Reassessing Ethereum: Returning to Bitcoin, Opening a New Chapter in the Encryption Industry

Recently, Ethereum has faced a lot of questioning, mainly focused on the performance of ETH coin price. Bitcoin continues to hit new highs, while ETH is still nearly 40% away from its peak of 4800 dollars in 2021. Although the price of ETH has started to rise recently, it is still lagging behind Bitcoin.

What exactly is wrong with Ethereum? Why is this cycle far behind Bitcoin? Can Ethereum really not reproduce its former glory? Will the next round of innovation in the encryption industry still happen in the Ethereum ecosystem?

Let's return to the starting point of the encryption industry - Bitcoin, re-examine Ethereum and the entire industry, and explore possible paths for revitalizing the encryption industry.

1. Break Out of the Ethereum Mindset

First of all, no one can completely deny the value and pioneering significance of Ethereum. Smart contracts have indeed opened up new horizons for the encryption industry. Before the birth of Ethereum, most encryption projects were simply imitations of Bitcoin, such as changing block size, increasing speed, or enhancing privacy. They were basically simple knock-offs of Bitcoin.

After the emergence of Ethereum, the industry entered another wave of imitating Ethereum. Since 2015, countless so-called public chains have emerged, including Ethereum with larger blocks, faster speeds, and better performance (, including Layer2) and so on.

The ecosystems of each public chain generally replicate the Ethereum model, primarily focusing on DeFi, GameFi, various L2s, modularization, etc. Nowadays, retail investors have become desensitized to various concepts and now only focus on the simplest and most direct Meme projects. Although everyone knows that they are difficult to sustain in the long run, at least they can take a gamble.

The industry lacks innovation and vitality, consensus is fragmented, zombie projects are rampant, and a sense of hopelessness pervades.

Does the encryption industry still have a future?

Looking back at Bitcoin, it alone continues to stand out, repeatedly reaching new highs, seemingly completely unaffected!

We can't help but wonder whether the entire industry has been trapped in the "Ethereum mindset" for too long, completely ignoring Bitcoin?

After all, Ethereum originated from the Bitcoin community and is an interpretation of Bitcoin. However, the entire industry views the Ethereum model as the whole.

If we want to identify the issues with Ethereum and seek new innovative opportunities, we must go back to Bitcoin, re-understand Bitcoin, and find sources of innovation from it, just like when Ethereum was first born!

Let's temporarily step out of the Ethereum mindset and re-examine Bitcoin!

2. Mechanical Consensus and Social Consensus

There are many angles to interpret Bitcoin, but when discussing public chains, the consensus mechanism is an unavoidable topic.

A public chain, or public blockchain, is jointly owned by a group of people participating in the consensus. A public chain must rely on consensus to drive it; without consensus, there is no public chain. Therefore, discussing a public chain without mentioning consensus is empty talk.

The consensus of public chains is divided into mechanical consensus and social consensus.

Public chains are essentially decentralized systems that rely on a mechanical consensus to continuously consolidate social consensus. Mechanical consensus is a consensus mechanism that allows everyone to participate fairly, such as PoW, where the participation method is computing power; social consensus is reflected in the ecosystem and influence surrounding the public chain, including on-chain applications, users, and other data, ultimately reflected in the coin price.

Participants in mechanical consensus are the primary investors, beneficiaries, and builders of public chains. The launch and operation of public chains rely entirely on them, as they invest significant costs to participate in public chains, making them the most motivated to promote the development of the public chain ecosystem. In contrast, application developers are often more fluid and their interests are not as deeply tied to the public chain as those of mechanical consensus participants.

This explains why early promoters of the Bitcoin ecosystem mostly came from the miner community, while the leading applications on Ethereum chose to go their own way.

When the price of a public chain coin begins to weaken, it indicates a reduction in social consensus, with deeper reasons being a decrease in mechanical consensus or a dispersion of participants.

3. Re-examining Bitcoin Consensus, Reflecting on Ethereum and the Current State of the Industry

The mechanical consensus of Bitcoin is a dynamic competition model, while Ethereum is a static fixed income model.

