders pay higher fees to have their transactions validated earlier. Currently, Flashbots is the largest builder in the Ethereum ecosystem, accounting for 80% of relayed blocks.

The big difference for traders

While validators using builders will benefit the most from the upgrade, traders using builders to execute their trades could also benefit, as they no longer have to pay transaction fees for failed trades. Currently, traders are also charged for failed trades because validators must confirm trades in the chain, whether they succeed or fail.

The testnet version for the Shanghai upgrade, dubbed Shandong, was released on October 18 and Ethereum developers will be working on various implementations until September 2023.

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