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Ethereum is sick
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Author: Dr Martin Hiesboeck; Translator: Block unicorn
At Uphold Institutional, we do have a lot of clients with large investments in Ethereum, so I’m currently inundated with questions about the future of this original smart contract network, especially in the face of strong competition from Solana and other L1 chains.
Today, Ethereum does seem to have lost its way. Prices are struggling, big players are exiting or moving to Solana; Ethereum’s weekly meetings are filled with conflicting proposals, and “Hannibal” is indeed at the door: Never before have so many L1 chains directly competed with Ethereum, not only with Ethereum itself, but also challenging Ethereum’s vision and business model.
Make no mistake: Ethereum has become a business. Revenue comes from transactions, and while we’ve been told time and again that low transaction costs are in everyone’s interest, that’s simply not the case. People who own ETH want high fees. They’re frustrated about letting parasitic L2s (ostensibly created to solve scalability issues) eat into their profits. Fees go up, ETH price goes up. Fees go down, ETH price goes down. Over 90% of the Ethereum Foundation’s budget relies on Ethereum transaction fees. It’s a consensus that blockchain networks need fees — despite many examples of fairer incentive models. Ethereum is stuck in an outdated business model that it can’t easily break free of.
The problem isn’t just fees — Ethereum has betrayed its own founding principles and the original vision of crypto purists many times over. The community was shocked when Maximum Extractable Value (MEV) emerged - it was achieved by reordering transactions in blocks, but then accepted it for the sake of greed. Pure, undisguised greed, a departure from the original vision of a decentralized network. Greed was in turn supported by Ethereum stakeholders - large financial institutions that have bet billions of dollars on the "world computer" and only care about their own return on investment, and have no care for the ideals of decentralized finance, nor any interest in supporting this concept.
When browsing Vitalik's roadmap for the next few years, a sense of urgency for reform can still be felt, but it is mixed with hesitation to solve the many flaws and contradictions in the network. In private conversations, he is increasingly heard sighing. He is torn between his lofty ideals and the needs of the "board" and investors.
The most obvious technical problem is that Ethereum is no longer that decentralized. Solana is certainly not either, so decentralization has little to do with investor needs. For those who care only about the dollar value of everything and ignore the ideal, the ideal of blockchain has long been abandoned. There are now three block builders that produce 90% of the blocks on Ethereum. In a paper written by Sen Yang and Fan Zhang of Yale University Computer Science and Kartik Nayak of Duke University, the authors ask: "Since the builder market is permissionless and anyone can join, why does it move towards centralization?"
Of course, there is an old adage in computer science: Any decentralized system with incentives will move towards centralization over time (if there are no incentives, the system will gradually decay and enter a dilemma). But the real reason is that block building makes sense at scale, more advantageous in cheap data centers, and less for individuals. The larger the network and the more influential the stakeholders, the stronger the drive towards centralized control. Just as Bitcoin mining has become centralized, it is almost worthless for a single computer to participate in the competition. Ethereum has been usurped by large corporate interests, and now neither currency is the “people’s currency” anymore, which is why we’ve seen so many great competitors — like Kaspa against Bitcoin, SpaceMesh as the real RMB, Alephium as a safer and fairer smart contract platform, etc.
To purportedly combat MEV, Ethereum introduced the MEV-Boost auction, which was supposed to come up with ways to reduce and prohibit malicious “on-chain front-running”. However, as is often the case in Ethereum’s history, the introduction of competition has only served to make the dominance of the Big Three even stronger.
Ethereum has lost its appeal to the broader decentralized community. The cost of participating in private order flow MEV is about 1.5 ETH. This is a prohibitive barrier to entry for new players, and the existing giants are happy to see it happen. As a result, Vitalik introduced Proposer-Builder Separation, but this was another failed attempt.
At the heart of the debate is transaction ordering. Most L2s, for example, rely on a single sorter. This runs counter to the idea of decentralization. Ethereum insiders want to create a "shared sorter", but this doesn't work: it's the single sorter that makes L2 profitable, and Ethereum pays for it. This ultimately requires real-time composability, or "synchronous composability", which many researchers believe cannot be achieved with linear blockchains. To do this, you need a directed acyclic graph (DAG) or lattice structure.
Block unicorn note: The transaction ordering mentioned above means that you need to be sorted in any transaction activity, just like when you go to buy a cup of milk tea, you need to queue up to buy milk tea if someone is in front of you. The current sorters and validators of the second-layer network are all self-designated nodes, which are out of the principle of decentralization. The sorter is controlled by a small group of people, which will be vulnerable to centralized attacks and lose security guarantees.
There are chains that don’t have these issues with Ethereum, for example, MultiversX. Ethereum keeps putting band-aids on “cancer patients” while other projects start from scratch and completely avoid the “blockchain trilemma” (actually the “Ethereum trilemma”).
