Ethereum Pectra Upgrade: EIPs, Release Date and How Will It Affect ETH Price?

Time flies in the Ethereum universe!

Just as we're still catching our breath from the Dencun Upgrade, Ethereum is gearing up for another important upgrade. This time, the Pectra upgrade will soon bring us a shinier version of Ethereum.

But what exactly will Ethereum Pectra Upgrade do?

Will the Pectra Upgrade affect the ETH price too?

Answering this would require a whole blog. Lucky for you, that’s exactly what we’ve got right here!

If a simple explanation of the Ethereum Pectra Upgrade and its effect on Ethereum price is what you are looking for, this blog is all you need.

A Little Context

Ethereum is undergoing a multi-stage strategic upgrade plan developed by its core developers. This plan, called the Ethereum Roadmap, addresses issues such as limited scalability, high gas fees, and centralization concerns associated with the Ethereum blockchain.

As part of this Ethereum Roadmap, the network introduced the Dencun upgrade, a fusion of the “Deneb'' and “Cancun” upgrades, in March 2024 to introduce several improvements. Now, Ethereum developers are working on another crucial launch, the Ethereum Pectra upgrade, to improve performance further.

The Ethereum Pectra Upgrade

The Ethereum Pectra Upgrade will be even more significant and power-packed than the Dencun upgrade. Ethereum enthusiasts can expect this upgrade to launch in the Q4 of 2024 or the Q1 of 2025.

The Pectra upgrade consists of two planned upgrades- Prague (for the execution layer) and Electra (for the consensus layer). By combining both, the Ethereum Pectra Upgrade will introduce multiple helpful improvements to Ethereum, making it more optimized, convenient and flexible than ever.

It will consist of 9 standard EIPs (Ethereum Improvement Proposals) and a meta-EIP comprising 11 more EIP components. An EIP is like bills presented in Ethereum’s parliaments that become the new law if it receives favour from most members.

EIPs of Ethereum Pectra Upgrade

EIP- 2537

EIP-2537 introduces a precompile (natively implemented smart contracts in Ethereum) for BLS12-381 curve operations to make Ethereum's BLS signature operations noticeably faster and cheaper. It also improves the performance of Ethereum validators and reduces gas costs.

Simple Explanation

Like most blockchains, Ethereum uses a key-based technique for encrypting data. This technique is called Elliptic curve cryptography (ECC). Currently, Ethereum uses the BN (Barreto-Naehrig) curve, which offers between 80 and 100 bits of security. While this level of security is sufficient, it still has scope for improvement.

EIP-2537 introduces Ethereum's new cryptographic signature scheme, the BLS12-381 elliptic curve. It can offer 120+ bits of security. Therefore, adding BLS12-381 will help Ethereum provide higher security at a reduced cost in DAO governance, roll-ups, cross-chain transfers, Zero-knowledge proofs (ZKPs) and more.

EIP- 2935

EIP-2935 consists of a code change that will benefit in the next updates when the Ethereum developers will introduce Verkles.

Simple Explanation

EIP-2935 discusses potential enhancements to the Ethereum Virtual Machine (EVM) related to block hashes and stateless clients. Stateless clients in Ethereum refer to those light clients that do not store the entire state but only access it as needed.

Currently, the EVM assumes that its clients have access to recent block hashes, which may not be sustainable as stateless client technology evolves. Therefore, EIP-2935 suggests including block hashes in the state, which can then be bundled with other data for stateless clients. This approach is already feasible with the Merkle Tree (MPT) and will become more efficient with the Verkle trees that Ethereum developers plan to implement. In other words, it's a significant code change that will prove helpful in future Ethereum updates.

Ethereum developers organize a bi-weekly meeting series to discuss and decide on the changes to the execution layer (EL). They call these calls All Core Developers Execution (ACDE) calls. On March 28, 2024, they gathered on ACDE #184, where the ballet introduced EIP-2935. The team had a “neutral to positive” attitude towards this EIP and shared that it had no objection to including it in the Prague upgrade. However, Erigon, the second most popular Ethereum execution client, was less confident about including EIP-2935. Over it, another famous Ethereum client, Beiko, recommended discussing other EIPs and circling back to EIP 2935 later in the call. At last, they decided to implement EIP-2935.

EIP- 6110

EIP-6110 restructures the Beacon chain’s validator deposit mechanism and fixes multiple other issues that currently affect the security and efficiency of Ethereum’s Proof-of-Stake consensus.

