Ether Workshop Prague Upgrade Depth Research Report: Ecological Impact and Future Prospects

Chapter 1: Introduction - Prague Upgrade Outlook

Since its official launch in 2015, Ethereum has been at the forefront of technological innovation and application exploration in the blockchain industry. As a pioneering platform, Ethereum has not only led the wave of smart contracts and decentralized applications (DApps), but has also had a profound impact on decentralized finance (DeFi), non-fungible tokens (NFTs), and other blockchain application areas. However, Ethereum’s technological evolution does not stop there. From the initial PoW (Proof of Work) consensus mechanism to completing ‘The Merge’ in September 2022, transitioning to PoS (Proof of Stake), Ethereum has always been seeking more efficient, environmentally friendly, and scalable solutions. The upcoming Prague Upgrade is once again attracting widespread attention in 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. Compared to previous upgrades, the Prague upgrade involves not only adjustments to the underlying protocol but also a series of far-reaching EIPs (Ethereum Improvement Proposals), including optimizing the Ethereum Virtual Machine (EVM), optimizing Ethereum staking, improving Rollup performance, reducing interaction costs, and strengthening storage management, among other aspects. These changes not only enhance the overall efficiency of the Ethereum mainnet but also provide more robust infrastructure support for Layer 2 solutions, DeFi protocols, NFT markets, and more.

Each major upgrade of Ethereum is accompanied by drastic market fluctuations and in-depth community discussions, and the Prague upgrade is no exception. For developers, new features and optimization measures mean more powerful development tools, more efficient smart contract execution, and lower computing and storage costs. This will further motivate developers to build more complex and innovative applications on the Ethereum network. For ordinary users, the Prague upgrade may mean faster transaction speeds, lower fees, and a more secure on-chain operating experience. More importantly, due to the enormous scale of the Ethereum ecosystem, the impact of this upgrade is not limited to Ethereum itself but will also affect the entire cryptocurrency industry, especially projects that rely on Ethereum infrastructure, such as Layer 2 scaling solutions, cross-chain bridges, decentralized exchanges (DEX), and more.

In addition, from an investment perspective, each Ethereum upgrade could potentially become a key catalyst for market sentiment changes. Historical experience indicates that major upgrades often lead to new expectations for Ethereum’s prospects in the market, thus affecting the fluctuation of ETH prices. As the Prague upgrade is approaching, market participants are generally concerned about the potential price impact it may bring: on the one hand, optimizing network performance may increase the usage of ETH, thereby enhancing its intrinsic value; on the other hand, factors such as the smooth implementation of technical upgrades, potential risks, and the possibility of short-term instability may also affect market sentiment.

II. Overview of the Prague Upgrade

2.1 What is Prague upgrade?

The Prague Upgrade is a significant update of the Ethereum protocol, inheriting and extending the core goals 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 use cases to further enhance Ethereum’s competitiveness as a leading global smart contract platform. The Ethereum upgrade process usually takes the form of a ‘hard fork,’ where all nodes must update to the new version of the software to maintain compatibility with the network. The Prague Upgrade is also a hard fork, meaning it will be activated at a specific block height and implemented synchronously across the entire network. Once the upgrade is complete, all Ethereum nodes need to run a client containing the new protocol rules, otherwise they will be unable to continue participating in network consensus. This process requires developers, miners, stakers, and regular users to adequately prepare before the upgrade to ensure a smooth transition of the network.

From a technical perspective, the Prague upgrade integrates a series of optimization measures that have been reviewed through Ethereum Improvement Proposals (EIPs) and community discussions. These optimizations involve several key areas such as the Ethereum Virtual Machine (EVM), Gas Fee structure, storage management, contract execution efficiency, and more. As the core execution environment of Ethereum, the EVM is responsible for deploying and executing smart contracts, so any changes to the EVM could have wide-ranging impacts on the entire ecosystem. In the Prague upgrade, the EVM introduces new instruction set optimizations, making smart contract execution faster while reducing computational costs. Additionally, the upgrade optimizes Gas calculation logic, allowing for more rational allocation of resources for different types of operations and reducing the issue of cost spikes during network congestion.

