Recently, the voices of FUD against Ethereum have been incessant, with most of the discourse focused on ETH's coin price. Indeed, BTC is breaking new highs every day, while ETH is still nearly 40% short of its peak in 2021 (4800 USD). Of course, the ETH price has started to rise recently, seemingly feeling the pressure of criticism. I also believe that in this round, Ethereum is likely to break its previous high.
But what has happened to Ethereum? Why is it completely unable to keep pace with Bitcoin in this cycle?
Is Ethereum really showing signs of decline? Is it difficult to replicate the glory of previous years?
Will the next wave of paradigm innovation in the Crypto industry occur within the Ethereum ecosystem?
This article will take you back to the origin of the Crypto industry—Bitcoin—to reflect on Ethereum and the entire industry and explore the possible paths for the Crypto industry to regain vitality.
1. Escape the inertia of Ethereum
Firstly, no one can completely deny Ethereum!
Ethereum has its own value and pioneering significance; smart contracts have indeed opened a new chapter for the entire crypto industry. At least before the birth of Ethereum, most projects in the crypto industry were merely poor imitations of Bitcoin. They simply modified a few parameters in Bitcoin's code to create larger block bitcoins, faster bitcoins, or bitcoins with better privacy, etc. Essentially, they were just simple knock-offs of Bitcoin, and the concept of altcoins generally encapsulates all crypto projects prior to the emergence of Ethereum.
Since the birth of Ethereum, the entire Crypto industry has entered a wave of imitating Ethereum, with countless so-called public chains emerging from 2015 to the present—larger block Ethereum, faster Ethereum, better-performing Ethereum (including Layer 2), and so on.
Moreover, the so-called ecosystems of each public chain are largely copied from the Ethereum model, merely consisting of DeFi, GameFi, various Layer 2 solutions, modularization, etc. Now retail investors have become desensitized after being repeatedly harvested by various cleverly named and diverse narrative concepts, leading them to trust nothing and only engage in the simplest and most crude memes, knowing very well that they will not last long, but at least they can have some fun!
Without innovation, without vitality, with dispersed consensus and rampant zombies, the entire industry is permeated with a sense of hopeless doom!
Does the Crypto industry still have a future?
However, when you look back at Bitcoin, it stands out as it continues to break new highs, seemingly unaffected by all of this!
We can't help but wonder if the entire industry has been trapped in 'Ethereum inertia' for too long, so much so that we have completely overlooked Bitcoin!
After all, Ethereum was inspired by Bitcoin and originates from the Bitcoin community. Ethereum is a way of interpreting Bitcoin, but the entire industry has treated the Ethereum model as everything.
To identify the issues with Ethereum and to rediscover opportunities for paradigm innovation, we must return to Bitcoin to understand it again and find the source of innovation, just as Ethereum did at its inception!
Let us temporarily escape the inertia of Ethereum and return to Bitcoin for thought!
2. Mechanical Consensus and Social Consensus
There are many ways to interpret Bitcoin, but both Ethereum and Bitcoin belong to the category of public chains. When it comes to public chains, the consensus mechanism is an unavoidable topic!
The so-called public chain refers to a public blockchain, which is owned by a group of participants who reach a consensus. Public chains must rely on consensus to drive them; without consensus, there is no public chain. Therefore, discussing public chains without discussing consensus is just empty talk!
The consensus of public chains is divided into mechanical consensus and social consensus.
The essence of a public chain is to rely on a set of mechanical consensus to continuously consolidate social consensus in a decentralized system. (As a side note, Layer 2 is not a public chain; Layer 2 only requires a sequencer node to operate, and Layer 2 itself does not have a consensus mechanism. Layer 2 lacks mechanical consensus and only has social consensus, so the value of Layer 2 does not have mechanical consensus to support it. Currently, most projects lack both mechanical consensus and social consensus, which is the fundamental reason for project failure.)
