The Innovative Path of Cryptocurrency: The Innovations of Ethereum

Author: Zhu Weisha

Satoshi Nakamoto opened Pandora's box, releasing hope and demons. What is hope? What is a demon? Graham once said, "In the short term, the stock market is a voting machine, but in the long term, it is a weighing machine." Fourteen years since the advent of Bitcoin, the leading projects in cryptocurrency have withstood the test of time, and their prices certainly reflect the value of the projects. Analyzing the gains and losses of these projects can provide insights for those still on the journey.

1. The Innovation of Ethereum

Ethereum ranks second in market capitalization on Coinmarketcap. The Ethereum team is the most knowledgeable about cryptocurrency, and they have made many pioneering contributions.

Ethereum Emerged in a Competitive Environment

No one has it easy. When Bitcoin was introduced, there was no competition in the market; Satoshi Nakamoto faced the problem that outside the cypherpunk community, no one understood him. It wasn't until the following year that Bitcoin exchanges emerged, and the profit-making effect changed everything. Ethereum did not cause a stir when it was launched; it was just an ordinary project among many, as Bitcoin was the market's focus. Besides Bitcoin, there were Litecoin, BitShares, FutureCoin, DarkCoin, and others ahead of it. Today, Litecoin barely ranks 15th, and the others have disappeared, while Ethereum firmly holds second place due to its innovations being gradually recognized by the market.

Let's go back to 2013. At that time, Vitalik was still a young man, but his thoughts were not immature. In November of that year, the Ethereum white paper was published. Vitalik stated, "This draft is the culmination of months of thought and work in the field of 'cryptographic currency 2.0'." Clearly, cryptographic currency 1.0 refers to Bitcoin, and they hoped to surpass Bitcoin to become 2.0. What should this 2.0 look like? From Vitalik's description, it can be seen that he viewed Ethereum as an upgrade to Bitcoin, overcoming Bitcoin's shortcomings. Satoshi Nakamoto took 15 years to create, while Vitalik, a member of the Bitcoin community, spent just over two years of attention and practice, along with a few months of thought, to launch Ethereum. It is evident that incremental innovation is much easier, but his thoughts influenced most subsequent blockchain projects.

Why did Ethereum stand firm when thousands of projects at the same time did not? The reason lies in its deep understanding of Bitcoin, along with comprehensive innovations and improvements. The title of the Ethereum white paper is: "A Next-Generation Smart Contract and Decentralized Application Platform," which indicates its differences from Bitcoin. Below, we analyze Ethereum's improvements in conjunction with Bitcoin:

Ethereum is a Platform, Bitcoin is Not a Platform

Bitcoin is an innovative currency issuance project in human history, and it is very difficult to understand without the foundation of cypherpunk. Ethereum is an innovative financial platform in human history, accurately addressing this pain point. Traditional financial industries only have projects, not platforms. Ethereum developed faster than Bitcoin because it is closer to applications and easier to understand. Most early cryptocurrency projects improved traditional financial projects by mimicking cryptocurrencies, but without the height, vision, and thinking of the Ethereum team, as well as breakthroughs in concepts, methods, and plans, they could not succeed.

Ethereum is a Decentralized Application Platform with Actual Controllers

Bitcoin is a decentralized project without actual controllers; however, Ethereum has controllers, which has drawn criticism from many in the cryptocurrency community, labeling it as a centralized project. Evaluating a new thing with one's inherent knowledge and easily dismissing it is a human cognitive bias. Ethereum's accounting and ledger model is roughly the same as Bitcoin's, with actual controllers playing a role in project improvement and ecosystem maintenance. Ethereum is different from Bitcoin, while many other projects completely adopt Bitcoin's logic and end up failing. Does an ecosystem platform need a team for ecosystem maintenance? Bitcoin has a project maintenance team, but it has no ecosystem, so it doesn't need maintenance. The Ethereum team is very clear-headed; in addition to project maintenance technicians, there is also an ecosystem maintenance team. They follow their own path regardless of what others say.

Actual Controllers are Not Anonymous

The inventor of Bitcoin is anonymous, which has sparked a trend of anonymity. Ethereum is an ecosystem platform that needs to continuously develop; is anonymity more trustworthy, or is real-name identification more trustworthy? Clearly, real-name identification is more trustworthy. Therefore, whether to be anonymous or not depends on the project's needs; generally speaking, real-name identification is better than anonymity. In a competitive environment, how can anonymity gain a voice? Looking at the top ten cryptocurrency projects, aside from Bitcoin, the founding teams of the others are not anonymous, which says it all.

Maintaining the Ecosystem Requires Money—The Role of Establishing a Foundation

Bitcoin does not have a foundation, but Ethereum does. Moreover, Ethereum clearly states that the foundation is a non-profit organization, and the funds are used for ecosystem community maintenance and project incubation. The development of the ecosystem community plays a very important role in Ethereum's growth. If you look at Ethereum's annual report, you will find that the money spent on personnel salaries is indeed very little.

