Why did someone need Ethereum?
Ethereum was a solution to a problem that only existed in people’s minds. Bitcoin was made available to the world in 2009 with a full Turing stack of scripting languages capable of serving virtual machines, smart contracts, tokens and much more with unlimited scaling potential to the world. But it was quickly undermined by scammers who convinced people that Bitcoin shouldn’t scale up the chain. While Bitcoin was immersed in the scaling debate of the Bitcoin civil war, Vitalik Buterin created Ethereum: a “Turing-complete” global state machine that can carry out a maximum of fifteen transactions per second worldwide.
In 2015 this was about 250% faster than Bitcoin, but in 2020 the Bitcoin protocol showed the world that it can handle blocks of over 350 megabytes in size, which is good for about 2,500 transactions per second. The Scaling Test Network shows that blocks well into the gigabyte range are also ready in the mainnet, which would mean that peaks of up to 10,000 transactions per second with Bitcoin SV are now within the realm of possibility.
All in all, there is no technical reason for Ethereum to exist. It filled the role of a bracketed era in Bitcoin’s history, but it became obsolete, and that’s why Ethereum 2.0 has been in the works for years.
What is Ethereum 2.0?
“ETH2.0” is a brand new network with completely different consensus rules, validation methods and governance structures. Instead of being ruled by honest nodes who contribute hash power to the network to keep it secure, it is ruled by whoever owns most of the ether: the network’s built-in currency. These Ethereum governors will be granted more Ether in proportion to the amount of Ether they already have, creating a parabolic pyramid of wealth for large holders on the network that creates some sort of oligarchical governance system for Ethereum 2.0.
The new network is being called “Ethereum” by the decision-makers in the Ethereum economy, and the current Ethereum network is expected to be permanently shut down. But don’t be fooled! Ethereum 2.0 is a new network with a new Genesis block. Tokens are distributed to old holders in a 1: 1 ratio, so the average investor doesn’t even know that the Ethereum they invested in has died, and they are now token holders on a new network.
The reason for the change is that the basic scaling restrictions of Ethereum had to be toned down. Using a process called “sharding”, the new Ethereum will break the consensus into different parts and have them validated separately: an attempt to imitate the parallelization of Bitcoin in the UTXO model across validation nodes. But where Bitcoin retains its security, Ethereum’s shoe-planed sharding model lowers security by dangerously severing nodes. As we’ve seen many times in the past, Ethereum is a complex machine that causes it to break down on a regular basis. Adding this complexity and security risks of sharding will only make it worse.
So for the price of an unbreakable oligarchy and reduced security, what are the benefits of using Ethereum 2.0?
According to Vitalik Buterin, founder of Ethereum, these changes will allow Ethereum to process two or three thousand transactions per second – just like Bitcoin SV has been able to process for years.
So what’s the problem?
For now, let’s not minimize the problems of the oligarchy built into Ethereum’s new proof-of-stake system. This is a major economic problem that extrapolates various security issues similar to what EOS did when exchanges used their clients’ participation to become consensus checkers of the entire network – resulting in divisions and years of disputes.
Second, sharding and Ethereum’s various “second layer” networks are major concerns about security. Additionally, in the digital currency space, second-layer solutions have become a simple side step to answering the questions of why blockchains don’t seem to scale. So far they have been mostly vaporware, and if Ethereum’s history is any clue about it (remember Plasma, anyone?) Nobody should be overly optimistic about ZK Rollups or any of the other fancy sounding solutions to Ethereum’s scalability problems.
A third consideration is that Ethereum has notoriously been plagued by bad decisions, rickety codes, missed deadlines, accidental network splits, and tons of theft from playing poorly implemented smart contracts. No Ethereum developer, investor, or proponent with a touch of rationality should trust Ethereum 2.0 to be rolled out safely and stably, and I have nagging suspicions that the planned debut might be postponed for one reason or another.
Another concern that is conveniently ignored is that while the ether currency could benefit from some of the clever scaling solutions that have been theorized, the popular tokens can never benefit from them on any version of Ethereum. That’s because smart contracts need to be processed in Ether and therefore the maximum scalability of Ethereum 2.0 will be maybe 3000 transactions per second for everything connected to a smart contract (that’s most of the Ethereum traffic), and that is still pathetic that deserves to be called the “world computer”.
So the bottleneck is getting bigger, but not nearly big enough for the continued growth of DeFi, token issuance or any other type of enterprise-level transaction.
Can I suggest that serious, business minded Ethereum developers tokenize their projects on Bitcoin SV? Perhaps the entire Ethereum network should run in a virtual machine on Bitcoin SV so that it can scale infinitely and with greater security!
But the required Ethereum share has been secured!
Yes, the official word from the Ethereum developers on November 24th is that in the last hour the required portion for Ethereum 2.0 was blocked in order to replace the existing Ethereum network on December 1st.
However, the technical and security concerns that this transition brings with it should affect everyone, especially since the requirements for global scaling are still so far away.
Oh! And one last thing: According to the SEC’s William Hinman, “the key is whether a security is sold, how it is sold, and the reasonable expectations of buyers.” Ethereum narrowly passed the Howie test in the SEC’s last round of audits , especially due to the decentralized nature of proof-of-work mining in balance with decision-making in development.
The big move to the new network, however, represents a one-sided departure from decentralized planning by miners and developers and shifts this power specifically to Vitalik Buterin and his subordinates. It also changes the expectation of buyers to be dividend recipients in proportion to their stake in the network. So instead of a decentralized network currency, ether will be much more like investment security, and it seems the SEC has a very different opinion on equity holdings in this regard.
So what to do
As was said in the introduction: Ethereum was a solution to a problem that only existed in people’s minds. But it never solved these problems very well, the path was extremely bumpy and there is a much more stable, scalable solution today with Bitcoin SV.
Developers and entrepreneurs should ask themselves how long are they willing to wait for Ethereum to be stable and scalable enough for millions of people to be able to use the network all the time, because that is the one [broken] Ethereum’s “World Computer” promise, which was completed today on Bitcoin SV.
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