Recently, there has been a constant stream of FUD about Ethereum, with most of the noise surrounding the ETH price. Indeed, BTC is breaking new highs every day now, while ETH is still nearly 40% away from its peak price of $4,800 in 2021. Of course, ETH's price has started to rise recently, giving a sense of urgency. I also believe that this time, Ethereum is likely to break its previous high.
But what exactly has happened to Ethereum? Why is it unable to keep up with Bitcoin's rhythm in this cycle?
Is Ethereum really showing signs of decline? Is it difficult to replicate the glory of the past?
Will the next round of paradigm innovation in the Crypto industry still happen 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 where the path to revitalizing the Crypto industry may lie.
1. Escaping the inertia of Ethereum
First of all, no one can completely deny Ethereum!
Ethereum has its value and pioneering significance, and 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 just poor imitations of Bitcoin. They simply modified a few parameters of Bitcoin's code to create Bitcoin with larger blocks, faster speeds, better privacy, etc. Essentially, they were just simple clones of Bitcoin; the concept of altcoins essentially summarizes all Crypto projects before the advent of Ethereum.
After the birth of Ethereum, the entire Crypto industry entered a wave of imitating Ethereum, with countless so-called public chains emerging from 2015 to the present, such as larger blocks of Ethereum, faster Ethereum, better-performing Ethereum (including Layer 2), etc.
Moreover, the so-called ecosystems of each public chain basically copy and replicate the Ethereum model, which is nothing more than DeFi, GameFi, various L2, modularization, etc. Retail investors have become desensitized after being repeatedly harvested by various cleverly named, diverse narrative concepts, and thus simply trust nothing, opting to play the simplest and most straightforward Memes, even though everyone knows they won't last long; at least they can enjoy the thrill!
Without innovation, without vitality, with consensus dispersed and zombies rampant, the entire industry is permeated with a doomsday atmosphere that lacks hope!
Does the Crypto industry still have a future?
However, when you look back at Bitcoin, it stands out alone, constantly breaking new highs, seemingly unaffected by all of this!
We can't help but wonder, has the entire industry been caught in the 'inertia of Ethereum' for too long, to the point where we completely overlook Bitcoin?
After all, Ethereum is inspired by Bitcoin and originates from the Bitcoin community. Ethereum is a way of interpreting Bitcoin, yet the entire industry has treated the Ethereum model as everything.
If we want to find the problems with Ethereum and seek new paradigmatic innovation opportunities, we must go back to Bitcoin, reinterpret Bitcoin, and rediscover the source of innovation in Bitcoin, just like at the beginning of Ethereum's birth!
Let's temporarily escape the inertia of Ethereum and return to Bitcoin for contemplation!
2. Mechanical consensus and social consensus
There are many ways to interpret Bitcoin; however, both Ethereum and Bitcoin belong to the category of public chains. When discussing public chains, the consensus mechanism is an unavoidable topic!
A public chain is a public blockchain; who owns it? It is owned by a group of participants in 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 mere empty talk!
Consensus in 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 gather a decentralized system of social consensus. (As a side note, Layer 2 is not a public chain; it only needs a sequencer node to operate, and Layer 2 itself has no consensus mechanism. Layer 2 has no mechanical consensus, only social consensus; therefore, the value of Layer 2 is not supported by mechanical consensus. Currently, most projects lack both mechanical consensus and social consensus, which is the fundamental reason for project failures.)
Mechanical consensus refers to a consensus mechanism in which everyone can participate fairly, such as the PoW mechanism, where the participation mode is computing power; the stronger the computing power, the stronger the mechanical consensus. Social consensus refers to the ecosystem, influence surrounding the public chain, including on-chain applications, users, and data, ultimately reflected in the coin price.
Participants in mechanical consensus are the first investors, beneficiaries, and builders of public chains.
The startup and operation of a public chain entirely depend on the participants of mechanical consensus, who invest a large amount of costs (computing power and energy, etc.) to participate in the public chain. Therefore, only participants in mechanical consensus have the original motivation to promote the development of the public chain ecosystem because they are the first investors and the first beneficiaries. Thus, to help the public chain gain greater social consensus, participants in mechanical consensus will continue to promote the development of the public chain ecosystem. The application developers attracted by the public chain ecosystem are mostly transient; they are not as deeply bound to the interests of the public chain as participants in mechanical consensus (unless they themselves 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 the Ethereum chain choose to stand alone, such as Uniswap, etc.
Thus, when the price of a public chain starts to weaken, it indicates that social consensus is weakening, and the deeper reason is that mechanical consensus is weakening, or in other words, the participants in mechanical consensus are dispersed.
So, let's compare Bitcoin and Ethereum from the perspective of 'consensus.'
3. Returning to Bitcoin consensus, reflecting on Ethereum and the industry
Bitcoin's mechanical consensus is a dynamic competition model. Ethereum's mechanical consensus is a static fixed income model!
