Recently, there have been constant voices of FUDing Ethereum, and most of the voices revolve around the price of ETH. Indeed, BTC is breaking new highs every day, while ETH is still nearly 40% away from its highest point in 2021 (4,800 USD). Of course, the price of ETH has started to rise recently, and it feels like it has been criticized. I also believe that in this round, Ethereum is likely to break its previous high.
But what happened to Ethereum? Why can’t this cycle keep up with Bitcoin’s pace?
Is Ethereum really on the decline? Is it hard to recreate its former glory?
Will a new round of paradigm innovation in the Crypto industry occur in the Ethereum ecosystem?
This article will take you back to the origin of the Crypto industry - Bitcoin, to look back at Ethereum and the entire industry, and explore where the path for the Crypto industry to revitalize may be?
1. Escape from Ethereum Inertia
First of all, no one can completely deny Ethereum!
Ethereum has its value and pioneering significance, and smart contracts have indeed opened up a new situation for the entire crypto industry. At least before the birth of Ethereum, most projects in the crypto industry were just poor imitations of Bitcoin. Simply modifying a few parameters of the Bitcoin code to create a Bitcoin with larger blocks, faster speed, better privacy, etc. Basically, they are just simple copies of Bitcoin. The concept of copycat coins basically summarizes all Crypto projects before the birth of Ethereum.
After the birth of Ethereum, the entire Crypto industry entered a wave of Ethereum copycats. From 2015 to the present, countless so-called public chains have been born, including Ethereum with larger blocks, Ethereum with faster speed, Ethereum with better performance (including Layer2), and so on.
Moreover, the so-called ecology of each public chain is basically copied from the Ethereum model, which is nothing more than DeFi, GameFi, various L2, modularization, etc. Now retail investors have been desensitized by various narrative concepts with clever names, so they simply don’t believe in anything and only play the simplest and crudest Meme. Although everyone knows that it will not last long, at least they can still have a good try!
There is no innovation, no vitality, weak consensus, and zombies are rampant. The entire industry is filled with a doomsday atmosphere with no hope!
Does the Crypto Industry Have a Future?
However, when you look back at Bitcoin, it is the only one that is still far ahead and breaking new highs, and seems to be completely unaffected by all this!
We can’t help but wonder if the industry has been stuck in “Ethereum inertia” for so long that we’ve completely ignored Bitcoin!
After all, Ethereum is inspired by Bitcoin and comes from the Bitcoin community. Ethereum is a way of interpreting Bitcoin, but the entire industry regards the Ethereum model as everything.
If we want to find the problem with Ethereum, and if we want to find new paradigm innovation opportunities, we must go back to Bitcoin, re-understand Bitcoin, and find the source of innovation in Bitcoin again, just like when Ethereum was first born!
Let us temporarily escape from the inertia of Ethereum and return to thinking about Bitcoin!
2. Mechanical Consensus and Social Consensus
There are many ways 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 is a public blockchain. Who owns it? It is owned by a group of people who participate in the consensus. The public chain must be driven by consensus. Without consensus, there is no public chain. Therefore, talking about the public chain without talking about 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 a decentralized system that relies on a set of mechanical consensus to continuously build social consensus. (As an aside, Layer2 is not a public chain. Layer2 only needs a sequencer node to run. Layer2 itself has no consensus mechanism. Layer2 has no mechanical consensus, only social consensus. Therefore, the value of Layer2 is not supported by mechanical consensus. Most current projects have neither mechanical consensus nor social consensus, which is the fundamental reason for project failure.)
The so-called mechanical consensus is a consensus mechanism in which everyone can participate fairly, such as the PoW mechanism. The way to participate in mechanical consensus is computing power. The stronger the computing power, the stronger the mechanical consensus. The so-called social consensus is the ecology and influence of the public chain, including on-chain applications, users and other data, which are ultimately reflected in the currency price.
Participants in mechanical consensus are the first investors, beneficiaries and builders of the public chain.