For ordinary users, the direct impact of the Prague upgrade is reflected in the improvement of transaction costs and execution efficiency. The issue of transaction fees on Ethereum has always been one of the most concerning issues for users, especially during busy network periods, Gas prices may soar to very high levels, making small transactions expensive, and even affecting the popularization of applications such as DeFi, NFTs, and blockchain games. The Prague upgrade optimizes Gas calculation methods, improves transaction bundling strategies, and enhances Layer 2 compatibility, providing users with a more stable and predictable transaction cost structure. This not only enhances user experience but also strengthens Ethereum’s competitiveness, enabling it to maintain a technical advantage when facing other blockchains (such as Solana, Avalanche, BNB Chain).

In addition, the Prague upgrade also enhances the support capability of Layer 2 solutions. In recent years, the rapid development of the Ethereum Layer 2 ecosystem has greatly alleviated the congestion problem of the main network, allowing users to conduct faster and cheaper transactions on the second-layer network through Rollup technology. However, the development of Layer 2 is still limited by the main network architecture, and issues such as data availability, bridge security, and fund withdrawal delays continue to plague developers and users. Prague upgrade has optimized these issues, improved the native support capability of the Ethereum main network for Layer 2 solutions, and made the operation of the second-layer network more efficient and secure. This not only contributes to the development of the Rollup solution, 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 optimization of Ethereum 2.0, long-term planning such as data sharding (Danksharding), enabling Ethereum to continue to lead the innovation trend in the blockchain industry. As the upgrade approaches, the market, developers, investors, and ordinary users are all closely watching its final effects, as well as the ripple effects it may have on the Ethereum ecosystem and even the entire crypto industry.

3. The Technological and Ecological Impact of Prague Upgrade

The Ethereum Prague upgrade is a comprehensive hard fork that focuses on improving the scalability, security, and user experience of the Ethereum ecosystem. In this version, Ethereum has made multiple technical adjustments aimed at improving on-chain operations, staking mechanisms, and support for Layer 2 (L2) networks, further driving the development of the Ethereum ecosystem. Here are the key EIPs for the Prague upgrade: 3.1 Account Abstraction (EIP-7702)

CA) and can directly perform various operations through EOA accounts, such as authorization and delegation. This will significantly reduce user operating costs, making on-chain interactions more convenient and seamless.

Key Meaning:

Improved user experience: By simplifying the operation process, users no longer need to register or manage complex accounts, reducing the entry barrier.

The impact of DApps: For DApps like exchanges, batch collection functions can reduce their management costs and improve efficiency. However, it is important to note that this also brings security risks, as account abstraction may increase the complexity of permission management.

3.2 Optimization of the pledge mechanism

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

EIP-6110: Optimized the staking operation, so that the consensus layer no longer relies on the voting mechanism, but directly integrates the staking records and validator-related operations into the execution layer.

EIP-7251: Increase the maximum effective staking limit for a single validator to 2048 ETH, further reducing the complexity of validator management and system redundancy.

EIP-7549: Improved the flexibility of staking operations, making it easier for validators to partially withdraw and exit.

These improvements aim to ensure the security of the Ethereum network while reducing the problem of large-scale validator centralization. For users participating in staking, these optimizations provide more flexibility and the opportunity for compound returns, but they also bring potential risks of decentralization.

3.3 Support for Layer 2 network (L2 optimization)

With the continuous development of the Ethereum L2 ecosystem, the Prague upgrade pays special attention to the support and optimization of L2.

EIP-7623 & EIP-7691: These proposals enhance the storage and throughput capabilities of L2. EIP-7623 increases the gas cost of calldata in transactions, reducing the reliance of L2 networks on calldata; EIP-7691 extends the capacity of L2 Blob, improving storage space.

Blob optimization: Ethereum has increased the capacity and configuration flexibility of the Blob data structure, enhancing support for L2. This will enable more L2 solutions to run on the Ethereum main chain and improve its processing power.

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

3.4 Improving Data Availability and Throughput

Prague upgrade also focuses on the availability and throughput of data, 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 storing the entire chain’s history. This is important for future optimization schemes such as Verkle trees, as well as applications like Rollup and oracles.

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

Although the Prague upgrade itself did not cause as much market discussion as the “merge”, it plays a crucial role in the long-term development of Ethereum. The Prague upgrade makes Ethereum more adaptable to the L2 era, enhancing the network’s scalability, security, and decentralization. With future upgrades (such as the Osaka, Amsterdam hard forks, etc.), Ethereum’s functionality will become richer, driving it towards grand visions such as “The Surge” of a million transactions per second and low centralization risks (The Scourge).

