Recently, there have been many controversial voices in the industry regarding the development and current situation of Ethereum.
Author: Bulu
Recently, there have been many controversial voices in the industry regarding the development and current situation of Ethereum. The focus of the questioning mainly revolves around the following aspects:
Question 1: The Ethereum Foundation frequently transfers ETH from its accounts, and its financial planning is not transparent. It is questioned whether the assets it holds may be difficult to maintain for future operations and development.
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- On August 24, 2024, the Ethereum Foundation deposited 35,000 ETH into Kraken, and the market value of ETH subsequently dropped by 13% in the following 6 days.
- On September 5, 2024, at 16:10, according to @ai_9684xtpa's monitoring, the Ethereum Foundation once again transferred 100 ETH. The address has cumulatively transferred 2616 ETH on-chain in the past 8 months.
- At 14:07 on September 6, 2024, according to Lookonchain's monitoring, the Ethereum Foundation transferred 1000 ETH to a multi-signature address starting with 0xbC9a. According to the previous transaction pattern, this multi-signature wallet account may transfer ETH to a wallet address starting with 0xd779 and convert it into DAI.
Response and Discussion:
Justin Drake of the Ethereum Foundation stated in the 12th AMA held on Reddit on September 5, 2024: The Ethereum Foundation's financial report will be released soon. It is estimated that the Ethereum Foundation holds reserves of approximately 10 years' worth of funds, and the reserves will fluctuate significantly due to the volatility of Ethereum prices.
Based on the current asset market value, the Ethereum Foundation spends approximately $100 million annually. The Ethereum wallet mainly used by the Ethereum Foundation currently holds assets worth approximately $650 million. At the same time, the Ethereum Foundation also has currency reserves to cover the operational needs for the next few years.
Ethereum founder Vitalik Buterin stated in the 12th AMA: Currently, the Ethereum Foundation's budget strategy is to spend 15% of the remaining funds annually, which means the Ethereum Foundation can continue to operate, but over time, its influence in the ecosystem will diminish.
According to media reports, Aya Miyaguchi, Executive Director of the Ethereum Foundation, once stated on social media: The Ethereum Foundation's annual budget is approximately $100 million, mainly composed of grants and salaries, and some beneficiaries can only accept legal currency payments. Since 2024, due to complex regulatory reasons, the Ethereum Foundation has been advised not to engage in any financial activities and is currently unable to share its plans in advance. The ETH transfer transactions of the Ethereum Foundation are not sales.
Question 2: The Ethereum roadmap overly focuses on Layer2 solutions (mainly referring to Rollups) and neglects the attention to enhancing the development of Ethereum's Layer 1 mainnet. The roadmap needs to be modified.
Response and Discussion:
Dankrad Feist, Ethereum researcher, stated in the 12th AMA: Many people believe that a roadmap centered around Rollups will weaken Ethereum's fee income and MEV, and ultimately Rollups may become parasites. I don't think this is correct.
The highest value transactions still occur on the Ethereum mainnet Layer1, and Rollups will expand the entire ecosystem by providing a large amount of transaction space for users. This relationship is symbiotic: Ethereum provides cheap data availability for Rollups, and Rollups make Ethereum Layer1 a natural hub for high-value transactions.
In the process of advancing the Ethereum roadmap centered around Rollups, I believe that expanding the execution capability of Layer1 should also be a goal, which is not necessarily in conflict with the roadmap, as shown in:
- Data availability is almost infinitely expandable—the ultimate limit of non-scalability essentially comes from the interest of users in participating in Ethereum, i.e., how many people are willing to run full nodes seriously and record all data.
- Execution capability will inevitably be objectively limited, but the ultimate bottleneck is the single-threaded limit. Currently, state access is the direct limitation to expanding Ethereum Layer1's execution capability.
- Through zkEVM and parallelization technology, the expansion capability of Ethereum Layer1's execution capability can be increased by 10 to 1000 times. Rollups will provide the remaining expansion capability to meet the demand for Ethereum to have "world-class scale."
The Ethereum Foundation's long-term sustainable plan is to use SNARK to expand the EVM execution capability of the Ethereum mainnet Layer1. In addition to significantly increasing the vertical scalability advantage of Layer1 EVM Gas limits, there is also an opportunity to use EVM-in-EVM precompilation for arbitrary horizontal scalability, to verify the execution of EVM within EVM at low cost.