However, people who are new to blockchain today still learn about the “two giants” first, with all the wisdom of Bitcoin consensus attributed to one Satoshi Nakamoto (actually a team of seven people), and the wisdom of the smart contract platform attributed to Vitalik. This is unfair in both cases, and in the case of Ethereum, there used to be many co-founders, and they all left - for a reason! However, in school, new blockchain enthusiasts are presented with an outdated picture of blockchain, misleading them into thinking that Ethereum’s Solidity smart contracts and EVM are the greatest inventions since sliced bread. Innovation is moving fast, but Ethereum benefits from educational inertia.
Another problem lies in the Ethereum ecosystem itself, which is so large that it is inflexible and often unwilling to support its own ecosystem. And because it is so entrenched, there are inherent alignment issues when combining decentralization with cooperation. The challenge for the Ethereum team is to ensure that diverse projects can contribute to a unified vision. This concept has historically been poorly defined, which creates the risk of being controlled by the “social layer.” In order to “retain control,” Vitalik has repeatedly advocated that the concept of “alignment” should be made clearer, broken down into specific attributes, and measurable by concrete metrics.
The discussion of “alignment” shows how deeply entrenched the “Ethereum first” mentality is. Its own success has led it into a dead end of thinking about its positioning. Joining the “multi-chain future” would mean giving up its claim to dominance, which is clearly not in the interests of investors. Rather than admitting that Ethereum can never and should never be a unified settlement layer for all blockchains, let alone a so-called “world computer,” it is better to continue to fight in the meaningless Solana vs. Ethereum discussion.
Vitalik is well aware that he is trying to turn the Ethereum super ship around from a dead end. His problem is that it is very much in the interest of Ethereum’s big investors to stay in this “rent-seeking paradise”. And Ethereum is still functioning and is definitely not dead. Last week, three large traditional financial companies announced the launch of so-called “real world assets” on Ethereum. It is not dead, but it has certainly entered the cancer ward.
However, cancer is also curable, and a more efficient EVM is on the way. Thousands of people are working on Ethereum, and that’s the beauty of a decentralized and global workforce: there is still hope for a cure. Innovation is booming right now, and it would be a mistake to write off Ethereum easily despite its many problems and fierce competition.
So, no, this is not the end of Ethereum. This is about finding a cure, specifically we need to:
1. Eliminate rent-seeking in L2 and focus on making the main chain scalable. This is a big shift in thinking, but Ethereum has been through many revolutions and it can do it again.
2. Accept that Ethereum will not be the “world computer” or “global settlement layer”, but just one of many chains, working together to build a resilient future for on-chain computing. Ethereum must become one of the “many” blockchains in a “multi-chain world”, where digital networks can seamlessly collaborate across borders, protocols, and blockchains. Just as diversity brings strength to the human workforce, a diverse network brings security and redundancy to blockchains.
3. Open up Ethereum development in a more democratic way, embracing DAOs and abandoning small developer groups. Right now, too much influence is held by a few people, not just in block production.
4. Reduce the influence of big investors, perhaps limit the amount of ETH that an individual can hold.
5. Create incentives for block builders, expand from the current 3 people to 300 people. This means making Ethereum cheaper and fairer, which also means reducing profitability. The price of ETH may be affected, but so what? If in order to save the network, the rich need to make less money, then do it, tax those who hold more than 10,000 ETH.
It is very difficult to promote any reform. On the one hand, there are many opinions within Ethereum, and everyone has their own ideas; on the other hand, key decisions are in the hands of a few people. There is a toxic "us vs. them" mentality in the developer community. If you don't agree with the vision of a team, you will be immediately "blacklisted" by the decision makers. Like many organizations, Ethereum's governance has become a few influential individuals who control everything.
I have a long list of other proposals, but I am not sure Ethereum can implement any truly meaningful reforms. Every time other L1 chains outperform ETH in the next bull run, the pressure will intensify; when the ETH price rises again, this pressure will disappear. Such is the fickleness of capitalism, incentives are rarely truly aligned.
So, don’t be misled by Solana fans’ claims, this is not a showdown between the two giants, nor is it the end of Ethereum. This should be the beginning of an update, a period of reform - just like the kind of painful reforms that other linear blockchains have had to go through when faced with new technologies such as complex sharding and BlockDAG. This is not the end of Ethereum, but we will see the ashes before the phoenix rises.
The information provided in this article is for general guidance and information purposes only, and the content of this article should not be considered investment, business, legal or tax advice under any circumstances. We are not responsible for personal decisions made based on this article, and we strongly recommend that you do your own research before taking any action. While every effort has been made to ensure that all information provided herein is accurate and up-to-date, omissions or errors may occur.
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