The Prague upgrade is an important step in the development of Ethereum. Although it may not have sparked as much market discussion as ‘London’ or ‘Merge’, it lays a higher level of scalability and decentralized foundation for the Ethereum network through a series of technical improvements. With account abstraction, optimized staking mechanisms, 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 leading position in the blockchain ecosystem.

Four, the challenges and controversies of the Prague upgrade

The Prague Upgrade is an important evolution of the Ethereum network. Although it brings multiple technical improvements and optimizations, its implementation also faces some challenges and controversies. These challenges not only come from the technical level, but also involve the balance of interests of ecosystem participants and the choice of the long-term development direction of Ethereum. The following are the main challenges and controversies that the Prague Upgrade may face in the implementation process:

The security risks brought by account abstraction 4.1

The EIP-7702 upgrade in Prague introduces an account abstraction mechanism, allowing users to implement more flexible transaction methods at the chain level. The core idea of account abstraction is to eliminate the differences in account types from the chain, so users no longer need to convert to a contract account (CA) in advance to operate, but can directly use an externally owned account (EOA) for transactions. This optimization significantly reduces user interaction costs and allows multiple transaction methods (such as authorized deduction and execution deduction) to be executed in parallel in a single account. However, this flexibility also brings potential security risks. While the introduction of account abstraction reduces interaction costs, it also increases the complexity of user permission management. If wallet service providers fail to adapt to this mechanism correctly, it may lead to unexpected security vulnerabilities. Previously, user losses were limited to single-chain assets, but with the introduction of account abstraction, the emergence of vulnerabilities could lead to cross-chain losses or even explosive attacks. Hackers may exploit vulnerabilities in this mechanism for phishing attacks, especially when wallet service providers are improperly adapted. Therefore, despite the optimization of user experience brought by account abstraction, its security remains a major hidden danger in the Prague upgrade.

4.2 The challenges and scalability issues of the L2 ecosystem

The Prague upgrade specifically emphasizes the optimization of the Ethereum Layer 2 (L2) ecosystem, especially in terms of transaction data storage and computational efficiency. Through EIP-7623 and EIP-7691, the Prague upgrade further increases the storage capacity and computational efficiency of L2, enabling L2 to handle more transactions and data. However, technically, how to manage and optimize the transaction costs and liquidity of these L2s remains a huge challenge. First of all, although EIP-7623 increases the cost of calldata to reduce the dependence of the L2 system on the Ethereum main chain, this may also lead to a rise in the cost of some L2 ecosystem. If the L2 system cannot effectively adapt to these changes, it may affect its long-term sustainable development and user experience. In addition, while the expansion of L2 can alleviate the pressure on the Ethereum main chain, the interoperability issues between L2s still plague the entire Ethereum ecosystem. The biggest challenge facing the further expansion and optimization of L2 lies in how to coordinate the communication, transactions, and data sharing between different L2s. With the increasing number of different L2 solutions on the Ethereum network, the complexity of cross-chain is also increasing, and the dispersion of liquidity and security may affect the stability and efficiency of the entire ecosystem. Therefore, although the Prague upgrade has made great efforts to optimize the L2 ecosystem, its actual effects still need to be observed, especially how the collaboration between L2 and L1 is realized, and how the transparency and verifiability of L2 transactions are ensured.

4.3 Adaptability Issues for Community and Developers

The implementation of the Prague upgrade involves multiple EIP proposals, many of which involve technical changes that will have a profound impact on the Ethereum ecosystem. Although these changes theoretically have the potential to significantly improve the performance and user experience of the Ethereum network, the actual application and adaptation process may encounter resistance from developers and users. In particular, the introduction of new technologies such as account abstraction and BLS signatures may require developers to refactor and optimize existing DApps, which may result in a certain degree of development and adaptation pressure in the short term.

More importantly, the core proposals of the Prague upgrade, such as EIP-7702 and EIP-2537, may require developers to invest a significant amount of time and effort to adapt to new development frameworks and standards. If the developer community fails to keep up with these changes in a timely manner, it may result in some DApps not being able to adapt to new systems in a timely manner, thereby affecting the healthy development of the entire Ethereum ecosystem. In addition, the acceptance of these technical improvements in the community varies. The Ethereum community has experienced multiple controversies and disagreements in the past, and some technical solutions in the Prague upgrade, especially in terms of staking mechanisms and L2 optimizations, may further provoke controversy. How to achieve technological innovation while safeguarding decentralization and network security is still a problem that Ethereum developers and the community need to continue to explore and solve.

