Author: Mu Mu, Plain Language Blockchain
Recently, there have been more and more criticisms against 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, can Ethereum successfully overcome this “hurdle” this time?
01 Debate: Ethereum's "Seven Deadly Sins"
It seems that every time the market goes bad, some projects or institutions will be "operated". This time, it is unexpected that it is the turn of "Ethereum", whose market value has always been ranked second. Recently, when opening 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 Deadly Sins" of Ethereum that are being debated. Which is right and which is wrong:
1) Is the route of developing Layer2 wrong?
The development of Layer2 has brought down the handling fees of the Ethereum ecosystem and the price of Ethereum. This seems to be unexpected by many people. 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 problem, a new one has come up. A group of critics point to the mistakes of Layer2 route as the core reason for the low price of Ethereum. They believe that Layer2 "parasitizes and sucks blood" from Ethereum, divides up the liquidity of Ethereum but only provides very little value capture to Ethereum, resulting in the loss of Ethereum liquidity and on-chain transactions. ETH naturally cannot recover.
This point should have been discussed more than once. In fact, if you only look at the surface, it is indeed Layer2 that has seized the market of Ethereum, causing the Ethereum chain to temporarily fall into a deserted situation, but this just proves the success of Ethereum Layer2 route, because the Ethereum mainnet and Layer2 are actually included in the large Ethereum ecosystem. Users and liquidity are still mostly in the Ethereum ecosystem without loss. 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, and 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 size of 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 the 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 the interoperability problem is only temporary. The temporary price downturn 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 an inflationary state 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 criticized by everyone, is low and the chain is extremely deserted, Ethereum's annual inflation rate is still lower than that of Bitcoin, which is known as "low inflation". This data seems to be a small gap, but you must know that Bitcoin seems to be higher than Ethereum at this time in terms of market performance and ecological vitality.
In essence, the problem of Ethereum today is that Layer2 has landed smoothly and solved the expansion problem. At this time, the market and chain activities are both sluggish. We cannot ignore the great benefits that the construction of infrastructure in the future will bring.
3) Did the foundation sell to escape the top?
Since the Ethereum Foundation has sold at a higher point many times in history, some people set the "Ethereum Foundation Shipment" event as a shipment indicator. It was in this context that the Ethereum Foundation deposited 35,000 ETH to Kraken on August 24, which was considered to be a sell-off, and it caused "verbal criticism" from many crypto users. Many KOLs and self-media also followed up the incident and released FUD information about the Ethereum Foundation's sell-off.
In response, Aya Miyaguchi, executive director of the Ethereum Foundation, posted 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 in a planned and gradual 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 35,000 ETH is normal fund management, and the transfer to the exchange does not mean that all will be sold immediately, but that they will be sold in a planned and gradual manner.
On August 30, the Ethereum Foundation released a table of fund allocation for the second quarter of this year.A total of about 8.5 million US dollars were used 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, clearly marking 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 them make people feel the activeness 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 one's opinion.
4) Spot ETF is useless?
The passage of the Bitcoin spot ETF previously brought the price of Bitcoin to a big step, but the passage of the Ethereum spot ETF does not seem to have brought much benefit to the price of Ethereum.
I remember that 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. Before we get more attention, the ecosystem needs time to mature.
Perhaps the mainstreaming of Bitcoin and Ethereum has brought new capital inflows, but it will also bring more stringent centralized supervision.
One thing is certain: there are many institutional investors in the current US stock market who have configured 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 value-added, they will make large-scale configurations. Otherwise, they will also smash the market. Therefore, spot ETFs will only follow the trend. Under the current situation, it is indeed difficult for spot ETFs to play a positive role in the short term.
5) Insufficient innovation?
Previously, the "Ethereum Killer" project community proposed that Ethereum's innovation has stagnated, and its development actions are few and slow. Regarding this matter, I can only say that Ethereum is too wronged. The truth is that the Ethereum community has 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) Vitalik is "dictatorial"? There are always people who talk about Vitalik's "monopoly" in Ethereum. It is undeniable that Vitalik, as the founder, has a very high prestige in the Ethereum community, 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 made through extensive discussions among community developers. This is the result of collaboration among a large number of community members. Compared to 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 announced the update of the Ethereum Foundation's expenditure information, he replied in the comments that his salary was 182,000 Singapore dollars per year. This is a drop in the bucket compared to the hundreds of millions of salaries of the leaders of a large international company.
In addition, the US SEC has long launched a long-term investigation into the Ethereum Foundation and other institutions, and the subjects of the investigation naturally include Vitalik. Finally, the SEC gave up the investigation this year, which indirectly proved that the Ethereum Foundation organization and this project are decentralized enough, and as a founder, it is naturally impossible to "dominate alone".
7) Will the switch to POS be centralized?
This is an old topic, and people are still arguing about it now. Of course, the Ethereum POS merger has been in place for nearly two years. 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
The world is always so strange. When Ethereum was strong in the bear market, everyone was shouting "awesome, innovation is invincible, and the future is promising". Now the market is sluggish, and everything we do has become wrong.
In fact, since the birth of Ethereum, from the DAO hacking incident to the falsification of DApp to the rise of DeFi, it has been caught in various endless debates. The reason why the controversy is so fierce every time just shows that the development of Ethereum is highly valued. It has long represented Web3 and the encryption market and has become an indispensable backbone.
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 the 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 in the past two years.
The lack of liquidity has led to a small amount of new money entering the market. Even though the "old money" who have more professional research on crypto assets admire Ethereum, the concept of Bitcoin as digital gold is more in line with the current environment. At the same time, the outbreak of the Meme trend has naturally diverted a large number of new money, making Ethereum even more difficult.
Whether it is the decline of the environment or the shortage of liquidity, it will eventually pass, and the innovation and application of encryption and Web3 will also accelerate, and everything will get back on track.
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