Recently, the FUD around Ethereum has been incessant, with most of the voices centered on the ETH price. Indeed, BTC is breaking new highs every day, while ETH is still nearly 40% away from its peak in 2021 (4800 USD). Of course, recently the ETH price has started to rise, feeling like it has been scolded into action. I also believe that this time, Ethereum is highly likely to break its previous high.
But what exactly happened to Ethereum? Why can't it keep pace with Bitcoin in this cycle?
Has Ethereum truly shown signs of decline? Is it difficult to reproduce the glory of the past?
Will a new 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, as well as to explore where the path to revitalizing the crypto industry might be.
1. Escaping Ethereum inertia
First of all, no one can completely deny Ethereum!
Ethereum has its value and pioneering significance; smart contracts have indeed opened a new chapter for the entire crypto industry. At least before Ethereum was born, most projects in the crypto industry were merely poor imitations of Bitcoin. They would simply modify a few parameters of Bitcoin's code to create larger block Bitcoin, faster Bitcoin, more private Bitcoin, etc. Essentially, they were just simple copies of Bitcoin, a concept that essentially summarizes all crypto projects before Ethereum's emergence.
After the birth of Ethereum, the entire crypto industry entered a wave of Ethereum clones. Since 2015, countless so-called public chains have emerged, with larger blocks than Ethereum, faster Ethereum, better performance Ethereum (including Layer 2), and so on.
Moreover, the so-called ecosystems of each public chain largely replicate the Ethereum model, whether it’s DeFi, GameFi, various L2s, modularization, etc. Retail investors have become desensitized from being repeatedly harvested by various cleverly named and diverse narrative concepts, so they simply believe nothing and play with the simplest and most straightforward memes, even though everyone knows it won't last long, at least they can enjoy a straightforward gamble!
Without innovation, without vitality, consensus is fragmented, and zombies run rampant; the entire industry is permeated with a sense of hopelessness!
Does the crypto industry still have a future?
However, when you look back at Bitcoin, it is the only one that continues to lead the way, repeatedly breaking new highs, seemingly completely unaffected by all of this!
We can't help but wonder whether the entire industry has been trapped in 'Ethereum inertia' for too long, to the point that we have completely ignored Bitcoin!
After all, Ethereum was inspired by Bitcoin and originated from the Bitcoin community. Ethereum is merely a way of interpreting Bitcoin, yet the entire industry treats the Ethereum model as everything.
If we want to find the root of Ethereum's problems and rediscover new opportunities for paradigm innovation, we must return to Bitcoin, re-understand Bitcoin, and re-find the source of innovation in Bitcoin, just as it was at the beginning of Ethereum's birth!
Let’s temporarily escape from Ethereum inertia and return to Bitcoin to think!
2. Mechanical consensus and social consensus
There are many angles to interpret Bitcoin, but the Ethereum and Bitcoin we are discussing today both 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 whom? It is owned by a group of people who participate in consensus. A public chain must rely on consensus to drive it. Without consensus, there is no public chain. Therefore, discussing public chains without discussing consensus is mere empty talk!
The consensus of a public chain 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 a decentralized system of social consensus. (As a side note, Layer 2 is not a public chain; Layer 2 only requires one sequencer node to operate and does not have a consensus mechanism. Layer 2 lacks mechanical consensus and only has social consensus, so the value of Layer 2 lacks support from mechanical consensus. Currently, most projects lack both mechanical and social consensus, which is the fundamental reason for project failures.)
The so-called mechanical consensus is a consensus mechanism in which everyone can fairly participate, such as the PoW mechanism. The participation method of mechanical consensus is computing power; the stronger the computing power, the stronger the mechanical consensus. The so-called social consensus encompasses the ecosystem, influence, on-chain applications, users, and other data surrounding the public chain, ultimately reflecting in the price.
Participants in mechanical consensus are the first investors, beneficiaries, and builders of the public chain.
The launch and operation of a public chain entirely rely on the participants of mechanical consensus. Participants in mechanical consensus invest substantial costs (computing power, energy, etc.) into the public chain, which means that only participants of mechanical consensus have the original motivation to promote the development of the public chain ecosystem, as they are the first investors and the first 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, and most application developers attracted to the public chain ecosystem are transient; they are not as deeply bound to the public chain's interests as the participants in mechanical consensus (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 the Ethereum chain chose to go their own way, such as Uniswap.
Thus, when the price of a public chain begins to weaken, it indicates that social consensus has weakened, and the underlying reason is that mechanical consensus has weakened, or in other words, the participants in mechanical consensus have dispersed.
Now, 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!
In order for Bitcoin miners to gain block production rights, each node must invest the same amount of computing power and energy within the same time frame to compete, but ultimately the network will only select one node to produce a block, while the contributions of all other 'runner nodes' attach as a huge redundant cost to the value of Bitcoin.
