In-Depth Research Report on the Ethereum Prague Upgrade: Technological Innovations, Ecological Impact, and Future Outlook

I. Introduction: Prague Upgrade Preview

Since its official launch in 2015, Ethereum has been the core battleground for technological innovation and application exploration in the blockchain industry. As a pioneering platform, Ethereum has led the wave of smart contracts and decentralized applications, having a profound impact in areas such as DeFi and NFTs. The technological evolution of Ethereum has transitioned from the initial PoW consensus mechanism to the PoS after the "merger" completed in September 2022, constantly pursuing more efficient, environmentally friendly, and scalable solutions. The upcoming Prague upgrade has once again attracted widespread attention from the market.

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

The Prague upgrade means more powerful development tools, more efficient smart contract execution methods, and lower computing and storage costs for developers. For ordinary users, it may bring faster transaction speeds, lower fees, and a more secure on-chain operating experience. Due to the enormous scale of the Ethereum ecosystem, the impact of this upgrade will extend throughout the cryptocurrency industry, especially affecting projects that rely on Ethereum infrastructure, such as Layer 2, cross-chain bridges, and DEX.

From an investment perspective, significant upgrades to Ethereum often act as a catalyst for changes in market sentiment. The Prague upgrade may increase ETH usage and enhance its intrinsic value. However, whether the technical upgrade can be implemented smoothly, whether there are potential risks, and whether there will be unstable factors in the short term may also affect market sentiment.

2. 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 on the core objectives of several previous upgrades, including optimizing network performance, reducing transaction costs, and enhancing smart contract capabilities, laying the foundation for further expansion and innovation in the future. This upgrade combines community consensus, developer needs, and feedback from application scenarios, further enhancing Ethereum's competitiveness.

The Prague upgrade is 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 upgrade will be activated at a specific block height and implemented across the entire network simultaneously. Once completed, all Ethereum nodes must run clients that include the new protocol rules; otherwise, they will not be able to continue participating in network consensus.

From a technical perspective, the Prague upgrade integrates multiple reviewed and discussed EIPs. These optimizations involve key areas such as EVM, transaction fee structure, storage management, and contract execution efficiency. The EVM has introduced new instruction set optimizations, making smart contract execution faster while reducing computational costs. The upgrade also optimizes Gas calculation logic, allowing for a more rational allocation of resources for different types of operations, thereby reducing the issue of fee spikes during network congestion.

For ordinary users, the impact of the Prague upgrade is directly reflected in the reduction of transaction costs and the improvement of execution efficiency. By optimizing the Gas calculation method, improving transaction bundling strategies, and enhancing Layer 2 compatibility, it provides users with a more stable and predictable transaction cost structure. This not only enhances user experience but also strengthens Ethereum's competitiveness when facing other blockchains.

In addition, the Prague upgrade has enhanced the support capabilities for Layer 2 solutions. It optimizes issues such as data availability, bridge security, and fund transfer delays, improving the Ethereum mainnet's native support for Layer 2 solutions, making the operation of the second-layer networks more efficient and secure. This not only helps the development of Rollup solutions but also provides technical support for future modular blockchain architectures.

In the long run, the Prague upgrade to Ethereum lays the foundation for higher scalability, better user experience, and a stronger developer ecosystem. It prepares for subsequent upgrades, further optimizations with Ethereum 2.0, data sharding, and other long-term plans, enabling Ethereum to continue leading innovation in the blockchain industry.

III. Technical and Ecological Impact of the Prague Upgrade

The Ethereum Prague upgrade is a comprehensive hard fork focused on improving scalability, security, and user experience. In this version, Ethereum has made several technical adjustments to enhance on-chain operations, staking mechanisms, and layer-two network support, further promoting ecosystem development. Here are the key EIPs of the Prague upgrade:

3.1 Account Abstraction (EIP-7702)

EIP-7702 introduces an account abstraction mechanism that changes the way Ethereum accounts are managed. Users can perform various operations directly through EOA accounts, such as authorization and delegation, without the need to convert account types. This significantly reduces the operational costs for users, making on-chain interactions simpler and smoother.

Key significance:

• Improved user experience: Simplified operation processes and lowered entry barriers.
• DApp Impact: The batch aggregation feature can reduce management costs and improve efficiency. However, it is important to note that it may increase the complexity of permission management and security risks.

3.2 Staking Mechanism Optimization

The Prague upgrade implements multiple optimizations to the Ethereum staking mechanism, enhancing the security and flexibility of staking operations, and ensuring the decentralization and security of the network.

• 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 the complexity of validator management, and decrease system redundancy.
• EIP-7549: Enhances the flexibility of staking operations, allowing validators to more easily perform partial withdrawals and exits.

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

3.3 Layer 2 Network Support (L2 Optimization)

With the development of the Ethereum L2 ecosystem, the Prague upgrade places special emphasis on support and optimization for L2.

