Recently, there have been more and more criticisms of Ethereum due to its long-term performance falling short of expectations. Coupled with the fact that the Ethereum Foundation has been inappropriately caught up in the “shipping” storm, it is like a wall falling and everyone is pushing it down. This has once again made people worry about the “future” of Ethereum. So this time, can Ethereum successfully overcome this “hurdle”?
01
Debate: Ethereum’s “Seven Deadly Sins”
It seems that every time the market goes bad, some projects or institutions will be "attacked". This time, it is unexpected that Ethereum, which has always been ranked second in market value, is the target. Recently, when you open social media, there are many well-known institutional partners, well-known KOLs, etc. who have made various "complaints" about Ethereum, and there are also some Ethereum diehards who argue. Today, let's take a look at the "seven sins" of Ethereum that are being debated. Which one is right and which is wrong:
1) Is the development of Layer2 a wrong approach?
The development of Layer2 has brought down the transaction fees of the Ethereum ecosystem and the price of Ethereum. This seems to have caught many people by surprise. After all, there was so much excitement and expectation when the Layer2 route was promoted a few years ago. Blockchain has finally solved the scalability problem and broken through the technical bottleneck.
After solving the old problems, new problems have arisen. A group of critics have pointed out that the core reason for the sluggish price of Ethereum is the mistakes in the Layer2 route. They believe that Layer2 "parasitizes and sucks blood" from Ethereum, dividing up Ethereum's liquidity but providing only a small amount of value capture to Ethereum, resulting in the loss of Ethereum's liquidity and on-chain transactions. Naturally, ETH has been unable to recover.
This point should have been discussed more than once. In fact, if you only look at the surface, it is true that Layer2 has seized the Ethereum market, causing the Ethereum chain to temporarily fall into a deserted situation. However, this just proves the success of Ethereum's Layer2 route, because the Ethereum mainnet and Layer2 are actually included in the Ethereum ecosystem. Most of the users and liquidity are still within the Ethereum ecosystem and have not been lost. At the same time, the attractiveness of Layer2 is getting higher and higher. We will find that there are almost no new public chains emerging to "compete".
To give a simple example, a city has traffic congestion, so several companies come to dig several subways, and people are diverted to take the subway. Then suddenly one day there is no traffic jam on the road. At this time, road traffic operators will definitely be affected. Taxi drivers will definitely jump out to oppose the establishment of the subway. But soon the whole city begins to benefit from these new infrastructures, and its competitiveness is getting stronger and stronger. Talents and investments are pouring in. The expansion of the city's underground transportation has given it new vitality and ushered in new development. The city is getting bigger and bigger, and everyone is a beneficiary.
By the same token, the reason why Ethereum needs to expand is to lay the foundation for large-scale adoption of the entire ecosystem in the future. At the same time, the cost of capital circulation between Layer2 is also very low, and interoperability issues are only temporary. A temporary price drop is not enough to negate the layered and modular expansion ideas that have been studied for so many years.
2) Inflation is getting worse?
The EIP-1559 originally deployed by Ethereum greatly reduced the inflation rate of Ethereum . Even after the switch to POS, the inflation rate of Ethereum was still negative for a long time. However, the activity on the Ethereum chain declined, and the Gas Price fell to a low level. In addition, the concepts of Stacking and Restaking caused the POS pledge rate to soar, making the number of ETH destroyed lower than the POS issuance. Therefore, Ethereum has entered a state of inflation not long ago . According to ultra sound money data, Ethereum has issued 70,000 new coins in the past 30 days, and the annual inflation rate is 0.713%.
This is good, critics have found evidence that Ethereum is going to die, and believe that Ethereum has started to inflate and may fall into a "death spiral" in the future...
However, people did not notice another data shown by ultra sound money. At a time when the price of Ethereum, which is being condemned by everyone, is sluggish and the chain is extremely deserted, Ethereum's annual inflation rate is still lower than that of Bitcoin, which is known for its "low inflation". This data seems to be a small difference, but you must know that Bitcoin seems to be higher than Ethereum in terms of market performance and ecological vitality.
In essence, the problem that Ethereum is facing today is that Layer2 has been successfully implemented and the expansion problem has been solved. This is caused by the sluggish market and on-chain activities at this time. We cannot ignore the great benefits that the construction of future infrastructure will bring.
3) Is the foundation selling to escape the top?
Since the Ethereum Foundation has sold its tokens at high prices many times in history, some people set the "Ethereum Foundation selling" event as a selling indicator. It was in this context that the Ethereum Foundation deposited 35,000 ETH to Kraken on August 24, which was considered a selling to escape the top, and it attracted "verbal criticism" from many crypto users. Many KOLs and self-media also followed up the event and released FUD information about the Ethereum Foundation selling its tokens to escape the top.
In this regard, Aya Miyaguchi, executive director of the Ethereum Foundation, said in a post on X that "this is part of its fund management activities. The Ethereum Foundation has an annual budget of about $100 million, which is mainly composed of grants and salaries, and some recipients can only accept legal tender. For a long time this year, we were told not to conduct any fund activities because the supervision is complicated and we cannot share plans in advance. In addition, this transaction does not mean selling. From now on, we will sell gradually and in a planned manner." (As a non-profit foundation, the Ethereum Foundation previously planned to withdraw 15% of its funds (legal currency value) each year for various support within the ecosystem.)