Bitcoin miners compete to obtain block rights, and each node must invest the same computational power and energy in the same time frame. However, the network ultimately selects only one node to produce the block, while the contributions of other "runner-up nodes" become a huge redundant cost attached to the value of Bitcoin.

In short, the actual cost of producing each Bitcoin on the Bitcoin network far exceeds the expenses of a single block-producing node, as it incurs the costs of all "competing nodes." This encourages miners to continuously participate in the computing power competition until they secure the block production rights, which is the reason for the sustained growth of consensus in the Bitcoin network.

Therefore, the actual consensus cost of the Bitcoin network far exceeds the current total market value of Bitcoin. If we calculate based on an average of 10,000 mining nodes historically, the theoretical gap is about 10,000 times. Currently, there are about 20 active mining pools on the network, plus individual Solo miners, which brings the total to approximately 50. If we consider the mining pools as a single total node, the cost difference is about 50 times.

This is the consensus security brought by the Bitcoin PoW dynamic computing power competition model, making the consensus security strength of Bitcoin almost immeasurable.

In contrast, Ethereum's PoS mechanism is a static fixed income model, where the amount of ETH staked corresponds to the earnings, currently stable at around 5%. ETH consensus participants do not need to compete or incur additional redundant costs; they only need to compute to participate in profit distribution. This is the "advantage" of Ethereum's early-promoted PoS mechanism that does not consume energy. However, this "advantage" has also become a weakness in Ethereum's network consensus. Due to the lack of investment in redundant costs, the actual consensus cost of Ethereum has decreased, and the value of network consensus has also declined.

Comparing them, the network consensus cost of Bitcoin is almost immeasurable, with its consensus having no upper limit due to continuous computing power and energy investments. In contrast, Ethereum's consensus has an upper limit that can be calculated, with the staking rate of ETH representing its consensus limit.

Therefore, at the mechanical consensus level, Bitcoin is far stronger than Ethereum, which in turn affects the differences in social consensus, ultimately reflected in the coin price.

From a thermodynamic perspective, the PoW mechanism drives Bitcoin to become an entropy-reducing system that is closer to a living entity, which is the physical principle that keeps the Bitcoin network continuously vibrant and energetic.

Everything in the universe tends towards increasing entropy, from order to disorder, from order to chaos, ultimately leading to extinction. The only exception is life, which feeds on negative entropy.

Negative entropy is a form of external energy that can shift internal systems from disorder to order. Life creates a reduction of entropy in local spacetime by digesting negative entropy. However, the reduction of entropy exists only in local spacetime; for every unit of entropy reduction that life generates, it expels two units of entropy increase into the external universe, resulting in an overall increase in entropy.

The PoW mechanism of Bitcoin allows the chaotic Byzantine nodes within the network to continuously consume computational power and energy for calculations. The fastest node gains the block production rights, nodes quickly verify each other and reach consensus, ultimately forming consistency and order, creating an entropy-reducing system, a living entity!

In the organism of Bitcoin, the computing power and energy input by miners are "negative entropy", helping the chaotic and disordered nodes within the network reach consensus and create a system of entropy reduction. The PoW mechanism is the digestive system of this organism, where miners provide "negative entropy", achieving the existence of Bitcoin.

This is the physical principle that allows Bitcoin to continue to grow and thrive.

On the contrary, Ethereum:

In the early days of Ethereum, it also adopted the PoW mechanism and ran for more than seven years, which was also a period of rapid development. Until September 2022, it officially transitioned from PoW to PoS, and everything changed quietly.

The removal of the PoW mechanism has caused Ethereum to lose external computing power and energy input, resulting in the loss of its ability to continuously absorb "negative entropy". It is like a living being with its digestive system removed but without finding an alternative solution; it may achieve short-term weight loss, but due to the lack of sustained feeding ability, gradual decline is almost inevitable.

Some believe that the weak price of Ethereum is due to a lack of innovation in the ecosystem, as well as the failure of on-chain applications and users to grow sustainably. So, what are the deeper reasons behind these situations?

