1confirmation founder strongly supports Ethereum and Vitalik: ETH is seriously undervalued

Original Title: Money, Blockchains and Social Scalability v2

Author: Nick Tomaino, Founder and General Partner of 1confirmation

Compiled by: Hailsman, ChainCatcher

Editor's Note: Recently, the community has been rife with FUD regarding Ethereum and the conflicts of interest between Layer 2 and the mainnet. Nick Tomaino, Founder and General Partner of 1confirmation, has come out in support of Ethereum and Vitalik. He reexamines the role and potential significance of Ethereum as a trusted, neutral, internet-native store of value from the perspective of social scalability, pointing out that while Bitcoin is being actively embraced by mainstream financial markets and governments, ETH may also prove to be more socially scalable than BTC.

Social scalability refers to the ability of a system to allow more people to participate and achieve a win-win situation. This is also a primary reason why the cryptocurrency market has become a $2.9 trillion asset class today. In this article, I will explain what it is and why it is important.

In 2017, cryptography expert Nick Szabo published an article titled “Money, Blockchains and Social Scalability” that described Bitcoin as a social breakthrough, which has now become a must-read. Most people view cryptocurrency purely as technology and focus on technical scalability. However, I agree with Szabo that while technical scalability does play a role in social scalability, it is not the main factor. The biggest winners will be those cryptocurrencies that achieve social scalability through the greatest trusted neutrality and provide the most utility.

Social Scalability of Bitcoin

Bitcoin is the first trusted, neutral, internet-native store of value that is useful to people in the United States, China, Russia, Brazil, and hundreds of other countries around the world. By "trusted neutrality," I mean fairness, impartiality, and not being influenced by a minority. Trusted neutrality is a social construct that is often rooted in technology but ultimately based on various dynamic factors that influence human trust.

Trusted neutrality is something that protocols gain over time, but it is initiated by humans. Bitcoin was launched as open-source software, allowing anyone to read, run, write, and own it in a fair competitive environment. Its launch was fair. There were no private transactions, nor was it tied to celebrities, companies, or governments. The rules were clearly established from the beginning and have not been changed. The community openly discusses everything on forums like Bitcoin talk. To understand its spirit, one can read early articles by Hal Finney.

The trusted neutrality and utility of Bitcoin are the main reasons for the development of the crypto industry to date. Initially, it was a grassroots movement initiated by the pseudonymous founder Satoshi Nakamoto, not belonging to any individual or subject to the jurisdiction of any region, providing a new product that anyone in the world could use. Today, it has grown into a $1.7 trillion asset, with some of the largest governments and companies in the world actively using it as a store of value. The rules of the Bitcoin system remain difficult to change, which is one of the important reasons for its continued adoption.

The growth of Bitcoin is remarkable, but the cultural decision made by the community early on—to focus solely on currency—has limited the development of new Bitcoin developers and companies to use it for purposes beyond currency. Although extremists have emphasized Bitcoin's orthodoxy for the past 15 years, decentralized systems still have enormous opportunities to bring more freedom and progress to the world beyond currency.

Is Social Scalability Really Important?

Social scalability is an important factor in Bitcoin's success, but by 2025, the importance of social scalability may be questioned. Today, among the top 9 cryptocurrencies by market capitalization, 4 are actually corporate coins (XRP, BNB, SOL, TRON). The total market capitalization of these 4 coins exceeds $31.2 billion.

These tokens have strong narratives but have not yet achieved reliable neutrality. Small teams launched these tokens from well-known jurisdictions (Silicon Valley, the U.S., and China) and allocated over 50% of the tokens to insiders (founding teams and/or venture capital firms). They have highly coordinated marketing campaigns, involve insiders in government lobbying, and engage in a lot of corporate-style top-down activities. These protocols have yet to prove resilient, secure, and resistant to single points of failure. They have made radical trade-offs for performance at the expense of decentralization.

We can discuss their utility—some might argue that these 4 protocols are useful, but they have not enabled new use cases or broader adoption. In any case, the approach taken by these 4 protocols has been very effective. It can also be said that they have been successful in capturing value, and this has little to do with so-called social scalability.

But in the long run, social scalability is very important and will bring $20 trillion in value growth over the next decade. This is why we insist on being here. Time will tell the truth, and things will change. If you do agree that social scalability is crucial and look at the facts, it is clear that only two cryptocurrencies have both reliable neutrality and the utility to achieve long-term social scalability: BTC and ETH.

BTC holds the throne, but ETH may also prove to be more socially scalable than BTC. Here are the reasons:

Trusted Neutrality of ETH

Similar to Bitcoin, Ethereum's trusted neutrality has existed from the beginning. While Ethereum does not have the "fair issuance" of Bitcoin, only 9.9% of the supply was allocated to insiders, and anyone in the world could easily own ETH by sending BTC to the ICO address. There were no insider transactions with venture capital, nor were there celebrities, companies, or governments involved.

Ethereum initially started as a proof-of-work (PoW) chain and adopted PoW for the first 7 years to ensure a more balanced distribution before transitioning to proof-of-stake (PoS). You did not need to own or purchase ETH to participate in consensus and receive rewards at the start; you only needed to contribute computational resources. Early token holders of the native PoS chain dominated token rewards, and the transition from PoW to PoS is unique and underrated. It helped Ethereum engage a large and diverse set of stakeholders early on and allowed a broader audience to participate in consensus and earn ETH rewards today.

