When I first got into crypto, in the “class of 2017,” I, like so many people who enter the space, was immediately excited not just by Bitcoin, but by all the alternative coins, or “altcoins” out there.
Each one of them seemed to do something different – to have a different use case – a different purpose – and, at least it seemed back then – it’s own unique potential.
Of course, as the platform on which over 100 other coins, as well as “DeFi,” “NFTs,” and “smart contracts,” Ethereum stands out as the king of altcoins, and is #2 in market cap by a massive margin. There is so much development and innovation happening in Ethereum – and it can be easy to believe that “the flippening” – the point at which Ethereum will overtake Bitcoin as the #1 crypto currency in the world – is coming.
And yet, for the overwhelming majority of people who have “been around the block,” been through a market cycle or two,
or fundamentally understand cryptocurrencies at a fundamental level Ethereum is nothing more than… well.. hype.
Stick around – because in this video, I’m going to explain why.
When you first get into the world of crypto, you’ll no doubt hear all about Ethereum – one of the fastest growing assets of the last decade. And for good reason. Ethereum is not only the #2 cryptocurrency, but it offers a whole host of features that Bitcoin simply doesn’t – at least, at first glance.
But, as you start to understand more and more about cryptocurrencies – and observe Ethereum’s history as it plays out – you’re likely to come to the conclusion that most of this is… well… just hype.
Instead, when you look at the core fundamentals of Ethereum, you see a cryptocurrency and an ecosystem that is deeply flawed from its foundations. A massive, insecure mess… which is only going to get worse.
I know, I know, this is controversial. But there are a lot of reasons to believe so.
Let’s take it point-by-point.
Let’s first start with one of the biggest issues plaguing Ethereum – centralization. In order for a cryptocurrency to be truly censorship-resistant, unbreakable, and secure, it needs to be decentralized. In other words, there needs to be a lot of computers – all over the world – securing it and backing it up in a distributed fashion, so that there are no central points of failure or obvious attack surfaces.
Ethereum bills itself as a decentralized platform – but it’s not nearly as decentralized as they’d like you to believe. You see, because Ethereum tries to fit everything from NFTs to Tokens “on chain,” it’s hard to run an Ethereum node – like, really hard. Not only is the blockchain incredibly big, but as this tweet from Jameson Lopp shows, it takes a much more computing power to run the node:
This means that some people, if their internet isn’t fast enough, won’t even be able to catch up with the blockchain if they try to start downloading it now! Sure, there are projects that run nodes on a Raspberry Pi, but in the reality is, because Ethereum is so bloated, an estimated 60%-70 of Ethereum nodes run on Amazon Web Services.
Oh, and by the way, while Ethereum proponents will tell you that there are somewhere between 6,000 and 8,000 Ethereum nodes online, at the time of this recording, there are less than 3,000 discoverable nodes online –
over 50% of which are in the US and Germany alone.
3,000 might seem like a lot, but it’s not – especially when it’s compared to the over 10,000 widely distributed Bitcoin nodes.
And because of “plug and play” bitcoin node software like Umbrel and myNode, there are hundreds or even thousands of new Bitcoin nodes going online every single month.
You also might not think that this disparity is a big deal… after all, Ethereum themselves will readily admit that yes, they have traded some decentralization for advanced capabilities – but you don’t need to look far to realize that this is actually a massive flaw in the design and security of Ethereum as a whole.
Just recently, in August of 2021, Ethereum’s Blockchain split due to a bug in 54% of nodes.
When you have a relatively small number of nodes, and most of them are running the same bug-ridden software, it’s relatively easy for this to happen. As a result, for hours and hours, Ethereum’s miners were literally mining two different chains – making it possible for someone to double-spend their funds on each chain, and also making it unsafe to transact on the blockchain until the correct chain was identified and the incorrect one orphaned.
This is a major embarrassment for a cryptocurrency that claims to be decentralized and secure. But here’s the best part – it isn’t even the first time. Ethereum has forked due to similar bugs in April 2021, and again November of 2020. And worst of all, the price of Ethereum actually went up during this recent fork. This just goes to show that the majority of Ethereum “investors” don’t understand just how unstable the currency really is.
