Introduction

Recently, 21Shares, a prominent company in the issuance of ETPs (Exchange-Traded Products) linked to cryptocurrencies, delved into the impact of the forthcoming Pectra update on the Ethereum blockchain. Scheduled for Q4 2024/Q1 2025, Pectra promises to enhance Ethereum in multiple ways, making it more efficient and flexible. This update is hotly anticipated, so let’s dive in and see what all the fuss is about!

21Shares: The Largest ETP Manager Studies the Improvements that will be Made to the Ethereum Blockchain Thanks to Pectra

Adrian Fritz, Head of Research at 21Shares, is all eyes and ears on the upcoming Pectra update. According to him, this update is set to revolutionize the Ethereum blockchain. Pectra will be a blend of two advancements: Electra and Prague, which target changing the consensus level and execution level of the network, respectively. Think of it as Ethereum getting a double shot of espresso to supercharge its performance!

Slated for launch between late 2024 and early 2025, this update has successfully passed the testnet phase, making developers optimistic about its real-world application. Among the six Ethereum Improvement Proposals (EIPs) that Pectra will include, here are a few rock stars:

• EIP-6110: Provides validator deposits on the chain
• EIP-7002: Adds execution-level activatable outputs
• EIP-7549: Moves the committee index outside the attestation
• EIP-2537: Precompilation for operations on the BLS12-381 curve
• EIP-3074: Introduces AUTH and AUTHCALL opcodes
• EIP-7251: Increases MAX_EFFECTIVE_BALANCE

According to 21Shares, these updates aim to bolster network stability and improve user experiences. For example, one of the key focuses is to increase the stake quota required for consensus participation from 32 ETH to 2,048 ETH. This would eliminate the need for large validators to scatter their Ethereum stakes across multiple wallets, simplifying the staking process.

Vitalik’s EIP-7702 Could Replace EIP-3074

Debates Among Ethereum Community Experts Begin

Until recently, it was a done deal that EIP-3047 would be included in the Pectra hard fork. Enter Vitalik Buterin, like a plot twist in your favorite TV show, proposing EIP-7702 as a replacement. This new proposal has set off heated debates among Ethereum community experts, akin to the classic "Pineapple on pizza" argument but on a much nerdier, blockchain-focused scale.

EIP-7702 aims to cover similar benefits to those of EIP-3074 but with a different approach, enhancing user wallets without the need for new operating codes. This clever tweak by Vitalik might simplify interactions with Ethereum while keeping the network’s complexity in check. Phew, thank goodness for small favors, right?

While EIP-3074 introduces new capabilities for EOA (Externally Owned Accounts) to authorize smart contracts and manage transactions, EIP-7702 tweaks this mechanism by allowing wallets to temporarily morph into smart contract signing accounts during transactions. Then, poof, they revert to their original state afterward. The advantage? It’s more aligned with the Account Abstraction (AA) roadmap and the ERC-4337 standard, making the Ethereum network less likely to sprout gray hairs from stress.

This subtle tweak by Vitalik Buterin could be a game-changer. It addresses some security risks associated with EIP-3047, which might allow unauthorized actions with a single signature – kind of like leaving your house unlocked and hoping no one notices. Vitalik’s EIP-7702 ensures that this won't be a recurring nightmare for Ethereum users.

As the Ethereum community toggles back and forth in these debates, 21Shares is leaning towards Vitalik's proposal. Adrian Fritz supports EIP-7702, stating, “At 21Shares, we look favorably upon EIP 7702. It could onboard millions more users by providing an intuitive interface akin to what people are accustomed to on Web2 applications. After all, ease of use isn't just a luxury; it’s a necessity for mass adoption!”

The hope for the Ethereum blockchain is that these improvement proposals get executed smoothly and on time, bringing about major upgrades on par with the Dencun update, which dramatically reduced transaction fees on layer-2 solutions. So, strap in, Ethereum enthusiasts; the future looks bright and streamlined!

Technical details of Pectra

Pectra is the newest attention-grabbing update for the Ethereum blockchain, and boy, does it come with a bag full of tricks! Scheduled between the end of 2024 and early 2025, Pectra promises to enhance Ethereum's performance and flexibility dramatically. The Ethereum team, in collaboration with Nethermind’s successful testnet implementation, is all set to roll out Pectra in Q4 2024/Q1 2025. The update is set to include six Ethereum Improvement Proposals (EIPs), each designed to tackle specific challenges within the network, ensuring Ethereum remains at the top of its game in the ever-evolving world of cryptos.

