#101 From Yawn to Yay. Ethereum and Bitcoin Updates You Can't Ignore

Tech without context can be hard to digest or even boring. But tech is always a solution to a problem, so it needs to be evaluated according to the size of the challenge and the values it defends

Let’s take a break from price action, airdrops, and applications, and go straight to the FUN! Today we talk about code. Yay!

There are some relevant technological changes approaching the crypto ecosystem from both the Ethereum and Bitcoin fronts. Crypto is a highly technical ecosystem, so you might belong to that group of people that gets excited about code upgrades. But if you’re not, hold your yawns, because we will also explain why these improvements matter.

TL;DR

The Ethereum developer community continues discussing Pectra (a name derived from Prague and Electra), the upgrade expected to happen in Q1 2025. Pectra will contain several EIPs (Ethereum Improvement Proposals) that will bring improvements in areas such as performance, decentralization, and user experience. Among the most anticipated updates is EIP-7702, which will enable “account abstraction” on Ethereum wallets. More below.

The Bitcoin community, for its part, is discussing the inclusion of OP_CAT. Exciting, I know! OP_CAT is an opcode that was included by Satoshi in Bitcoin’s original design but was later discarded by Satoshi himself. OP_CAT could make a comeback and open the floodgates to a new wave of programmability on the Bitcoin blockchain. Read on, reader.

Pectra: Ethereum’s Last Revolution

Pectra is the next, and possibly last, great leap in Ethereum development.

Vitalik said before Shapella: “After this [next] fork is done” (meaning Shapella), “and then after scaling is done, we’re in a stage where the hardest and fastest parts of the Ethereum protocol’s transition are essentially over. Various things will need to be done, but those things can be safely done at a slower pace.” Vitalik Says Ethereum Will Focus On Scalability Post-Shapella

Pectra brings a large batch of improvements, so large that developers might decide to break it down into two. Pectra update might split into two hard forks.

Among these improvements are some aimed at making Ethereum more efficient in general, with enhancements in the storage requirements imposed on nodes and the computational power needed to validate the chain. These seemingly nerdy aspects connect to the heart of Ethereum’s vision: By lightening the burden of maintaining an Ethereum node, the possibility of participating in Ethereum validation opens up to many more people. Vitalik's dream is to see smartphones validating Ethereum while being used to request an Uber. A larger number of nodes would simultaneously provide the highest guarantee of security, sustainability, and chain resilience..

But the star among all EIPs is EIP-7702: the improvement proposal meant to bring account abstraction to the Ethereum blockchain.

Let’s make a quick educational stop and explain a core concept in Ethereum’s mechanism today.

Concept Refresher (I): Types of addresses in Ethereum -EOA vs SC

In Ethereum, there are two main types of addresses: Externally Owned Addresses (EOAs) and Smart Contract Addresses. EOAs are like personal accounts. EOAs are used to sign the transactions that initiate fund transfers or smart contract interactions. They are managed by a public/private key pair that a user needs to save like gold dust, or they’ll lose access to the funds.

Smart Contract Addresses, on the other hand, are controlled by code on the blockchain. They automate actions based on the conditions specified by an input. They are versatile and perform complex tasks like managing funds in decentralized apps and enforcing rules autonomously.

EIP-7702 aims to introduce the “smart contract wallet” hybrid, making individual addresses less dangerous and clunky. Smart contract addresses allow automated payments, alternative authentication methods including social recovery or biometric authentication, and gas sponsorship (the ability for third parties to subsidize gas costs for certain transactions).

To an outsider, these improvements might look utterly unimpressive. At the end of the day, these are basic elements of the banking user experience that only crypto-natives don’t take for granted: why do we have to be terrified of key loss? Why does every single operation require unintelligible gas price calculations? We might be able to kiss these things goodbye, and welcome a more familiar way of interacting with funds digitally. 

Freedom to Concatenate: The OP_CAT revolution

Bitcoin used to live in a comfortable slumber, protected by its halo of immutability, until Ordinals broke out. In early 2023, an unexpected side effect of the latest upgrades in Bitcoin’s code enabled the creation of unique on-chain assets, triggering a wave of NFTs and something like fungible tokens that took the OG chain by storm.

One and a half years later, Bitcoin has become one of the noisiest corners in crypto, with hundreds of developers and millions of dollars working to expand its capabilities.

The latest addition to this saga is the OP_CAT debate. OP_CAT is an opcode, one of the many components of the Bitcoin scripting language. It was originally conceived by Satoshi Nakamoto in Bitcoin's early days, but Nakamoto himself shelved it due to concerns over potential abuse.

Today, OP_CAT has reemerged as an avenue for the potential enhancement of Bitcoin’s capabilities. The "CAT" in OP_CAT stands for "concatenate": OP_CAT would reintroduce a "concatenate" feature to Bitcoin Script, allowing the combination of two strings of data into one.

Sounds trivial, but it’s huge.

OP_CAT could potentially unlock the ability to perform conditional operations on the Bitcoin blockchain, expanding its utility spectrum and bringing it closer to the capabilities of a smart contract blockchain. This could mean improved bridging, fundamental DeFi operations, improved custody solutions, and a broader range of applications and interoperability options.

Now comes the time to go through the proverbially unstructured and slow governance process that Bitcoin updates must navigate before becoming part of Bitcoin Core. 

Concept refresher (II): Bitcoin’s governance process

Bitcoin is a piece of software, and as such, it is subject to maintenance and improvements. But faithful to its principles of decentralization, the governance process that determines what changes make it to Bitcoin Core takes a multi-step approach where debate is heavily encouraged.

Bitcoin's governance process begins with the informal discussion stage, where proposed changes to the Bitcoin protocol are debated across various platforms such as GitHub, forums, mailing lists, etc. The subject of the discussion can eventually become a BIP: a standardized template for proposing and implementing changes. BIPs are supervised by Bitcoin editors. If a BIP gains traction and the discussions are deemed valid, it moves forward in the process.

After a long process of debate, improvement proposals are voted on through code implementation: miners express their opinions through on-chain signaling (adding information to blocks) and eventually through implementation. The final verdict on the implementation of an improvement proposal happens once miners and nodes decide to adopt the changes or pass. 

It's as if Congress wrote a law, and the law only came into effect when the majority of police officers, judges, or citizens began to obey it.

Improvements can happen via soft forks or hard forks. Soft forks are backwards-compatible changes, which means that updates do not require all nodes to upgrade. The chain can keep running normally. Hard forks, on the other hand, are significant changes that create a divergence in the blockchain. The nodes that sync with the new version start a new chain of their own, incompatible with the prior one.

If you thought Bitcoin was alone in the world and looked exactly like Satoshi wrote it, think again.

The proposal to bring back OP_CAT received a BIP number in April, which means that editors have given it their blessing and the proposal moves on to the next phase. In recent months, it has garnered some notable endorsements, along with a $1M grant program launched by Starkware for developers willing to improve this implementation.

Tech without context can be hard to digest or even boring. But technological improvements are always the manifestation of a problem-solution pattern, so they need to be evaluated according to the size of the challenges they face and the values they stand for.

Pectra can massively improve Ethereum’s user experience and takes great steps towards more decentralized, and therefore secure and censorship-resistant, validation. OP_CAT could be the key to programmability in Bitcoin: the largest chain, with the broadest community and the strongest financial footprint could take an evolutionary step towards the vision of a decentralized computer.

Cool.