In-depth Research Report on Ethereum Prague Upgrade: Technological Innovations, Ecological Impacts, and Future Outlook

1. Introduction: Prague Upgrade Preview

Since its launch in 2015, Ethereum has been at the core of technological innovation and application exploration in the blockchain industry. As a pioneering platform, Ethereum has led the wave of smart contracts and decentralized applications (DApp), having a profound impact in areas such as DeFi and NFTs. The technological evolution of Ethereum has sought more efficient, eco-friendly, and scalable solutions, transitioning from the initial PoW consensus to PoS with the completion of the "merge" in September 2022. The upcoming Prague upgrade has once again sparked widespread attention.

The Prague upgrade is another important technical iteration of Ethereum, following the Cancun upgrade in March 2024, which continues to optimize network performance, reduce transaction costs, and enhance the programmability of smart contracts. It involves adjustments to the underlying protocol and several far-reaching EIPs, including optimizing the EVM, staking, Rollup performance, reducing interaction costs, and strengthening storage management. This not only improves the overall efficiency of the mainnet but also provides a more robust infrastructure support for Layer 2, DeFi, NFTs, and more.

Every major upgrade of Ethereum is accompanied by market fluctuations and community discussions, and the Prague upgrade is no exception. For developers, the new features and optimizations mean more powerful development tools, more efficient smart contract execution methods, and lower computing and storage costs. For regular users, it may bring improved transaction speeds, reduced fees, and a more secure on-chain experience. More importantly, due to the enormous scale of the Ethereum ecosystem, the impact of this upgrade will ripple through the entire cryptocurrency industry, especially for projects that rely on Ethereum's infrastructure.

From an investment perspective, Ethereum upgrades often serve as a catalyst for changes in market sentiment. History shows that significant upgrades can impact ETH price fluctuations. On one hand, optimizing network performance may enhance the usage rate and intrinsic value of ETH; on the other hand, whether the technical upgrade can be smoothly implemented, whether there are risks, and whether there are short-term instability factors may also affect market sentiment.

II. Overview of the Prague Upgrade

2.1 What is the Prague upgrade?

The Prague upgrade is an important update to the Ethereum protocol, inheriting and expanding upon the core goals of several previous upgrades, including optimizing network performance, reducing transaction costs, and enhancing smart contract capabilities, laying the foundation for future expansion and innovation. It is part of Ethereum's long-term technical roadmap, further enhancing Ethereum's competitiveness by combining community consensus, developer needs, and application scenario feedback.

The upgrade will be carried out in the form of a "hard fork", and all nodes must update to the new version of the software to maintain compatibility. The Prague upgrade will be activated at a specific block height, implemented synchronously across the network. After the upgrade, all Ethereum nodes must run a client that adheres to the new protocol rules, or they will not be able to participate in network consensus. This requires all parties to make adequate preparations before the upgrade to ensure a smooth transition for the network.

From a technical perspective, the Prague upgrade integrates reviewed and discussed EIP optimization measures. It involves key areas such as EVM, transaction fee structure, storage management, and contract execution efficiency. As the core execution environment of Ethereum, any changes to the EVM could widely impact the entire ecosystem. This upgrade optimizes the EVM instruction set, enhances the execution speed of smart contracts, and reduces computational costs. At the same time, it optimizes Gas calculation logic to allocate resources more reasonably across different operations and reduce the issue of fee surges during network congestion.

For ordinary users, the Prague upgrade directly affects trading costs and execution efficiency. Ethereum transaction fees have always been a focal point for users, especially during busy network periods, which can soar to extremely high levels. The upgrade provides users with a more stable and predictable trading cost structure by optimizing Gas calculations, improving transaction bundling strategies, and enhancing Layer 2 compatibility. This not only enhances the user experience but also strengthens Ethereum's competitiveness.

