The ratio of Ethereum to Bitcoin (ETH/BTC) hit a five-year low of 0.02193, causing low morale among Ethereum supporters and investors. The recent actions of Vitalik, the founding "soul" of Ethereum, and the foundation have also sparked community dissatisfaction. Recent institutional views suggest that Ethereum is unlikely to see significant breakthroughs in the near future.
This great public chain that coined the term "smart contract" and opened up possibilities from zero to one in blockchain technology, connecting with real-world finance, is now facing decline. This has become a key discussion point in the Ethereum community. In an early Ethereum technical discussion group, BlockTempo contacted an old OG (pseudonym: Reverse Scale Dragon) who claimed to have joined the Ethereum development community in 2016 and left in 2021. In a private community, he detailed the major decisions and impacts of Ethereum's development. This article will integrate the significant reforms and decisions made by Ethereum since 2021, along with key failure points, with BlockTempo adding contextual details.
Ethereum's Golden Age: Early 2021
Ethereum's most glorious era was undoubtedly after the DeFi Summer in early 2021. Not only did "on-chain detectives" emerge, solving flash loans, but there were also many token innovations like Non-Fungible Tokens, liquidity fragmentation, and numerous tools discussing "farming" and fixed on-chain yields. It was an era of genius-level innovation and continuous on-chain developments.
Actually, apart from Bitcoin and Ethereum themselves, the highest-yielding investments in my career were concentrated in projects from 2020-2021, especially in 2021. That was probably the year most projects survived, with infrastructure for Ethereum, BNB, and SOL breaking hundreds of millions in cash valuation, much of which was created during that time.
Compared to the "wild" and "crazy" projects of 2020, many founders in the first half of 2021 were true geniuses who understood market needs and how to survive. By the end of 2021 and start of 2022, many projects were clearly just trying to harvest users. So I personally see the middle of 2021 as a dividing line between different eras. People who entered the space after 2021 or 2022 were already in a different atmosphere.
Further Reading: In-depth Perspective | "APY Addiction": The Remaining Situation Left by Andre Cronje
EIP-1559 Sparks "ETH Deflation Theory"
When did Ethereum's glorious era begin to decline? In our discussion with the group admin, a vote was initiated in the old OG group. Out of 117 participants, 59 votes indicated that the most significant decision and moment affecting Ethereum was around the EIP-1559 proposal in mid-2021.
The Ethereum community began to split and struggle, causing a small-scale exodus of talent. However, the community discussion suggests that the most important impact was not the proposal's content itself, but the surrounding "deflationary asset" ideology that has continued to harm Ethereum's overall development:
At that time, many Ethereum developers weren't earning much until DeFi Summer, when rising transaction fees started making PoW miners profitable. This might have created some psychological imbalance. I felt this myself, and colleagues noticed some traders seemingly using additional mining pool fees for trading, further inflating Gas Fees. This spread in core developer circles as a conceptual "transaction congestion perpetual motion machine," with suggestions to burn it through EIP-1559. This proposal sparked significant controversy, with some arguing the ideology was disconnected from reality. Ultimately, the "progressive" side won in the community confrontation.
EIP-1559's influence was profound and left lasting effects. Many core developers believed the "PoS" merge could be completed in 2021. To promote EIP-1559's passage and future PoS progress, they suddenly emerged with a "deflationary asset" narrative. At the time, many people and articles were extolling PoS's benefits, including Ethereum-adjacent media community Bankless. It seemed like you had to catch that train or risk being left behind by the times.
As a developer, holding and maintaining Ethereum allows you to earn interest, and it was expected to appreciate. Ethereum developers at the time believed it was very promising in their professional careers, but looking back now, this expectation seems somewhat exaggerated.
In hindsight, I believe this was more of a political slogan to encourage voting, a progressive idea proposed by Ethereum's progressive faction at the time. It felt like a political action to marginalize the conservative faction. I wonder if EIP-1559 caused an ideological purge and community politicization, and whether the excessive expectation of Ethereum's price increase has lost sight of Ethereum's original purpose as a decentralized computer. When users and the community care more about the token price than the platform's technological progress, it led some developers to choose to leave the Ethereum community. Some developers who recently left Ethereum reportedly had seeds of discontent planted back then, but only left last year.