For Bitcoin miners to gain block rights, each node must invest the same amount of computing power and energy to compete within the same time frame, but ultimately, the network will select only one node to produce the block, while all other 'supporting nodes' contributions attach as a massive redundant cost to the value of Bitcoin.
Simply put, the actual cost invested in minting each Bitcoin in the Bitcoin network is far greater than the cost incurred by a single block-producing node. It is a minting approach that consumes all the costs of 'supporting nodes.' Therefore, Bitcoin miners will continuously participate in the competition for computing power to reclaim the block rights, which is the reason for the continuous growth 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 using the historical average of 10,000 mining nodes for Bitcoin, this theoretical gap 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 around 50. If we treat the mining pool as a single node, the cost gap is roughly 50 times.
This is the consensus security that Bitcoin's PoW dynamic computing power competition model brings to Bitcoin, making Bitcoin's consensus security 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 the ETH returns, which is basically a static fixed income, currently stabilizing around 5%. Therefore, participants in the ETH consensus do not need to compete, do not need to incur extra redundant costs, and can participate in profit distribution simply by calculating without needing to invest additional costs. This is also the so-called 'advantage' of Ethereum's early promotion of the PoS mechanism that it does not produce energy consumption. However, this 'advantage' has also become a weakness of Ethereum's network consensus. Because there is no input of redundant costs, Ethereum's consensus cost has actually decreased, thus the consensus value of the Ethereum network has actually diminished!
Therefore, when comparing Bitcoin's PoW mechanism to Ethereum's PoS mechanism, you will find that the consensus cost of Bitcoin's network is almost immeasurable, with continuous input of computing power and energy leading to limitless consensus. In contrast, Ethereum's consensus has an upper limit and is calculable, with the ETH staking rate being the upper limit of Ethereum's consensus.
Therefore, at the level of mechanical consensus, Bitcoin's mechanical consensus is also stronger than Ethereum's, further influencing the differences in social consensus, which ultimately manifests directly in the price of coins.
Moreover, if we look at Bitcoin's PoW mechanism from a physics (thermodynamics) perspective, we find that the PoW mechanism drives Bitcoin to become a system of entropy reduction that is closer to a living organism. This is the physical principle that continuously fills the Bitcoin network with life and vitality.
From a thermodynamic perspective, all things in the universe tend toward entropy increase, that is, moving from order to disorder, from order to chaos, eventually leading to extinction!
However, there is one exception, and that is life!
Life feeds on negative entropy - Schrödinger.
Negative entropy is a form of external energy that helps internal systems transition from disorder to order. Life transforms disorder into order by digesting negative entropy, creating entropy reduction in local spacetime.
However, the phenomenon of entropy reduction only exists in local spacetime, and every time life forms a bit of entropy reduction, it will emit two bits of entropy increase to the external universe, resulting in an overall increase in entropy for the universe.
Bitcoin's PoW mechanism allows a group of chaotic Byzantine nodes to continuously digest computing power and energy to solve computations. Ultimately, the node that computes the fastest gains the block rights, nodes quickly verify and reach consensus, and finally, a chaotic and disordered network achieves consistency, forming an order, thus creating an entropy reduction system, a living organism!
Therefore, in the Bitcoin living organism, the computing power and energy input by miners from the outside is 'negative entropy,' which can help the chaotic and disordered nodes within the Bitcoin network reach consensus and agreement, thus creating an entropy reduction system. So, the PoW mechanism is the digestive system of this living organism called Bitcoin, with miners providing 'negative entropy,' ultimately enabling Bitcoin to thrive as a living organism!
This is the physical principle that allows Bitcoin to continue to grow and thrive.
So, let's reflect on Ethereum:
At the beginning of Ethereum's establishment, it also used the PoW mechanism and continued to operate for more than seven years, which were also the seven years of Ethereum's rapid growth. Until September 2022, Ethereum officially transitioned from the PoW mechanism to the PoS mechanism, and everything changed quietly.
By removing the PoW mechanism, Ethereum loses the input of external computing power and energy, thereby losing the ability to continuously absorb 'negative entropy,' much like a living organism that has had its stomach cut out and has not found an alternative solution. Although it achieves weight loss in the short term, the inevitable decline due to the lack of sustained nourishment is almost guaranteed.
Some say that the reason why Ethereum's price is weak is due to the lack of innovation in its ecosystem, and the absence of continuous new on-chain applications and users. So, what is the deeper reason for these situations?
As we said earlier, mechanical consensus directly impacts social consensus. Ecosystem, applications, users, and coin prices are all manifestations of social consensus; the essence of weakened social consensus is 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 computing power and energy, which weakens mechanical consensus; the PoS mechanism lacks the ability to absorb 'negative entropy,' unable to offset the internal trend of entropy increase through inputting 'computing power and energy'; the staking mechanism of PoS also directly leads to the rich getting richer and class solidification, resulting in a community lacking innovation and vitality. Ultimately, these capabilities overflow, leading to the success of other competitors.