4.4 Market response and pressure from the competitive chain

Although the goal of the Prague upgrade is to improve the scalability, user experience, and security of Ethereum, the competition is becoming increasingly fierce in the multi-chain ecosystem. Ethereum faces significant pressure from other public chains (such as Solana, Aptos, Polkadot, etc.) and Layer 2 solutions (such as Arbitrum, Optimism, etc.). These competing chains and protocols usually have higher transaction speeds and lower transaction fees. Although Ethereum’s L2 optimization can alleviate this to some extent, if the L2 ecosystem cannot operate effectively, Ethereum will still face a loss of market share. In addition, while the Prague upgrade has made many optimizations technically, the actual market response to these upgrades remains unknown. If Ethereum fails to attract more developers and users through these upgrades in the short term, its market position may be challenged by other competing chains. Furthermore, although the Prague upgrade can enhance Ethereum’s throughput and efficiency, how to maintain its original decentralized characteristics and avoid the risk of excessive centralization remains the focus of market and community attention.

The Prague upgrade is undoubtedly an important evolution in the history of Ethereum, which has made significant efforts in improving network performance, scalability, and user experience. However, this process is not without challenges. Centralization risks, security vulnerabilities, management issues in the L2 ecosystem, and community adaptability issues have brought considerable challenges to the smooth implementation and long-term development of the Prague upgrade. Nevertheless, the implementation of the Prague upgrade has laid the foundation for the future development of Ethereum. With these issues gradually resolved, Ethereum is expected to achieve a more efficient, secure, and decentralized network structure in the future.

5. Future Outlook

The Prague upgrade, as a key upgrade of the Ethereum network, has laid an important foundation for its future development. With the continuous advancement of technology, the Prague upgrade will have a profound impact on the Ethereum ecosystem, especially in terms of scalability, decentralization, security, user experience, etc. The following will delve into the impact on the Ethereum ecosystem and the future prospects after the Prague upgrade from two aspects.

5.1 The favorable impact of the Prague upgrade

The Prague upgrade has significantly improved the Ethereum network through a series of technical optimizations and protocol enhancements. The Prague upgrade optimizes transaction data storage, computational efficiency, and interaction methods, allowing Ethereum to process more transactions and smart contracts more efficiently, significantly increasing the network’s throughput. In particular, with support for Layer 2 (L2) solutions, the Prague upgrade greatly reduces the burden on the Ethereum main chain, enhancing the overall scalability of the network. L2 solutions not only provide higher transaction speeds and lower costs but also increase Ethereum’s transaction throughput, supporting more DApps and user needs. At the same time, the Prague upgrade enhances the implementation of Layer 2 solutions on Ethereum through the support of proposals such as EIP-7623 and EIP-7691, making the collaboration between L2 and L1 smoother. By moving computation and data processing from the main chain to L2, the Prague upgrade effectively alleviates congestion on the Ethereum main chain, providing technical support for the emergence of more applications in the future.

Several optimization measures in progress in Prague, such as the introduction of the account abstraction mechanism (EIP-7702) and the modification of the transaction fee model, have greatly improved transaction efficiency and reduced transaction costs. Through account abstraction, users can execute transactions more flexibly, simplifying complex transaction logic. In addition, by optimizing transaction fees and reducing execution costs, users can interact more frequently without sacrificing experience, thereby improving the efficiency of the Ethereum network. These improvements bring more convenience to users and developers in the decentralized finance (DeFi) and non-fungible token (NFT) markets. Lower transaction fees and higher transaction throughput mean that users can more easily participate in various DeFi protocols, while the activity in the NFT market will also be further enhanced.

At the same time, the Prague upgrade has strengthened the security of the Ethereum network, especially in the optimization of the Proof of Stake (PoS) mechanism and staking system. Through improvements to the staking mechanism, the Prague upgrade has not only enhanced the network’s resistance to attacks, but also increased the diversity of validators by raising the staking threshold and expanding the staking pool, thereby reducing the risk of a 51% attack. The new staking mechanism has decentralized the network’s validation nodes, reducing the risk of single point of failure, and has strengthened the Ethereum network’s resistance to malicious behavior.