This precompilation will allow developers to programmatically launch new instances of Layer1 EVM, unlocking a boosted version of execution shards, where the number of shards is unlimited, and each shard is a programmable Rollup, i.e., "native Rollup."
△ The Ethereum 2024 roadmap consists of the following 6 parts:
The Merge, The Surge, The Scourge, The Verge, The Purge, and The Splurge
Question 3: The ecosystem is developing well, but the market value of ETH has not shown significant growth.
Response and Discussion:
Anders Elowsson of the Ethereum Foundation stated in the 12th AMA: In the long run, Ethereum's facilitation of sustainable economic activities is directly related to the appreciation of ETH's market value. Designing a sustainable economic activity system also involves designing ETH's price growth. Conversely, designing ETH appreciation must ensure that Ethereum facilitates sustainable economic activities.
If only "price growth" is focused on in the short term without considering its source, it may lead to long-term value reduction. I personally believe that the current roadmap is actually a "price growth roadmap." If Ethereum succeeds but ETH does not experience price growth, I would be surprised and even somewhat disappointed, but this may actually be an opportunity to buy ETH, as the market will eventually realize the theoretical price growth.
Justin Drake of the Ethereum Foundation stated in the 12th AMA: I personally believe that whether ETH's price grows or not can be attributed to liquidity and premium. The key indicator for liquidity is the total fees, not the fees per transaction. The key indicator for premium is the proportion of ETH used as collateral assets. In the future, Ethereum's goal for success is to achieve 10 million transactions per second, which can bring in billions of dollars in revenue daily, even if the cost per transaction is less than 1 cent.
Question 4: The fees of Optimistic Rollups are actually cheaper than ZK Rollups, and theoretically, ZK is a superior technology.
Response and Discussion:
George Kadianakis stated in the 12th AMA: The Ethereum Foundation is currently researching different zero-knowledge (ZK) projects in multiple stages.
Justin Drake of the Ethereum Foundation stated in the 12th AMA: I am very excited about introducing SNARK to Layer1 EVM. We have made tremendous progress in the past few months. According to the latest data from Uma (from Succinct), the cost of proving all Layer1 EVM blocks is currently approximately $1 million per year, and future optimizations will further reduce this cost.
It is expected that by 2025, the cost of proving all Layer1 EVM blocks may be as low as $100,000 per year, thanks to the optimization of SNARK ASIC and stack at various levels. The Ethereum Foundation is also accelerating the formal verification of zkEVM, a project led by Alex Hicks, with a budget of $20 million.
For the beacon chain, our recent benchmark tests have accelerated the schedule for hash-based signature aggregation and SNARKs after the implementation of the beacon chain. This is a key step towards achieving quantum security.
Max Resnick, Ethereum researcher at the Special Mechanism Group (SMG), stated in an interview with Bankless podcast: ZK is the only technology that can truly break through bandwidth limitations, which Optimistic Rollups cannot…
What should we do next? I think we should start optimizing the functionality required for ZK Rollups.
If we continue down the path of Rollups, we need to immediately pivot to make the on-chain verification cost of ZK proofs lower, rather than continuing to lower data costs, because on-chain data is almost free now.
In addition, I believe that the fees on Ethereum Layer1 have reached a balanced level, but if you want to launch an application, the key consideration is: What will happen to the fees when the application experiences explosive growth?
If I were an application developer and developed a killer application that could potentially achieve 100x growth and bring in a large number of users, I wouldn't choose to launch it on Ethereum at this stage—because in the best case scenario, if I succeed, it will clog the chain, and the fees will become so high that it becomes unusable. Therefore, based on these considerations, the real important development for Ethereum at this stage is not to maintain the current balance, but to imagine how strong the scalability can be, strong enough to attract top application developers who want to bring in 100x user growth into the Ethereum ecosystem.
The Dilemma and Questioning of Ethereum: How Should We View It?
Returning to the original intention, firmly optimistic about the value development of Ethereum
Compared to the doubts about Ethereum in the market, Ethereum founder Vitalik Buterin still remains optimistic about the future of Ethereum, believing it is full of hope. At the ETHTAIPEI event in 2024, Ethereum founder Vitalik Buterin expressed his optimism about the future of Ethereum in an interview with the media, stating:
"I think the next 5 years will be very critical for the development of Ethereum. Because before this, many applications that are still in the theoretical stage or have a small scale will start preparing to enter the real world. Many ideas in the blockchain field have penetrated into the wider world in ways that have not been fully recognized.