The launch and operation of the public chain completely depends on the participants of the mechanical consensus. The participants of the mechanical consensus invest a lot of costs (computing power and energy, etc.) to participate in the public chain. Therefore, only the participants of the mechanical consensus have the most original motivation to promote the development of the public chain ecology, because they are the first investors and the first beneficiaries. Therefore, in order to help the public chain gain greater social consensus, the participants of the mechanical consensus will continue to promote the development of the public chain ecology. The application developers attracted by the public chain ecology are mostly mobile, and they are not as deeply bound to the interests of the public chain as the participants of the mechanical consensus (unless they themselves become participants of the mechanical consensus).
This also explains why the early promoters of the Bitcoin ecosystem were basically from the miners, while many leading applications on the Ethereum chain chose to set up their own portals, such as Uniswap.
Therefore, when the price of a public chain's currency begins to weaken, it means that the social consensus has weakened, and the underlying reason is that the mechanical consensus has weakened, or the people participating in the mechanical consensus have dispersed.
So, let’s compare Bitcoin and Ethereum from the perspective of “consensus”.
3. Return to Bitcoin consensus and look at 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 obtain the right to produce blocks, each node must invest the same computing power and energy to compete in the same period of time. However, in the end, the network will only select one node to produce blocks, and the investment of all other "companion nodes" is attached to the value of Bitcoin as a huge redundant cost.
In simple terms, the actual cost of minting each bitcoin in the Bitcoin network is far greater than the cost of a single block-producing node. It is a method of minting at the expense of all the "companion nodes". Therefore, in order to compensate for the huge redundant costs that have been invested, Bitcoin miners will continue to participate in the computing power competition until they get the right to produce blocks. This is the reason why the consensus of the Bitcoin network continues to grow.
Therefore, the actual consensus cost of the Bitcoin network is much greater than the current total market value of Bitcoin. How many times greater is it? If we use the historical average of 10,000 mining nodes in Bitcoin, the theoretical difference should be 10,000 times. However, there are currently about 20 active Bitcoin mining pools in the entire network, plus individual Solo miners, we estimate a total of 50. If we treat the mining pool as a total node, the cost difference is roughly 50 times.
This is the consensus security that Bitcoin's PoW dynamic computing power competition model brings to Bitcoin. Therefore, the consensus security of Bitcoin is almost impossible to assess!
Ethereum's PoS mechanism is a static fixed income model. The actual amount of ETH invested can get the amount of ETH income. It is basically a static fixed income, which is currently basically stable at about 5%. Therefore, participants in the ETH consensus do not need to compete, do not need to spend extra redundant costs, and only need to settle accounts to participate in the distribution of benefits without investing extra costs. This is also the so-called "advantage" of Ethereum's early propaganda that the PoS mechanism does not consume energy. However, this "advantage" has also become a weakness of the Ethereum network consensus. Because there is no redundant cost investment, the consensus cost of Ethereum has actually become lower, so the consensus value of the Ethereum network has actually decreased!
Therefore, when you compare Bitcoin's PoW mechanism with Ethereum's PoS mechanism, you will find that Bitcoin's network consensus cost is almost incalculable, and with the continuous input of computing power and energy, its consensus is unlimited. However, Ethereum's consensus is capped and calculable, and the ETH pledge rate is the consensus cap of Ethereum.
Therefore, at the level of mechanical consensus, Bitcoin's mechanical consensus is also stronger than Ethereum, which further affects the difference in social consensus, and ultimately, is directly reflected in the currency price.
Not only that, 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 an entropy reduction system that is closer to a living organism. This is the physical principle that keeps the Bitcoin network full of life and vitality.
From the perspective of thermodynamics, everything in the universe is moving towards increasing entropy, that is, from order to disorder, from order to chaos, and finally to extinction!
However, there is only one exception, and that is life!
Life feeds on negative entropy - Schrödinger.
