Challenges of Ethereum and Insights from Bitcoin: Exploring the Future of Crypto Assets Industry

Recently, the market has been questioning Ethereum. Bitcoin's price has reached new highs repeatedly, while Ethereum is still far from its peak in 2021. Although Ethereum has seen some recent recovery, its overall performance still lags behind Bitcoin.

What exactly is the problem with Ethereum? Why is it struggling to keep up with Bitcoin in this bull market? Is Ethereum really declining and unable to recreate its former glory? Will the next round of innovation in the crypto assets industry still happen within the Ethereum ecosystem?

This article will review the starting point of the crypto assets industry—Bitcoin, re-examine Ethereum and the entire industry, and explore possible innovative directions for the future of the industry.

1. Break Out of the Ethereum Mindset

First of all, we cannot completely deny the value of Ethereum.

Ethereum groundbreaking introduced smart contracts, opening up new horizons for the crypto industry. Before the emergence of Ethereum, most projects were merely simple imitations of Bitcoin, just modifying some parameters. After the birth of Ethereum, the industry entered a wave of imitating Ethereum, leading to the emergence of numerous so-called public chain projects.

Various public chain ecosystems basically replicate the Ethereum model, merely repeating concepts such as DeFi, GameFi, Layer 2, etc. Investors have become numb to the hype around various concepts and are now chasing simpler and more direct Meme coins.

The entire industry seems to be trapped in a dilemma of lack of innovation and fragmented consensus.

But Bitcoin continues to reach new highs, seemingly unaffected. Does this mean the industry is overly reliant on "Ethereum thinking" and neglecting the value of Bitcoin?

After all, Ethereum itself was inspired by Bitcoin. If we want to find the issues with Ethereum, perhaps we should return to Bitcoin and rethink the value of Bitcoin, just like when Ethereum was first created.

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

2. Mechanical Consensus and Social Consensus

When discussing public chains, consensus mechanisms are an unavoidable topic. Public chains rely on consensus for their operation; without consensus, there is no public chain.

The consensus of public chains can be divided into mechanical consensus and social consensus.

A public chain is essentially a decentralized system that continuously consolidates social consensus through mechanical consensus. Mechanical consensus is a mechanism that everyone can participate in fairly, such as PoW. Social consensus is reflected in on-chain applications, users, and other ecological data, ultimately reflected in the token price.

Participants in the mechanical consensus are the primary investors, beneficiaries, and builders of the public chain. They invest significant costs to participate in the operation of the public chain, thus having the greatest motivation to promote ecological development. This also explains why early promoters of the Bitcoin ecosystem mostly come from the mining community, while many leading applications on Ethereum choose to go their own way.

When the price of a public chain's token begins to weaken, it often signifies a decline in social consensus, with a deeper reason being the weakening of mechanical consensus and the dispersion of the population participating in mechanical consensus.

3. Comparison of Bitcoin and Ethereum's Consensus Mechanisms

Bitcoin adopts a dynamic competitive PoW mechanism, while Ethereum adopts a static fixed yield PoS mechanism.

Bitcoin miners need to continuously invest computing power and energy to compete for block rights, but only one node succeeds each time. The investment of other "runner-up" nodes becomes a huge redundant cost, which is attached to the value of Bitcoin. This mechanism drives miners to continuously participate in the computing power competition, strengthening the consensus of the Bitcoin network.

The actual consensus cost of the Bitcoin network is far higher than its total market value. Even conservatively estimated, this gap is about 50 times. This is the powerful consensus security that the PoW mechanism brings to Bitcoin.

In contrast, Ethereum's PoS mechanism is a static fixed income model where participants only need to stake ETH to obtain stable returns without additional competition. While this avoids energy consumption, it also reduces the consensus costs and value of the network. The consensus limit of Ethereum is basically equivalent to the ETH staking rate.

From a thermodynamic perspective, the PoW mechanism allows Bitcoin to become an entropy-reducing system similar to a living organism. The computing power and energy provided by miners act like "negative entropy", helping the network transition from disorder to order, creating local entropy reduction. This is the physical principle that keeps the Bitcoin network continuously vibrant.

Ethereum, after transitioning from PoW to PoS, has lost the ability to continuously absorb "negative entropy", like a living organism that has lost its digestive system, making it difficult to sustain growth.

The static fixed income model of the PoS mechanism lacks competition and redundant cost input, weakening mechanical consensus. At the same time, it leads to wealth solidification, and the community lacks innovative vitality. These factors ultimately reflect in the weakness of social consensus indicators such as the Ethereum ecosystem, applications, users, and token prices.

4. Re-examining Bitcoin and Mining for Potential Value

When we jump out of the Ethereum mindset and rethink Bitcoin, we may discover some overlooked details that bring new innovative opportunities to the industry.

For example, the Bitcoin UTXO model can achieve concurrent processing and independent state changes without the need for a unified global state tree when handling transactions. This makes Bitcoin more efficient than Ethereum in certain aspects.

The characteristics of the UTXO model can also be extended to other fields that require independent state changes and concurrent processing, such as prediction markets and AI security models. Combined with the strong consensus security of Bitcoin, this provides a vast space for innovation.

Some teams have begun exploring in this direction, such as the BitVM solution based on client validation and the UTXO model, as well as the BEVM project that focuses on "shared Bitcoin consensus security + UTXO concurrent state changes," among others.

Summary

When we break free from the Ethereum mindset and reassess Bitcoin, we can discover many overlooked innovative opportunities. The birth of Ethereum is essentially an interpretation of Bitcoin, and the subsequent entrepreneurs excessively replicated the Ethereum model, leading to a lack of innovation momentum in the industry.

True paradigm innovation requires abstracting underlying principles, rather than simple imitation. Just as the thermodynamic laws behind the steam engine triggered a scientific revolution, we need more people to think about and abstract the scientific principles contained in Bitcoin, driving the arrival of the Bitcoin paradigm revolution.