Pectra - Ethereum's next major upgrade

As of today, Ethereum cannot handle the speed or complexity of modern-day finance. If global finance has to run on Ethereum, it needs to upgrade its functionality. And that is exactly what the Ethereum Foundation has been busy with. 

The ambitious upgrades of Merge, Shapella, and Dencun were successfully implemented. The next major upgrade on track to go live in early 2025 is Pectra (Prague + Electra).

Unlike Ethereum's previous hard forks focussed on one major functionality each, Pectra will implement a diverse range of EIPs (Ethereum Improvement Protocols) which will target everything from user experience to technical burdens on validators to network efficiency.

Improving User Experience

EIP3074 brings in several upgrades to improve functionality

• Private Keys- One of the most daunting things about blockchain is handling private keys and seed phrases to access a wallet. If one loses keys, one loses all of one’s funds. 

=> Pectra introduces a mechanism of social recovery in case one loses one’s private keys.

• Sponsored Transactions - Managing gas fees is another friction. Users are forced to hold balances in ETH and deal with the intimidating complications of gas fee calculations.

=> Pectra will make it possible for 3rd parties to pay gas fees removing the need for users to hold ETH or pay gas fees themselves.

• Bundling transactions- Currently, every sub-step of a transaction is treated as a separate transaction. For example, buying an NFT involves 2 steps (i) Initially allowing a marketplace to debit your funds, and (ii) Again at Checkout. Each step requires separate authorization and payment of gas. 

=> Pectra will make it possible to combine these and execute them using a single signature. Only one authorisation will be required irrespective of the number of steps. This also means that a DeFi trades involving multiple steps can be pre-authorized for execution with a single signature when certain conditions are met, obviating the need to constantly monitor markets and manually execute strategies.

• Account Abstraction - Ethereum has 2 types of wallets,

  • Externally Owned Accounts (EOAs) - These are normal wallets controlled by private keys. They can initiate transactions and execute basic transactions like sending and receiving funds

  • Smart Contract Accounts (SCAs) - These can execute complex logic but cannot initiate transactions. (As of now, Transactions from SCAs must be triggered by EOAs. Having 2 types of accounts is an unnecessary complication. )
    

=> Pectra will effectively enable EOA to also have the functionality of an SCA by temporarily transforming them into an SCA.

EIP3074 comes with some security risks. It assigns powers to a smart contract called the “Invoker Contract”. If there are bugs in this contract then there are risks of replay attacks or reentrancy attacks. EIP7702 introduced by Vitalik Buterin 22 minutes before the meeting to debate EIP3074 is seen as a sensible compromise that addresses the weakness in EIP3074. It also happens to be compatible with ERC4337.

Improving Validator Experience

EIP7251: Increase MAXEB (Maximum Effective Balance) 

Today, the minimum and maximum ETH one has to stake to spin up a validator node is 32. Each validator has to maintain synchronization with the network. With over 32 million ETH staked, Ethereum now has over 1 million validators, all of which are constantly passing messages to each other, overloading the communication layer of the network in the process.

=> Pectra will keep the minimum ETH for a validator node at 32 but raise the maximum to 2048. Therefore, instead of having to stake 32ETH multiple times and run multiple nodes, a validator can stake up to 2048ETH and run a single node. This should reduce the load on the communication layer and require validators to allocate fewer resources for staking.

EIP7002: Partial withdrawal of stake

Currently, a node can sign and broadcast a “voluntary exit” and submit to the consensus layer to withdraw the full stake. If they want to withdraw only the rewards and not the full stake, they can do so by only submitting withdrawal credentials. There is however no option of withdrawing a custom amount of ETH. This will become a major practical concern when MAXEB is increased to 2048ETH. If a node wants to reduce the size of its stake, it will have no option but to first fully exit and then re-stake the desired amount of ETH.

=> Pectra will enable greater flexibility in managing and withdrawing stake. It will be possible to process withdrawals on the execution layer and withdrawal of custom amounts will be allowed. New staking strategies will therefore be possible and liquidity for nodes will be enhanced.

EIP7594: PeerDAS (Peer Data Availability Sampling)

Dencun, the last hardfork of Ethereum introduced Blobs which enabled Rollups to post more data more efficiently. As the Rollup ecosystem matures, blob sizes increase and blob space gets used up, the data load on validator nodes will increase. Consequently the complexity of hardware and software run by validator nodes will increase. This is a risk to decentralization as only large and sophisticated nodes will be able to carry out validation duties.

=> PeerDAS will ensure that all blob data is available without requiring nodes to download all blob data. Therefore, it will ensure that the blob data attached to each block can increase without requiring an increase in node hardware resources.

Network Optimization

EIP7692: Is a Meta EIP comprising 11EIPs focussed on the Ethereum Virtual Machine (EVM) Object Format. The aim is to make contract deployment and execution easier, enhance usability, and enable Ethereum to handle more users and greater transaction volumes.

EIP2935: In a stateless blockchain, nodes can confirm transactions without having to maintain the entire state of the system. Ethereum aims to become stateless. As an intermediate step towards stateless execution, EIP2935 enables the saving of previous block hashes in storage slots removing the need for nodes to store them.

EIP7523: Empty Accounts needlessly use up space today. Empty Accounts will be removed to reduce state size

EIP5920: Pay Opcode - With this, it won't be necessary to activate the contract code of the recipient of funds.

Conclusion

Ethereum upgrades will be a continuous process. Some of the EIPs are preparing Ethereum for future upgrades in the roadmap. The next upgrade post Pectra is likely to focus on Verkle Trees which should make solo staking more viable. It will reduce proof sizes and the amount of data to be stored, allowing stateless nodes to run with nearly zero hard disk space and sync near instantly.