• EIP-7623 & EIP-7691: Enhancing L2 storage and throughput capabilities. EIP-7623 reduces L2 network reliance on calldata by increasing the gas fees for calldata in transactions; EIP-7691 expands L2 Blob capacity, improving storage space.
• Blob Optimization: Increased capacity and configuration flexibility of Blob data structures, enhancing support for L2. Allows more L2 solutions to operate on the Ethereum main chain, improving processing capacity.

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

3.4 Data Availability and Throughput Improvement

The Prague upgrade focuses on data availability and throughput, especially in support of stateless clients. For example, EIP-2935 proposes optimizations for storing historical block hashes, allowing clients to easily access the latest block data without needing to store the entire chain history. This is significant for future optimizations such as Verkle trees and applications like Rollups and oracles.

3.5 The impact of the Prague upgrade on the Ethereum ecosystem

Although the Prague upgrade did not generate as much market buzz as the "Merge", it is crucial for the long-term development of Ethereum. The upgrade makes Ethereum more adaptable to the L2 era, enhancing the network's scalability, security, and decentralization levels. With future upgrades (such as the Osaka and Amsterdam hard forks), Ethereum's functionality will become even richer, driving it towards the grand vision of "one million transactions per second" and lower centralization risks.

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

4. Challenges and Controversies of the Prague Upgrade

The Prague upgrade has brought multiple technical improvements and optimizations, but it also faces some challenges and controversies during the implementation process. These challenges involve technical aspects, balancing the interests of ecosystem participants, and choosing the long-term development direction of Ethereum.

4.1 The security risks brought by account abstraction

EIP-7702 introduces an account abstraction mechanism that allows users to implement more flexible transaction methods at the chain level. This optimization reduces interaction costs but also increases potential security risks. If wallet service providers fail to adapt correctly, it could lead to unexpected security vulnerabilities. Once a problem arises, it may result in cross-chain losses or even explosive attacks. Hackers could exploit this mechanism's weaknesses for phishing attacks, especially when wallet service providers are improperly adapted. Therefore, while account abstraction brings user experience optimization, its security remains a significant concern in the Prague upgrade.

4.2 Challenges and Scalability Issues of the L2 Ecosystem

The Prague upgrade emphasizes the optimization of the Ethereum Layer 2 ecosystem, increasing L2 storage capacity and computing efficiency. However, managing and optimizing L2 transaction costs and liquidity remains a significant challenge. EIP-7623's increase in calldata fees may lead to higher costs for some L2 ecosystems. Interoperability issues between L2s continue to plague the entire Ethereum ecosystem. As different L2 solutions proliferate, cross-chain complexity increases, and the dispersion of liquidity and security may affect the overall stability and efficiency of the ecosystem. Despite the significant efforts of the Prague upgrade in optimizing the L2 ecosystem, its actual effects remain to be observed.

4.3 Adaptability issues between the community and developers

The Prague upgrade involves multiple EIP proposals that have a profound impact on the Ethereum ecosystem. Although these changes theoretically can significantly enhance network performance and user experience, there may be resistance from developers and users during the actual implementation and adaptation process. The introduction of new technologies may require developers to restructure and optimize existing DApps, potentially leading to development and adaptation pressure in the short term. If the developer community fails to keep up in a timely manner, it may affect the adaptation of some DApps to the new system, thereby impacting the healthy development of the entire Ethereum ecosystem. The community's acceptance of these technological improvements varies, which may lead to further controversy.

4.4 Market Reaction and Competitive Chain Pressure

The Prague upgrade aims to enhance Ethereum's scalability, user experience, and security, but competition in the multi-chain ecosystem is becoming increasingly fierce. Ethereum is under immense pressure from other public chains and Layer 2 solutions. These competing chains and protocols often offer higher transaction speeds and lower transaction fees. If the L2 ecosystem cannot operate effectively, Ethereum may still face a loss of market share. The market's actual response to the Prague upgrade remains unknown. If Ethereum cannot attract more developers and users through these upgrades, its market position may be challenged. How to maintain decentralization while improving throughput and efficiency, and avoid excessive concentration risk, remains a focal point for the market and community.

The Prague upgrade is an important evolution in the history of Ethereum, making significant efforts to improve network performance, scalability, and user experience. However, challenges such as centralization risks, security vulnerabilities, L2 ecosystem management issues, and community adaptability problems pose considerable obstacles to the smooth implementation and long-term development of the upgrade. Nevertheless, the Prague upgrade lays the foundation for the future development of Ethereum, and as these issues are gradually resolved, Ethereum is expected to achieve a more efficient, secure, and decentralized network structure.

V. Future Outlook

The Prague upgrade lays an important foundation for the future development of Ethereum. As technology continues to advance, the Prague upgrade will have a far-reaching impact on the Ethereum ecosystem, especially in terms of scalability, decentralization, security, and user experience.

5.1 The favorable effects brought by the Prague upgrade

The Prague upgrade brings significant improvements to the Ethereum network through technical optimizations and protocol enhancements:

• Improve scalability: Optimize transaction data storage, computing efficiency and interaction