Ethereum's forthcoming Pectra upgrade, slated for early 2025, aims to enhance the network's execution and consensus layers. However, emerging security concerns, particularly surrounding Ethereum Improvement Proposals (EIPs) 7702 and 3074, have prompted critical discussions within the crypto community.

EIP-7702: Empowering EOAs with Smart Contract Capabilities

EIP-7702 introduces a new transaction type, SETCODETX_TYPE (0x04), allowing Externally Owned Accounts (EOAs) to permanently set their code, effectively granting them smart contract functionalities. This advancement enables features such as:

  • Delegation Designator: EOAs can store an address pointing to a smart contract, executing its code as if it were their own.

  • Smart Account Features: Support for multiple signers, passkeys, and modular extensions.

  • Sponsored Transactions: EOAs can execute transactions without holding funds for gas, simplifying onboarding to new chains.

While these enhancements offer

increased flexibility, they also introduce potential security risks. The private key associated with the EOA retains ultimate control, posing a significant vulnerability if compromised. Additionally, the delegation mechanism could be exploited if malicious or unaudited contracts are authorized, leading to unauthorized access or fund drainage.

EIP-3074: Enhancing Wallet Functionality with Delegated Transactions

EIP-3074 aims to bring smart contract-like functionalities to EOAs by introducing two new opcodes: AUTH and AUTHCALL. These allow EOAs to delegate control to smart contracts, enabling features like:

• Batch Transactions: Executing multiple operations in a single transaction.

• Gas Abstraction: Paying gas fees with tokens other than ETH.

However, this delegation capability raises concerns. A malicious contract could potentially drain an entire wallet's contents through a single authorized transaction. Experts emphasize the need for wallet providers to implement stringent security measures, such as disallowing blind signing of opaque hashes, to mitigate these risks.

Broader Network Risks: Validator and Client Diversity

Beyond individual account vulnerabilities, the Pectra upgrade's impact on the broader Ethereum network warrants attention. The upgrade includes EIP-7251, which increases the maximum effective balance for validators to 2,048 ETH. While this change aims to streamline validator operations, it could inadvertently centralize staking power, increasing the risk of correlated failures.

A study by Liquid Collective and Obol highlights the importance of diversity in clients, operators, and cloud infrastructure to maintain network resilience. The limited adoption of Distributed Validator Technology (DVT) further exacerbates these concerns, as reliance on a narrow set of validators or cloud providers could lead to systemic vulnerabilities.

Recommendations for Stakeholders

To navigate the complexities introduced by the Pectra upgrade, stakeholders should consider the following measures:

  • For Wallet Providers: Update interfaces to clearly inform users about new transaction types and associated risks. Implement safeguards against unauthorized delegations.

  • For Developers: Conduct thorough audits of smart contracts intended for delegation. Avoid reliance on upgradeable contracts without proper security checks.

  • For Users: Exercise caution when authorizing transactions involving delegation. Prefer audited and well-established contracts.

  • For Validators and Operators: Diversify client software and infrastructure to mitigate the risks associated with centralization.

Conclusion

While Ethereum's Pectra upgrade promises significant advancements in functionality and user experience, it also introduces new security challenges that require proactive measures from all participants in the ecosystem. By addressing these concerns head-on, the Ethereum community can work towards a more secure and resilient network.