Mechanical consensus is a consensus mechanism that everyone can participate in fairly, such as the PoW mechanism; the way to participate in mechanical consensus is through computational power, the stronger the computational power, the stronger the mechanical consensus; social consensus refers to the ecosystem and influence surrounding the public chain, including on-chain applications, users, and other data, ultimately reflected in coin prices.
Participants in mechanical consensus are the first investors, beneficiaries, and builders of the public chain.
The launch and operation of public chains entirely rely on the participants of mechanical consensus. Participants in mechanical consensus invest significant costs (such as computational power and energy) to participate in public chains. Therefore, only participants in mechanical consensus have the original motivation to drive the development of the public chain ecosystem, as they are the first investors and beneficiaries. Consequently, to help the public chain gain greater social consensus, participants in mechanical consensus will continue to drive the development of the public chain ecosystem, whereas the application developers attracted to the public chain ecosystem are often transient and less deeply bound to the interests of the public chain (unless they themselves also become participants in mechanical consensus).
This also explains why the early promoters of the Bitcoin ecosystem mostly came from the mining community, while many leading applications on Ethereum, like Uniswap, chose to go independent.
Therefore, when the coin price of a public chain begins to weaken, it indicates that social consensus has weakened, and the deeper reason is that mechanical consensus has weakened, or that the participants in mechanical consensus have dispersed.
Now, let's compare Bitcoin and Ethereum from the perspective of 'consensus'.
3. Return to Bitcoin consensus, reflect on Ethereum and the industry
Bitcoin's mechanical consensus is a dynamic competition model, while Ethereum's mechanical consensus is a static fixed income model!
Bitcoin miners must invest the same computational power and energy at the same time to compete for the right to produce blocks, but ultimately, only one node will be selected to produce a block, while the input of all other 'supporting nodes' becomes a significant redundant cost attached to the value of Bitcoin.
In simpler terms, the actual cost of minting each Bitcoin in the Bitcoin network is far greater than the cost incurred by a single block-producing node. It is a minting method that consumes the costs of all 'supporting nodes'. Thus, Bitcoin miners will continue to participate in the computational power competition due to the significant redundant costs they have already incurred until they secure the block production rights. This is the reason for the continuous strengthening of Bitcoin's network consensus.
Thus, the actual consensus cost of the Bitcoin network is far greater than the current total market value of Bitcoin. How many times greater? If we calculate based on an average of 10,000 mining nodes in Bitcoin's history, the theoretical difference should be 10,000 times. However, currently, there are about 20 active mining pools in the entire network, plus individual solo miners, we estimate a total of 50, treating the mining pools as a total node; the cost difference is roughly 50 times.
This is the consensus security brought to Bitcoin by its PoW dynamic computing competition model. Therefore, the consensus security of Bitcoin is almost impossible to assess in terms of strength!
Ethereum's PoS mechanism is a static fixed income model, where the actual amount of ETH invested determines how much ETH yield can be obtained, essentially a static fixed return, currently stabilizing around 5%. Therefore, participants in ETH consensus do not need to compete, nor do they need to incur additional redundant costs; they can participate in profit distribution without additional investment. This is also the so-called 'advantage' of Ethereum's PoS mechanism, which was promoted early on as not generating energy consumption. However, this 'advantage' has also become a weakness of Ethereum's network consensus. Because there is no investment of redundant costs, the consensus cost of Ethereum has actually decreased, thus reducing the consensus value of Ethereum's network!
Therefore, when comparing Bitcoin's PoW mechanism with Ethereum's PoS mechanism, you will find that the network consensus cost of Bitcoin is almost immeasurable, with continuous input of computational power and energy ensuring that its consensus is limitless. In contrast, Ethereum's consensus has an upper limit and is calculable; the staking rate of ETH represents the upper limit of Ethereum's consensus.
Thus, at the level of mechanical consensus, Bitcoin's mechanical consensus is also stronger compared to Ethereum, which further influences the differences in social consensus, ultimately directly reflected in coin prices.
Furthermore, if we view Bitcoin's PoW mechanism from the perspective of physics (thermodynamics), we will find that the PoW mechanism drives Bitcoin to become an entropy reduction system that is closer to a living entity. This is the physical principle that keeps the Bitcoin network vibrant and full of life.