Simple Explanation

Ethereum has a one-way Eth1-Eth2 bridge that facilitates the transfer of ETH from the execution layer to the consensus layer. This bridge plays a crucial role in Ethereum’s beacon chain operations by serving as the entry point for anyone willing to participate in the network consensus. By creating a link between the execution and consensus layers, this bridge processes the collateral deposits from validators on Ethereum. However, the Eth1-Eth2 bridge uses a complex approach to manage these deposits, paving the way for problems like low efficiency, slow processing and bad user experience. It led to discussions on streamlining the process to simplify software design and improve user experience.

The EIP-6110 addresses this concern in the upcoming Ethereum Pectra upgrade. It discards the Eth1-Eth2 bridge and introduces a new way of transferring validator deposits to the Beacon Chain. This involves attaching the validator deposits to the Execution Layer block structure and shifting the responsibility of deposit approval and validation to the Execution Layer. It eliminates the need for deposit voting from the Consensys Layer, saving time and simplifying the process.

EIP-7002

EIP-7002 lets validators initiate partial or complete withdrawals via their Execution Layer (EL) withdrawal credentials.

Simple Explanation

As we know, Ethereum smoothly transitioned from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus via the famous Merge Upgrade to reduce the environmental impact and improve scalability. This transition changed the mining-based consensus of Ethereum to a staking-based one where anyone can become a validator node by staking 32 ETH on the Beacon Chain. The validators have two options: solo staking and delegated staking.

Solo staking does not require any middleman and lets you keep 100% of rewards received for validating. However, you have to manage multiple responsibilities and need technical expertise to run them. The other way is to go for delegated staking, where you become a validator by providing 32 ETH. But you delegate the responsibility of operating the validator node to a third party with whom you share a part of your staking reward.

Each validator in Ethereum has two keys: a withdrawal key and a validator key. The withdrawal key is a pair of public-private keys that they need when they partially or entirely withdraw your deposited ETH. However, validators must update their withdrawal keys first to enable the withdrawal, and delegators must pre-sign the exit messages of validators.

EIP-7002 fixes this problem in delegated staking by introducing a new voluntary exit operation, allowing validators to trigger withdrawals of their funds only with their withdrawal credentials. Doing so empowers the stakers to withdraw staked ETH without depending on the entity that holds the signing key.

EIP-7251

EIP-7251 is an important part of the Ethereum Pectra Upgrade. Also known as MaxEB, EIP-7251 increases the Maximum Effective Balance (MaxEB) for validators from 32 ETH to 2048 ETH to simplify the management of validators and reduce computational load.

Simple Explanation

In April 2024, Ethereum validators reached 1 million, with more than 32 million ETH staked. It builds up a high withdrawal load on the Ethereum network, limiting its scalability and increasing the operational cost,

EIP-7251 addresses this problem of a growing number of validators by increasing a validator’s maximum effective balance (MaxEB) from 32 ETH to 2048 ETH. However, it keeps the minimum effective balance unchanged at 32 ETH.

Currently, Ethereum has a maximum effective balance (MaxEB) of 32 ETH. This limit makes it tricky for large-scale staking entities that wish to stake more ETH to increase their validation rewards. They have to run multiple nodes by staking 32 ETH multiple times. With EIP-7251, they can stake up to 2048 ETH and validate from a single node. In other words, it will help them maintain larger balances and consolidate operations more effectively.

EIP-7251 will also lay the groundwork for future Ethereum upgrades, which include single-slot finality and other improvements, relying on a low validator set.

However, EIP-7251 also faces opposition for several reasons. Many Ethereum enthusiasts believe that it will weaken the Ethereum network's decentralization. By increasing the MaxEB, EIP-7251 will significantly reduce the number of Ethereum validator sets. This goes against the community principle of decentralization, which promotes more participants for better power distribution. Moreover, the increase in MaxEB can also raise potential risks of slashing events. Slashing is the feature where the network takes away staked ETH of validators and delegators to punish them for improper validation. Currently, when the MaxEB is 32 ETH, the network penalizes the validators with 1 ETH or 1/32 of the total staked ETH as the initial slashing penalty. Once the EIP-7251 increases this MaxEB to 2048 ETH, the slashing would cost the validator a loss of 64 ETH (1/32 * 2048 = 64).  However, the core development team has yet to finalize the new penalty mechanism.

EIP-7549

EIP-7549 shifts Ethereum's committee index field outside of the signed Attestation message to better aggregate equal consensus votes.