The founder of Ethereum is Vitalik Buterin. Some critics may question Vitalik's leadership and argue that the fact that a known founder holds significant power undermines trusted neutrality. However, in reality, Vitalik's leadership style is transparent and genuine; he has laid the cultural foundation of Ethereum by emphasizing trusted neutrality.

You won't see Vitalik peddling investment stories and chasing money, attention, and power like many major figures in the crypto space. For over a decade, he has been one of the most capable people in the industry to operate this way, but he has refused to do so. Instead, he does things his way, emphasizing values such as resisting censorship, inclusivity, and transparency, primarily focusing on setting the best technical architecture and values for builders in the long term.

In fact, the governance of Bitcoin and Ethereum is the same. Changes to the protocol require rough consensus among miners, users, and developers, so changes to Ethereum occur much slower than many VC types expect. But in the long run, this helps achieve more reliable neutrality, which is a conscious trade-off made by Ethereum's leadership.

Ethereum's mainnet currently has 4 execution clients (Geth, Nethermind, Besu, and Erigon) and 5 consensus clients (Prysm, Lighthouse, Teku, Nimbus, and Lodestar) actively maintained. Client diversity and avoiding single points of failure have always been a focus. Furthermore, the mainnet and L2 EVM environments have become the most trusted development environments for developers and companies.

Today, the amount of BTC owned by Michael Saylor's entity is much larger than the amount of ETH owned by Vitalik and the Ethereum Foundation. Bitcoin leaders have allied with governments more quickly by supporting politicians and lobbying. This may be a result of Bitcoin moving further ahead than Ethereum and attracting a broader range of stakeholders, which may seem to benefit Bitcoin.

However, the risk that Michael Saylor and government lobbying undermine trusted neutrality is real, in contrast to Vitalik and the Ethereum Foundation resisting the impulse to react to the market environment by chasing investment narratives. Ethereum's leadership focuses on builders, and Ethereum is now much larger than any individual or group. The most important people for Ethereum's future may be these unsung builders.

Utility of Ethereum

Since Bitcoin introduced the world to a trusted, neutral, internet-native store of value, Ethereum has dominated developer attention and has been the source of every major new crypto use case beyond currency that significantly brings newcomers into the crypto space. Ethereum is home to specific use cases such as decentralized finance (DeFi), non-fungible tokens (NFTs), prediction markets, decentralized social networks, decentralized identity, real-world assets (RWA), and stablecoins. All these new use cases provide Ethereum's trusted neutrality and store of value characteristics through the distribution of EVM wallets and ETH.

Some of these use cases started on the Ethereum mainnet and are now gradually shifting to L2 chains built on Ethereum. Developers are more inclined to a trusted developer environment that offers them more control and better economic benefits than L1, which is precisely what Ethereum's L2 architecture provides. Developers building on L2 or L3 not only gain more participation but also enjoy Ethereum's security, the network effects of EVM, and expand the consensus of ETH as a trusted, neutral, internet-native store of value. Meanwhile, some use case developers may prefer to stay on the mainnet, as the liquidity advantages of the mainnet cannot be provided by L2. Both outcomes are beneficial for ETH.

There has been much debate about whether L2 adds value to ETH or harms ETH's value by eating into mainnet fees. Standard Chartered recently lowered its price target for ETH from $10,000 to $4,000 based on the argument that Coinbase's L2 Base is eating into mainnet fees. This viewpoint overlooks the bigger picture.

The main benefit of L2 is not contributing fees to the mainnet but expanding the consensus of Ethereum as a trusted, neutral, internet-native store of value through the distribution of EVM wallets and ETH. The supply of ETH can decrease based on the usage of the Ethereum ecosystem (including the mainnet and L2), which has made ETH more deflationary than BTC, a nice feature. But fees are not the main advantage of applications and L2.

Ethereum dominates in stablecoin, RWA, and NFT use cases

Ethereum is now the primary ecosystem for new developers and large companies (such as JPMorgan, BlackRock, Coinbase, Robinhood, etc.) to tokenize assets. Its ecosystem is increasingly expanding from crypto-native assets like NFTs and tokens to dollars, government bonds, stocks, bonds, private credit, real estate, and more. Whether these activities occur on the mainnet or L2, and how much L2 ultimately pays in fees to the mainnet, will affect the scale of ETH destruction. But even if all these activities occur on L2 and L2 pays very little in fees to the mainnet, the adoption of these use cases will still expand the consensus of ETH as a trusted, neutral, internet-native store of value.

Opportunities Over $100 Trillion

Trusted, neutral, internet-native store of value is the largest market opportunity in the world today. The total market capitalization of gold is about $20 trillion, and the global M2 (broad money supply) is about $100 trillion, so it can be said that this is a market opportunity exceeding $100 trillion.

Cryptocurrencies that achieve social scalability through trusted neutrality and utility are best positioned to seize this opportunity. The narrative around this is not currently strong, but I have learned in life and in the crypto space that often the stronger the narrative, the further it is from the truth (and vice versa). Those who remain focused and are not tempted by chasing trends will be rewarded.