In-Depth Study of Ethereum Prague Upgrade: Technological Innovations, Ecological Impact, and Future Outlook

1. Introduction

Since its launch in 2015, Ethereum has been the core battlefield for technological innovation and application exploration in the blockchain industry. From the initial PoW consensus mechanism to the completion of the "Merge" in September 2022, transitioning to PoS, Ethereum has always been seeking 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 continues to optimize network performance, reduce transaction costs, and enhance the programmability of smart contracts. Compared to previous upgrades, the Prague upgrade involves adjustments to the underlying protocol and includes a series of far-reaching EIPs that cover optimization of the Ethereum Virtual Machine, staking, Rollup performance, interaction costs, storage management, and more. These changes not only improve the overall efficiency of the mainnet but also provide more robust infrastructure support for Layer 2 solutions, DeFi protocols, NFT markets, and others.

The impact of the Prague upgrade is not limited to Ethereum itself, but will also affect the entire cryptocurrency industry, especially projects that rely on Ethereum's infrastructure to operate. From an investment perspective, each Ethereum upgrade can become a key catalyst for changes in market sentiment. As the Prague upgrade approaches, market participants are generally focused on the potential price impact it may bring: on one hand, optimizing network performance may increase the usage rate of ETH and enhance its intrinsic value; on the other hand, whether the technical upgrade can be smoothly implemented, 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

The Prague upgrade is an important update to the Ethereum protocol, inheriting and expanding upon the core objectives of several previous upgrades, including optimizing network performance, reducing transaction costs, enhancing smart contract functionality, and laying the foundation for further expansion and innovation in the future. This upgrade is part of Ethereum's long-term technical roadmap, combining community consensus, developer needs, and feedback from real-world application scenarios, thereby further enhancing Ether's competitiveness as a leading global smart contract platform.

From a technical perspective, the Prague upgrade integrates a series of optimizations that have been reviewed through EIP and discussed within the community. These optimizations involve several key areas including EVM, transaction fee structure, storage management, and contract execution efficiency. The EVM has welcomed a new instruction set optimization, which makes the execution speed of smart contracts faster while reducing computational costs. In addition, the upgrade optimizes Gas calculation logic, allowing different types of operations to allocate resources more reasonably, thereby reducing the issue of fee surges during network congestion.

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

The Prague upgrade also enhances the support capabilities for Layer 2 solutions. It is optimized for the development challenges of Layer 2, improving the mainnet's native support for Layer 2 solutions, making the operation of second-layer networks more efficient and secure. 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 Prague upgrade is not only a technical improvement but also an important step for Ethereum towards higher scalability, better 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, enabling Ethereum to continue leading the innovation trend in the blockchain industry.

3. Technical and Ecological Impact of the Prague Upgrade

The Prague upgrade made several technical adjustments to the Ethereum ecosystem, aiming to improve on-chain operations, staking mechanisms, and support for layer two networks. The main aspects include the following:

3.1 Account Abstraction ( EIP-7702)

EIP-7702 introduces an account abstraction mechanism that changes the management of Ethereum accounts. Users will no longer need to switch account types and can directly perform various operations through EOA accounts, such as authorization and delegation. This significantly reduces the operational costs for users, making on-chain interactions simpler and smoother.

Improvement of user experience: Simplified operational processes and lowered the entry threshold. Impact on DApps: The batch aggregation feature can reduce management costs and improve efficiency. However, it should be noted that it may bring security risks and increase the complexity of permission management.

3.2 Optimization of the Staking Mechanism

The Prague upgrade has made several optimizations to the staking mechanism, aiming to enhance the security and flexibility of staking operations, ensuring the decentralization and security of the network.

EIP-6110: Optimized the staking operation, making the consensus layer no longer rely on the voting mechanism, but instead directly integrating the staking records with the validator-related operations 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 and minimizing 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 issues of large-scale validator centralization. More flexibility and compound yield opportunities have been provided to staking users, but it also brings potential risks to decentralization.

3.3 Support for Layer 2 Networks

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

EIP-7623 & EIP-7691: Enhanced the storage and throughput capabilities of L2. EIP-7623 reduces the L2 network's reliance on calldata by increasing the gas fees for calldata; EIP-7691 expands the capacity of L2 Blobs, enhancing storage space.

Optimization of Blob: Increased 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 the demands of high-frequency trading and large-scale applications.

3.4 Improvement of Data Availability and Throughput

The Prague upgrade also focuses on the availability and throughput of data, especially support for stateless clients. 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's history. This is of significant importance for future optimization solutions like Verkle trees, as well as applications such as Rollups and oracles.