EIP-6110: Provide validator deposits on the chain

Let’s dive straight into EIP-6110 – no scuba gear required! This proposal is all about making life easier for validators by enabling on-chain deposits. Think of it like valet parking for your ether. Validators no longer need to dance through hoops to make deposits. With EIP-6110, all those validator deposit activities are streamlined right on the chain. It’s expected to boost efficiency and enhance the security of transactions, making the Ethereum network more robust and trustworthy. The smoother this process is, the more validators we attract, enhancing Ethereum's overall stability and decentralization.

EIP-7002: Execution-level activatable outputs

Next, we have EIP-7002, which sounds like a James Bond gadget, doesn't it? But it’s equally impressive! This proposal aims at introducing execution-level activatable outputs. In simpler terms, it means making transaction management on the network extra crispy. By providing customizable outputs, it facilitates more flexible and efficient transaction processing. With Ethereum pushing for increased adaptability, EIP-7002 helps tackle complex transaction scenarios, reducing the gas fees and ensuring that high-volume transactions execute without a hiccup. What’s more, it’s like having your cake and eating it too.

EIP-7549: Moving the committee index outside the attestation

Hold onto your seats because EIP-7549 is here to make committee dealings less bureaucratic. It's all about relocating the committee index out of the attestation, which basically means fewer bottlenecks and more streamlined operations. For users, this translates to faster transaction confirmation times and reduced network congestion. Validators and users alike will appreciate this subtle yet impactful change, as it aims to optimize the overall consensus process. In layman's terms, it’s like clearing up traffic on a busy highway, making for smoother rides and happier drivers!

EIP-2537: Precompilation for operations on the BLS12-381 curve

We’re not talking about the latest rollercoaster, folks! EIP-2537 is about optimizing operations on the BLS12-381 curve, critical for cryptographic computations in Ethereum. This precompilation means more efficient handling of these complex mathematical feats, which, let’s be honest, unless you’re a cryptography nerd, sounds about as thrilling as watching paint dry. But it’s crucial for speeding up processes like zero-knowledge proofs (ZKPs), which enhance privacy and scalability. So, while the technical jargon might make your head spin, EIP-2537 adds a vital boost to Ethereum’s overall performance.

EIP-3074: AUTH and AUTHCALL opcodes

Let’s jazz things up with EIP-3074! This proposal aims to introduce AUTH and AUTHCALL opcodes. These opcodes pave the way for “sponsored transactions,” meaning you can make transactions even if you’re fresh out of ETH to cover the gas fees. Imagine going to the grocery store and getting those apples for free because someone else covered the tab. It could also enable social recovery solutions for inactive wallets. For Ethereum users, it’s a game-changer in resource management and usability, making crypto life simpler, cheaper, and, let’s face it, less of a pain when ETH prices spike.

EIP-7251: Increase MAX_EFFECTIVE_BALANCE

Finally, we have EIP-7251, which aims to crank up the MAX_EFFECTIVE_BALANCE. For those not in the know, this means allowing larger stake quotas, ensuring big-shot validators don’t have to scatter their ETH across numerous wallets. Picture it as consolidating all your piggy banks into a singular, glorious vault. This proposal aims to avoid capital fragmentation, making the consensus process more robust and streamlined. It’s a behind-the-scenes upgrade, but one that promises to make the Ethereum network more cohesive and efficient.

Potential impact on Ethereum network

Pectra’s array of updates—when combined—promises a slew of improvements to the Ethereum network. By addressing issues like validator deposit processes, execution efficiency, committee handling, cryptographic operations, and resource management, Pectra is poised to ensure Ethereum remains the undisputed king of blockchain networks. These upgrades collectively aim to improve network stability, enhance user experience, and aid in reducing transaction costs. Higher transaction efficiency, streamlined validator operations, and enhanced wallet functionalities paint a promising picture for Ethereum's future, ensuring it can scale and adapt to the rapidly growing cryptographic ecosystem.

Community reactions and future debates

The Ethereum community is abuzz with discussions, debates, and a fair share of meme wars surrounding these proposals. Vitalik Buterin’s recent EIP-7702 has particularly stirred the pot, with some experts favoring it over EIP-3074 for its streamlined approach to transforming EOA wallets. While the debates are heated, with opinions flying faster than ETH transactions, the overall sentiment is one of excitement and cautious optimism. As the community weighs in on these changes, the discussion revolves around balancing innovation with security, ensuring that these updates do not introduce vulnerabilities even as they enhance functionality.