This series of manifestations indicates the weakness of social consensus indicators such as Ethereum's ecosystem, applications, users, and coin price! Even if the coin price can be forcibly raised to elevate social consensus, the principles of physics cannot be violated.
Ethereum is indeed showing signs of decline, and this cycle lags behind Bitcoin step by step, which is the most real result! The next cycle will surely widen the gap even further!
If Ethereum is like this, other public chains imitating Ethereum will inevitably also struggle! The Crypto industry has reached its current state, truly reflecting that it succeeded because of Ethereum and failed because of Ethereum! This may be something any industry goes through 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 necessary to escape the 'inertia of Ethereum,' return to the original context of this industry, and find answers from its very origin!
4. Returning to Bitcoin consensus, unearthing Bitcoin's endless treasures
Returning to Bitcoin for re-innovation is both an industry issue and a long-term undertaking. Perhaps, it will be difficult for us to break through in a short time. However, when we begin to dispel the myth of Ethereum and start reconsidering Bitcoin, besides discovering the underlying details behind 'consensus,' we may find even more hidden details that we have never noticed.
These details give us hope for a new paradigm innovation based on Bitcoin!
For instance, intuitively, one might think that Ethereum would be more efficient than Bitcoin in handling transactions. However, that's not the case.
Bitcoin's UTXO model can achieve concurrent transaction processing and independent state changes without needing a unified world state tree to update states. It can even be said that Bitcoin fundamentally has no so-called account concept, as the Bitcoin balance displayed on a user's address actually represents the total amount of UTXO that a user can control with their private key.
The UTXO model processes transactions as if in a real transaction environment, where any pair of transaction parties can frequently transact with cash of different denominations, and the transaction status of one pair does not affect the transaction progress of another pair, because UTXOs can independently change states without needing a unified central state tree for changes.
Ethereum adopts a traditional account model, which is essentially the traditional bank account model. The account model requires a global state tree to handle each transaction to calculate the balance changes for all involved addresses. Therefore, each transaction's state must be changed completely before proceeding to the next transaction; otherwise, issues like double spending or transaction failure may occur. Thus, the account model can only handle serial processing.
In simple terms, Ethereum's account model requires a central 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, due to its need for a central entity to manage and execute global state changes, it finds it difficult to execute concurrent transactions and more flexible trading modes.
There are still many Bitcoin details we have not discovered.
In terms of 'the ability to process state changes in parallel,' Bitcoin's UTXO model is a clear winner over Ethereum's account model. Moreover, the UTXO's capability for concurrent processing and independent state changes can also be applied to any matter that requires independent state changes and concurrent processing, meaning UTXOs can represent the state changes of things beyond Bitcoin transactions, such as the state changes of prediction markets, AI safety models, etc.
Moreover, due to Bitcoin's ability to process state changes concurrently being protected by the world's largest mechanical consensus - Bitcoin consensus, this makes the Bitcoin network even more unique and irreplaceable. The combination of shared Bitcoin consensus security + UTXO concurrent state changes can unleash infinite energy. This is a detail that many people had not noticed before. Of course, we are pleased to see that Bitcoin ecosystem entrepreneurs are moving in this direction, such as the BitVM solution based on client verification and UTXO model; and the BEVM team that recently announced they will abandon the Bitcoin Layer 2 track and fully transition to 'shared Bitcoin consensus security + UTXO concurrent state changes.'
When we change our mindset, we will find that Bitcoin is an endless treasure, with its development and application progress being almost less than 1%.
Summary:
When we begin to detach from the inertia of Ethereum to view the entire industry, we can confront some previously unaddressed questions. When we return to Bitcoin for contemplation, we can draw infinite inspiration and innovative directions from Bitcoin. The birth of Ethereum was merely an abstract reflection and interpretation of Bitcoin, while later entrepreneurs abandoned thought and wholly copied the Ethereum model, which is the underlying reason for the gradual lack of sustained innovation and vitality in the entire industry.
Of course, we have seen some teams begin to return to Bitcoin and start rethinking, such as sharing Bitcoin consensus security + UTXO concurrent state changes, which is a highly promising entrepreneurial direction.
True paradigm innovation is not simple imitation but an abstraction of the underlying principles. The steam engine created by Watt did not directly trigger the industrial revolution; rather, someone abstractly summarized the scientific principles behind the steam engine (the laws of thermodynamics), thus triggering a scientific paradigm revolution.
If Satoshi Nakamoto is Watt, and Bitcoin is the steam engine, then in these 16 years of the Crypto industry, most people have been imitating Bitcoin to create a large number of different functional and different forms of 'steam engines,' yet few have thought about and abstracted the scientific principles contained within Bitcoin itself, leading to the industry not triggering a true Bitcoin paradigm revolution for a long time.
Of course, we have already seen teams thinking in this direction, which is a ray of hope for the industry. We need more people to join in and collectively promote the arrival of the Bitcoin paradigm revolution!
