Ethereum’s life dilemma

After hitting 65k yesterday, BTC fell back continuously and has now retreated to below 63k. There is no emotion in the market now. BTC rises and falls, and altcoins fall and fall. Ethereum (ETH), the largest altcoin and leader of the public chain, is denominated in BTC and continues to fall. ETH/BTC has completely lost the key psychological barrier of 0.5 and has come to the 0.4 line. This can't help but make many ETH heavy holders feel defensive. Even the photos of founder Vitalik Buterin busy with romantic affairs some time ago were pulled out by the community, accusing him of not doing his job properly.

ETH's leeks are right to scold. After all, Vitalik talks about the expenses of his girlfriend, and the Ethereum Foundation spends a lot of money on high salaries every year, all of which come from selling ETH in the secondary market. In other words, it's all paid by ETH's leeks.

When the coin was issued to raise funds, the Ethereum Foundation held a large amount of zero-cost ETH. Now it has to dump 100 million US dollars into the market every year to maintain its expensive operation. It has been 10 years since the project was launched in 2013.

If compared to humans, Ethereum is more than ten years old. According to [“8.25 Teaching Chain Insider: Ethereum Foundation may run out of reserves in 8 years”], the foundation can still operate like this for another 8 years. 18 years old is just the age when a person leaves his parents and moves towards independence.

Before the age of 18, a person is still a child raised and cared for by a guardian. After the age of 18, he will start to be self-reliant.

From this metaphor, the leeks who are now taking over the Ethereum Foundation’s selling pressure in the secondary market and actually paying for the Foundation’s expenses are Ethereum’s current adoptive parents and guardians.

Parents scold their children for not making progress, not only are they getting further and further away from the top students (BTC), but they are also in danger of being surpassed by other students who have come up with the best (such as SOL). This is completely logical and in line with human ethics.

Bitcoin (BTC) is different. This child has been self-reliant since he left the arms of his biological mother Satoshi Nakamoto. He doesn't owe anyone. No one has the right to criticize him. He is like Sun Wukong, born to be the Great Sage Equaling Heaven and turn the old order upside down. (One more thing to say, why is Satoshi Nakamoto the biological mother (implementer) because the biological father (fertilizer) of BTC is David and Nick Szabo - Satoshi Nakamoto said in a post on July 20, 2010 that Bitcoin is an implementation of Wei Dai's b-money proposal and Nick Szabo's Bitgold proposal)

Adolescence is a rebellious and confusing period in life. We don't know whether Ethereum will be able to soar after the age of 18, or continue to rely on its parents. These problems are still far away and not a headache. But what is in front of us now is the rebelliousness and unruliness in growth, which brings about the problem of declining performance.

The above picture is the trend chart of ETH/BTC since 2016. The wedge of the big cycle makes this psychological confusion of neither going up nor down vividly appear on paper. Once expected to catch up with the first place, now it seems that it is a bit powerless to even defend against retreat and decline.

The teaching chain deliberately found the most important "big tests" in recent years, namely the key upgrades of the Ethereum mainnet: the London upgrade on August 5, 2021 (introducing the EIP-1559 burning mechanism), the Paris upgrade on September 15, 2022 (PoW to PoS), the Shanghai upgrade on April 12, 2023 (opening PoS withdrawals), and the Cancun upgrade on May 13, 2024 (introducing EIP-4844 data sharding expansion).

Especially the Cancun upgrade in May this year, the data sharding was launched, giving greater support to the second-layer network (L2), and also reducing the fees of the first-layer mainnet, reducing burning and expanding inflation. After the Cancun upgrade, ETH/BTC plummeted, and it was about to become the culprit for the downward breakout of the large cycle wedge.

With the recent sluggish market activity, the gas fee of Ethereum's main network has remained below 1 gwei for several days! This made people who have experienced the 2021 bull market and burned gas crazily on this "noble chain" a little dazed for a while.

So some netizens said alarmistly: "Ethereum is dying, and L2 is dancing on its grave."

His logic is: Ethereum mistakenly chose the route of expanding to the second layer (L2). When all execution tasks are outsourced to the second layer, the first layer main network lacks use and burning, and thus cannot consume the inflation caused by PoS. L2s are advancing triumphantly, constantly setting new highs in user volume and fee income.