Moreover, the Prague upgrade enhances Layer 2 support capabilities. In recent years, the rapid development of the Layer 2 ecosystem has greatly alleviated congestion on the mainnet, but it is still constrained by the architecture of the mainnet. The upgrade optimizes issues related to data availability, bridging security, and fund delays, improving native support for Layer 2. This aids the development of second-layer networks and provides technical support for future modular blockchain architectures.

In the long run, the Prague upgrade is an important step for Ethereum towards higher scalability, better user experience, and a stronger developer ecosystem. It lays the foundation for subsequent upgrades, Ethereum 2.0 optimizations, data sharding, and other long-term plans, enabling Ethereum to continue leading blockchain innovation. Market participants are closely watching its final effects and impact on the ecosystem.

3. The Technical and Ecological Impact of the Prague Upgrade

The Prague upgrade focuses on enhancing the scalability, security, and user experience of the Ethereum ecosystem. This upgrade makes several technical adjustments to improve on-chain operations, staking mechanisms, and Layer 2 network support, promoting the development of the Ethereum ecosystem. Here are the key EIPs:

Account Abstraction (EIP-7702)

EIP-7702 introduces an account abstraction mechanism that changes the way Ethereum manages accounts. Users do not need to convert account types and can perform various operations directly through EOA accounts, such as authorization and delegation. This reduces the operational costs for users and makes on-chain interactions simpler and smoother.

Key significance:

• Enhance user experience: streamline the operation process and lower the entry threshold.
• Impact on DApp: For example, the batch aggregation function of exchanges can reduce management costs and improve efficiency. However, attention must be paid to security risks, as account abstraction may increase the complexity of permission management.

3.2 Optimization of the Staking Mechanism

The Prague upgrade optimizes the staking mechanism in multiple ways, enhancing operational security and flexibility, while ensuring network decentralization and security.

• EIP-6110: Optimize staking operations by directly integrating staking records with validator-related operations into the execution layer.
• EIP-7251: Increase the maximum effective staking limit for a single validator to 2048 Ether, reduce management complexity, and decrease system redundancy.
• EIP-7549: Improve the flexibility of staking operations, making it easier for validators to partially withdraw and exit.

These improvements aim to ensure network security and reduce the issue of large-scale validator centralization. They provide more flexibility and compounding yield opportunities for stakers, but also bring potential risks to decentralization.

3.3 Support for Layer 2 Networks (L2 Optimization)

The Prague upgrade particularly focuses on L2 support and optimization.

• EIP-7623 & EIP-7691: Enhance L2 storage and throughput capabilities. EIP-7623 increases calldata gas fees and reduces L2 dependency; EIP-7691 expands L2 Blob capacity and enhances storage space.
• Blob optimization: Increase the capacity and configuration flexibility of the Blob data structure, enhancing L2 support.

These measures reflect Ethereum's efforts to build a stronger L2 ecosystem, supporting high-frequency trading and large-scale application demands.

3.4 Improvement of Data Availability and Throughput

Upgrade the focus on data availability and throughput, especially the support for stateless clients. EIP-2935 optimizes the storage of historical block hashes, facilitating client access to the latest block data. This is of great significance for future Verkle tree optimizations, Rollups, and oracle applications.

3.5. The impact of the Prague upgrade on the Ethereum ecosystem

The Prague upgrade makes Ethereum more suitable for the L2 era, enhancing the network's scalability, security, and decentralization level. With future upgrades (such as the Osaka and Amsterdam hard forks), Ethereum's functionality will be richer, pushing it towards the vision of "one million transactions per second" and lower decentralization risks.

The Prague upgrade is an important step in the development of Ethereum. Through a series of technical improvements, it lays a higher foundation for scalability and decentralization for the network. Account abstraction, staking mechanism optimization, and L2 support make Ethereum more efficient, user-friendly, and resilient. In the future, Ethereum may continue to achieve higher network performance and lower centralization risks through upgrades, consolidating its dominant position.