3.5 The impact of the Prague upgrade on the Ethereum ecosystem

The Prague upgrade makes Ethereum more adaptable to the L2 era, enhancing the network's scalability, security, and decentralization level. With future upgrades, Ether's functionalities will become richer, driving it towards the vision of "one million transactions per second" and lower centralization risks.

The Prague upgrade lays a higher foundation for scalability and decentralization of the Ether network through a series of technical improvements. With account abstraction, staking mechanism optimization, and L2 support, Ether becomes more efficient, user-friendly, and resilient. In the future, Ether 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, although bringing several technical improvements and optimizations, also faces some challenges and controversies during its implementation:

4.1 The security risks brought by account abstraction

The account abstraction mechanism introduced by EIP-7702 reduces interaction costs, but it also increases the complexity of user permission management. If wallet service providers fail to adapt correctly, it may lead to security vulnerabilities. The introduction of account abstraction could result in cross-chain losses and even explosive attacks. Hackers might exploit vulnerabilities for phishing attacks, especially when wallet service providers are improperly adapted. Therefore, the security of account abstraction remains a significant risk in the Prague upgrade.

4.2 Challenges and Scalability Issues of L2 Ecosystem

The Prague upgrade has increased the storage capacity and computational efficiency of L2, but managing and optimizing transaction costs and liquidity on L2 remains a significant challenge. The increase in calldata fees under EIP-7623 may lead to rising costs for some L2 ecosystems. Interoperability issues between L2s continue to plague the entire Ethereum ecosystem. As the number of different L2 solutions increases, cross-chain complexity grows, and the decentralization of liquidity and security may affect the stability and benefits of the entire ecosystem. How L2s and L1s work together, as well as how to ensure the transparency and verifiability of L2 transactions, remains to be seen.

4.3 Adaptability Issues for Communities and Developers

The Prague upgrade involves several technological changes with far-reaching implications, which may lead to adaptation issues for developers and users. The introduction of new technologies may require developers to refactor and optimize existing DApps, bringing short-term development pressure. If the developer community fails to keep up with the changes in a timely manner, it may result in some DApps being unable to adapt to the new system on time. The community's acceptance of technological improvements varies, particularly regarding staking mechanisms and L2 optimizations, which may spark controversy. 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 has optimized the performance of Ether, but it still faces competitive pressure from other public chains and Layer 2 solutions. If the L2 ecosystem cannot operate effectively, Ether may lose 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, its market position may be challenged. How to improve efficiency while maintaining decentralization and avoiding excessive concentration risk remains a focal point for the market and the community.

Despite these challenges, the upgrade of Prague lays the foundation for the future development of Ether. As the issues are gradually resolved, Ether is expected to achieve a more efficient, secure, and decentralized network structure.

V. Future Outlook

The Prague upgrade has laid an important foundation for the future development of Ether. Here are several important prospects for the Ether ecosystem after the Prague upgrade:

5.1 Ether will become a more efficient multi-chain ecosystem center.

The Prague upgrade has strengthened support for L2 solutions, providing technical support for Ethereum's multi-chain ecosystem expansion. In the future, Ethereum will serve as a multi-chain center, achieving cross-chain collaboration and data exchange with other public chains. With the maturity and optimization of Layer 2 technology, the Ethereum network will accommodate more DApps and smart contracts, operating more efficiently and at a lower cost. Further optimization of cross-chain will make Ethereum the core hub for DeFi and asset management, and various cross-chain protocols and asset flows will become part of the ecosystem's development.

5.2 The further development of decentralized finance ( DeFi )

With the reduction of transaction fees and the increase in network throughput, the Prague upgrade creates conditions for the expansion of the DeFi ecosystem. New trading models, more efficient lending markets, liquidity pools, and decentralized derivatives markets will gradually mature, creating a richer array of financial products. Especially in terms of AMM and DEX, the Prague upgrade will further promote the scalable development of DeFi. In the future, DeFi may include more financial derivatives, insurance, stablecoin issuance, and more.

5.3 The further prosperity of the NFT and digital art market

The Prague upgrade provides 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. Artists, creators, and brands will have more opportunities to publish and trade digital works on Ethereum. The diversity and innovation of NFTs will continue to drive the development of the entire digital art market. The application of NFTs will expand to more fields, such as gaming, music, and entertainment. The Prague upgrade makes NFT-based business models more sustainable.

5.4 Further enhance the decentralized governance of the Ethereum ecosystem

The Prague upgrade for the decentralized governance of Ether.