At the same time, he added: The emergence of a large number of L2s that are separated from each other has made the entire Ethereum ecosystem more and more fragmented - traffic fragmentation, liquidity fragmentation, user fragmentation, ... There is almost no realistic possibility to reintegrate these fragmented things.

Moreover, he went on to say: In fact, the top ten L2s are all centrally controlled. In theory, they can steal users' assets at any time. And the roadmap to complete decentralization is far away...

Also, he believes: Since L2s are almost all driven by VC capital (venture capital), they have formed a powerful interest group that will have a huge influence on Ethereum, making it almost impossible to return to the old path of directly expanding the first layer, because that will directly destroy the space for L2s to survive and the value of capital.

Finally, he concluded: L2s are efficiently stealing Ethereum's user and fee income. And we can never go back. In the best case, L2s will become competitors. In the worst case, L2s will become vampire attacks, slowly draining the life of Ethereum. The moment Ethereum dies, L2s will move to other layers of chains to continue sucking blood, or simply transform themselves into a layer of chains.

Undoubtedly, the above logical deduction and narrative are dark, melancholy, and pessimistic.

He seems to have forgotten that L2s still need to package transactions and write them back to Ethereum.

In this sense, when Ethereum found that the old ETH 2.0 expansion plan was not feasible and chose to expand to L2, it had quietly changed the positioning of Ethereum: from a general computing layer to a secure storage space provider layer.

For anyone who opposes expanding to the second layer and insists on expanding on the first layer, they may really not understand how huge a challenge computing sharding and parallelization is for the current human technological capabilities, not to mention that it must be completed under a decentralized architecture.

It is precisely because of the deep understanding that this difficult problem is almost unsolvable that Jiaolian clearly predicted in the third prophecy in the article "Three Prophecies" on December 20, 2020, "Regarding ETH's expansion route, 2.0 or 1.0+rollup. I think the original eth2 vision and route are likely to fail and will be forced to change the technical route. At this stage next year, the second-layer rollup expansion will be a more pragmatic and more optimistic route. Optimistic and zk in rollup, optimistic about the former (at the current visible stage)."

In 2021, two optimistic rollups, one Arbitrum and one Optimism, will be launched one after another.

On December 3, 2021, Ethereum founder Vitalik Buterin tweeted and officially announced the new roadmap for Ethereum's subsequent development. This announced the complete abandonment of the old 2.0 route and the official turn to the new expansion plan. (See the article "The Great Merger: Ethereum's Patriotic War" on December 4, 2021 by Jiaolian)

On this issue, Jiaolian still believes in the technical level of Vitalik and the Ethereum Foundation led by him. They can't handle the direct expansion of the first layer, and other public chains will definitely not be able to achieve it without paying extra costs.

It's just that no public chain or new public chain that claims to have a high performance layer will tell the leeks what the extra price they paid is.

They are very secretive and keep their mouths shut.

Teaching Chain can tell you that no matter what the specific technical form of this cost is, they almost all point to one point without exception: more centralization.

The problem is that sacrificing decentralization and compromising with centralization is a fallacy that can continue to slide.

If people can accept three points of centralization, they can accept ten points of centralization.

If even centralization is acceptable, then why not use the Internet system? Isn't it fast, good and cheap!

The coldness of Ethereum after the expansion is not so much a failure as a success. After all, the goal of expansion is to expand supply. According to the basic principles of market economy, if supply exceeds demand, it will inevitably mean a drop in prices.

The only problem is that Ethereum has taken a big step:

First, the transition from PoW to PoS has expanded the supply of incremental ETH. (Although the stock has been burned, the two cannot be offset according to the analysis of Jiaolian)

Second, the expansion to L2 has expanded the supply of the execution layer. L2 is emerging in an endless stream, and there are not enough users to share.

Third, the expansion of data sharding has expanded the supply of the first layer of block space.

These three steps are concentrated in the years of 2022-2024, and they just happen to overlap with a new round of bear market cycle. Can the market digest it?

All the problems, in the final analysis, are still the problem of insufficient user volume and activity. The solution to all problems also depends on the prosperity of all second-layer ecosystems by several times or even dozens of times, bringing in more users and activity.

Life's dilemmas must be solved by growth. Development problems must also be solved by development.