4. Challenges and Controversies of the Prague Upgrade

The Prague upgrade faces some challenges and controversies, involving technical aspects, the balance of interests among ecological participants, and the choice of Ethereum's long-term development direction. The main challenges include:

Security risks brought by account abstraction 4.1

EIP-7702 introduces an account abstraction mechanism that allows for more flexible transaction methods. Users can directly use EOA for various operations, reducing interaction costs. However, this increases the complexity of permission management and may lead to security vulnerabilities. If wallet service providers do not adapt properly, it could result in cross-chain losses or explosive attacks. Hackers may exploit vulnerabilities for phishing attacks. Therefore, while account abstraction optimizes user experience, security remains a significant concern.

4.2 Challenges and Scalability Issues of L2 Ecosystem

The Prague upgrade emphasizes L2 ecosystem optimization, but managing and optimizing L2 transaction costs and liquidity remains a challenge. EIP-7623's increase in calldata fees may lead to a rise in some L2 costs. Although L2 scaling alleviates pressure on the main chain, interoperability issues between L2s still exist. As the number of L2 solutions increases, cross-chain complexity grows, and the dispersion of liquidity and security may impact ecosystem stability. Despite the upgrade efforts to optimize the L2 ecosystem, the actual effects, collaboration between L2 and L1, and the transparency and verifiability of L2 transactions still remain to be observed.

4.3 Adaptability issues between the community and developers

The Prague upgrade involves multiple EIP proposals, which may require developers to refactor and optimize existing DApps. The introduction of new technologies such as account abstraction and BLS signatures demands that developers invest time and effort to adapt to the new frameworks and standards. If developers do not keep up in a timely manner, it may affect the compatibility of some DApps. The community's acceptance of technological improvements varies, and the staking mechanism and L2 optimizations may spark controversy. How to achieve technological innovation while ensuring decentralization and network security still needs exploration for solutions.

4.4 Market Response and Pressure from Competitive Chains

The Prague upgrade is facing pressure from other public chains and Layer 2 solutions. These competitors typically offer higher transaction speeds and lower fees. While L2 optimizations may alleviate the issues, if the L2 ecosystem cannot operate effectively, Ethereum may face a loss of market share. The market's actual reaction to the upgrade is still unknown; if it cannot attract more developers and users in the short term, Ethereum's market position may be challenged. Furthermore, how to enhance performance while maintaining decentralization and avoiding excessive concentration risk remains a focal point.

The Prague upgrade is an important evolution of Ethereum, making significant efforts to improve network performance, scalability, and user experience. However, challenges arise from centralization risks, security vulnerabilities, L2 ecosystem management issues, and community adaptability problems. Nevertheless, the upgrade lays the foundation for Ethereum's future development, and as these issues are resolved, Ethereum is expected to achieve a more efficient, secure, and decentralized network structure.

5. Future Outlook

The Prague upgrade lays an important foundation for the future development of Ethereum. The following explores the impact of the upgrade on the ecosystem and future prospects.

5.1 The favorable impacts brought by the Prague upgrade

Upgrades through technical optimization and protocol improvements significantly enhance the Ethereum network. Optimize transaction data storage, computing efficiency, and interaction methods to increase network throughput. Support L2 solutions to reduce the burden on the main chain and enhance overall scalability. Improve transaction models, reduce fees, and promote the expansion of the DeFi ecosystem. Strengthen the security of the PoS mechanism and staking system, increase validator diversity, and reduce the risk of 51% attacks. Introduce stronger consensus algorithms, such as BLS signature support, to enhance data validation and storage security.

5.2 Future Outlook: The Ethereum Ecosystem After the Prague Upgrade

5.2.1. Ethereum will become a more efficient multi-chain ecosystem center.

The Prague upgrade strengthens L2 support and expands the potential of a multi-chain ecosystem. In the future, Ethereum will serve as a multi-chain hub, enabling cross-chain collaboration and data exchange. Layer 2 technology matures and optimizes, accommodating more DApps and smart contracts. Cross-chain optimization makes Ethereum a DeFi and asset.