Ethereum Pectra upgrade: What it means for ETH holders

Ethereum’s Prague/Electra (Pectra) upgrade will introduce significant changes to the network, notably around account abstraction, validator operations and overall network performance. 

To enhance its functionality and progress, the Ethereum network periodically undergoes upgrades called hard forks. These upgrades require network participants to adopt a new version of the blockchain with updated rules. For example, the Shanghai-Capella upgrade in April 2023 allowed validators to withdraw their staked Ethereum from the Beacon Chain.

This marks the third major upgrade to Ethereum since September 2022, when the Ethereum Merge was activated.

The Merge brought about the long-awaited transition from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism.

Among other things, this would set the scene for a more scalable and energy-efficient Ethereum.

The Shanghai-Capella (Shapella) upgrade enabled staked ETH withdrawals from the Beacon Chain—previously, it could only be deposited in anticipation of the upgrade.

The Cancun-Deneb (Dencun) upgrade enabled proto-danksharding, which introduced “blobs”: a means of temporarily storing data which created massive fee savings for Layer 2 rollups.

As touched on above, Pectra brings with it a number of enhancements to how Ethereum works at both the execution layer (where smart contracts/dApps live) and the consensus layer (where the PoS mechanism operates). 

It introduced 11 Ethereum Improvement Proposals (EIPs) which not only improve user and developer experience, but also make the network more resilient to attacks:

• EIP-2537: Precompile for BLS12-381 curve operations.
• EIP-2935: Serve historical block hashes from state.
• EIP-6110: Supply validator deposits on chain.
• EIP-7002: Execution layer triggerable withdrawals.
• EIP-7251: Increase the MAX_EFFECTIVE_BALANCE.
• EIP-7549: Move committee index outside Attestation.
• EIP-7623: Increase calldata cost.
• EIP-7685: General purpose execution layer requests.
• EIP-7691: Blob throughput increase.
• EIP-7702: Set Code for EOAs.
• EIP-7840: Add blob schedule to EL config files.

Let’s quickly dive into some of the key EIPs.

Enhances the process of verifying Ethereum's historical data by storing the hashes of recent blocks. This is a move towards stateless execution, where nodes won’t need to store the entire blockchain's history, further improving network efficiency.

Allows validators greater flexibility in managing their staked ETH. Thanks to EIP-7002, they can initiate withdrawals or partial withdrawals directly through their execution layer credentials, opening up possibilities for new staking strategies and improved liquidity.

Raises the maximum balance for validators from 32 ETH to 2048 ETH. This helps larger node operators consolidate their stake and reduces the overall number of validators needed. This simplification can enhance network efficiency and lower the computational burden on individual nodes.

Enables crypto wallets (such as MetaMask or hardware wallets) to temporarily act as smart contracts during transactions—effectively allowing them to run custom code in for a single transaction. In practice, this could mean more secure transactions (e.g., social recovery or multi-sig) without needing a smart contract wallet.

The Pectra upgrade’s improvements of Ethereum across various dimensions will impact users, developers, and the overall network.

Pectra's emphasis on account abstraction promises to simplify the user experience, making Ethereum more accessible and intuitive.

With the potential for smart contract wallets to become mainstream, users will have access to seamless gas abstraction (paying fees with any token), batched transactions, and customizable security options. These enhancements reduce friction and make interacting with Ethereum's decentralized applications (dApps) smoother.

Pectra introduces tools that streamline the development and deployment of smart contracts.

As touched on, the aforementioned EIP-7702 enhances developer workflows by allowing externally owned accounts (EOAs) to temporarily act as smart contract wallets during a transaction, enabling flexible signature schemes and simpler integration with account abstraction systems.

While not directly addressing Ethereum's scaling challenges, Pectra sets the stage for future scalability upgrades. By optimizing the network's infrastructure and improving transaction efficiency, it creates a foundation for more scalable solutions like Verkle trees to be implemented more effectively.

Pectra prioritizes security by eliminating potential attack vectors and improving the verification and validation processes within the network. This multi-pronged approach aims to make Ethereum more resilient against potential threats and vulnerabilities.

The Pectra upgrade helps Ethereum holders in several ways:

• Improved user experience: Pectra aims to make Ethereum more accessible and user-friendly for everyday users.
• Enhanced security: The improvements are expected to strengthen the overall security of the network, protecting users' assets and data.
• Increased efficiency: Optimizations to the EVM and other components will enhance the efficiency of transactions and smart contract execution, potentially leading to lower gas fees.
• Future-proofing: Pectra lays the groundwork for future scalability upgrades which could help increase Ethereum's transaction throughput and reduce costs in the long run.

Yes, Pectra impacts Ethereum staking, chiefly due to EIP-7251, which raises the amount that a validator can stake—meaning that big players no longer need to run multiple validator nodes. 

This could lead to greater consolidation among validators, and potentially impact staking rewards.

Increased validator stake limit: EIP-7251 raises the maximum effective balance for validators, allowing them to control more stake without needing to run multiple validators. This could lead to consolidation among validators and potentially impact staking rewards.

As a regular user, no—unless otherwise instructed by your wallet or exchange.

Now that you understand how the impact of Pectra on the Ethereum ecosystem, why not take advantage of this important milestone by exploring Ether (ETH) on Kraken—one of the most trusted cryptocurrency trading platforms.

Join the future of finance today with Kraken and be part of the Ethereum revolution!