To put it simply, 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 'runner nodes'. Thus, Bitcoin miners will continue to participate in the competition for computing power due to the huge redundant costs already invested, until they secure block production rights, which is the reason for the continuous growth of consensus in the Bitcoin network.
Therefore, the actual consensus cost of the Bitcoin network is far greater than the current total market value of Bitcoin. How much larger could it be? If we calculate based on an average of 10,000 mining nodes in Bitcoin's history, this theoretical gap should be 10,000 times. However, currently, there are about 100 active mining pools in the entire Bitcoin network, and if we treat these pools as a total node, the cost gap is approximately 100 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!
In contrast, Ethereum's PoS mechanism is a static fixed-income model, where the actual amount of ETH invested determines the ETH yield, which is essentially a static fixed return, currently stabilizing around 5%. Thus, ETH consensus participants do not need to compete, do not incur additional redundant costs, and can participate in benefit distribution without needing to invest extra costs. This is also the so-called 'advantage' of Ethereum's early promotion that the PoS mechanism does not generate energy consumption. However, this 'advantage' has turned into a weakness of Ethereum's network consensus. Because there is no investment in redundant costs, the actual consensus cost of Ethereum has decreased, and therefore the consensus value of Ethereum's network has also diminished!
Thus, when comparing Bitcoin's PoW mechanism with Ethereum's PoS mechanism, you will realize that the consensus cost of the Bitcoin network is almost immeasurable, with continuous investments in computing power and energy, and its consensus is limitless. In contrast, Ethereum's consensus has an upper limit and is calculable; the staking rate of ETH is the upper limit of Ethereum's consensus.
Therefore, on the mechanical consensus level, Bitcoin's mechanical consensus is indeed stronger compared to Ethereum, further influencing the differences in social consensus, ultimately manifesting directly in the price.
Furthermore, if we look at Bitcoin's PoW mechanism from the perspective of physics (thermodynamics), we will find that the PoW mechanism drives Bitcoin to become a more lifelike entropy reduction system. This is the physical principle that has kept the Bitcoin network full of life and vitality.
From the perspective of thermodynamics, all things in the universe are moving towards entropy increase, meaning from order to disorder, from order to chaos, ultimately leading to extinction!
But there is one exception, and that is life!
Life feeds on negentropy — Schrödinger.
The so-called negentropy is an external energy that can help internal systems move from disorder to order. Life transforms negentropy into order, creating a reduction of entropy in local spacetime.
However, the phenomenon of entropy reduction only exists in localized spacetime, and for every unit of entropy reduction that life generates, it will emit two units of entropy increase to the external universe, resulting in a net increase in entropy for the universe.
Bitcoin's PoW mechanism allows a group of chaotic Byzantine nodes within the network to continuously digest computing power and energy for computation. Ultimately, the fastest computing node gains block production rights, and nodes rapidly verify and reach consensus, creating order from a chaotic network, thus forming an entropy reduction system, a living entity!
Thus, in the Bitcoin life form, the computing power and energy input from external sources are 'negentropy', which can help the chaotic and disordered nodes within the Bitcoin network reach consensus and unity, thereby creating an entropy reduction system. Therefore, the PoW mechanism is the digestive system of this life form, as miners provide 'negentropy', ultimately leading to the success of Bitcoin as a life form!
This is the physical principle that allows Bitcoin to continue to grow and thrive.
Now, let's reflect on Ethereum:
At the beginning of Ethereum's establishment, it also used the PoW mechanism and ran for over seven years, which was also Ethereum's period of rapid progress. Until September 2022, Ethereum officially transitioned from PoW to PoS, and everything quietly changed.
By removing the PoW mechanism, Ethereum has lost the input of external computing power and energy, thus losing the ability to continuously consume 'negentropy'. It’s like a living organism that has had its stomach removed but has not found an alternative solution. Although it achieved weight loss in the short term, the lack of continuous feeding capability inevitably leads to decline.
Some say that the reason for Ethereum's weak price is due to a lack of innovation in the ecosystem, resulting in a lack of continuous new on-chain applications and users. So, what are the deeper reasons for these situations?
As we mentioned earlier, mechanical consensus directly affects social consensus. The ecosystem, applications, users, and price are all manifestations of social consensus. The essence of the weakening of social consensus is that mechanical consensus has weakened.
Why has Ethereum's mechanical consensus weakened?
The PoS mechanism is a static fixed income model, lacking competition for computing power and energy, and therefore cannot create redundant costs, which in turn weakens mechanical consensus; the PoS mechanism lacks the ability to consume 'negentropy', unable to counteract the trend of entropy increase within the system through the input of 'computing power and energy'; the staking mechanism of PoS also directly leads to the rich getting richer and class solidification. When class solidification occurs, the result is a community lacking innovation and vitality, eventually leading to these capabilities overflowing and enabling competitors.
