In-depth Research Report on Ethereum Prague Upgrade: Technological Innovations, Ecological Impact, 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. From the initial PoW consensus mechanism to the transition to PoS in September 2022, Ethereum has continuously sought 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. It involves adjustments to the underlying protocol and multiple EIPs, including optimizations to the EVM, staking, Rollup performance, reducing interaction costs, and strengthening storage management. These changes not only enhance 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 improved transaction speeds, reduced fees, and a more secure on-chain experience. As an important upgrade to the Ethereum ecosystem, the impact of the Prague upgrade will ripple through the entire cryptocurrency industry.

From an investment perspective, each Ethereum upgrade could serve as a catalyst for changes in market sentiment. The Prague upgrade aims to optimize network performance, which may enhance the usage and intrinsic value of ETH; however, potential risks during the technical implementation process could also affect short-term market sentiment.

2. Overview of the Prague Upgrade

The Prague upgrade is an important update to the Ethereum protocol, inheriting and expanding upon the goals of several previous upgrades, including optimizing network performance, reducing transaction costs, and enhancing smart contract functionality. This upgrade is part of Ethereum's long-term technical roadmap and will be implemented across the entire network in the form of a hard fork.

From a technical perspective, the Prague upgrade integrates a series of EIPs, involving key areas such as EVM, Gas Fee structure, storage management, and contract execution efficiency. The EVM welcomes a new instruction set optimization, making smart contract execution faster and reducing computation costs. After the optimization of Gas calculation logic, resources can be allocated more rationally for different types of operations, reducing the issue of fee surges during network congestion.

For ordinary users, the direct impact of the Prague upgrade is 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, users will benefit from a more stable and predictable transaction cost structure.

The Prague upgrade has also enhanced the support capabilities for Layer 2 solutions. It has optimized issues such as data availability, bridging security, and fund inflow and outflow delays, improving the native support capacity of the mainnet for Layer 2 solutions. This not only aids in the development of Rollup solutions but also provides technical support for future modular blockchain architectures.

In the long run, the upgrade of Prague to Ethereum lays the foundation for higher scalability, better user experience, and a stronger developer ecosystem. It, along with subsequent upgrades in Osaka, Amsterdam, and others, drives Ethereum towards the vision of "one million transactions per second" and lower decentralization risks.

3. Technical and Ecological Impact of the Prague Upgrade

The Prague upgrade introduced several technological improvements aimed at enhancing the scalability, security, and user experience of the Ethereum ecosystem. The main ones include the following key EIPs:

3.1 Account Abstraction ( EIP-7702)

EIP-7702 introduces an account abstraction mechanism, changing the way Ethereum account management works. Users can perform various operations directly through EOA accounts, such as authorizations and delegations, without the need to convert account types. This significantly reduces operational costs and simplifies on-chain interaction processes.

For DApps, the batch aggregation function can reduce management costs and improve efficiency. However, it also brings security risks and increases the complexity of permission management.

3.2 Staking Mechanism Optimization

The Prague upgrade has made several optimizations to the staking mechanism:

• EIP-6110: Integrating staking records and validator-related operations directly into the execution layer
• EIP-7251: Increase the maximum effective staking limit for a single validator to 2048 Ether
• EIP-7549: Enhancing the flexibility of staking operations, facilitating partial withdrawals and exits.

These improvements aim to ensure network security and reduce the issues of large-scale validator centralization. However, they may also bring potential risks to decentralization.

3.3 Layer 2 support optimization

The Prague upgrade places special emphasis on support for Layer 2:

• EIP-7623 & EIP-7691: Improve L2 storage and throughput capacity
• Blob Optimization: Increase the capacity and configuration flexibility of the Blob data structure.

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

3.4 Data Availability and Throughput Improvement

The Prague upgrade also focuses on data availability and throughput, particularly support for stateless clients. EIP-2935 optimizes the storage of historical block hashes, facilitating client access to the latest block data. This is significant for future optimization schemes such as Verkle trees, as well as applications like Rollups and oracles.

