Huobi Growth Academy: In-Depth Research Report on Ethereum Prague Upgrade: Technological Innovations, Ecological Impact, and Future Outlook
I. Introduction: A Preview of the Prague Upgrade
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 fields. However, Ethereum's technological evolution has not stopped there. From the initial PoW (Proof of Work) consensus mechanism to the completion of "The Merge" in September 2022, officially transitioning to PoS (Proof of Stake), Ethereum has continually sought more efficient, environmentally friendly, and scalable solutions. Today, the upcoming Prague Upgrade has once again attracted widespread attention from the market.
The Prague Upgrade is another significant technological iteration for 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 includes a series of far-reaching EIPs (Ethereum Improvement Proposals), which encompass optimizing the Ethereum Virtual Machine (EVM), improving Ethereum staking, enhancing Rollup performance, reducing interaction costs, and strengthening storage management, among other aspects. These changes not only improve the overall efficiency of the Ethereum mainnet but also provide more robust infrastructure support for Layer 2 solutions, DeFi protocols, NFT markets, and more.
Every major upgrade of Ethereum is accompanied by significant market fluctuations and in-depth discussions within the community, and the Prague Upgrade is no exception. For developers, new features and optimizations mean more powerful development tools, more efficient smart contract execution methods, and lower computational and storage costs. This will further encourage 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 operational experience. More importantly, due to the vast 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's infrastructure, such as Layer 2 scaling solutions, cross-chain bridges, and decentralized exchanges (DEXs).
Additionally, from an investment perspective, each Ethereum upgrade can become a key catalyst for changes in market sentiment. Historical experience shows that major upgrades often lead to new expectations for Ethereum's prospects, thereby affecting ETH price fluctuations. As the Prague Upgrade approaches, market participants are generally focused on its potential price impact: on one hand, optimizing network performance may increase the usage of ETH, thereby enhancing its intrinsic value; on the other hand, whether the technical upgrade can be successfully implemented, whether there are potential risks, and whether there will be instability in the short term may also affect market sentiment.
II. 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 upon the core goals of several previous upgrades, including optimizing network performance, reducing transaction costs, enhancing smart contract functionality, and laying the groundwork 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 to further enhance Ethereum's competitiveness as a leading global smart contract platform. The upgrade process of Ethereum typically takes the form of a "hard fork," meaning that 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, which means it will be activated at a specific block height and implemented synchronously across the entire network. Once the upgrade is complete, all Ethereum nodes will need to run clients that include the new protocol rules; otherwise, they will not be able to continue participating in network consensus. This process requires developers, miners, stakers, and ordinary users to prepare adequately before the upgrade to ensure a smooth transition for the network.
From a technical perspective, the Prague Upgrade integrates a series of optimizations that have been reviewed and discussed by the Ethereum Improvement Proposals (EIPs) community. These optimizations involve several key areas, including the Ethereum Virtual Machine (EVM), transaction fee (Gas Fee) structure, storage management, and contract execution efficiency. As the core execution environment of Ethereum, the EVM is responsible for handling the deployment and execution of smart contracts, so any changes to the EVM can have widespread implications for the entire ecosystem. In the Prague Upgrade, the EVM welcomes new instruction set optimizations, making the execution of smart contracts faster while reducing computational costs. Additionally, the upgrade optimizes Gas calculation logic, allowing different types of operations to allocate resources more reasonably, thus reducing the issue of fee surges during network congestion.
For ordinary users, the direct impact of the Prague Upgrade is reflected in improved transaction costs and execution efficiency. The issue of transaction fees on Ethereum has always been one of the primary concerns for users, especially during busy network periods when Gas prices can soar to extremely high levels, making small transactions expensive and even affecting the popularity of applications like DeFi, NFTs, and blockchain games. The Prague Upgrade provides users with a more stable and predictable transaction cost structure by optimizing Gas calculation methods, improving transaction bundling strategies, and enhancing Layer 2 compatibility. This not only enhances the user experience but also strengthens Ethereum's competitiveness, allowing it to maintain a technological edge against other blockchains such as Solana, Avalanche, and BNB Chain.