This series of performances reflects the weakness of social consensus indicators such as Ethereum's ecosystem, applications, users, and price! Even if the price can be forcibly raised to elevate social consensus, the principles of physics cannot be violated.
Ethereum is indeed showing signs of decline; this cycle has fallen behind Bitcoin step by step, which is the most genuine result! And the next cycle will surely widen the gap even further!
If Ethereum is like this, other public chains that imitate Ethereum will inevitably also struggle! The crypto industry has reached its current state, which can be said to be both the success and failure of Ethereum! This is perhaps a process that any industry will experience during its development.
However, opportunities often arise at this moment!
The greater opportunities in the crypto industry definitely do not lie within the existing Ethereum model. We must escape 'Ethereum inertia' and return to the earliest context of this industry, back to the earliest point of this industry to find answers!
4. Returning to Bitcoin consensus, exploring 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 the Ethereum superstition and return to rethink Bitcoin, we may discover more hidden details that we have never noticed beyond the details of 'consensus'.
These details fill us with hope for a new paradigm innovation based on Bitcoin!
For instance, intuitively, one might think that Ethereum would be more efficient than Bitcoin in processing transactions. However, that is not the case.
Bitcoin's UTXO model can achieve concurrent processing of transactions and independent state changes, without needing a unified global state tree to update the state. In fact, Bitcoin does not even have the so-called account concept; the Bitcoin balance displayed in a user's address actually represents the total amount of UTXO that the user can control with their private key.
The UTXO model in processing transactions works like a real transaction environment, where any pair of transaction parties can frequently transact using different denominations of 'UTXO' cash, and the transaction state of one pair does not affect the transaction progress of the second pair, as UTXOs can independently change states without needing a unified central state tree for changes.
Furthermore, Ethereum adopts a traditional account model, which is akin to a conventional bank account model. The account model requires reliance on a global state tree to perform balance calculations for each transaction involved, meaning that every transaction's state must be changed before proceeding to the next transaction; otherwise, issues like double spending or transaction failures may occur. Therefore, the account model can only perform serial processing.
Simply put, Ethereum's account model requires a central world state tree to uniformly process transactions and uniformly change the states of all accounts. Although this world state tree is driven by a decentralized mechanism, the need for a central entity to uniformly handle and perform global state changes makes it difficult to execute concurrent transactions and more flexible transaction models.
There are still many Bitcoin details that we have not discovered.
In terms of 'the ability to process state changes in parallel', Bitcoin's UTXO model clearly outshines Ethereum's account model. Moreover, the UTXO's ability to process concurrently and independently can also be extended to any matter that requires independent state changes and concurrent processing, meaning UTXO can express states beyond Bitcoin transactions, such as state changes in prediction markets, AI security models, etc.
Moreover, due to Bitcoin's ability to change states concurrently being protected by the largest mechanical consensus — Bitcoin consensus, this makes the Bitcoin network more unique and irreplaceable. Sharing Bitcoin consensus security + UTXO concurrent state changes, when combined, can unleash infinite 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 been advancing in this direction, such as the BitVM solution based on client verification and the UTXO model; as well as the team that recently announced abandoning the Bitcoin Layer 2 track to fully transition to 'sharing Bitcoin consensus security + UTXO concurrent state changes' etc.
When we shift our perspective, we will find that this endless treasure of Bitcoin has barely made any progress in development and application, at less than 1%.
Summary:
When we start to detach from Ethereum inertia to view the entire industry, we can face some previously unaddressed issues directly. When we return to Bitcoin for reflection, we can draw infinite inspiration and innovative directions from Bitcoin. The emergence of Ethereum was merely an abstract reflection and interpretation of Bitcoin, but the subsequent entrepreneurs abandoned the thinking and fully copied the Ethereum model, which is the underlying reason for the gradual lack of continuous innovation and vitality in the entire industry.
Of course, we have seen some teams start to return to Bitcoin and rethink things, for example, sharing Bitcoin consensus security + UTXO concurrent state changes is a highly promising entrepreneurial direction.
True paradigm innovation is not simple imitation, but rather an abstraction of the underlying principles. Watt's steam engine did not directly trigger the Industrial Revolution; instead, someone abstracted and summarized the scientific principles behind the steam engine (the laws of thermodynamics), thereby triggering a paradigm revolution in science.
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 numerous 'steam engines' with different functions and forms, yet few have thought deeply and abstracted the scientific principles inherent in Bitcoin itself, leading to the industry's failure to trigger a true Bitcoin paradigm revolution.
Of course, we have already seen teams thinking in this direction; this is a glimmer of hope for the industry. We need more people to join and help push forward the arrival of the Bitcoin paradigm revolution!
The inspiration for this article primarily comes from the Bitcoin learning and exchange community 'Satoshi University' (Twitter ID: @ZhongbcDX_1028). I have long been deeply engaging with many Bitcoin OGs and enthusiasts in Satoshi University to learn about Bitcoin and explore development opportunities in the crypto industry.