3.5 Impact on Ethereum ecosystem

The Prague upgrade makes Ethereum more adaptable to the L2 era, enhancing the network's scalability, security, and decentralization levels. It lays the foundation for Ethereum's future vision of "a million transactions per second" and low centralization risks, further solidifying Ethereum's dominant position in the blockchain ecosystem.

4. Challenges and Controversies of the Prague Upgrade

4.1 The security risks brought by account abstraction

The account abstraction mechanism introduced by EIP-7702 simplifies the operation process, but also increases the complexity of permission management. If wallet service providers do not adapt properly, it may lead to security vulnerabilities, resulting in cross-chain losses or explosive attacks. Hackers may exploit the vulnerabilities of this mechanism to conduct phishing attacks.

Challenges and Scalability Issues of L2 Ecosystem 4.2

The Prague upgrade has optimized L2 support, but still faces many challenges:

• How to manage and optimize L2 transaction costs and liquidity
• The interoperability issues between L2s
• How to coordinate communication, transactions, and data sharing between different L2s
• How to ensure the transparency and verifiability of L2 transactions

4.3 Adaptability Issues for Communities and Developers

The Prague upgrade involves multiple EIPs, requiring developers to restructure and optimize existing DApps. If the developer community fails to keep up in a timely manner, it may affect the adaptation progress of some DApps.

The community's acceptance of certain technical solutions (, such as the staking mechanism and L2 optimization ), varies and may lead to further disputes. How to achieve technological innovation while ensuring decentralization and network security still requires further exploration.

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 market's actual response to the upgrade is still unknown. If it fails to attract more developers and users in the short term, Ethereum's market position may be challenged. How to enhance performance while maintaining decentralization and avoiding excessive concentration risk remains a focal point of market attention.

5. Future Outlook

The favorable effects brought by the Prague upgrade

The Prague upgrade brings significant improvements to the Ethereum network through a series of technical optimizations:

• Improve transaction throughput and L2 support, enhance overall scalability
• Optimize the trading fee model, improve trading efficiency, and reduce costs.
• Strengthen the security of the PoS mechanism and staking system
• Introduce a stronger consensus algorithm to enhance data verification and storage security.
• Promote the decentralization process and provide more tools for DApp development.

5.2 Outlook on the Ethereum ecosystem after the Prague upgrade

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

The Prague upgrade provides technical support for the expansion of the Ethereum multi-chain ecosystem. In the future, Ethereum is expected to become a multi-chain hub, achieving cross-chain collaboration with other public chains. The maturity of Layer 2 technology will enable Ethereum to accommodate more efficient and low-cost DApps.

5.2.2 Further Development of Decentralized Finance ( DeFi )

Lower transaction fees and increased network throughput have created conditions for the expansion of the DeFi ecosystem. New trading models, more efficient lending markets, liquidity pools, and decentralized derivatives markets are expected to gradually mature after the Prague upgrade.

5.2.3 Further Prosperity of the NFT and Digital Art Market

The Prague upgrade has provided a more solid foundation for the development of the NFT market. Low transaction fees and efficient smart contract execution make the creation, trading, and transfer of NFTs more economical and efficient. The application of NFTs is expected to expand into more areas.

5.2.4 Further enhance the decentralized governance of Ethereum ecosystem

The Prague upgrade provides better support for the decentralized governance of Ethereum. By improving the transparency of the staking mechanism and enhancing validator diversity, the governance structure of Ethereum will become more open and decentralized. In the future, more governance decisions may be reached through community consensus.

In summary, the Prague upgrade brings unprecedented technological advancements to Ethereum. In the future, Ethereum is expected to achieve new breakthroughs in performance, ecological diversity, and decentralized governance, providing global users with a more efficient, secure, and decentralized blockchain platform.