Innovations of Ethereum

Ethereum is a platform that enables decentralized computing on a global scale. It offers an easier way to create and program smart contracts compared to other platforms. Additionally, it allows for the creation of new digital tokens in a short period of time, as little as 20 minutes. Ethereum also provides the capability to establish Decentralized Autonomous Organizations (DAOs), which are organizations that operate on a blockchain.

When compared to other cryptocurrencies, Ethereum possesses the second largest asset size, following Bitcoin, which is considered the primary currency. Ethereum is responsible for generating the largest number of token-based projects and resources based on the Ethereum Virtual Machine (EVM). One particularly noteworthy innovation of Ethereum is the creation of a decentralized dApp platform. At present, there are over 2,800 active dApps running on Ethereum (as of January 2023). By developing a new dApp and distributing it on the Ethereum network, individuals can quickly establish a global business. These businesses can be built solely using code, which has led people worldwide to create and offer new global enterprises spanning various industries such as finance, insurance, energy, carbon credit management, government, and public services. Consequently, Ethereum holds significant value as a global decentralized dApp platform with extensive utility.

Ethereum 2.0: Transitioning to Proof-of-Stake (PoS)

In September 2022, Vitalik Buterin, the founder of Ethereum, implemented a significant change known as "The Merge." This involved upgrading Ethereum to version 2.0 and completely transitioning the consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS). The motivation behind this transition was Buterin's belief that PoS is more energy-efficient and provides better security against external attacks compared to PoW. By moving to PoS, Ethereum aimed to reduce power consumption since the mining process no longer requires a large number of computers.

However, the PoS method does come with certain drawbacks, such as the potential loss of decentralization. This is because transaction validators who hold more stakes receive greater rewards, which can lead to a concentration of power among specific validators. Despite the transition to PoS, gas fees (transaction costs) and network processing speed have not seen significant changes. Additionally, after the merge, it became apparent that two major networks control over 60% of the total PoS stake, exacerbating the centralization issue and raising concerns about the system's level of decentralization.

Furthermore, there is a fundamental difference in security between PoS and PoW. In PoS, consensus is achieved through "agreement," whereas PoW relies on computational work. This distinction means that security in PoS is reliant solely on consensus, making it reversible only through agreement, unlike PoW.

Top-Down vs. Bottom-Up Approaches in Blockchain

Vitalik Buterin has introduced the concept of the blockchain trilemma, which states that achieving decentralization, security, and scalability in blockchain technology is challenging because only two of these elements can be satisfied simultaneously. It's difficult to achieve all three at once. In response to this challenge, two solutions have emerged: a top-down approach focused on centralized consensus scheduling and a bottom-up approach driven by market demand and natural growth.

Ethereum 2.0 represents a top-down solution. It aims to address multiple requirements such as scalability, decentralization, security, locality, and application diversity within a single global blockchain. However, designing a complex global blockchain with numerous functions and addressing potential issues in various ways can lead to a higher likelihood of malfunctions and increased vulnerability.

On the other hand, there are several sidechains and Layer 2 (L2) chains worldwide that support the Ethereum Virtual Machine (EVM). These sidechains and L2 solutions are created through different approaches based on specific services and regions, allowing network users to select the ones that best suit their needs. In essence, survival in this system is determined by providing excellent services and proving their effectiveness.

Considering this systematic structure, it is believed that the bottom-up approach will play a significant role in shaping the future of blockchain technology. The bottom-up approach, driven by natural selection based on consumer choice and optimization, holds inherent advantages over the top-down approach, which attempts to predict and pre-design the blockchain system in advance.