From a thermodynamic perspective, all things in the universe tend toward increased entropy, which means moving from order to disorder, from order to chaos, and ultimately towards extinction!
However, there is one exception: life!
Life feeds on negative entropy—Schrödinger.
So-called negative entropy is an external energy that helps internal systems move from disorder to order. Life transforms negative entropy into order, creating a reduction of entropy in localized spacetime.
However, the phenomenon of entropy reduction only exists in localized spacetime, and as life creates one unit of entropy reduction, it will emit two units of entropy increase to the external universe. When combined, it still results in an increase in entropy for the universe.
Bitcoin's PoW mechanism allows a chaotic group of Byzantine nodes within the network to compute and solve problems by continuously consuming computational power and energy. Ultimately, the fastest node earns the right to create blocks, swiftly verifying and reaching consensus among nodes, resulting in a previously disordered and chaotic network achieving consistency and forming an order—a reduction in entropy system, a living entity!
Therefore, in the case of Bitcoin, the computational power and energy input from miners is 'negative entropy', which helps the disordered nodes within the Bitcoin network reach consensus and agreement, thus creating an entropy reduction system. The PoW mechanism is the digestive system of this living entity called Bitcoin, providing 'negative entropy' and ultimately achieving the success of Bitcoin as a living entity!
This is the physical principle that allows Bitcoin to continually grow and thrive.
Now, let's reflect on Ethereum:
At its inception, Ethereum also used the PoW mechanism and operated for over seven years, which were seven years of rapid advancement for Ethereum. Until September 2022, Ethereum officially transitioned from the PoW mechanism to the PoS mechanism, and everything quietly changed.
Removing the PoW mechanism causes Ethereum to lose the input of external computational power and energy, thus losing its ability to continuously absorb 'negative entropy', just like a living entity that has had its digestive system removed and has not found an alternative. Although it may lose weight in the short term, the lack of a sustainable intake capacity will gradually lead to its decline.
Some say that Ethereum's price weakness is due to a lack of innovation in its ecosystem, with no continuous increase in on-chain applications and users. So what is the deeper cause of these situations?
As we mentioned earlier, mechanical consensus directly affects social consensus. The ecosystem, applications, users, and coin prices are all manifestations of social consensus, and the weakening of social consensus is fundamentally due to the weakening of mechanical consensus.
Why has Ethereum's mechanical consensus weakened?
The PoS mechanism is a static fixed income model, lacking competition in computational power and energy, which leads to a lack of redundant costs and thus weakens mechanical consensus; the PoS mechanism lacks the ability to absorb 'negative entropy' and cannot counteract the internal trend of entropy increase in the system through the input of 'computational power and energy'; the staking mechanism of PoS directly leads to the rich getting richer and class solidification. When class solidification occurs, it results in a community lacking innovation and vitality, which ultimately allows these capabilities to overflow and benefit other competitors.
This series of performances reflects the weakness of social consensus indicators such as Ethereum's ecosystem, applications, users, and coin prices! Even if the coin price can be forcibly raised to enhance social consensus, the principles of physics cannot be violated.
Ethereum has indeed shown signs of decline; this cycle has fallen further behind Bitcoin, which is the most genuine result! The next cycle will surely widen the gap even more!
If Ethereum is in such a situation, other public chains imitating Ethereum will inevitably also struggle! The Crypto industry has reached its current state, truly exemplifying that it has succeeded because of Ethereum and failed because of Ethereum! This is something that any industry experiences in its development process.
However, opportunities often arise at this moment!
The greater opportunities in the Crypto industry are certainly not within the existing Ethereum model; it is essential to escape the 'inertia of Ethereum' and return to the earliest context of this industry, to find answers from the earliest origins of this industry!
4. Return to Bitcoin consensus and uncover Bitcoin's endless treasures
Returning to Bitcoin for innovation is an industry issue and a long-term endeavor. Perhaps, in the short term, it will be difficult for us to break through. However, when we begin to break free from the dogma of Ethereum and return to rethink Bitcoin, we may discover not only the details behind 'consensus' but also many other hidden details we have never noticed.
