An Irrefutable case for Ethereum

“An Irrefutable case for Ethereum” - A thread addressing some of the more common criticisms of Ethereum.

Criticism #1 - Gas Fee will kill Ethereum

Gas Fee is the tax you pay to use an ecosystem - it incentives miners to validate blocks (since Ethereum is currently run on PoS). There are nuances to this - we will focus on L2s, ETH 2.0 & EIP1559.

https://ethereum-magicians.org/t/a-rollup-centric-ethereum-roadmap/4698

London Fork split the auction based gas fee into base fee + tip. Traditionally, Ethereum used an auction mechanism - that is users send txns with bids and miners accept the highest bidder’s txn. This resulted in higher wait times for users and gas fee volatility.

Instead with the London fork (EIP 1559), Ethereum started using a base fee that adjusted relative to the network traffic. This base fee is then burned. This alone isn’t enough as due to the gas wars during NFT drops, we saw the insane increase in gas fee.

But EIP1559 helps in adding value to the network via burn and to miners via tip, at the same time it (somewhat) makes the gas fee less volatile. However, this alone isn’t enough, let’s have a look at the next two pieces of the puzzle - PoW + Sharding (= ETH 2.0).

Proof of Work = Doesn’t affect gas fee much, but has a consistent block time. Apart from that, PoW counters criticism #2.

Sharding is an interesting approach to scaling that splits Blockchain states into partitions containing states and txns history to allow parallel processing of the shards. Beacon Chain coordinates these shards (about 64) - but it doesn’t concern itself with contracts or accounts.

Sharding will increase the TPS and the network participation - this allows for lower gas fee and higher throughput. Sure, ETH 2.0 seems delayed, but you have to realize how complicated this gargantuan the task is. Beacon Chain is currently live (since Dec 2020).

Finally, L2s are going to help transactions from Ethereum mainnet. Some EVM-compatible “L2s” offloads traffic from Ethereum, but they aren’t as secure. true L2s such as rollups (example @arbitrum, @zksync , @optimismPBC ) use L1 security and help the network be more effective.

Rollup-centric roadmap for Ethereum 2.0 means that Rollups help Ethereum now and in the future. You can learn more about L2s here πŸ‘‡ https://twitter.com/Abhinavmir/status/1436339174794149895

Gas Fee is high on Ethereum because people want to use it - they pay for it. Jevons Paradox may be of your interest here - Increase in throughput of the system will increase the rate of adoption.

Criticism #2 - Mining is harmful to the planet

True, and our Bitcoin Maxi friends skip over this point quiet well 🀭 (or they go with “Mining will save children”).

I don’t necessarily agree, there are nuances. Other activities cause a large carbon footprint too, but that’s beside the point. Every NFT drop/trade causes massive carbon footprint - this will change with Proof of Stake.

Proof of Stake doesn’t use puzzle-based validation, instead it lets anyone stake 32 $ETH to become a validator. Validators are chosen at random for Block creation. Failing to validation or malpractices harm the staked value - best not to risk it.

Criticism #2.5 - 32 $ETH is too high a number

It is. Which is why you can join a staking pool to pool together 32 $ETH to stake. There are staking services that help you do this for ETH 2.0 now, today. Do your own research, here’s a starting point.

https://beaconcha.in/stakingServices

Criticism #3 - Ethereum was premined

Capital allocation is a very difficult problem in Crypto, however after Bitcoin, Ethereum was possibly the best way to launch in the context of the time period.

Even when Bitcoin was at 100$, that was a 90-100x for Early investors. If Ethereum launched the same way, it wouldn’t be a fair distribution.

During launch, Ethereum mined tokens and gave investors an Ethereum wallet meanwhile Satoshi essentially gave Bitcoin to anyone who was interested. Over time the foundation has ended up owning way less % of the total circulation (~2-5% IIRC).

β€œIt’s an appalling idea that people operating boxes burning huge piles of electricity are somehow the only ones who should be allowed to gain from crypto seignorage revenue.” - Vitalik

Most detractors (of any network) simply don’t appreciate how difficult developing a new Network is - from legal, development and marketing perspective. https://www.coindesk.com/markets/2020/07/11/sale-of-the-century-the-inside-story-of-ethereums-2014-premine/

Criticism #4 - The DAO event rollback

The more elaborate criticism is that the hack resulted in Ethereum doing a “rollback” to pre-hack state thus proving the network isn’t immutable.

This criticism is valid to a degree. However, this was not a rollback. Ethereum was in its early days and the DAO was an important project to the system.

The hacker created a child DAO using the proposal (which had a 7 day period), and then had to wait 2 weeks to withdraw funds. During this time, a fork of Ethereum was put into play by a voting consensus of the community.

Code is Law, but Consensus is the King - Those who disagreed with the fork continued using the original chain, it is now known as Ethereum classic (Thread on the DAO hack soon!).

This fork does not mean Ethereum isn’t immutable. The fork has its flaws, but the DAO was one of the first few projects with massive amount of Ethereum locked in.

Bitcoin has done such a fork for the value overflow incident as well. Bitcoin was very young at that time, and Ethereum was very young during the DAO hack - however in Ethereum’s case, the bug wasn’t in the codebase - but in the poorly audited Smart Contract.

Critcism #5 - “X” will kill Ethereum

Replace X with Solana, Polkadot, Nano - what have you. Ethereum has massive network effect. Gas is high because people want to use it. Any serious consensus mechanism will cause congestion given enough users.

I respect other networks (I work with as much with Rust as with Solidity), but them killing Ethereum is a delusional pipe dream - however these networks together will form a strong application-specific ecosystem of networks.

Criticism #6 - Ethereum is inflationary

Partially true, but completely irrelevant. Deflationary assets by themselves aren’t better by virtue of being deflationary. Inflation encourages usage of the ecosystem.

With EIP1559 and upcoming technical progresses to the network - there likely will be practical supply cap.

That’s it for today’s thread. We discussed 6 criticisms - however feel free to criticise Ethereum. EIPs exist for a reason - the platform isn’t without flaws and should be criticised for the flaws.

However, in my view as a developer and an investor, it is the better bet.

Please note that Ethereum is a very complicated piece of Software technology, some of the best Engineers are working to create the future of money over at the Ethereum foundation. It is fine for us mortals to not fully grasp everything.

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