But all of this pales in comparison to the bigger issue behind Ethereum – one of Central Authority. As you probably already know, Ethereum was founded and created by Vitalik Buterin, a Russian-Canadian software developer who got his start writing about Bitcoin back in 2011.
Ethereum is run as a non-profit organization, and purports to be a democratic and open consensus protocol. But make no mistake: Vitalik and the Ethereum Foundation maintain an outsized influence on the future of Ethereum, both intentionally and unintentionally.
Here’s an example. Many people entering the space today don’t even stop to ask – why is there an “Ethereum Classic” and an “Ethereum.”
It’s a great question. And alhough we don’t have time here to go too in to depth, the story goes like this: Back in April of 2016, a project called the DAO, Decentralized Autonomous Organization – was launched.
It was intended to be a fully autonomous organization that raised money and invested in novel projects, sort of like a decentralized venture capital fund. In just 28 days, it raised a staggering $150 Million from more than 11,000 investors. Amazing, right?
Here’s the problem: on June 17th, 2016, a bug in the DAO was exploited, allowing $50M to be sent to the attacker’s wallet.
Bugs happen, and that’s just life. But what happened next is the real problem. Rather than stand by their own “code is law” mantra, the Ethereum foundation chose to hard-fork the currency,
Splitting it into two: Ethereum Classic, and Ethereum – the latter of which provides a revisionist history where this little “oops” never happened. Does that sound like a currency you can trust? What happens when it’s a government insisting that the Ethereum foundation step in and force changes?
Even if today, Vitalik aspires to be relatively impartial, focus mostly on research, and allow the ecosystem to decide it’s own future, as it’s visible founder, he cannot help but have an influence on the community simply by virtue of which projects he uses, which conferences he attends, and which topics he decides to research. For example, when Vitalik chose to donate and burn millions of dollars worth of SHIB coin that was sneakily gifted to him, it made news, and affected the price of SHIB. What’s more, Vitalik and the Ethereum foundation itself serve as highly-visible targets, should governments wish to “shut it down.” Sure, Ethereum would probably continue running, but just imagine the impact on Ethereum as a platform if Vitalik was mysteriously arrested, and the Ethereum foundation forcefully shuttered.
Compare this to Bitcoin, where the shadowy founder Satoshi Nakamoto has never been identified, and hasn’t been heard from in over 10 years.
Even if Satoshi were to come back today, it’s likely that he would not be able to prove his identity, and therefore, even Satoshi himself could exert little if any influence on the future of Bitcoin. Heck, even if he had the cryptographic keys to access his wallets or sign messages, it would be impossible to know if it was really him, or just someone who found the keys. Just look at Craig Wright, who claims to be Satoshi, but is widely recognized as a fraud.
What’s more, it’s important to note that in many ways, Bitcoin has already deviated significantly from Satoshi’s original vision, including the development of a second layer for payment networks, and the decision to keep a small block size – proving that no one person can influence Bitcoin. In fact, many of the original influential figures in Bitcoin, such as Gavin Andresen and Roger Ver, have been effectively ousted by the community, because they have fallen on the wrong side of history for one reason or another.
In this way, Bitcoin is the only true consensus cryptocurrency. Unlike other coins, it is not plagued by the opinions or influence of it’s founders or core developers. Nobody has more influence on Bitcoin than anybody else, and there is nobody you can arrest that would make a dent in Bitcoin’s success. Bitcoin, like the internet, is an open standard that anyone and everyone can build on equally. A standard where the best ideas – not the ideas supported by the biggest names – get ahead.
There’s simply no other cryptocurrency that can make that claim.
Ease of Duplication
While we’re talking about things that only Bitcoin can lay claim to, let’s talk about the fact that anyone can build “the next Ethereum” – and they are working on it quite actively. Each one of them proposes to solve the many problems of Ethereum in new and novel ways, with unique solutions, and even bigger promises. In this way, Ethereum is only as good as it’s features and functionality, and when something better comes along, developers will build on that instead.