Furthermore, the Prague Upgrade has also enhanced the support capabilities for Layer 2 solutions. In recent years, the rapid development of Ethereum's Layer 2 ecosystem has greatly alleviated congestion on the mainnet, allowing users to conduct faster and cheaper transactions on Layer 2 networks through Rollup technology. However, the development of Layer 2 is still constrained by the architecture of the mainnet, as issues such as data availability, bridge security, and fund transfer delays continue to trouble developers and users. The Prague Upgrade addresses these issues by optimizing the Ethereum mainnet's native support for Layer 2 solutions, making the operation of Layer 2 networks more efficient and secure. This not only aids the development of Rollup solutions but also provides technical support for future modular blockchain architectures.
In the long run, the Prague Upgrade is not just a technical improvement but also an important step for Ethereum towards greater scalability, better user experience, and a stronger developer ecosystem. It lays the groundwork for subsequent upgrades, further optimizations of Ethereum 2.0, data sharding (Danksharding), and other long-term plans, enabling Ethereum to continue leading the innovation trends in the blockchain industry. As the upgrade approaches, markets, developers, investors, and ordinary users are closely monitoring its final effects and the potential ripple effects it may have on the Ethereum ecosystem and the entire cryptocurrency industry.
III. Technical and Ecological Impact of the Prague Upgrade
The Ethereum Prague Upgrade is a comprehensive hard fork focused on enhancing the scalability, security, and user experience of the Ethereum ecosystem. In this version, Ethereum has made several technical adjustments aimed at improving on-chain operations, staking mechanisms, and support for Layer 2 (L2) networks, further promoting the development of the Ethereum ecosystem. Below are the key EIPs related to the Prague Upgrade:
3.1 Account Abstraction (EIP-7702)
EIP-7702 is a key proposal in the Prague Upgrade that introduces an account abstraction mechanism, changing the way Ethereum accounts are managed. Users will no longer need to switch account types (EOA -> CA) and can directly perform various operations through EOA accounts, such as authorization and delegation. This will significantly reduce users' operational costs, making on-chain interactions simpler and smoother.
Key Significance:
- Improved User Experience: By simplifying the operational process, users no longer need to register or manage complex accounts, lowering the entry barrier.
- Impact on DApps: For DApps like exchanges, the batch aggregation feature can reduce 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 Staking Mechanism
The Prague Upgrade has made several optimizations to Ethereum's staking mechanism, aiming to enhance the security and flexibility of staking operations while ensuring the decentralization and security of the Ethereum network.
- EIP-6110: Optimizes staking operations, eliminating the reliance on a voting mechanism in the consensus layer and directly integrating staking records with validator-related operations into the execution layer.
- EIP-7251: Increases the maximum effective staking limit for individual validators to 2048 ETH, further 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.
The goal of these improvements is 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 opportunities for compound returns, but they also introduce potential risks to decentralization.
3.3 Support for Layer 2 Networks (L2 Optimization)
As Ethereum's L2 ecosystem continues to develop, the Prague Upgrade places particular emphasis on supporting and optimizing L2.
EIP-7623 & EIP-7691: These proposals enhance the storage and throughput capabilities of L2. EIP-7623 reduces L2 networks' reliance on calldata by increasing gas fees for transactions; EIP-7691 expands the capacity of L2 Blobs, enhancing storage space.
Blob Optimization: Ethereum has increased the capacity and configuration flexibility of the Blob data structure, enhancing support for L2. This will allow more L2 solutions to operate on the Ethereum main chain and improve their processing capabilities.
These measures reflect Ethereum's commitment to building a stronger L2 ecosystem to support high-frequency trading and large-scale application demands.
3.4 Enhancements in Data Availability and Throughput
The Prague Upgrade also focuses on data availability and throughput, especially in supporting 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's history. This is significant for future optimizations such as Verkle trees and applications like Rollups and oracles.