Simple Explanation

EIP-7549 is a code change that will impact only the Consensus Layer of Ethereum. This code change will make the aggregation of consensus votes more efficient by reducing the number of pairings necessary to run for verifying consensus rules.

EIP-7594

EIP-7594 of Ethereum Pectra Upgrade introduces simple PeerDAS (Peer Data Availability Sampling) to optimize Layer-2 solutions for better processing of transactions.

Simple Explanation

EIP-7594 introduces effective Data Availability Sampling in the Ethereum network. This technique allows nodes to verify data availability without downloading all the blockchain data. Doing so reduces the storage requirement for nodes, driving high throughput.

PeerDAS (Peer Data Availability Sampling) is a network protocol that facilitates the Beacon chain nodes to ensure that the blob data is available by downloading only a subset of data. It uses the already existing p2p components of the Ethereum network to bring additional DA scaling without increasing the workload on nodes. The node makes queries for samples from their peers and uses specific functions to determine which peer (s) to request from. After receiving the sample, the node will pass that to any node that does not already have this sample. This flow will help nodes perform their work with low storage requirements and bandwidth for blockchains and rollups.

EIP-7685

This EIP of Ethereum Pectra Upgrade provides a general-purpose framework for storing contract-triggered requests and exposes the consensus layer requests.

Simple Explanation

In simple words, EIP-7685 introduces a multi-purpose Execution Layer (EL) in Ethereum. It will differ from the current EL, which has limited and specific functions. After EIP-7685, the EL can handle various requests and tasks. The necessity behind additional EL-triggered actions lies in the rapid increase in smart contract-controlled actions on Ethereum.

EIP-7702

EIP-7702 is a compromise proposal between ERC-4337 and EIP-3074. It introduces account abstraction, which is a concept that allows smart contracts to act as Ethereum accounts for a more flexible and user-friendly experience.

Simple Explanation

Anyone wanting to interact with Ethereum must use externally owned accounts (EOAs) like crypto wallets. So far, this is the only method to start a transaction or run a Smart Contract on Ethereum. For instance, if you wish to buy an NFT, you will be required to first go to the marketplace to debit funds in your wallet and then pay the funds to buy an NFT at the final checkout. This approach limits the user experience, requiring them to keep an ETH balance to cover gas fees.

Account abstraction is a possible solution to this problem. It eliminates the need to manage traditional crypto wallets by allowing the creation of smart contract accounts to perform transactions. The Ethereum community has frequently debated the introduction of account abstraction through the implementation of ERC-4337, which is specifically designed for account abstraction functionality. EIP-3074 was the first proposal to achieve this objective. EIP-3074 allows EOAs to let a smart contract make transaction calls on behalf of the wallet. This ensures that both transactions get executed using a single signature. Additionally, the digital signature will also eliminate the need to manage your wallet and skip the tedious job of storing private keys saving efforts, time and gas fees. Even if the users lose their passwords and recovery phrases, they would still be able to recover their funds.

However, EIP-3074 comes with some major drawbacks. For instance, the introduction of new features that allow smart contracts to bridge with traditional EOA wallets can create new vulnerabilities. Additionally, it can also facilitate bad actors' misuse of loopholes, the theft of users’ funds, or the completion of illicit wallet transactions.

EIP-7702 addresses these issues. Interestingly, Vitalik Buterin (Ethereum founder) wrote it only 22 minutes before the Ethereum Foundation meeting on EIP-3074. EIP-7702 acts as an advanced proposal that compromises between ERC-4337 and EIP-3074. After its implementation, externally owned accounts (EOAs) can briefly operate as smart contract wallets when processing a transaction and then return back to their original state once the transaction completes. Since EIP-3074 can confuse users as to whether to permanently move to smart contract wallets or keep using their EOAs with EIP-3074, EIP-7702 solves this confusion by temporarily enabling EOA to set a smart contract code for the wallet during transactions.

Apart from these EIPs, the Ethereum Pectra upgrade will also implement 11 EOF EIPs as part of its meta-EIP-7692.

EOF stands for Ethereum Object Format. It is the new standard introduced as part of the Ethereum Pectra upgrade, aiming to enhance the creation and execution of Smart contracts. EOF also contains some improvements for the Ethereum Virtual Machine (EVM) to make it more efficient and capable of handling more transactions simultaneously.  The inclusion of EOF EIPs in the Ethereum Pectra upgrade will further enhance its overall performance. As the Ethereum network grows, the enhancements by the EOF EIPs to the EVM and smart contract structure will play a key role.