As mentioned before, mechanical consensus directly affects social consensus. Ecology, applications, users, and coin prices are all manifestations of social consensus. The essence of the weakening of social consensus is the weakening of mechanical consensus.

Why has the mechanical consensus of Ethereum weakened?

The PoS mechanism is a static fixed income model, lacking competition in computing power and energy, which leads to a reduction in redundancy costs and weakened mechanical consensus; the PoS mechanism lacks the ability to absorb "negative entropy," and cannot offset the internal trend of entropy increase in the system through the input of computing power and energy; the staking mechanism of PoS directly leads to the rich getting richer and class solidification. When class solidification occurs, the community lacks innovation and vitality, and ultimately these capabilities spill over, achieving success for other competing products.

This series of performances reflects the weakness of social consensus indicators such as the Ethereum ecosystem, applications, users, and coin prices! Even if the coin price can be forcibly raised to enhance social consensus, the principles of physics cannot be violated.

Ethereum is indeed showing signs of a downturn, and this cycle is falling further behind Bitcoin, which is the most genuine result! The gap may further widen in the next cycle!

Ethereum is still like this, and other public chains that imitate Ethereum will inevitably also struggle! The encryption industry has come to this point, and it can be said that it has succeeded because of Ethereum and also failed because of Ethereum! This may be something that any industry will experience during its development.

But opportunities often arise at this moment!

The greater opportunities in the encryption industry are clearly not within the existing Ethereum model; it is necessary to break out of the "Ethereum mindset" and return to the original context and starting point of the industry to find answers!

4. Rediscovering the Endless Treasures of Bitcoin

Returning to Bitcoin for new innovations is a long-term issue in the industry that is difficult to break through in the short term. However, when we begin to break the misconceptions about Ethereum and rethink Bitcoin, in addition to discovering details behind "consensus," we may also uncover many previously overlooked hidden details.

These details fill us with hope for a new paradigm innovation based on Bitcoin!

For example, intuitively, people think that Ethereum is more efficient than Bitcoin in handling transactions. However, this is not the case.

The UTXO model of Bitcoin enables concurrent processing and independent state changes when handling transactions, without the need for a unified world state tree to update the state. In fact, Bitcoin does not have a so-called account concept; the Bitcoin balance displayed at a user address actually represents the total amount of UTXOs that the user's private key can control.

The UTXO model handles transactions like real-world trading environments, where any pair of trading parties can frequently transact with different denominations of "UTXO" cash. The transaction status of one pair of trading parties does not affect the transaction progress of another pair, because UTXOs can independently change states without the need for a unified central state tree to make changes.

Ethereum adopts a traditional account model, which is similar to a traditional bank account model. When processing transactions, the account model relies on a global state tree to calculate the balance changes for each address involved in the transaction. Therefore, the state of each transaction needs to be changed and completed before the next transaction can proceed, otherwise issues such as double spending or inability to transact may occur. Thus, the account model can only be processed serially.

In short, Ethereum's account model requires a centralized world state tree to uniformly handle transactions and change the states of all accounts. Although this world state tree is driven by a decentralized mechanism, the need for a center to uniformly process and manage global state changes makes it difficult to execute concurrent transactions and more flexible trading models.

We still have many undiscovered Bitcoin details.

In terms of "parallel processing state change capability," Bitcoin's UTXO model outperforms Ethereum's account model. Moreover, the concurrent processing and independent state change capability of UTXO can be extended to anything that requires independent state changes and concurrent processing, meaning UTXO can express the state changes of other things beyond Bitcoin transactions, such as the state changes of prediction markets, AI security models, etc.

Moreover, because the capability of Bitcoin's concurrent processing state change is protected by the world's largest mechanical consensus - the Bitcoin consensus, this makes the Bitcoin network more unique and irreplaceable. The combination of shared Bitcoin consensus security + UTXO concurrent state changes can unleash infinite potential. This is a detail that many people have overlooked before. We are pleased to see that entrepreneurs in the Bitcoin ecosystem have already taken steps in this direction, such as client-side validation and the UTXO model.