Decentralized Payments & Ethereum’s Pectra Upgrade

Ethereum’s upcoming Pectra upgrade represents a substantial step forward for Ethereum enhancing usability, security, and scalability. At Smarty Labs, we build a permissionless decentralized payment solution called Smarty Pay, and we closely monitor updates within the Ethereum ecosystem to identify new features, improvements, and opportunities that can enhance our payment solution.

So let's explore what is new in this upgrade and how it can affect the space of payments in crypto and stablecoins.

The upgrade was successfully launched on the Sepolia test network on March 5 at 7:29 am UTC. This follows a recent issue on the Holesky test network, where a validator misconfiguration caused a temporary chain split. This could slightly delay the rollout of the upgrade on the mainnet, though it's still premature to discuss any impacts on the schedule.

The Pectra upgrade will be rolled out in two phases. Phase 1, which we are discussing today, is scheduled for mid-March 2025. Phase 2, expected in late 2025 or early 2026, will introduce additional improvements such as Verkle trees and peerDAS.

Now let's return to the essence of the upcoming changes. The Pectra upgrade will introduce modifications to both the consensus and execution layers. 

Here's a brief overview of the EIPs expected to be included:

• EIP-7251 (Increased Staking Limit): Raises validator staking limit from 32 ETH to 2048 ETH, enabling streamlined validator management.

• EIP-7691 (Blob Throughput Increase): Doubles blob data capacity per block, reducing L2 congestion and fees.

• EIP-7623 (Higher Call Data Cost): Increases calldata costs to encourage using more efficient blob storage, enhancing scalability.

• EIP-7840 (Flexible Blob Configuration): Allows adjusting blob parameters in future upgrades for greater scalability.

• EIP-6110 (Faster Staking Deposits): Processes validator deposits on the execution layer for quicker activation.

• EIP-7002 (Simplified Validator Withdrawals): Enables validators to directly unstake via simple Ethereum transactions.

• EIP-7685 (Improved Layer Communication): Standardizes communication between execution and consensus layers for faster validator operations.

• EIP-2935 (Extended Block History): Keeps historical block hashes for 27 hours on-chain, benefiting rollups and cross-chain apps.

• EIP-7549 (Efficient Validator Voting): Optimizes validator voting processes to speed up consensus and reduce resource use.

• EIP-2537 (Faster Cryptographic Proofs): Introduces precompile for BLS12‑381 operations, cutting gas costs for cryptographic computations.

• EIP-7702 (Smart Accounts for Temporary Operations): Allows regular wallets to temporarily function as smart contracts, enabling gas sponsorship, batch transactions, and improved user experience.

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From the perspective of automating payments in cryptocurrencies and stablecoins, the last two EIPs - EIP-2537 and EIP-7702 - are particularly significant. Let’s briefly examine them, and stay tuned for upcoming detailed articles explaining those 2 EIP's features, their relevance, and potential impacts on decentralized payment solutions in more detail.

EIP-7702:  Smart Wallets Made Simple

Pectra introduces EIP-7702, significantly enhancing Ethereum's usability through native Account Abstraction. This EIP allows Externally Owned Accounts (EOAs) - traditional Ethereum wallets - to easily adopt smart-contract-like features, dramatically improving user experiences.

Key benefits include:

• Transaction batching: Users can bundle multiple actions into one transaction, simplifying complex crypto payment flows. Imagine seamlessly paying for subscriptions, transferring tokens, and executing contract interactions with just a single click.

• Gasless transactions: dApps or third-party services can cover transaction fees, enabling frictionless crypto payments. This drastically reduces onboarding friction, especially for new users who may not initially hold ETH.

• Improved security & recovery: Built-in spending limits, multi-signature approvals, and social recovery mechanisms significantly enhance wallet safety and user confidence. Users can easily recover accounts or set sophisticated spending policies without sacrificing decentralization.

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ERC-7702 vs. EIP-4337

EIP-7702 isn't intended to replace Ethereum’s existing Account Abstraction standard ERC-4337. Instead, it complements ERC-4337 by simplifying the integration of account abstraction features and making them more accessible to users. In other words, EIP-7702 brings native account abstraction directly into Ethereum's execution layer and this critical difference means EIP-7702 enables smoother, protocol-level integration with wallets, transactions, and dApps. 

Payments leveraging EIP-7702 thus benefit from simpler infrastructure and reduced dependency on external services.

EIP-2537: Efficient on-chain cryptography

New precompiled contracts offer highly efficient cryptographic operations on-chain for ZK-proofs & BLS12-381 operations. This enhancement supports the efficient verification of complex cryptographic signatures enabling payment gateways and wallets to securely handle large-scale multi-signature authorizations, cross-chain transactions, and interoperable payment rails.

The biggest use case that comes to mind for EIP-2537 is building an efficient multi-signature business wallet for merchants. This wallet can enable secure, cost-effective multi-party payment approvals directly on-chain, streamlining the management of funds acquired by merchants (and kept inside their smart accounts in Smarty Pay).

Conclusion

Among the many outstanding and significant updates in Pectra, we at Smarty Labs highlight native account abstraction (EIP-7702) and advanced cryptographic capabilities (EIP-2537) as the most interesting from a payments perspective.

We aim to leverage these developments to deliver a crypto payment solution that is intuitive, secure, and widely accessible.