Ethereum’s upcoming Pectra (aka Prague-Electra) upgrade, slated for late 2024 or early 2025, aims to enhance the Ethereum ecosystem with several key improvements. It is a hard fork that introduces various Ethereum Improvement Proposals (EIPs), notably EIP-3074 (account abstraction opcodes), EIP-7251 (max effective balance), and several other EIPs. With the Prague upgrade tackling the execution layer and the Electra upgrade targeting the consensus layer, both are expected to make transactions safer, increase the network's stability, and improve the overall user experience. The pectra-devnet-0 is planned for launch in mid May 2024.

The Pectra upgrade also includes increasing the maximum effective balance for validators, aiming to mitigate network instability risks associated with high stakes. Specifically, the Pectra upgrade will raise the maximum stake for validators to 2,048 ETH, easing operational constraints and improving rewards accrual. The upgrade is a part of Ethereum's ongoing efforts to enhance scalability, efficiency, and functionality, helping to secure its role as a reliable foundational protocol for the blockchain ecosystem. More details on what this upgrade will bring are below.

Improved Wallet Functionality and User Experience

One of the major highlights of Pectra is the inclusion of Ethereum Improvement Proposal (EIP) 3074, which will enable smart contract-like functionality for regular cryptocurrency wallets, such as those created using MetaMask.

This will allow several features:

• Transaction Bundling: Users will be able to bundle multiple transactions and sign them all at once, improving efficiency and potentially reducing transaction costs.
• Sponsored Transactions: Wallets will be able to delegate funds to be used by another entity, enabling users to interact with dApps and leverage Ethereum's ecosystem without physically holding Ether.
• Social Recovery: EIP-3074 moves towards enabling asset recovery through "social recovery" in case private keys are lost, enhancing security and user-friendliness.
• Delegated Security: Users can leverage advanced security models, such as multi-signature setups, by authorizing a trusted invoker to oversee transactions.
• ERC-20 Gas Payments: Gas fees could potentially be paid using ERC-20 tokens instead of  Ether.

Gas Efficiency Improvements

One of the EIPs aimed at optimizing gas efficiency is EIP-4758. This proposal introduces changes to the Ethereum Virtual Machine (EVM) that reduce the gas costs associated with certain operations, leading to lower transaction fees. Specifically, EIP-4758:

• Updates the pricing for the SLOAD, SSTORE, and CODECOPY opcodes, making them cheaper to execute.
• Introduces a new "warm" storage category with lower gas costs compared to "cold" storage, incentivizing contract developers to reuse existing storage slots.
• Makes precompiled contracts like the elliptic curve operations and Blake2 compression functions cheaper to call from smart contracts.

These optimizations can lead to significant gas savings, especially for contracts that rely heavily on storage operations or other intensive cryptographic functions.

Validator Withdrawals from Smart Contracts:

Another anticipated improvement in Pectra is enabling validator withdrawals directly from smart contracts (EIP-4865). Currently, validators can only withdraw their staked ETH and rewards to an Externally Owned Account (EOA).

EIP-4865 proposes allowing withdrawals to smart contract addresses, enabling more advanced use cases:

• Set smart contracts as withdrawal targets, enabling automated distribution of rewards or implementing complex withdrawal logic.
• Distribute funds to multiple parties based on predefined rules or governance mechanisms, acting as a custodian.
• Build decentralized staking services or liquid staking protocols that automatically compound and reinvest rewards.
• Implement advanced security models like multi-signature wallets or social recovery for validator withdrawals.

By allowing withdrawals to smart contracts, Pectra aims to unlock new possibilities for building innovative staking applications and services on Ethereum.

Increased Staking Limit for Validators

Another significant change proposed in Pectra is the increase in the staking limit for validators from the current 32 ETH to 2,048 ETH, a 64-fold increase (EIP 7251). “Don’t wait: consolidate” is the name of the game here. Emmanuel Awosika provides a detailed rationale for the EIP in this blog post.

This adjustment ultimately aims to:

• Simplify Staking Operations: Large staking operations like Coinbase, Validation Cloud, or Lido will be able to consolidate their existing validators, avoiding the need to constantly create new ones for every additional 32 ETH staked. This helps to improve operational efficiency on behalf of staking providers.
• Reduce Operational Load: With over 1 million validators currently operating on Ethereum, increasing the staking limit can help slow the rate of new validators entering the system, mitigating excessive latency concerns. Less computational resources are spent on processing consensus messages from the same (logical) entities, which means less load on the p2p layer and easier synchronization for nodes.

With Ethereum now at over 1 million validators, this upgrade will allow significant consolidation among the largest operators today.

What’s Next

While this upgrade is not as massive as Dencun or The Merge, small wins are still more than welcome by the ecosystem. While this upgrade gets built, developers are simultaneously working on more substantial upgrades, such as the introduction of the highly anticipated "verkle trees" – a new data structure system designed to help Ethereum nodes store large amounts of data more efficiently. This data structure represents a bandwidth-efficient alternative to Merkle Trees.

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