Author: Justin Bons , Cyber Capital Founder & CIO
Compiled by: TechFlow
Most L2s will always remain centralized because the incentives are inherently skewed.
The “solutions” to these problems are laughably overly optimistic.
Because profitable companies won’t give up their revenues.
This is why ETH deviated from its original intention and became a centralized service platform:
Competing L1s and L2s are cannibalizing ETH’s user base while its leadership promotes and celebrates ETH’s decline. This is a sad state of affairs as it betrays the founding principles they once claimed to hold dear. , while also empowering companies that are forced to comply with government censorship.
Privacy has been one of the cornerstones of the cypherpunk movement, as cryptography once promised widespread adoption of privacy-enhancing technologies. However, ETH has moved away from the past by pushing most users toward L2s that can monitor, freeze, steal, and censor funds. It is on the same self-destructive path as BTC, choosing L2 over on-chain scaling. In fact, history is repeating itself:
The current state of L2 centralization
Currently, all major L2s are completely centralized and are able to censor and steal user funds. Centralized sorters are also instantly censorable, as the admin keys controlled by the multisig can change the rules of the contract (including theft).
However, what is more interesting is the potential direction of change. Here, things get pretty bad, as all solutions for L2 centralization appear overly optimistic and require for-profit companies to give up a lot of their existing revenues…
This completely ignores human nature and history, a common mistake made by senior engineers and computer scientists. This also shows why the study of blockchain must be multidisciplinary, covering the humanities. Because the criticism of the solution proposed by ETH is not technical, but rather reveals the social coordination difficulties inherent in these schemes.
Decentralization requires powerful interests to give up their power. Historically, this has rarely happened because it goes against their incentives. Sometimes, outstanding people make the right choice. But in general, , especially when looking at large groups, we should always consider incentives as this is more predictive of mass behavior.
This is why I think most L2s will not be decentralized. Because the incentives clearly favor L2s to remain centralized, saying “trust me, bro” is not enough, especially in a world where we should verify rather than blindly trust. when.
Drake's rebuttal
It is not a suitable solution to move the collection of revenue in the system, as @drakefjustin recently tried to do, putting Base's revenue in the execution part instead of the sorter part. This is because for Base to be truly "decentralized" ”, all revenue would have to be given up; and Drake’s suggestion of keeping the execution part centralized is clearly not a viable solution.
The harsh truth is that Coinbase may never be decentralized, and that’s the reality of the so-called “L2 expansion” roadmap! Users are handed over to a centralized and essentially custodial solution that has no control over KYC, AML, and institutional levels. The original vision was completely crushed under the weight of censorship.
L2 Interoperability
L2 has long been opposed to adopting a common interoperability protocol, and instead tried to get everyone to accept their own solutions, even if this might harm their long-term development. This is similar to the tragedy of the commons problem in political science. The attempt to reach a unified interoperability protocol is actually equivalent to not reaching a unified protocol!
L2s not only compete with each other, but also with L1 itself, forming multiple competing ecosystems rather than a unified ecosystem, which is different from the expansion strategy of L1. The free market will continue to give rise to a variety of competition L2, representing different interest groups that don’t always get along. This dynamic is beneficial in most cases, but for blockchain expansion, it will only lead to massive fragmentation. Ultimately, it destroys the user experience. The idea that everyone will use the same seamless interoperability protocol and that custodians will exit the market due to more advanced technology is just a fantasy and does not conform to the actual operation of the free market, because in In such an environment, there will always be custodians and centralized L2s.
Ironically, while the ETH core team is pushing for L1-based sorters, major L2s are developing their own “shared sorters”, such as Arbitrum’s Superchain and Polygon’s Agglayer. , everyone must use the same one, which is obviously unrealistic. It is unrealistic to expect these major L2s to give up their efforts to "solve interoperability". The same is true for Eigenlayer and other heavy staking platforms, because they also bear Similar functionality to a sorter.
All of this makes true shared sorters an impossible goal, as these are mostly greed-driven fantasies. The idea is: if everyone uses the same L2 (their L2), the user experience will be solved. Problem! Technically this may be true, but in practice it doesn’t work. I think this is similar to the idea of BTC maximalists that there will only be one…
This is why the fragmentation and composability issues between L2s have never been resolved. The same reason has also prevented interoperability between L1s from being achieved to date. However, at least in this case, L1 has not been affected by this disadvantage. My problem, therefore, is not with the L2 per se, but rather with the lack of L1 expansion, even though this may be the result of L2 lobbying.
Economic security
The trend away from actual use of ETH is the root cause of its decline, as the survival of cryptocurrencies depends on economic security. Although @aeyakovenko mocked the ETH community and called it a joke, income is always the key. It is obvious that being able to support its own use Blockchains that outsource all usage will always earn more revenue in the long run than those that outsource all usage. Ethereum is heading towards the latter, which explains why this is an extremely unwise strategy from every perspective. !
Distorted incentives
Now let’s discuss the obvious: L2 has received orders of magnitude more funding than L1 for ETH and BTC. Billions of dollars have been generated by L2 tokens and venture capital, while L1 development has received only a few billion. This leads to a clear conflict of interest and may even lead to outright corruption. Because of the distorted incentives, developers may deliberately limit the capacity of L1 in favor of L2. They simply do not pursue or support the expansion of L1. technology.
This is why L2 has become the biggest corrupting force in the industry. In the short term, they profit by not scaling L1. L2 tokens and equity have made developers multi-millionaires. This has undoubtedly led to a demand for L2 scaling. Preference, rather than L1 expansion. Because by supporting the narrative of limiting L1 capacity, L2 can earn more by only expanding L2. This is between the long-term success of L1 (ETH and BTC) and the short-term profits of companies focused on L2 This creates an obvious conflict of interest.