These details fill us with hope for a renewed paradigm innovation based on Bitcoin!
For instance, intuitively, people might think that Ethereum is more efficient than Bitcoin in processing transactions. But, in reality, that is not the case.
The UTXO model of Bitcoin allows for concurrent transaction processing and independent state changes without the need for a unified world state tree to update the state. In fact, Bitcoin does not have an account concept at all; the Bitcoin balance displayed at a user address actually represents the total value of UTXOs controlled by the private key owned by that user.
When processing transactions, the UTXO model functions like a real transaction environment where any pair of transaction parties can frequently trade with different denominations of 'UXTO' cash. The transaction status of one pair does not affect the transaction progress of another pair, because UTXOs can independently change state without requiring a centralized state tree.
Ethereum uses a traditional account model, which is similar to a traditional bank account model. The account model requires a global state tree to perform balance calculations for each transaction. Therefore, each transaction's state must be changed before proceeding to the next transaction; otherwise, issues such as double spending or inability to transact will arise. Thus, the account model can only handle transactions serially.
In simple terms, Ethereum's account model requires a centralized world state tree to uniformly process transactions and change the states of all accounts. Although this world state tree is driven by a decentralized mechanism, it still needs a central authority to uniformly process and carry out global state changes, making it difficult to execute concurrent transactions and more flexible trading models.
There are still many details about Bitcoin that we have not discovered.
In terms of the 'capacity for parallel processing state changes', Bitcoin's UTXO model is a clear winner over Ethereum's account model. Moreover, the capability for parallel processing and independent state changes of UTXO can be extended to any matter that requires independent state changes and concurrent processing. This means UTXO can represent the state changes of other matters beyond Bitcoin transactions, such as the status changes of prediction markets, AI security models, etc.
Moreover, due to Bitcoin's capacity for concurrent state changes being protected by the largest mechanical consensus—Bitcoin consensus—this makes the Bitcoin network even more unique and irreplaceable. The combination of shared Bitcoin consensus security and UTXO concurrent state changes can unleash unlimited energy. This is a detail that many people had not previously noticed. Of course, we are pleased to see that entrepreneurs in the Bitcoin ecosystem have already started to advance in this direction, such as the BitVM solution based on client verification and the UTXO model; and the BEVM team, which recently announced it would abandon the Bitcoin Layer 2 track to fully shift to 'shared Bitcoin consensus security + UTXO concurrent state changes.'
When we change our perspective, we will find that Bitcoin, this endless treasure, has seen almost less than 1% of its development and application progress.
Summary:
When we begin to detach from the inertia of Ethereum to view the entire industry, we can face some issues we previously dared not confront. When we return to Bitcoin for thought, we can draw infinite inspiration and innovative directions from Bitcoin. The birth of Ethereum was merely an abstract thought and interpretation of Bitcoin, while later entrepreneurs abandoned contemplation and fully replicated the Ethereum model, which is the underlying reason for the industry's gradual lack of continuous innovation and vitality.
Of course, we see that some teams are beginning to return to Bitcoin and rethink things. For example, shared Bitcoin consensus security + UTXO concurrent state changes is a highly promising entrepreneurial direction.
True paradigm innovation is not simple imitation; it requires abstracting the underlying principles. The steam engine created by Watt did not directly trigger the industrial revolution; rather, someone abstracted and summarized the scientific principles behind the steam engine (the laws of thermodynamics), thus triggering a paradigm revolution in science.
If Satoshi Nakamoto is Watt, and Bitcoin is the steam engine, then for the past 16 years in the Crypto industry, most people have been busy imitating Bitcoin to create numerous different functions and forms of 'steam engines', while few have contemplated and abstracted the scientific principles contained within Bitcoin itself, which has delayed the true paradigm revolution of this industry.
Of course, we have seen teams considering this direction; this is the dawn of the industry. We need more people to join in and together promote the arrival of the Bitcoin paradigm revolution!