3.5 Impact of the Prague Upgrade on the Ethereum Ecosystem
Although the Prague Upgrade itself has not sparked market discussions as heated 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 levels. With future upgrades (such as the Osaka and Amsterdam hard forks), Ethereum's functionality will become richer, pushing it towards grand visions like "a million transactions per second" (The Surge) and low centralization risk (The Scourge).
The Prague Upgrade is an important step in Ethereum's development. Although it may not have generated as much market buzz as "London" or "The Merge," it lays a higher foundation for scalability and decentralization through a series of technical improvements. Through 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.
IV. Challenges and Controversies of the Prague Upgrade
The Prague Upgrade is a significant evolution of the Ethereum network. Although it brings multiple technical improvements and optimizations, its implementation faces several challenges and controversies. These challenges arise not only from technical aspects but also involve balancing the interests of ecosystem participants and choosing the long-term development direction of Ethereum. Below are the main challenges and controversies that the Prague Upgrade may face during its implementation:
4.1 Security Risks from Account Abstraction
The EIP-7702 in the Prague Upgrade introduces an account abstraction mechanism that allows 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, allowing users to perform operations directly using externally owned accounts (EOAs) without needing to convert to contract accounts (CAs) in advance. This optimization significantly reduces users' interaction costs and allows various transaction methods (such as authorization delegation and execution delegation) to be executed in parallel within a single account. However, this flexibility brings potential security risks. While 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, users' losses were limited to single-chain assets, but now, due to the introduction of account abstraction, a vulnerability 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 do not adapt properly. Therefore, although account abstraction improves user experience, its security remains a significant concern in the Prague Upgrade.
4.2 Challenges and Scalability Issues in the L2 Ecosystem
The Prague Upgrade places particular emphasis on optimizing Ethereum's Layer 2 (L2) ecosystem, especially regarding transaction data storage and computational efficiency. Through EIP-7623 and EIP-7691, the Prague Upgrade further increases L2's storage capacity and computational efficiency, enabling L2 to handle more transactions and data. However, technically managing and optimizing the transaction costs and liquidity of these L2 systems remains a significant challenge. First, while EIP-7623 increases the fees for calldata, aiming to reduce L2 systems' reliance on the Ethereum main chain, this may also lead to increased costs for some L2 ecosystems. If L2 systems cannot effectively adapt to these changes, it may affect their long-term sustainability and user experience. Additionally, while L2 scaling can alleviate pressure on the Ethereum main chain, interoperability issues between L2s continue to plague the entire Ethereum ecosystem. The biggest challenge facing further expansion and optimization of L2 is how to coordinate communication, transactions, and data sharing between different L2s. As the number of different L2 solutions on the Ethereum network increases, the complexity of cross-chain interactions also grows, and the decentralization of liquidity and security may affect the overall stability and efficiency of the ecosystem. Therefore, although the Prague Upgrade has made significant efforts to optimize the L2 ecosystem, its actual effects remain to be seen, especially regarding how to achieve collaborative work between L2 and L1 and ensure the transparency and verifiability of L2 transactions.
4.3 Community and Developer Adaptability Issues
The implementation of the Prague Upgrade involves multiple EIP proposals, many of which include technical changes that have far-reaching implications for the Ethereum ecosystem. Although these changes theoretically can significantly enhance the performance and user experience of the Ethereum network, practical application and adaptation may encounter resistance from developers and users. Especially with the introduction of new technologies like account abstraction and BLS signatures, developers may need to restructure and optimize existing DApps, which may lead to a certain degree of development and adaptation pressure in the short term.
More importantly, core proposals of the Prague Upgrade, such as EIP-7702 and EIP-2537, may require developers to invest significant time and effort to adapt to new development frameworks and standards. If the developer community fails to keep pace with these changes, it may result in some DApps not being able to adapt to the new system in a timely manner, thereby affecting the healthy development of the entire Ethereum ecosystem. Additionally, the acceptance of these technical improvements within the community varies. The Ethereum community has experienced multiple controversies and disagreements, and some of the technical solutions in the Prague Upgrade, particularly in staking mechanisms and L2 optimizations, may provoke further disputes. How to achieve technological innovation while ensuring decentralization and network security remains a challenge that Ethereum developers and the community need to continue exploring and addressing.