Negative entropy is a kind of external energy that can help the internal system to transform from disorder to order. Life is to digest negative entropy, transform disorder into order, and create entropy reduction in local space and time.
However, the phenomenon of entropy reduction only exists in local space and time, and every time life produces one point of entropy reduction, it will emit two points of entropy increase into the external universe. The sum of the two is still an entropy increase for the universe.
Bitcoin's PoW mechanism allows a group of chaotic Byzantine nodes in the network to continuously digest computing power and energy to perform calculations and solve problems. Eventually, the node with the fastest calculation obtains the right to produce blocks. The nodes quickly verify and reach a consensus. Finally, a disordered network reaches a consensus and forms an order, which creates an entropy reduction system, a living organism!
Therefore, in the life form of Bitcoin, the computing power and energy input from the outside by miners are "negative entropy", which can help the chaotic and disordered nodes in the Bitcoin network reach consensus and agreement, thus creating an entropy reduction system. Then, the PoW mechanism is the digestive system of the life form of Bitcoin. Miners provide "negative entropy", and ultimately, Bitcoin is a life form!
This is the physics that allows Bitcoin to continue to grow and develop.
So, let’s look at Ethereum:
When Ethereum was first created, it also used the PoW mechanism and continued to run for more than seven years. These seven years were also the seven years of rapid development of Ethereum. Until September 2022, Ethereum officially switched from the PoW mechanism to the PoS mechanism, and everything changed quietly.
Removing the PoW mechanism has caused Ethereum to lose external computing power and energy input, and thus the ability to continuously absorb "negative entropy". It is like a living organism that has had its intestines and stomach removed and has not been able to find an alternative. Although it has achieved weight loss in a short period of time, due to the lack of continuous eating ability, it is almost inevitable that it will gradually decline.
Some people say that the reason why Ethereum’s price is weak is because the ecosystem lacks innovation and there is no continuous increase in on-chain applications and users. So, what are the deeper reasons for this?
As we said before, mechanical consensus directly affects social consensus. Ecosystem, applications, users, and currency prices are all manifestations of social consensus. The weakening of social consensus is essentially because mechanical consensus has weakened.
Why has Ethereum's mechanical consensus become weaker?
The PoS mechanism is a static fixed-income model. It lacks competition for computing power and energy, and cannot form redundant costs, which in turn weakens the mechanical consensus. The PoS mechanism lacks the ability to absorb "negative entropy" and cannot offset the increasing entropy trend within the system by inputting "computing power and energy." The PoS pledge mechanism also directly leads to the rich getting richer and class solidification. When the class solidification occurs, the community lacks innovation and vitality. Ultimately, these capabilities spill over and create other competing products.
This series of performance is the weakness of social consensus indicators such as Ethereum ecology, applications, users, and currency prices! Even if the social consensus can be raised by forcibly raising the currency price, the principles of physics cannot be violated.
Ethereum is indeed in decline, and this cycle is lagging behind Bitcoin step by step, which is the most real result! And the next cycle will definitely open up a bigger gap!
If this is the case with Ethereum, other public chains that imitate Ethereum will inevitably be in decline! The Crypto industry has come to this point, and it can be said that Ethereum is the reason for its success and failure! This may be what any industry will experience during its development.
However, opportunities often appear at this moment!
The greater opportunities for the Crypto industry are definitely not in the existing Ethereum model. We must escape from the "Ethereum inertia" and return to the earliest context of this industry, return to the earliest origin of this industry, and look for answers from there!
4. Return to Bitcoin Consensus and Explore the Endless Treasures of Bitcoin
Returning to Bitcoin and innovating again is an industry issue and a long-term undertaking. Perhaps, in a short period of time, it is difficult for us to make a breakthrough. However, when we begin to break the superstition of Ethereum and start to return to Bitcoin and rethink, in addition to discovering the details behind the "consensus", we may also discover more hidden details that have never been noticed.
These details give us hope for another paradigm innovation based on Bitcoin!
