The Ethereum ecosystem is well-known for being quite the misfit in the world of cryptocurrencies, owing to its ability to drive innovation and come up with new upgrades constantly in order to benefit users and create a simpler and more scalable experience. In 2024, the price action has been on a general upward swing, with values climbing considerably compared to their levels from the last couple of years when prices either dropped or stagnated for a long time. As a result, investors have started looking into how to buy Ethereum again, so that they can get the best deals on the market. Apart from that, the arrival of new upgrades and the preparations for those to come have been keeping the community engaged and curious, as the exact effects of these movements are not yet fully understood.
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Pectra
The Pectra update is set to arrive on the blockchain somewhere between late 2024 and early 2025, with the exact date believed to be announced at a later time. But what will it bring to the Ethereum ecosystem that it doesn’t already have? Well, you’ll be glad to hear that the world of ETH is focused on continuous improvement and growth and that Pectra’s purpose is also to bring more functionality to the space as a whole in order to improve user experience.
The Ethereum Improvement Proposal 3074 was approved for inclusion as part of the next update, and it will allow digital wallets to operate similarly to smart contracts. A standard function refers to the externally owned accounts, commonly referred to as EOAs, which will receive added smart abilities in the aftermath of the upgrade. Some of the functions that are expected to become part of the process are transaction bundling and sponsored transactions. The former refers to the fact that users will only have to sign once, while the latter means that a wallet can delegate funds that can be used by another address.
The risks
The crypto’s space fluctuations are not a secret for anyone, as they’ve been part of the environment since its earliest days. Apart from that, there are also risks associated with having hackers target your accounts or forgetting passwords, both events that are pretty likely to result in the permanent loss of your digital funds. Although there are many ways to keep your funds safe, many investors still fall prey to scams and other similar events that cause them to lose control of their wallets. Since the responsibility towards your money lies solely on your own shoulders, as there’s no centralized authority figure to rely on, you must be extra careful to protect your cryptocurrency.
Any time a new update arrives on the market, the investors wonder if it will come with some additional risks as well. Should the investors be concerned about Pectra? An anonymous developer said that one possible downside of the EIP is that all it takes is one flawed signature in order to drain a wallet of all of its assets, including crypto, non-fungible tokens and even the positions they hold in decentralized finance. However, some investors were quick to point out that all this means is that traders must be a little careful when operating within the ecosystem and that capital loss wasn’t unheard of prior to this upgrade.
The advantages
It wouldn’t be fair to discuss only the possible risks associated with the upgrade without mentioning the very real and certain benefits. Software engineers agree that the most prominent and valuable advantage is the EIP’s ability to foster sponsored transactions that will permit users to store assets in wallets that don’t necessarily contain any Ether coins or tokens. The functionality also means that they can sponsor gas from a contract that controls the wallet.
However, there’s another, more exciting function that comes with EIP-3074, the social recovery feature, which will negate the necessity of a 12 or 24-word seed phrase, the master key that allows you to have complete control over your digital assets and holdings. The Pectra hard fork could make lost keys a concern of the past, but it requires users to transfer all their assets to an invoker contact first. From then on, the feature will perform all transactions for the user. This process occurs with the help of a digital signature that allows the system to operate on your behalf.
AUTH and AUTHCALL
The transformation of the wallets into smart contracts will happen through the means of two new operating instructions, the AUTH and AUTHCALL. The first will be in charge of the verification of actions and signatures, while the second uses the originator’s address as the caller in order to contact the target contracts. In this case too, some developers have addressed the possibility that the funds could be drained as the result of a few malicious invoker contracts. The crypto space is, unfortunately, no stranger to such attacks, as the anonymity the blockchain provides for its users can be exploited for personal gain.
Some investors have echoed these concerns, adding that there is a way to mediate the risks by making sure a few audited and verified invoker contracts become available right after the Pectra update. This step is crucial considering the fact that estimates show that billions of dollars were lost on the crypto market over the years as a result of hacker attacks, as well as the loss of private keys. EIP-3074 also means that the users don’t need to have any Ether coins in their wallets in order to send transactions. That is because the one operating the invoker contracts can just pay the amount upfront.
Such a step could provide additional incentives for retail adoption and make the marketplace more efficient by allowing the completion of several actions with one simple transaction. At the moment, if you want to swap tokens, you need to first approve an exchange protocol in order to use the tokens before running the actual swap, a process that can appear too slow for the fast-paced cryptocurrency market. The upgrade would put everything in a single transaction, eliminating the need for several steps.
Final Thoughts
The crypto market continues to change and evolve, and the Ethereum environment remains at the forefront of innovation. If you are an investor as well, it would be helpful to remember that you need to protect your assets first and foremost and that this will require a consistent strategy that is focused on revenue. This way, you avoid the risks that come with making impulsive decisions.