4.4 Market Reactions and Competitive Pressure from Other Chains
Although the Prague Upgrade aims to enhance Ethereum's scalability, user experience, and security, competition in the multi-chain ecosystem is becoming increasingly fierce. 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 often offer higher transaction speeds and lower transaction fees. While Ethereum's L2 optimizations can alleviate this issue to some extent, if the L2 ecosystem cannot operate effectively, Ethereum will still face a loss of market share. Furthermore, although the Prague Upgrade has made many technical optimizations, the market's actual reaction to these upgrades remains uncertain. If Ethereum cannot attract more developers and users through these upgrades in the short term, its market position may be challenged by other competing chains. Moreover, while the Prague Upgrade can enhance Ethereum's throughput and efficiency, how to maintain its original decentralization characteristics and avoid excessive centralization risks remains a focal point of concern for the market and the community.
The Prague Upgrade is undoubtedly an important evolution in Ethereum's history, making significant efforts to enhance network performance, scalability, and user experience. However, this process is not without challenges. Centralization risks, security vulnerabilities, L2 ecosystem management issues, and community adaptability problems all pose significant challenges to the smooth implementation and long-term development of the Prague Upgrade. Nevertheless, the implementation of the Prague Upgrade lays the foundation for Ethereum's future development, and as these issues are gradually resolved, Ethereum is expected to achieve a more efficient, secure, and decentralized network structure in the future.
V. Future Outlook
The Prague Upgrade, as a key upgrade to the Ethereum network, lays an important foundation for its future development. With continuous technological advancements, the Prague Upgrade will have a profound impact on the Ethereum ecosystem, particularly in terms of scalability, decentralization, security, and user experience. The following explores the impact of the Prague Upgrade on the Ethereum ecosystem and future outlook in two parts.
5.1 Favorable Impacts of the Prague Upgrade
The Prague Upgrade brings significant enhancements to the Ethereum network through a series of technical optimizations and protocol improvements. By optimizing transaction data storage, computational efficiency, and interaction methods, Ethereum can process more transactions and smart contracts more efficiently, significantly increasing the network's throughput. Particularly, by supporting 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 speeds and lower costs for transactions but also increase Ethereum's transaction throughput, thereby supporting more DApps and user demands. At the same time, the Prague Upgrade, through proposals like EIP-7623 and EIP-7691, enhances the implementation of Layer 2 solutions on Ethereum, making collaboration between L2 and L1 smoother. By shifting computation and data processing from the main chain to L2, the Prague Upgrade effectively alleviates congestion on the Ethereum main chain, providing technical assurance for the emergence of more applications in the future.
Several optimization measures in the Prague Upgrade, such as introducing the account abstraction mechanism (EIP-7702) and modifying the transaction fee model, significantly improve transaction efficiency and reduce transaction costs. Through account abstraction, users can execute transactions more flexibly, simplifying complex transaction logic. Additionally, by optimizing transaction fees and lowering execution costs, users can engage in more frequent interactions without sacrificing experience, thereby improving the efficiency of the Ethereum network. These improvements particularly benefit users and developers in 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 see further enhancement.
At the same time, the Prague Upgrade strengthens the security of the Ethereum network, especially regarding optimizations in the Proof of Stake (PoS) mechanism and staking system. By improving the staking mechanism, the Prague Upgrade not only enhances the network's resistance to attacks but also increases 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 makes the network's validating nodes more decentralized, reducing the risk of single points of failure and strengthening Ethereum's resistance to malicious behavior.