This is also because VCs can extract rents from “L2 expansions” because these are usually profitable enterprises, while L1 expansions are public goods. VCs cannot extract a percentage of fees from a well-designed L1, but in the L2 space , which has become the norm. Scaling L1 is not good for these venture capital firms in the short term, while the "L2 scaling" roadmap can bring benefits, even if it may sow the seeds of ETH's self-destruction in the long run.
L1 Scalability
Underlying both views is a core assumption, namely the scalability of L1. ETH’s position is that the trade-off of L1 scalability is unacceptable. Therefore, they believe that this technology is limited to the “L2 expansion” roadmap. Provides rationality.
The L1 expansion concept is more optimistic because it recognizes that the current L1 can meet the expansion requirements without affecting decentralization. Whether it is through pure parallelization, DAGs or sharding technology, there are many ways to achieve this goal. The ETH community is ideologically entrenched in an outdated technical framework, much like the Bitcoin community. ETH is quickly becoming like Bitcoin, an outdated dinosaur, with similar, harmful , ideological characteristics that are almost like a cult.
ETH Maximalism
It’s no accident that ETH proponents have become indistinguishable from Bitcoin maximalists, as they’ve adopted the same philosophy and narrative as their coping mechanism or belief system.
All of this is caused by the same systemic flaws in the governance structure of BTC and ETH. Therefore, environmental pressure has given rise to a specific belief system, just like convergent evolution in biology. I also firmly believe that if With formal on-chain governance implemented, not scaling L1 will never be considered a viable option.
Governance
Ultimately, the core of the problem lies in “who makes the decisions”. The sad reality is that the development of BTC and ETH is often determined by a relatively small number of people. This is the essence of “off-chain governance”: a highly centralized decision-making process , which can be easily manipulated by small groups with bad motivations (such as profit-oriented L2) who directly benefit from the short-term and medium-term strategy of not expanding L1.
On-chain governance allows all stakeholders to vote on proposals in a completely transparent process, and the results will naturally be very different. Most importantly, this governance method is more beneficial to L1 than those who mastered centralized governance at the time. The interests of powerful groups.
From a political and philosophical perspective, off-chain governance processes are often easily manipulated and distorted because a “GitHub-style dictatorship” is far less stable than a country’s system. On the contrary, an on-chain governance process with a large number of stakeholders, combined with A more complex system of checks and balances and separation of powers has the potential to withstand the test of time and the worst of human nature.
On-chain governance should be seen as a mechanism to preserve decentralization, not as a repetition of traditional old-style governance. In fact, it’s quite the opposite; off-chain governance is often a poor imitation of governance systems that existed before blockchain. Governance is a completely new model that takes full advantage of blockchain technology and combines it with L1 and collective decision-making. Therefore, it is not surprising that the leadership of BTC and ETH completely rejects this concept. People with influence stand to lose the most from on-chain governance once it is implemented, which is why existing incentives will hinder its implementation if it is not established early on.
Real Solutions
The solution lies in abandoning ETH in favor of its more scalable competitors, because as stakeholders we have no real say in ETH’s governance.
We can certainly appreciate those efforts to initiate sweeping changes within ETH, similar to the block size battle in BTC. However, as a veteran of that “civil war” and standing on the “lost” side of “big blocks”, I am not sure what to do with it. On the one hand, I think the situation is not optimistic. Because at that time, the vast majority of enterprises, miners, stakeholders and users supported larger blocks, but the core developers still achieved their goal, and 8 years later, the block The size limit is still 1MB!
Perhaps in theory, there is no stronger evidence to prove the effective control of decentralized network rules by the centralization. ETH does not have the broad support for change that BTC has, so I don’t see how it can succeed, especially in the absence of Under the circumstances of formal on-chain governance.
In the free market of cryptocurrencies, we must consider another significant demographic effect: people who support L1 scaling leave ETH, while those who do not support it join ETH. So, who is left to fight for L1 scaling now? The same thing happened to BTC, turning it into a monoculture with no real potential for change. All of these changes started at the top of the leadership, gradually moving the entire ecosystem away from its original goals.
We once believed in “fork governance”, but this is problematic in two ways: first, the threshold for “agree or fork” is too high, so it actually evolves into a disguised autocracy. Second, the market does not By forking to bypass the controversial chain, a newer generation of chain was chosen. This also explains why the market did not bypass BTC through BCH, but chose to upgrade and fully switch to ETH at the time.
History repeats itself
I went from being a die-hard Bitcoin supporter in 2013, to starting to sound the alarm in 2015, to becoming a critic in 2017.
I gave up on BTC in favor of ETH’s promise of on-chain scaling and sharding, becoming a staunch supporter in 2015, only to sound the alarm again in 2022 and finally becoming a full-blown critic in 2024.
Whatever you think of my stance, one thing is clear: despite our protestations, I have remained highly consistent while BTC and ETH have changed under my watch. The United States is considering completely changing its economics and objectives to take a radical approach that runs counter to the conservative approach; we should not allow them to use “conservatism” or the “social contract” as an excuse, as these principles have been completely violated.
The real tragedy is that we have missed the opportunity to achieve global adoption twice, which may have set us back decades. However, it is comforting to know that we can now clearly identify the problem and implement it in the latest generation of blockchain. Implement solutions in the supply chain to finally break this painful vicious cycle.
in conclusion
This brings us back to the original solution and reveals why ETH is doomed to fail. For the sake of decentralization and the cypherpunk dream, we need to support ETH's competitors with real actions.
If you really love Ethereum and Bitcoin, you have to be able to let go of them for their original purpose. Because their original purpose is more important than the price of any three-letter code. Focusing on the big picture means focusing on the biggest goal: achieving financial sovereignty through , censorship resistance and true monetary independence to change the world!