But there can only be one first. Only one currency can maintain the longest record of security. Bitcoin is the first cryptocurrency, the reason blockchain technology was developed, and still only one that has proven both its usability and it’s security in the real world. Everything else, therefore, is just a copy in some way shape or form. People often ask me, “don’t you worry about someone making another Bitcoin that’s better, and Bitcoin losing it’s value?” No… no I don’t. Because by definition, that something else will be a copy, or a copy of a copy, and it will be susceptible to copies, too. Plus, if it’s truly, demonstrably better in some way, then Bitcoin – the original and still strongest cryptocurrency in terms of developer resources – will just integrate their ideas with a Bitcoin Improvement Proposal. After all, it’s not like Bitcoin is stagnant.
Think about it this way: there is no “Internet 2.” We are still building on and improving upon the original internet. Bitcoin isn’t Myspace, waiting to be replaced by Facebook. Bitcoin is the internet.
Most people who are serious about Ethereum at least acknowledge this one thing: Ethereum is not hard money, nor is it intended to be. It’s barely even money at all. But it’s used as money, to pay for transactions, fundraise for new projects, and more. Therefore, it’s worth asking… what is the monetary policy of Ethereum?
To be honest, the answer isn’t really clear. Unlike Bitcoin, Ethereum’s monetary policy was not etched in stone from the genesis block. Instead, Ethereum does not have a fixed supply limit. Sure, they are reducing the block reward, and therefore the supply rate,
but that is dependent on them hitting various development milestones, including the transition to Ethereum 2. And of course, like everything in the world of Ethereum, this is subject to change as things come up, or as the foundation changes their mind.
It’s hard to overstate the importance of this. Inflation and currency manipulation is one of the biggest reasons Bitcoin was created – and they are one of the central value propositions. Most people don’t realize it, but Bitcoin is revolutionary in that it is the only scarce asset in the world besides time. There is tremendous power in the fact that there will only ever be 21 million Bitcoin.
How many Ethereum will there be? Who knows? And how do we know that they won’t change their mind later and issue more if (or when) proof of stake doesn’t pan out? Without a fixed monetary policy, encoded into the protocol itself, Ethereum is no better as a store of value than government-backed fiat money.
No Real Use Cases
The price of Ethereum today is largely based on the promise that Ethereum will “power the future.” That the world is going to run on smart contracts, whether it be paying for your shipment automatically on arrival, storing the deed to your house on the blockchain, or programming your prenuptial agreement into immutable, unhackable code.
And yet, as we’ve already seen from the case of the DAO, Ethereum’s claim that “code is law” is mostly B.S. At the end of the day, complex human interactions require a lot more judgement and reason than we think – which is why we have courts, judges, and juries. Plus, if you’re going to say that code is law, then stick by it. You can’t claim that code is law, up until the point that someone executes the code in a way that you don’t like. In my mind, this entire argument was completely debunked by Ethereum themselves, the moment they decided to fork away their mistake.
What’s more, it seems like every time Ethereum tries to show the world their smart contracts in action, they blow up in a blaze of glory. Just last mWonth, hacker’s stole $600M worth of Ethereum simply by exploiting a bug in the creator’s smart contract.
When you allow people to program whatever they want onto your transaction layer, mistakes are going to happen.
That’s why these types of hacks, scams, and exploits are quite commonplace in the land of Ethereum. In fact, there are so many of them that someone has actually built a website, rekt.news, to keep track of all of them
In this way, smart contracts, at least in the way that Ethereum describes them, are mostly hype. They’re more than just “unproven,” – they’ve proven themselves to be extremely risky.
Ok, fine. But what about DeFi? NFTs? And all the other “amazing” innovations happening on Ethereum? Meh. Decentralized Finance is already being built on Bitcoin by folks like Bisq,
and more recently, even Square is looking to build a decentralized trading platform for Bitcoin.
So that’s not news, and not special.
From what I can see, there are only two unique real-world use-cases that Ethereum has demonstrated.