Moreover, another important improvement of the Prague Upgrade is the introduction of a stronger consensus algorithm, particularly with support for BLS signatures, making data validation and storage more secure. By enhancing the network's security, the Prague Upgrade improves Ethereum's stability in high-risk environments, especially in supporting financial applications, ensuring a safer and more reliable transaction environment.
Although the centralization issue of the staking mechanism is one of the controversies surrounding the Prague Upgrade, it overall strengthens Ethereum's decentralization characteristics. By enhancing the diversity of validators, lowering the validation threshold, and increasing support for smaller validators, the Prague Upgrade has, to some extent, promoted the decentralization process of the Ethereum network.
The account abstraction and smart contract optimizations in the Prague Upgrade also provide developers with more tools to implement decentralized applications (DApps), while further promoting the development of the decentralized ecosystem by lowering transaction costs and improving execution efficiency. Thus, the Prague Upgrade not only enhances the network's flexibility but also provides technical assurance for the innovation and development of decentralized autonomous organizations (DAOs) and decentralized finance (DeFi) applications.
5.2 Future Outlook: The Ethereum Ecosystem After the Prague Upgrade
With the successful implementation of the Prague Upgrade, the future ecosystem of Ethereum will showcase many new possibilities. Below are several important outlooks for the Ethereum ecosystem after the Prague Upgrade:
5.2.1 Ethereum Will Become a More Efficient Multi-Chain Ecosystem Hub
The Prague Upgrade, by strengthening support for L2 solutions, provides robust technical support for Ethereum's potential to expand into a multi-chain ecosystem. In the future, Ethereum will not only exist as a blockchain platform but also as a multi-chain hub, achieving cross-chain collaboration and data exchange 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 operate more efficiently and at lower costs. Further optimization of cross-chain interactions will also make Ethereum a core hub for decentralized finance (DeFi) and asset management, with various cross-chain protocols and asset flows becoming part of ecosystem development. The Prague Upgrade further promotes Ethereum's strategy as a cross-chain hub, enhancing its competitiveness in multi-chain interoperability.
5.2.2 Further Development of Decentralized Finance (DeFi)
With lower transaction fees and increased network throughput, the Prague Upgrade creates conditions for the expansion of the decentralized finance (DeFi) ecosystem. DeFi protocols will no longer face bottlenecks of main chain congestion and high fees, allowing more users and developers to participate in building DeFi. New trading models, more efficient lending markets, liquidity pools, and decentralized derivatives markets will gradually mature in the context of the Prague Upgrade, creating a richer array of financial products. Especially in automated market makers (AMMs) and decentralized exchanges (DEXs), the Prague Upgrade will further promote the scaling development of decentralized finance by providing more efficient network support and improved trading models. DeFi will not be limited to simple lending and trading; in the future, it may include more financial derivatives, insurance, and stablecoin issuance.
5.2.3 Further Prosperity of the NFT and Digital Art Market
The Prague Upgrade also 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, while the diversity and innovation of NFTs will continue to drive the development of the entire digital art market. NFT smart contracts will not only support art trading but will also expand into more fields such as gaming, music, and entertainment. The Prague Upgrade brings a more efficient trading experience to the NFT market and makes NFT-based business models more sustainable.
5.2.4 Further Enhancing Decentralized Governance in the Ethereum Ecosystem
The Prague Upgrade is not only an optimization of the technical architecture but also provides better support for Ethereum's decentralized governance. By increasing the transparency of the staking mechanism, enhancing the diversity of validators, and further removing reliance on centralized institutions, Ethereum's governance structure will become more open and decentralized. In the future, as the Ethereum DAO (Decentralized Autonomous Organization) model matures, more governance decisions will be reached through community consensus, truly achieving decentralized autonomy. This improvement in decentralized governance also serves as a demonstration for other blockchain projects, allowing innovations in blockchain technology to be more widely applied in governance.
In summary, the Prague Upgrade is a milestone in Ethereum's development, bringing unprecedented technological advancements to the network. In the future, Ethereum will continue to achieve 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 remains full of immense potential, warranting our continued attention and anticipation.