Non-financial applications are also expected to start having a greater impact. The special benefit that decentralization brings to these projects is that almost anyone can write a new client, and when you have a new client, you can access and write the same content without having to start building your network effect from scratch.
At the same time, I expect the identity space based on Ethereum to grow rapidly. The technology is improving rapidly, and I really hope it will soon witness more mainstream use cases. Many people are concerned about the issue of account identity, but currently, when people want to solve it, the first thing they consider is centralized solutions. I hope the Ethereum space can pioneer truly decentralized identity alternatives and make them easily accessible and usable.
In addition, Stable Coins may have a significant impact in the future, and Ethereum can help make Stable Coins more open, decentralized, and not reliant on weak trust-based third parties. You can already see efforts in Layer2 projects like Base."
Looking to the Future, the Market Needs to Give Ethereum Some Time
1. Looking forward to the Pectra Upgrade
Following the Dencun upgrade, Ethereum will undergo another major technical update in the first quarter of 2025—the Pectra upgrade. This upgrade will further simplify and improve the process of creating and maintaining on-chain smart contracts, which means developers can more efficiently develop more powerful applications, and users can experience faster transaction speeds, lower transaction fees, and more secure on-chain use cases.
The Pectra upgrade directly benefits modular blockchains, abstract accounts, abstract account wallets, and other projects and users. In addition, the Pectra upgrade also proposes technical improvements for the ZK Prover network, which is also an effort to enhance ZK technology.
2. Looking forward to the PoS mechanism, ecosystem innovation, and strong community power
The issue of whether the PoS consensus mechanism will lead to centralization risks is a concern for many blockchain users.
Ethereum founder Vitalik Buterin has also expressed concerns about the centralization risks in the PoS consensus mechanism in media interviews, stating: The centralization risks in the PoS consensus mechanism are currently the main challenge. The highly focused situations that may bring centralization risks include the growth of MEV scrutiny risks and staking activities.
Compared to other influential figures in the blockchain world, Ethereum founder Vitalik Buterin and the core team of Ethereum have always maintained a high level of vigilance towards various forms of centralization on Ethereum, and have actively voiced their support for the decentralized concept. This is the core strength that makes Ethereum worth firmly looking forward to.
In addition, although Ethereum's use case innovation and growth seem to have entered a period of development bottleneck, in the world of blockchain, thanks to the continuous upgrading of Ethereum's infrastructure and technological improvements, Ethereum's ecosystem remains strong, and its most unique value lies in its strong community power—this is the necessary foundation for disruptive innovation, and it is the firm support for Ethereum's future development to achieve gradual progress.
4. Looking forward to ZK technology
In the field of Layer2 ecosystem to enhance Ethereum's scalability, there is currently a consensus on the development of Optimistic Rollups and ZK Rollups: in the short term, the development of Optimistic Rollups, which has better compatibility, will be faster than the development of ecosystems based on ZK technology. However, in the long term, ZK Rollups, which can ensure the real-time validity of transactions and provide privacy protection, will inevitably receive more active development.
Privacy is the key point that will drive a new narrative for Ethereum's future. Ethereum founder Vitalik Buterin once stated in a blog post discussing the three technological transformations Ethereum needs: If Ethereum does not undergo excessive privacy-oriented technological transformation, it may lose most of its users, and Ethereum may fail.
The privacy protection scenarios provided by ZK technology are the main application scenarios in the blockchain field. As Vitalik Buterin emphasized at the Ethereum Community Annual Conference: "In the next 10 years, ZK-SNARK will be as important as blockchain."
As the technology matures, the narrative related to ZK technology in Ethereum's next development will be more diverse and attractive.
5. Looking forward to ETH
Nick Tomaino, founder of 1confirmation, expressed strong optimism about the development trend of digital assets in the second quarter partner letter published on the social platform X on August 24, 2024: The market value of ETH may surpass BTC within the next 5 years. Currently, BTC's market value is about 4 times higher than Ethereum's market value, and both will continue to grow, but ETH will eventually surpass BTC.
The accumulation of value of ETH is crucial for the success of Ethereum, and this is still a relatively common consensus. As members of the Ethereum Foundation stated in the 12th AMA: The accumulation of value of ETH will be achieved through total fees and asset premiums, and the value growth of ETH will support the security and economic activities of the Ethereum ecosystem, thereby driving Ethereum to become a global financial platform.
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