For example, intuitively, people would think that Ethereum would be more efficient than Bitcoin in processing transactions. However, this is not the case.
Bitcoin's UTXO model can process transactions concurrently and independently, and does not require a unified world state tree to update the state. It can even be said that Bitcoin does not have the concept of an account at all. The Bitcoin balance displayed on the user's address actually represents the total UTXO denomination that can be controlled by the private key held by a certain user.
When processing transactions, the UTXO model is like a real transaction environment. Any pair of trading parties can use "UXTO" cash of different denominations to conduct frequent transactions. The transaction status of the two trading parties will not affect the transaction progress of the second pair of trading parties at all, because UTXO can change its status independently, and there is no need for a unified central status tree to make changes.
Ethereum uses the traditional account model, which is the traditional bank account model. When processing transactions, the account model needs to rely on a global state tree to add and subtract the balance of the addresses involved in each transaction. Therefore, each transaction state needs to be changed before the next transaction can be carried out, otherwise there will be problems such as double spending or inability to trade. Therefore, the account model can only be processed serially.
In layman's terms, Ethereum's account model requires a central world state tree to uniformly process transactions and change the status of all accounts. Although this world state tree is driven by a decentralized mechanism, it requires a center to uniformly process and make global state changes, which makes it difficult to execute concurrent transactions and more flexible transaction models.
There are many details about Bitcoin that we haven’t discovered.
In terms of the ability to process state changes in parallel, Bitcoin's UTXO model is far superior to Ethereum's account model. Moreover, UTXO's ability to process concurrently and change state independently can be extended to any object that requires independent state changes and concurrent processing. That is, UTXO can express the state of other things besides Bitcoin transactions, such as predicting the state changes of the market, the state changes of AI security models, and so on.
And because Bitcoin's ability to concurrently process state changes is protected by the world's largest mechanical consensus, the Bitcoin consensus, this makes the Bitcoin network even more unique and irreplaceable. Shared Bitcoin consensus security + UTXO concurrent state changes, these two capabilities combined can burst out infinite energy. This is a detail that many people have not discovered before. Of course, we are very happy to see that entrepreneurs in the Bitcoin ecosystem have already moved in this direction, such as the BitVM solution based on client verification and the UTXO model; and the BEVM team that announced some time ago that it would abandon the Bitcoin Layer2 track and fully turn to "shared Bitcoin consensus security + UTXO concurrent state changes".
When we change our mindset, we will find that the development and application progress of Bitcoin, an endless treasure, is less than 1%.
Summarize:
When we start to look at the entire industry from a perspective beyond Ethereum, we can face some issues that we didn’t dare to face before. When we think about Bitcoin again, we can draw unlimited inspiration and innovation from Bitcoin. The birth of Ethereum is nothing more than an abstract thinking and interpretation of Bitcoin, but later entrepreneurs gave up thinking and copied the Ethereum model in full. This is the reason behind the gradual lack of continuous innovation and vitality in the entire industry.
Of course, we have seen some teams begin to return to Bitcoin and start to rethink. For example, shared Bitcoin consensus security + UTXO concurrent state changes is a very promising entrepreneurial direction.
True paradigm innovation is not a simple imitation, but an abstraction of the principles behind it. The steam engine created by Watt did not directly trigger the Industrial Revolution, but someone abstracted and summarized the scientific principles behind the steam engine (the laws of thermodynamics), which triggered a paradigm revolution in science.
If Satoshi Nakamoto is Watt and Bitcoin is a steam engine, then in the past 16 years of the Crypto industry, most people have been imitating Bitcoin to produce a large number of "steam engines" with different functions and forms, but few have thought about and abstracted the scientific principles contained in Bitcoin itself, so that this industry has not yet triggered a real Bitcoin paradigm revolution.
Of course, we have seen teams thinking in this direction. This is the dawn of the industry. We need more people to join in and promote the arrival of the Bitcoin paradigm revolution!