In addition, another important improvement in the Prague upgrade is the introduction of a stronger consensus algorithm, especially the support for BLS signatures, making the validation and storage of data more secure. By enhancing the security of the network, the Prague upgrade has improved the stability of Ethereum in high-risk environments, especially in supporting financial applications, ensuring a more secure and reliable trading environment.

Although the centralization issue of the staking mechanism is one of the controversies of the Prague upgrade, the Prague upgrade overall still strengthens the decentralization of Ethereum. By increasing the diversity of validators, lowering the validation threshold, and enhancing support for small validators, the Prague upgrade has to some extent promoted the decentralization process of the Ethereum network.

The Prague upgrade enhances account abstraction and smart contract optimization, providing developers with more tools to build decentralized applications (DApps). By reducing transaction costs and improving execution efficiency, it further promotes the development of the decentralized ecosystem. This upgrade not only enhances the network’s flexibility but also provides technical support for the innovation and development of ecosystem applications such as decentralized autonomous organizations (DAO) and decentralized finance (DeFi).

5.2 Future Outlook: The Upgraded Ethereum Ecosystem in Prague

With the successful implementation of the Prague upgrade, the future ecosystem of Ethereum will show many new possibilities. Here are several important prospects for the Ethereum ecosystem after the Prague upgrade:

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

The Prague upgrade enhances the support for L2 solutions, providing powerful technical support for expanding the multi-chain ecosystem of Ethereum. In the future, Ethereum will not only exist as a blockchain platform, but also as a multi-chain hub, collaborating and exchanging data with other public chains (such as Polkadot, Cosmos, etc.). With the maturity and optimization of Layer 2 technology, the Ethereum network will be able to accommodate more DApps and smart contracts, and these applications can run more efficiently and cost-effectively. Further optimization of cross-chain transactions will also make Ethereum a core hub for decentralized finance (DeFi) and asset management, with the flow of various cross-chain protocols and assets becoming part of the ecosystem. The Prague upgrade further promotes Ethereum’s strategic role as a cross-chain hub, giving it a stronger competitive edge in terms of multi-chain interoperability.

5.2.2 Further Development of Decentralized Finance (DeFi)

With the reduction of transaction fees and the increase in network throughput, the upgrade of Prague to a decentralized finance (DeFi) ecosystem expansion has created conditions. DeFi protocols no longer face the bottleneck of main chain congestion and high fees, allowing more users and developers to participate in the construction of DeFi. New trading models, more efficient lending markets, liquidity pools, and decentralized derivatives markets will gradually mature against the backdrop of the Prague upgrade, creating a more diverse range of financial products. Especially in terms of automated market makers (AMMs) and decentralized exchanges (DEXs), the Prague upgrade will further drive the scale development of decentralized finance by providing more efficient network support and improved trading models. DeFi will not be limited to simple borrowing and trading, but may also include more financial derivatives, insurance, stablecoin issuance, etc.

5.2.3 Further Prosperity of NFT and Digital Art Market

The Prague upgrade also provides a more solid foundation for the development of the NFT market. Low transaction costs 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 release and trade digital works on Ethereum. At the same time, the diversity and innovation of NFTs will continue to drive the development of the entire digital art market. NFT smart contracts can not only support art transactions, but will also expand to more areas such as games, music, entertainment, etc. The Prague upgrade brings a more efficient trading experience to the NFT market and makes NFT-based business models more sustainable.

Further enhance the decentralized governance of the Ethereum ecosystem in 5.2.4

The upgrade of Prague is not only an optimization of the technical architecture, but also provides better support for the decentralized governance of Ethereum. By improving the transparency of the staking mechanism, enhancing the diversity of validators, and further reducing reliance on centralized institutions, the governance structure of Ethereum will become more open and decentralized. In the future, with the improvement of the Ethereum DAO (decentralized autonomous organization) model, more governance decisions will be reached through community consensus, truly achieving decentralized autonomy. This improvement in decentralized governance also provides a demonstration for other blockchain projects, allowing the innovation of blockchain technology in governance to be more widely applied.

In conclusion, the Prague upgrade is a milestone in the development of Ethereum, bringing unprecedented technological advancements to the network. In the future, Ethereum will continue to usher in 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 post-Prague upgrade Ethereum ecosystem is still full of immense potential, deserving our ongoing attention and anticipation.