Ethereum must get its act together; else, crypto will not survive

By 2010, Tesla had delivered under 2,000 Roadsters, while General Motors (GM) was selling over 7 million vehicles yearly.

With the benefit of hindsight, we can see that GM was working on the more straightforward problem of optimizing the Internal Combustion Engine while Tesla was reimagining the auto ecosystem, creating its own battery technology, a supercharger network, and software-driven features like Autopilot.

Today, Tesla’s market cap is almost 20x that of GM’s.

Something similar is happening in the smart contract blockchain space. Progress in Ethereum is less visible than in other performance-focused blockchains like Solana. This is because the problems that Ethereum is trying to solve are more complex.

Taking the analogy further, if Tesla had not proved the viability of electric vehicle (EV) technology, BYD would not be selling as many cars as it does today. Similarly, if Ethereum cannot prove the viability of decentralized blockchain technology, the sector will be discredited, and Solana won't have a future.

What complex problem is Ethereum is trying to solve?

To understand what complex problem Ethereum is trying to solve, one must understand the following statement:

Blockchain-based systems that are not decentralized are inferior to the average Traditional system.

In the case of blockchains- The higher the number of validators, the higher the decentralization. The higher the decentralization, the higher the security.

Tradfi has a different mechanism for ensuring security: Regulation. Regulations are rules that participants must follow, and if they don’t, regulators have the right to punish them with fines, bans, or jail time.

Tradfi security is not perfect, particularly when the interests of regulators and those being regulated are not aligned. However, Tradfi security is better than the zero security offered by a blockchain maintained by a centralized set of validators.

Therefore, the complex problem that Ethereum is trying to solve is:

Offering the speed and throughput of Tradfi while also providing superior security through decentralization.

Centralized systems are naturally faster than blockchain-based systems.

The popular narrative is that tradfi is slow. This narrative is only half true. The final settlement in Tradfi is slow. But the execution is fast.

When you pay at a restaurant with a credit card, it feels like the transaction is done in seconds, but it isn’t. The restaurant is assured that it will get paid, but it doesn’t actually get paid till the next day. And you don’t actually pay till the end of the month when you settle your credit card bill. In other words, “the transaction is executed immediately but not settled in due course.”

Execution in centralized systems is intrinsically faster than in blockchains because:

1. Centralized systems need to maintain only one copy of the books. Blockchains require each validator to maintain a copy of the ledger. Maintaining an additional copy requires additional time and resources.

2. Centralized systems need to execute transactions only once. In the case of blockchains, multiple validators must execute every transaction, and all nodes must agree on the execution outcome.

But some blockchains claim to be lightning fast. Are they lying?

Blockchains that are faster than others are so by making certain compromises. The main compromise is that they require fewer validators. Solana, for example, has stakers delegate their stake to a few validators who maintain a copy of the ledger and execute transactions. These few validators exercise enormous control over the blockchain, making it decentralized in name only.

The only smart contract blockchain that devotes effort to decentralization is Ethereum. Today, it is continuously criticized for not matching Solana in speed, throughput, and cost. Critics forget that Ethereum could easily improve those metrics by increasing block size, reducing block time, and reducing the number of validators. However, it is not doing so because each of these moves would make Ethereum more centralized.

If all you want is speed, you should stick to tradfi systems. It is much easier to make traditional systems faster than it is to make public blockchains faster. The reason for anyone to use blockchains is that traditional systems are centralized and concentrate power on the privileged. Blockchains are supposed to solve that problem. If a blockchain is not decentralized, it doesn't solve the problem and serves no purpose.

My aim is not to undermine Solana. Its rapid transaction processing, parallel execution, and state compression deserve admiration.

The key question is not “Will Solana flippen Ethereum?”. The key question is, “Will decentralization flippen centralization?”

Ethereum must get its act together.

While decentralization is a must for blockchains, without higher speed, throughput, and lower costs, Ethereum is a mere academic project and is not useful for real commercial use cases. To be useful, it must increase efficiency while remaining decentralized.

Ethereum must deliver on:

• Rollup-Centric Roadmap — offering a unified experience irrespective of which L2 one uses. This would require progress in ZK Rollup and Based-Rollup technology.

• Proposer-Builder Separation — to democratize MEV and share the profits across ecosystem players

• Reduction of centralization — of staking pools

• Easier block verification — that can be done by a mobile wallet, browser wallet, or smartwatch

• Reduction in complexity — through history and state expiry.

• Account abstraction — that, among other things, enables bundling of transactions and execution of gasless transactions

  
  

Is Ethereum up to the task?

I don’t know. I do know that if it doesn’t succeed, i.e., if it is not able to execute effectively on the roadmap, including Merge, Surge, Scourge, Verge, Purge, and Splurge, the world will soon understand that non-decentralized blockchains are not just inferior to the current traditional systems, they’re pointless. And then crypto will not survive.