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

1. Introduction

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. From the initial PoW consensus mechanism to the completion of the "merge" and the transition to PoS in September 2022, Ethereum continues to seek more efficient, environmentally friendly, and scalable solutions. The upcoming Prague upgrade has once again sparked widespread attention in the market.

The Prague Upgrade is another important technological iteration of Ethereum, following the Cancun Upgrade in March 2024. It 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 optimization of the EVM, staking, Rollup performance, reduction of interaction costs, and strengthening storage management, among others. These changes not only improve the overall efficiency of the Ethereum mainnet but also provide a more robust infrastructure support for Layer 2 solutions, DeFi protocols, NFT markets, and more.

The Prague upgrade is an important step for Ethereum towards greater scalability, improved user experience, and a stronger developer ecosystem. It lays the foundation for subsequent upgrades, further optimizations of Ethereum 2.0, data sharding, and other long-term plans, driving Ethereum to continue leading the innovation trend in the blockchain industry. As the upgrade approaches, the market, developers, investors, and ordinary users are closely watching its final effects, as well as the potential ripple effects it may bring to the Ethereum ecosystem and the entire crypto industry.

II. Overview of 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 functionality, laying the foundation for future expansion and innovation. This upgrade combines community consensus, developer needs, and application scenario feedback, further enhancing Ethereum's competitiveness as the world's leading smart contract platform.

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. Once the upgrade is complete, all Ethereum nodes must run a client that includes the new protocol rules, or they will not be able to continue participating in network consensus. This requires developers, miners, stakers, and regular users to be well-prepared before the upgrade to ensure a smooth transition for the network.

From a technical perspective, the Prague upgrade integrates a series of reviewed and discussed EIPs. These optimizations involve several key areas such as EVM, transaction fee structure, storage management, and contract execution efficiency. The EVM, as the core execution environment of Ethereum, welcomes new instruction set optimizations that make smart contract execution faster while reducing computational costs. In addition, the upgrade optimizes Gas calculation logic, allowing for a more rational allocation of resources for different types of operations, thereby reducing the issue of fee surges 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, a more stable and predictable transaction cost structure is provided for users. This not only enhances the user experience but also strengthens Ethereum's competitiveness.

The Prague upgrade has also enhanced the support capabilities for Layer 2 solutions. It optimizes issues such as data availability, bridging security, and delays in fund inflow and outflow, improving the native support capabilities of the Ethereum mainnet for Layer 2 solutions, making the operation of 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.

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, making several technical adjustments to improve on-chain operations, staking mechanisms, and Layer 2 network support. Below is an analysis of the key EIPs from the Prague upgrade:

3.1 Account Abstraction (EIP-7702)

EIP-7702 introduces an account abstraction mechanism, changing the way Ethereum manages accounts. Users can perform various operations directly through EOA accounts, such as authorization and delegation, significantly reducing operational costs and making on-chain interactions simpler and smoother.

Key significance:

• Enhance user experience: Simplify the operating process and lower the entry threshold.
• Impact on DApps: For exchanges and other DApps, batch aggregation functionality can reduce management costs and improve efficiency. However, it is important to note that it may increase the complexity of permission management.

3.2 Optimization of the Staking Mechanism

The Prague upgrade optimizes multiple aspects of the Ethereum staking mechanism:

• EIP-6110: Optimize staking operations by integrating staking records with validator-related operations directly into the execution layer.
• EIP-7251: Increase the maximum effective staking limit for a single validator to 2048 Ether, reducing the complexity of validator management.
• EIP-7549: Enhancing 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 compound yield opportunities for participating staked users, but also bring potential decentralization risks.

3.3 Support for Layer 2 Networks (L2 Optimization)

The Prague upgrade particularly focuses on support and optimization for L2:

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

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

3.4 Improvement of Data Availability and Throughput

The Prague upgrade focuses on data availability and throughput, especially for stateless client support. EIP-2935 proposes optimizations for historical block hash storage, allowing clients to easily access the latest block data. This is of significant importance for future optimizations such as Verkle trees, as well as Rollup 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 network scalability, security, and decentralization. With future upgrades (such as the Osaka and Amsterdam hard forks), Ethereum's functionality will become richer, driving it towards the grand vision of "one million transactions per second" and lower decentralization risks.

4. Challenges and Controversies of the Prague Upgrade

4.1 Security Risks Brought by Account Abstraction

EIP-7702 introduces an account abstraction mechanism, which reduces interaction costs but increases the complexity of user permission management. If wallet service providers do not adapt correctly, it may lead to security vulnerabilities, resulting in cross-chain losses or even explosive attacks. Hackers may exploit this mechanism's vulnerabilities for phishing attacks, especially when wallet service providers are improperly adapted.

4.2 Challenges and Scalability Issues of L2 Ecosystem

The Prague upgrade emphasizes the optimization of the L2 ecosystem, but managing and optimizing L2 transaction costs and liquidity still face significant challenges. EIP-7623's increase in calldata fees may lead to rising costs for some L2 systems. While L2 scaling alleviates pressure on the main chain, interoperability issues between L2s continue to plague the Ethereum ecosystem. As the number of different L2 solutions increases, cross-chain complexity grows, which may affect ecosystem stability and efficiency.

4.3 Adaptability Issues of Communities and Developers

The Prague upgrade involves multiple EIP proposals and may encounter resistance from developers and users. The introduction of new technologies may require the restructuring and optimization of existing DApps, bringing development and adaptation pressure in the short term. If the developer community does not keep up in a timely manner, it may result in some DApps being unable to adapt to the new system in time.

4.4 Market Reaction and Pressure from Competitive Chains

The Prague upgrade faces competitive pressure from other public chains and Layer 2 solutions. If the L2 ecosystem cannot operate effectively, Ethereum may face a loss of market share. The actual market reaction to the upgrade is still unknown; if it cannot attract more developers and users, its market position may be challenged.

5. Future Prospects

5.1 The favorable effects brought by the Prague upgrade

• Improve network scalability and efficiency
• Reduce transaction costs and optimize user experience
• Strengthen network security
• Promote the decentralization process

5.2 The Ethereum ecosystem after the Prague upgrade

1. Ethereum will become a more efficient multi-chain ecosystem center.
2. Further Development of Decentralized Finance (DeFi)
3. Further Prosperity of the NFT and Digital Art Market
4. Further enhance the decentralized governance of the Ethereum ecosystem

The Prague upgrade brings unprecedented technological advancements to Ethereum. In the future, Ethereum will achieve new breakthroughs in performance, ecological diversity, and decentralized governance, providing global users with a more efficient, secure, and decentralized blockchain platform. Despite facing some technical and governance challenges, the Ethereum ecosystem after the Prague upgrade still holds great potential and is worth continued attention and anticipation.