Simply put, the Ethereum Foundation’s response is that the 35,000 ETH are normal fund management, and transferring them to the exchange does not mean that they will all be sold immediately, but rather that they will be sold gradually in a planned manner.
On August 30, the Ethereum Foundation released a table of fund allocations for the second quarter of this year, using a total of about $8.5 million to fund nearly 100 community activities and projects, including community education, technology research and development, innovative projects, developer tools, research, and ecological development-related categories, with clear markings of project categories, names, description URLs and other detailed information. Clicking on the websites of these funded projects, there are community and ecological technology conferences held in various regions around the world, research projects of technical research professors/teams, and tools to improve the development experience of Ethereum ecological developers, all of which make people feel the active and serious technical research atmosphere of the Ethereum ecological community around the world. This is a scene that is completely invisible in many communities.
So, do you think the 100 million budget spent by the Ethereum Foundation every year is worth it? It depends on your opinion.
4) Are spot ETFs useless?
The approval of the Bitcoin spot ETF previously pushed the price of Bitcoin to a new level, but the approval of the Ethereum spot ETF did not seem to bring much benefit to the price of Ethereum.
I remember two years ago, Vitalik Buterin believed that crypto asset spot ETFs were not necessarily a good thing. He believed that we should not enthusiastically pursue large institutional capital, and that the ecosystem needed time to mature before we received more attention.
Perhaps the mainstreaming of Bitcoin and Ethereum will bring new capital inflows, but it will also bring about stricter centralized supervision.
One thing is certain: there are many institutional investors in the U.S. stock market who currently allocate crypto asset spot ETFs. These institutions are not "good men and women". The increasing size of ETFs will gradually affect the crypto market, whether positive or negative. If the crypto market is good and they see the potential for appreciation, they will allocate heavily. Otherwise, the market will be smashed. Therefore, spot ETFs will only follow the trend. Under the current circumstances, it is indeed difficult for spot ETFs to play a positive role in the short term.
5) Lack of innovation?
Previously, the "Ethereum Killer" project community proposed that Ethereum's innovation has stagnated, and its development has been very slow. For this matter, we can only say that Ethereum is too wronged. The truth is that the Ethereum community has always been the "leader" of technological innovation in the crypto community over the years. Whether it is EIP-1559, Staking, Restaking, Layer2, ZK, DA, layered modularization and other token economic and technological innovations, they all come from the Ethereum community. So far, whether it is the Bitcoin ecosystem, Solana ecosystem or other public chains, they have all benefited from the solutions and open source technological innovations brought by the Ethereum ecosystem over the years.
6) Is Vitalik Buterin the sole authority?
There are always people who talk about Vitalik dominance in Ethereum. It is undeniable that Vitalik has a high prestige in the Ethereum community as a founder, but it does not mean that the Ethereum community has only one voice. As a decentralized community, it operates openly and transparently. Although Vitalik’s opinions and suggestions are highly concerned and valued, the final decision still needs to be reached through extensive discussions among community developers . This is the result of collaboration among a large number of community members. Compared with most founders of crypto projects, except for the disappeared Satoshi Nakamoto, most other founders are not as low-key and indifferent to fame and fortune as Vitalik.
At the end of August, when Vitalik Buterin published an update on the Ethereum Foundation’s spending, he responded in a comment that his salary was 182,000 Singapore dollars per year. This is a drop in the bucket compared to the hundreds of millions of dollars in salary for the leaders of a large international company.
In addition, the U.S. SEC has long launched a long-term investigation into the Ethereum Foundation and other institutions, and the subjects of the investigation naturally included Vitalik. The SEC finally abandoned the investigation this year, which indirectly proves that the Ethereum Foundation organization and this project are sufficiently decentralized, and as a founder, he naturally cannot "dominate alone."
7) Will the switch to POS lead to centralization?
This is a topic that has been discussed for a long time, but people are still arguing about it. You can refer to Part 01 of the previous article . Of course, it has been nearly two years since the Ethereum POS merger. Looking back, the stable operation of Ethereum is enough to prove the security and reliability of POS.
02
Summary: The overall environment is not good, so we can only waste energy internally
This world is always so strange. When Ethereum was strong during the bear market, everyone was shouting "awesome, innovative, and promising future". Now that the market is sluggish, everything we do has become wrong.
In fact, since the birth of Ethereum, it has been caught in endless debates, from the DAO hacking incident to the falsification of DApp to the rise of DeFi. The reason why each controversy is so fierce is that it shows that the development of Ethereum is highly valued. It has long represented Web3 and the crypto market and has become an indispensable backbone force.
Today's situation may be mainly caused by the lack of external liquidity caused by the US dollar interest rate hike. In this case, just look at the traditional Internet companies that have been stuck in the quagmire. Even unicorn companies in the AI star track may go bankrupt due to lack of liquidity. Today's encryption market is already very good compared to the bear market period of the past two years.
The lack of liquidity has resulted in a small amount of new money entering the market. Even though the "old money" who have more professional research on crypto assets recommends Ethereum, the concept of Bitcoin as digital gold is more in line with the current environment. At the same time, with the outbreak of the Meme wave, the few new money naturally diverted in large quantities, making Ethereum even more difficult.
Whether it is the recession of the overall environment or the shortage of liquidity, it will eventually pass, and the innovation and application adoption of encryption and Web3 will be accelerated, and everything will be back on track.
