The Dilemma and Future of Ethereum: Technological Strategic Transformation and Value Reassessment

Ethereum has always played a key role in the development of the Web3 industry. However, in the current cycle, Ethereum has underperformed, not only underperforming Bitcoin, but also lagging behind its rival Solana in many cases. So, what is the reason behind this situation? Is Ethereum on the verge of an inflection point in its price rally?

The Core Issues Currently Facing Ethereum

The failure of the Layer2 strategy

Ethereum’s Layer 2 scaling roadmap is not entirely aligned with its core values. After the EIP 4844 upgrade, the fee for L2 data submission has dropped significantly, but these L2 values have not really fed back to the Ethereum network. L2 projects like Base and Arbitrum charge a lot of user fees, but these values are not translated into ETH price support. This leads to serious incentive incompatibility.

The project progress is slow.

Ethereum, after performing well in the last cycle, has become relatively slow to move forward in terms of engineering. Each upgrade takes one to two years, and compared to the aggressive engineering speed of competitors like Solana, Ethereum is taking a research-oriented rather than engineering-first route. Data shows that Ethereum’s development efficiency may be nearly 10 times lower than that of other public chains.

The innovation of on-chain business models is lacking.

In this cycle, new business models and innovations on the chain are relatively scarce. If we exclude Meme trading, the activity and richness of on-chain businesses are even less than in 2021. This is not only an issue for Ethereum but a common challenge faced by all public chains.

structural issues

The Ethereum team’s expertise is mainly in blockchain and cryptography research, with relatively little research on computer performance. This has led to a bias in the judgment of the direction of blockchain performance improvement. Ethereum has long believed that the performance bottleneck is in the execution layer, but in fact, the bottleneck may be more in the consensus layer. In addition, the Ethereum Foundation is overly pursuing long-term goals and ignoring the actual needs of current users.

The shift towards decentralized positioning

As the crypto industry environment changes, especially the U.S. government’s attitude towards crypto assets tends to be friendly, Ethereum’s extreme pursuit of decentralization is less urgent in the current environment. In contrast, chains that focus on efficiency and performance, such as Solana and Sui, have shown an advantage.

Ethereum’s Reform and Outlook

Strategic refocusing on Layer 1

Ethereum has begun to shift its strategy from a previous focus on Layer 2 to placing more emphasis on Layer 1 scalability. Although the Ethereum Foundation uses terms like “Reprioritization” to soften the message, it is essentially a strategic pivot.

( Improvement of engineering efficiency

Recent tests indicate that there is significant room for performance improvement in Ethereum clients. The Nethermind client has achieved a performance increase of 3-4 times through caching optimizations, reaching 400-500 million gas per second. Subsequently, the Geth client has also achieved similar levels of optimization. This indicates that there has been considerable room for performance optimization in Ethereum clients over the past few years, but it has not been sufficiently prioritized.

) Organizational structure adjustment

The Ethereum Foundation underwent a restructuring and layoffs and appointed two new executive directors: Xiaowei Wang and Nethermind founder Tomasz Kajetan Stanczak. Both directors have strong technical backgrounds, particularly in scale-up research. At the same time, the Foundation has axed a number of projects that are not directly related to the current expansion goals.

( Clear expansion roadmap

Vitalik has set a goal of achieving a tenfold scale of Ethereum’s L1 by the end of the year, and has launched a clear roadmap such as gradually increasing the gas limit from 30 million to 60 million and beyond. With the latest client-side optimizations, this goal looks achievable.

Thoughts on the Investment Value of Ethereum

) Reasons for optimism

1. High-Quality Developer Community: Although new applications may choose other public chains, there are still a large number of early excellent developers building in the Ethereum ecosystem, which is an important competitive advantage of Ethereum.

2. Advantages of Financial Applications: Innovations in the DeFi space, such as RWA, Ethena, and other new financial applications, are still primarily taking place within the Ethereum ecosystem. As regulations loosen further, more financial applications may choose Ethereum.

3. Performance Improvement Expectations: In the short term, Ethereum’s performance improvement or fee reduction may bring a wave of over-falling rebound, and the market’s perception of it may change.

Cautious factors

1. Long-term roadmap uncertain: Despite the short-term changes, it remains to be seen whether Ethereum’s long-term roadmap will truly shift, especially after the end of the tenure of the two new executive directors.

2. Decision-making mindset: It remains to be seen whether Vitalik and the core team can truly change the overly conservative and idealistic mindset of the past and become more pragmatic and focused on short-term user needs.

3. Excessive pursuit of perfection: Ethereum is too obsessed with not making mistakes, unlike other public chains that are willing to accept the idea of “quick trial and error”, and this conservative attitude may continue to limit its development speed.

Conclusion

Ethereum is at a critical inflection point. On the one hand, it has a strong network effect and developer community; On the other hand, it faces the challenge of mindset shifts and organizational adjustments. If Ethereum can maintain its current more pragmatic approach, focus on improving Layer 1 performance, and properly balance efficiency without losing the core value of decentralization, it still has the potential to re-emerge in future crypto cycles. However, it all depends on Ethereum’s ability to truly learn from its past mistakes and embrace a more flexible and pragmatic development path.