Very Clear Development Roadmap and Community Decision-Making

In response to accusations of centralization, from the very beginning, Ethereum publicly disclosed its development stages and goals, such as "Frontier," "Homestead," etc., and consciously accepted community supervision. One of Ethereum's most dramatic actions was transitioning from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) consensus mechanism. This decision would cause many miners to lose a lot of money, and it was also passed in a community meeting. It's almost comical to think that they would need your consent to kill you. Vitalik has led the understanding and application of community in today's world.

Ethereum Changed to an Account Model

Bitcoin's ledger does not have the concept of accounts; it consists of individual addresses. This kind of address is very inconvenient for smart contracts. Ethereum's accounts are understood similarly to everyday accounts; all the money belonging to you is in one account. However, the downside is that once you transfer money to someone, you can see how much money is in their account, sacrificing user privacy. Clearly, driving a contract with one account is easier than driving a bunch of addresses. There is no right or wrong here; it should be determined based on needs. Although Bitcoin now has a BRC20 protocol similar to Ethereum's ERC20 protocol, due to Bitcoin not being an account model, it is very difficult to drive addresses with smart contracts, making implementation not easy.

Changes in Ethereum's Block Packaging Time

Ethereum packages a block in about 12 seconds, while Bitcoin takes about 10 minutes. Because Ethereum is a platform, the transaction volume is much larger, and Ethereum had foresight in this regard. For the Proof of Work (PoW) method, the time chosen by Ethereum is already at its limit, but it is still difficult to meet the needs of a trading platform. Subsequent blockchain projects have chosen other consensus methods, mostly aimed at improving speed.

The Upgrade to Ethereum 2.0

The characteristic of Ethereum's development is to start from practical needs without being bound by the constraints of predecessors. Ethereum 2.0 changes the consensus mechanism to Proof of Stake (PoS), and there has been significant opposition in the market. Satoshi Nakamoto's view on Bitcoin's ledger structure is: "0.1 is consistent throughout." The Ethereum team does not care about market opposition and still makes significant changes through the community. From the perspective of accounting, Ethereum makes sense. They completed the issuance of Ethereum using the Proof of Work (PoW) method and maintain the ledger with PoS, which has the greatest benefit of reducing accounting costs. In centralized projects, accounting is almost costless. Because it is single-party accounting, the cost of multi-party accounting is certainly higher than that of single-party accounting, which is determined by the accounting structure.

Finding Uses for Ethereum

Bitcoin has no other profitable channels besides trading. After Ethereum switched to the PoS mechanism, it can be staked to earn profits. Is this profit avenue correct? The market has different opinions on this. But regardless, they dared to think and were brave enough to break through. Currently, in the new concepts on the market, ICOs, DeFi, NFTs, and DAOs are all new attempts made on Ethereum. USDT was also successfully tried on Ethereum. Vitalik has provided opportunities for creative young people to cross social classes.

A Deep Understanding of Incentives

When the Ethereum project was initiated, it had a public crowdfunding campaign that adopted an interesting incentive mechanism to encourage those willing to participate early. In the first two weeks of sales, 1 BTC could purchase 2000 ETH, and thereafter the price changed linearly, ultimately allowing each BTC to purchase 1337 ETH. The following chart shows the price of ETH in BTC terms, illustrating the discounted price of ETH during the early crowdfunding phase and the price increase of ETH from the 14th to the 36th day after the sale. Now, one Bitcoin is worth about 16 Ethereum, which means Ethereum has increased approximately 125 times compared to its initial issuance. Incentives are one of the keys to Bitcoin's success, and this small detail shows that Vitalik is well-versed in incentives.

Continuous Endorsement

Cryptocurrency influencers are like shooting stars, but only Vitalik is still endorsing. There are some good projects in cryptocurrency, but they lack endorsers; these projects have seen that Bitcoin has no endorser. In fact, they forget that Satoshi himself served as customer support for two years and later promoted in the "Less Wrong" community. The endorsement of influencers and community development must go hand in hand; another influencer who does well in endorsements is Zhao Changpeng, and the next article will analyze him and Binance.

Improve Ethereum Like Vitalik Improved Bitcoin

With Satoshi Nakamoto's original work in cryptocurrency, what remains is improvement and innovation. The above 11 points are the author's analysis of Ethereum's improvements, merely a personal perspective. This reflects the innovative spirit of the Ethereum team. Starting from project requirements, using Bitcoin as a template, improving the aspects of the Bitcoin system that are not suitable for a platform, and carefully considering the composition plan in advance rather than simply imitating is the key to Ethereum's success. If future projects can improve upon Ethereum's issues and not be bound by the dogmas of cryptocurrency, they may achieve breakthroughs.