The first was Initial Coin Offering (or ICO) Pump-And-Dump schemes in 2017 and 2018, where the Ethereum platform enabled anyone with a little bit of coding knowledge and a whitepaper to raise tens or even hundreds of millions of dollars by promising that their coin would be the next big one. How many of those coins have lived up to even a fraction of what they were promised to be?
The second, as we’re seeing in 2021, are Non-Fungible-Tokens (or NFTs), which are basically JPEGs that you can “buy the rights to.” Proponents of NFT’s say that they have the potential to change the entire art market, and maybe even the way we look at ownership of private property as a whole. But from where I’m sitting, it looks no different than the current copyright system we already have – but worse. Sure, you may have paid $2.25M to own the rights to
this picture of a monkey… but does that give you the ability to stop me from using it in my videos? For that, you’re going to need to go through the traditional routes of copyrighting the image and going through the traditional legal system to defend your ownership rights… so what exactly has your NFT accomplished? And, while we’re at it, why do you need to store this ownership information in the blockchain anyways? Wouldn’t it just be easier to store it in a database with backups, like the US Patent and Trademark office does? Do we really need immutability to tell me that you own a JPEG?
Maybe I’ll be wrong about Ethereum. Maybe someone will build “the killer app” that actually adds value to our lives – but I doubt it. And that doesn’t solve any of the other problems lurking under the hood.
So, you might be thinking, what then… are we just to give up and rely on Bitcoin, which has no more features than sending and receiving money? Yes! The beauty of Bitcoin is that the base layer itself is insanely simple and capable, while allowing you to build upon it off-chain. This is exactly how Lightning Network works. It uses it’s own form of smart contracts that fit within the existing features and functionality of Bitcoin, but allows you to add powerful functionality such as instant and free transactions, messaging, dispute resolution, and more. Plus, with the Taproot upgrade now voted in, Bitcoin’s Layer 1 functionalities are going to get even better.
It’s kind of like this: The difference between Bitcoin and Ethereum is the difference between the tortoise and the hare. Ethereum is the hare, rushing to make it easy to build out anything you could possibly want, at the expense of centrality, bugs, and hacks. Bitcoin the tortoise: also building and innovating, but it’s taking its sweet time to get it right. It is incredibly hard to change the Bitcoin Layer 1, requiring all kinds of consensus and signaling. But, if you want to build on top of this system, with sidechains or second layers, you are free to do so, so long as you abide by the rules on-chain. In this way, nobody can make “mistakes” in Bitcoin that undermine it’s security. This is, without question, the right way to build a secure system. Because when you’re rebuilding the foundations of money as we know it, security is more important than features.
As we just learned, Bitcoin has made some very different choices along the way than Ethereum. None of them stands out more than the choice of how to scale. On Bitcoin, scaling was achieved with only minor changes to block sizes and structure, and complemented by subsequent layers alongside Bitcoin’s main chain. Ethereum, on the other hand, is still trying to achieve everything – from NFT’s and ICO’s to normal peer-to-peer transactions, on-chain, leading to a bloated blockchain and insanely high transaction fees. This year, Ethereum transactions have ranged anywhere from $4 to over $70 per transaction, while Bitcoin’s on-chain fees have plummeted
as a result of more and more transactions being conducted virtually for free on Lightning Network.
But not to worry, because the very smart people at Ethereum have plenty of solutions to offer for this scaling conundrum.
First, there’s sharding, where the blockchain is split horizontally to spread the load.
After all, Ethereum’s chain just loves to be split – why not try doing it intentionally for a change? Sharding creates a bunch of new chains, so that each miner only needs to work on a portion of them. If it sounds complicated, it’s because it is. I’m not even going to pretend I understand it. But if you think Ethereum had a problem syncing up nodes and creating consensus before… Oh boy, I bet this one is going to be a catastrophe before they get it working properly!