21Shares: the largest ETP manager studies the improvements that will be made to the Ethereum blockchain thanks to Pectra

According to Adrian Fritz, Head of Research at the largest crypto ETP issuer 21Shares, the impact of the upcoming Pectra update on the Ethereum blockchain could be crucial for the future cryptographic ecosystem. Pectra, arriving after the recent implementation of Dencun, will be a combination of the two upgrades Electra and Prague, respectively aimed at changing the consensus level and the execution level of the network. According to the schedule set by the Ethereum Foundation and its team of developers, the update and the next hard fork of the network will arrive between the end of 2024 and the beginning of 2025. The Nethermind client has already revealed to the public that the implementation on the testnet was successful and now the next appointment is with pectra-devnet-0.

Pectra represents a response to the evolution of the environment surrounding the Ethereum blockchain, with numerous improvements that will be made thanks to the six EIP (Ethereum Improvement Proposals) that will be included within it. These include EIP-6110 for validator deposits on the chain, EIP-7002 for execution-level activatable outputs, and EIP-7549 for moving the committee index outside the attestation. Additionally, EIP-2537 introduces precompilation for operations on the BLS12-381 curve, EIP-3074 adds AUTH and AUTHCALL opcodes, and EIP-7251 increases MAX_EFFECTIVE_BALANCE.

As the famous ETP issuer 21Shares analyzes, the Pectra update as a whole will help strengthen network stability and enhance user experience. One of the main focuses of the update is aimed at increasing the stake quota to participate in consensus from 32 ETH to 2,048 ETH. This move aims to avoid the fragmentation of capital by large validators who currently have to use a multitude of different wallets to manage the stake on the Beacon chain. It is worth mentioning that EIP-3074 aims to bring significant improvements to the management of resources in a wallet, including adding smart contract functionalities to EOA accounts. This simplifies the process by introducing "sponsored transactions" that allow the use of the Ethereum network even without ETH to pay the gas fees.

EIP-3074 also wants to introduce the possibility of performing multiple actions in a single transaction, adding a social recovery solution for all inactive wallets after one year. Pectra will also solve the problem of "empty accounts" with zero assets or funds invested by excluding them from the network, leading to a general lightening of the system and faster transaction processing. This is how the network space will be freed up, making the system simpler and more efficient.

Vitalik’s EIP-7702 could replace EIP-3047: debates among Ethereum community experts begin

Until a few days ago, it was clear that EIP-3047 would be included in the Pectra hard fork, but that certainty has been shaken by Vitalik Buterin's proposal of a new EIP-7702, which might replace EIP-3047 by addressing some of its critical issues. According to 21Shares, this proposal, similar to EIP-3047, aims to transform users’ EOA portfolios into more sophisticated accounts, but with a streamlined approach. While EIP-3074 proposed by developers Ayush Bherwani and 0xDanki aims to allow EOA wallets to authorize smart contracts and perform transactions on their behalf, Vitalik's EIP-7702 permits the same wallets to temporarily become accounts authorized to sign smart contracts during a transaction, reverting back afterward.

This subtle difference offers very visible benefits, as it avoids introducing new operating codes (auth and authcall) and invoker contracts that could complicate the Ethereum network’s operations. Compared to EIP-3074, EIP-7702 turns out to be more flexible, although technically more complex to implement. It guarantees full compatibility with account abstraction and with the ERC-4337 standard. EIP-3047, on the other hand, entails risks associated with the authorization of smart contracts, adding the possibility of emptying a complete address with a single signature, a scenario similar to what happens on Solana.

At the moment, EIP-3047 is included in Pectra’s implementation program, but Vitalik’s intervention could see it replaced. The debates among the Ethereum community and industry experts are ongoing as they try to understand which is the best solution to adopt. As Adrian Fritz of 21Shares commented, 21Shares is in favor of Vitalik’s proposal as it expands the functionalities and potential of cryptographic wallets while maintaining security. "At 21Shares, we look favorably upon EIP 7702, which also reflects our thesis that cryptocurrencies will never be able to onboard millions more people without providing them with an intuitive interface that resembles the user-friendly experience they are familiar with on Web2 applications," he stated.

The wish for Ethereum blockchain is that these improvement proposals will be successfully implemented following the established timeline. It's hoped they will bring enhancements on the same level as what was done with Dencun, which significantly reduced network fees on the layer-2. The Pectra update, with its comprehensive changes, holds promise for driving Ethereum forward into a more efficient and user-friendly future.