The dragon of sensitive issues in the community discusses how the "deflationary asset" concept brought by EIP-1559 is actually fatal. This not only contradicts Ethereum's initial split from Ethereum Classic but also reveals that Ethereum's core developers sought a new narrative to compete with Bitcoin's "digital gold" narrative. However, this proposal and political ideal have produced significant side effects in reality, causing Ethereum's issuance to be severely tied to "on-chain transaction frequency". When Ethereum is congested, it has a deflationary price appreciation narrative, but if there are no transactions, it returns to an inflationary phase.
Core developers never anticipated that Ethereum would be used so little today... All indicators, transaction volumes, and Gwei are at multi-year lows, and the price appreciation from being a "deflationary asset" has been completely retraced. Considering other factors, I believe Ethereum may continue to be depressed for some time.
The article continues to discuss the technical and political implications of EIP-1559, Ethereum's development, and missed opportunities in the AI era.
Expand the number of blobs, maximizing transaction efficiency while ensuring safety.
By 2025, Ethereum is still working on Layer2 infrastructure, but the market's enthusiasm for Layer2 has long since cooled. In 2024 and 2025, Solana and BNB Chain will have the highest market heat. The former achieves higher performance at the L1 underlying technology, while the latter is a parallel chain of Ethereum's L1 technology. This indicates that market heat and demand are not focused on Layer2, which may be the Ethereum Foundation's biggest strategic mistake.
If you had a cheap and reliable public chain, would you definitely think of Ethereum? In the past, developers might have thought so, but the environment is no longer the same. Now, with development tools and AI LLM, Ethereum's ecosystem of closed "Solidity tutoring" no longer has many advantages.
If a public chain, even if launched late and only slightly more performant than Ethereum, has support from large enterprises and capital, and development can be assisted by AI, then all ecology and development can immediately migrate. Ethereum and Layer2 may ultimately just be a belief and one of many public chain choices. The Ethereum brand is not important in many new applications. If you're trading memes, creating chain games, issuing event certificates, or Non-Fungible Tokens, why choose Ethereum with high gas fees?
Remember, Vitalik seems to have said in 2022 that he has given up pursuing Ethereum technology. This can be seen as a portrayal of Ethereum. When the entire ecosystem abandons developing Layer1 underlying technology, cheaper and more developer-friendly public chains will emerge. Ethereum can only rely on faith and brand to persist, but eventually, the brand cannot compete with BTC.
Further Reading: Vitalik "No Longer Excited About Ethereum Technology", More Optimistic About Practical Applications: Crypto Payments, Identity Ecosystem, DAO Future
Conclusion: Future Ethereum Predictions
At the end of the interview and casual chat, we inevitably discussed various speculations about Ethereum's future development. The interviewee believes that the value gap between Ethereum and BTC will continue to widen for some time, and Ethereum may experience a severe correction returning to fundamentals. This is because Ethereum's brand power is no longer as strong, and even if enterprises use Ethereum as a carrier, the created value will be reflected in the enterprise's token or stock, not necessarily in Ethereum itself:
It's hard to predict, but some things are easy to guess. ETH/BTC should continue to explore downward for a long time. Even with many enterprises entering Ethereum protocols, I guess it won't be a positive signal, because Ethereum is now in a stage where the "deflationary asset" narrative has collapsed. Even with applications, Ethereum itself is just a "passerby" or a "verification asset computer". The project's value itself is difficult to transmit to Ethereum.
So large-scale popularization may not be closely related to Ethereum's value. For Ethereum to rise, it still needs those pursuing ideals to build many good cultures, attracting enough talent and innovation. This might revive Ethereum. But now, I only see continuously replicated Layer2 with not so high demand. I don't consider this innovation.
