The article discusses the prospects and challenges of ETH Fang

Original title: “Ethereum and the innovator’s dillema”

Original author: Jay

Original compilation: Luccy, BlockBeats

*Editor’s note: "Whoever chases two XTZ will get nothing. The Global Competition Review (GCR) has expressed this opinion on social media platforms. *

*GCR is a complete source of news and analysis for competition practitioners. Starting with the perspectives of modular blockchains, database design, and GCR, crypto researcher Jay delves into the current status and prospects of ETH Workshop as a smart contract platform, revealing the challenges that ETH Workshop may face when faced with new technology choices and competitors, and the importance of factors such as incentives, developer support, and technology choices. *

What’s next for ETH Fang? I talked about modular blockchains, database design, and tried to answer this question by quoting GCR’s point of view. To be clear, I have a net long position on ETH.

The core idea of the innovator’s dilemma can be summarized as:

“Successful companies often struggle to adapt to paradigm shifts, especially when it comes to technological innovation. The reason is that they are too focused and overly focused on what makes their products successful, rather than trying new, unfamiliar ideas.”

In the field of blockchain and smart contracts, we have made significant progress over the past few years. Now, the million-dollar or $250 billion question is: What is the fate of ETH Fang?

In this article, I’m going to make the point that ETH is leading the way in terms of both valuation and relative adoption of all crypto assets (ETH.D).

I’m going to start by exploring the concept of modular blockchain, contrasting traditional database design principles, and then connecting everything back to ETH and its future.

Modular blockchain

Now we have a more principled way of thinking about the logical way to build a well-functioning blockchain and decouple (and scale) the core components. This is the monolithic vs. modular debate.

When it comes to the modularity of blockchain, the core idea is that there are four basic functions:

· Execute: Determines the state after the transaction. If I send tokens to a specific wallet, the execution layer determines how the relevant balance changes before and after the transaction.

· Settlement: Determine whether the transaction submitted is “legitimate”. Once the tokens are sent, the balance is XYZ, and the settlement layer determines if XYZ is correct.

· Consensus: Determines the final state after a set of transactions. This layer determines the correct order given in a series of transactions, and what the final state will be after those transactions are processed.

· Data availability: In order for the above 3 features to exist, there needs to be a prior state and a final state. The function of data availability is to provide state to the execution layer and update the state based on the finality of the consensus.

As with any engineering problem, the concept of a “perfect” blockchain only makes sense if there are well-defined use cases. The existence of this framework allows for more specialized blockchain design, and a blockchain built for high-throughput games will have completely different needs than a blockchain that aims to be a global, decentralized ledger.

This frame of thinking reminds me of the principles of database design, especially the debate around SQL vs. noSQL.

Database design

Databases have been around for decades longer than blockchains. The consensus in its design is that there is no such thing as a perfect database. As with most engineering problems, it all comes down to trade-offs.

Before making a decision, I ask a few questions:

· In an app like Telegram or Slack, what is the approximate ratio of reads and writes? On Twitter, the number of reads will be orders of magnitude higher than the number of writes.

· In a distributed system, there is a concept of consistency and availability. In other words, this can be rephrased as: are we more concerned about inaccurate data or the downtime of our applications? Again, it depends on the situation. For fintech applications, consistency (accurate data) is even more important.

· How important is stale data relative to fresh data?How does this relate to read vs. write load?Does our database allow us to enforce a strategy that handles concurrent writes and reads?For example, when my wife withdraws cash from my bank and I swipe my debit card at the same time - how do we prevent the classic double-spending problem?

· What is the read mode? Do you need flexibility in terms of data access, or is it usually predefined? Are there a lot of connections between different data sets?

Even outside of technical considerations, it’s important to know the following:

· How many engineers are familiar with this technology, and how many engineers actually want to build with this technology?

· If we want to fork the underlying code and make adjustments, is there a way to get proactive support?

ETH the future of the workshop

Now looking at the whole problem, there is no such thing as a perfect blockchain. Good engineering is based on trade-offs, and there is no one size fits all. So how did ETH Fang become such a “dominant” platform, why did ETH Fang behave as if it were the perfect blockchain, and where did ETH Fang go from here?

How did ETH become such a “dominant” platform?

Four years ago, ETH Square became the go-to platform for building smart contracts. Compared to other competitors, it has excellent development tools such as Hardhat, CryptoZombies, etc. In addition, there is a dedicated user base, and the chain and tokens are “decentralized”. At that point, centralized blockchains were more likely to be a form of fraud. ETH This asset is also much cheaper, which means that gas fees are also lower.

Fast forward to today, and developers have more smart contract platforms to build, each with a unique set of trade-offs. While there is still some fraud, it has decreased significantly compared to four years ago as more talent and capital has entered the field.

What has made ETH Fang successful in the past is precisely why it will fail in the future. There was a time when ETH Square was the only viable smart contract platform for developers to build. Legitimate use cases (DeFi, NFTs) give ETH a big step ahead. But at this stage, the focus shifts to value accumulation (ultrasound money) and competing with BTC to become de facto platforms for storing value locally on the Internet (flippening).

The desire to be both a smart contract platform and a decentralized “ultrasonic currency” adds significant friction (higher gas costs, network congestion) to edge users and developers. As Confucius (and GCR) said, whoever chases two XTZ will get nothing.

Where does ETH Fang go in the future?

Users will choose where there is an app and the cost is cost-effective. However, app developers tend to be more thoughtful and focused on long-term development, as they have more overhead than the users themselves. Developers will build on platforms that have the potential for their apps to grow and scale over the long term.

Now look at ETH Place, which has an average transaction speed of 15-20 TPS and gas fees that often spike above $200. There are very obvious limitations to what is being built on ETH Workshop, which is the application that requires very little interaction. For example, on ETH, Lending Protocols is a great app because I probably only interact with it a few times a year.

But if I’m an app developer who wants to scale my app to 100, 000 or 1, 000, 000 users and have a higher frequency of use, it’s basically not feasible to build on ETH.

This is becoming increasingly evident as viable alternatives continue to emerge.

· FriendTech is built on Base L2.

· Pacman and the Blur team are planning to launch their own L2.

· DYDX Leverage their own specific appchains.

The modular blockchain framework provides a set of trade-offs to choose from. We’re now in a state where blockchain infrastructure that supports the points on the trade-off curve is starting to emerge.

And finally, incentive, incentive, incentive.

As Charlie Munger has always said, “Show me the motivation and I’ll tell you the results.” Compared to other existing blockchains, there are disadvantages to building an incentive structure on the ETH. Venture capital firms and new L1 teams have a vested interest in building a strong and thriving ecosystem. As an investor, I’m thinking, why would I have my team building on ETH when the tokens are so widely distributed and the ecosystem is already so crowded? Why not facilitate application development on a blockchain where I have a vested interest and a low L1 valuation?

When it comes to blockchain design, ETH Fang is no longer located on the effective boundary. No matter where you want to be on the trade-off curve, there are more superior smart contract platform options, and the goals set by the incentive structure are against them. Unless there is a fundamental change in the way ETH Fang operates, both as a community and as an organization, the comparative advantage relative to valuation and usage has peaked.

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