These EOF EIPs included in the meta-EIP-7692 are - EIP-663, EIP-3540, EIP-3670, EIP-4200, EIP-4750, EIP-5450, EIP-6206, EIP-7069, EIP-7480, EIP-7620, and EIP-7698.

You can learn more about these technically deep EOF EIPs here.

Now comes the key question: Will the Ethereum Pectra Upgrade affect the ETH price?

Let’s understand that.

Ethereum’s Pectra Upgrade Effect on Ethereum (ETH) Price

The upcoming Ethereum Pectra upgrade will substantially improve the Ethereum ecosystem, which could eventually lead to significant upward price movement for ETH. Despite recent setbacks and price drops, Ethereum seems ready for a strong comeback.

One of the key reasons for this anticipated price rise before the Ethereum Pectra Upgrade is the upcoming launch of the first Ethereum ETFs in the USA. This launch is expected to surge trading volume and demand for ETH, boosting its price. Several American funds have already submitted the necessary paperwork to introduce these ETFs. Once these ETFs become available for trading, it will become easier for investors to gain exposure to Ethereum, increasing ETH’s market liquidity and price. If this upward price swing gets accompanied by the Ethereum Pectra upgrade, the ETH price can propel even higher by the first quarter of 2025.

This is because the Ethereum Pectra upgrade will strengthen Ethereum’s existing utility and solidify its position as a leading layer-1 platform. Key updates of Ethereum Pectra Upgrade include increased validator stake limits, flexible staking withdrawals, and streamlined smart contract deployment, all contributing to enhanced network performance to handle traffic more effectively. This improved performance will likely attract more users and developers, increasing Ethereum’s dominance and boosting the ETH price. Thus, the Ethereum Pectra upgrade effects on ETH price can be huge as these enhancements come into play.

One of the major changes in the Ethereum Pectra upgrade’s EIP 7251 is a higher staking cap for validators from 32 ETH to 2,048 ETH. This 64-fold increase will benefit major staking services associated with Ethereum by allowing them to consolidate their validators, streamline operations, and reduce the need to create new validators for every additional 32 ETH staked. This efficiency gain could increase staking activity, further supporting the ETH price. It will also increase the amount of ETH being staked, thereby reducing its circulating supply, which can create upward pressure on its price. Therefore,  the effects of the Ethereum Pectra upgrade on ETH price could be particularly significant in this context.

In summary, the Ethereum Pectra upgrade is a significant step forward for Ethereum and its roadmap. While some of its impacts may not be immediately visible, the upgrade will prepare Ethereum for future scalability upgrades. That’s why the long-term impact of the Ethereum Pectra upgrade on the ETH price will be positive. However, the exact effect of the Ethereum Pectra upgrade on ETH price will depend on how well it delivers on its promises and how the market perceives its success. The timing of this upgrade will also be crucial in determining its overall impact. If the launch date of the Ethereum Pectra upgrade aligns well with the launch of Ethereum spot ETFs and their high inflow, the impact will be strongly positive for ETH price. Moreover, since we are already in the post- Bitcoin halving part of the market cycle, the wider market sentiments can also work in favour of Ethereum, surging the ETH price even higher.

FAQs

What is the Ethereum Pectra Upgrade?

The Ethereum Pectra Upgrade is an upcoming crucial Ethereum upgrade scheduled for late 2024 or early 2025. It comprises two major upgrades: Prague (execution layer) and Electra (consensus layer). This upgrade aims to improve Ethereum’s performance, scalability, and security through a series of Ethereum Improvement Proposals (EIPs). Key changes include introducing flexible staking withdrawals and increasing the maximum effective balance for validators to 2,048 ETH. The Pectra Upgrade will make Ethereum more optimized, efficient, and user-friendly, solidifying its position as a leading blockchain platform.

What is the Launch Date of Ethereum Pectra Upgrade ?

The Ethereum Pectra Upgrade is expected to launch in late 2024 or early 2025.

What is EIP-3074?

EIP-3074 is a proposal aimed at introducing account abstraction in Ethereum. Currently, users must use Externally Owned Accounts (EOAs) like crypto wallets to interact with Ethereum, which limits user experience.  It allows EOAs to delegate transaction calls to smart contracts, enabling single-signature execution and eliminating the need for traditional wallet management. This simplifies transactions, saves gas fees, and enhances security by reducing reliance on private keys. However, EIP-3074 introduces potential vulnerabilities, which EIP-7702 aims to address. Therefore, EIP-7702 emerged as a better alternative to EIP-3074.

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