Then, there are rollups, where transaction execution happens off-chain either by Zero Knowlege or optimistic rollups – because, you know, optimism is a big part of what powers Ethereum. Here, basically the hard work of mining is done “off chain,”
and then cryptographic proof is provided to re-integrate the transactions back into the Ethereum main chain. This sounds a lot like Bitcoin’s Lightning Network – but worse. Instead of opening payment channels where infinite numbers of transactions can be done before settling back on chain, rollups are simply taking the hard work of settling transactions off-chain and then pushing it back on. Of course, I’m not a cryptography or blockchain expert, but even I can see all types of security holes and attack surfaces that this will create before the technology is perfected. And it’s not like Ethereum was free of attack surfaces before!
Ethereum’s Uncertain Future
This all sounds pretty bad, but don’t worry… it’s only going to get worse. For years, Ethereum has been promising it’s users a move to Ethereum 2.0, built not on Proof-of-Work like Bitcoin, but rather on Proof-of-Stake, or POS. The idea behind this is simple: The old, archaic Proof of work that Bitcoin uses takes a lot of energy and expensive computing equipment. And 99.99% of that energy is wasted by making the algorithm extremely difficult. After all, processing the transactions is quite easy. So why not, instead of letting whoever has the most energy and the most computing power solve the blocks, we let whoever has the most coins at stake solve them. We can trust them not to do anything funny, because after all, they have so much money in the system, they don’t want to undermine it’s security, right?
Does this sound familiar to you? Let’s let the rich people with the most money maintain the power and make the decisions, whether or not they do any work, commit any resources, or take any risk.
When you phrase it like that, Proof-of-Stake sounds like a disaster – and it is. You see, Bitcoin’s energy consumption is not a bug – it’s a feature. It ensures that anyone who wants to attack the network would have to expend a lot of money, energy, and resources in the real world to do so – more than most nation states could even muster. What’s more, it ensures that if they do so, they would lose all of that investment, because Bitcoin’s value would go to 0 the moment they succeeded. This combination of game theory and real-world stakes are what makes Bitcoin so secure…. And what makes Proof-of-Stake such a bad idea.
Ethereum is a distraction – that preys on the uninformed
As I mentioned before, when people enter crypto, there is an inherent temptation to try and look for “the next big thing.” They feel that they’ve missed the boat with Bitcoin (they haven’t), and they want to get in “on the ground floor” of something big so they can get rich like the pioneers of Bitcoin did. This makes these people easy targets for pump-and-dump schemes, scams, or even genuine projects… which have no future.
These people are fleeing for the exits from a broken fiat system, and instead of Bitcoin – the hardest, soundest, most trustworthy form of property ever created, they are tempted into an even less sound money system because of glitz and hype.
So… yes. I fundamentally believe that if Ethereum and other cryptocurrencies didn’t exist, the world would be a better place. This is because more and more people would put their money into Bitcoin, instead of the hot new shitcoin, and therein accelerate our transition away from the broken fiat system. Not to mention, this would prevent the hundreds of millions of dollars that people have lost when their shitcoin goes bust – or gets stolen.
So what then, is Ethereum just a bunch of hype and broken projects with no observable real world value…?
Well… honestly, yes! I’m sure that the comments below will be full of what I lovingly call “Ethidiots” telling me how I’m a toxic maxi, blind, or don’t understand Ethereum.. And you’re right! I don’t! I don’t understand it, or why people still believe in it… and I have a really solid understanding of Blockchain. So if I don’t understand it, how is the mainstream ever going to?
And, to be honest, I’m not even sure all of the people building things on Ethereum understand it.
Of course, you don’t have to go “all the way” into toxic maximalism like me, and believe that Bitcoin is and will always be the only successful and necessary implementation of Blockchain. But know this: most of Ethereum’s promises have yet to materialize, and aren’t going to any time soon.
Week after week, with every new hack, chain split, or overcomplicated scaling solution, Ethereum is proving it’s not trustworthy – if only you’re willing to listen.
Conversely, week after week, with every new block found without a hiccup, every new node added, and every new scaling milestone achieved on lightning network, Bitcoin is proving it’s security and scalability. There is no competition. Bitcoin has already won the cryptocurrency wars.
It’s just a shame that not everyone has heard the news.