The State of Ethereum

Webinar Recording and Transcript

Date: 02/05/2024

Host: Kellie Kennedy, Web3NZ Community Manager

Guests: Aditya Das Blockchain Researcher and Investment Analyst

Webinar Length: 01:04:10

The State of Ethereum

Kellie: Cool. Let's kick it off. So good morning, everyone. And welcome to today's learning series where we'll be exploring all things Ethereum it's past, present and future with blockchain analyst Aditya Das where he delivers digital asset market updates and write ups for Brave New Coin and other notable crypto news platforms.

So before we kick off, we'll just do some quick housekeeping. As a reminder, this session will be recorded and for adequate, it would be great if you could leave on your cameras feel free to engage with the presentation or ask questions within the chat and we can circle back to around to these at the end with an open AMA at the end as well.

And I'll also be dropping a survey link in the chat that should take less than a minute. So, it'd be great if you can fill that out for us. So I'll just stop sharing this screen. And I'll hand over to you, Aditya. Thank you for joining us today.

[00:00:57] Introduction

Aditya: Cool. Pleasure to be here. So my presentation is titled the state of Ethereum is the largest smart contract platform in the world, living up to its promise. I'm hoping to explore the past, present, and future of the world's computer as Ethereum is sometimes referred to as.

Whether you agree with that assessment or not is up to you, but yeah, I mean, Ethereum popularized the concept of Web3 and it aims to build a decentralized, distributed, transparent, fairly governed version of the internet without centralized players sort of dominating everything. So just a quick coverage of the structure of the presentation.

So I'll start with an intro. Some stuff about the history of Ethereum, some of the biggest impact Ethereum has had why so many people dislike Ethereum then get into Ethereum's ambitious but hazy future, mainly covering its roadmap, and then have some conclusions, some closing thoughts, and a discussion about the path forward.

We also have a Q& A after that, and yeah, we can cover a few things there, anything about the presentation, and if anybody's interested, I, yeah, I'm happy to talk about what's been going on with Ethereum in terms of price, And yeah, I've just spent a little bit of the morning looking into the FOMC meeting and what Jerome Powell has been talking about. So yeah, happy to have a chat about markets as well.

So who am I? My name is Aditya Das. I am a blockchain researcher and analyst. I have been doing this for about six years, kind of got into the space post 2017 bull run in early 2018. And yeah, it's, it's been really fun. It's exciting, you know, thriller minute. There's no other financial market like it. My background is in economics. And yeah, I really enjoyed the crypto space and everything that goes on and everything that happens around it. It's very future centric and exciting. And yeah my sort of bread and butter is price analysis and asset valuation within the crypto space. So I'm hoping to look at Ethereum from that lens today.

The purpose of the presentation. So, I often find, you know, crypto and crypto asset analysis, you often fail to see the forest from the trees, there's a real focus on what's directly in front of you, and sometimes, particularly with Ethereum you know, people forget some key historical events, some key sort of philosophical, design, structural visions that Ethereum has, that differentiates it from other assets.

I'm going to cover this quite quickly, but right now, for example, all of the discussion is about E3 staking and the eigen layer and optimism and optimistic rollups, but there's so much more to the ecosystem. And that's kind of what I want to cover today to make it like a more holistic view of Ethereum.

So let's get into the introduction of the presentation and specifically talk about Ethereum now. So Ethereum is currently the largest smart contract in the world by value of its native currency. It's also the largest. Smart contract chain in the world by TVL. And specifically TVL and decentralized finance.

You know, there are other metrics to assess, you know, the size or the influence of a smart contract chain, like number of active addresses or transactions per second. But the nature of crypto as it is today is very focused on value and liquidity. And yeah, it feels like most cryptocurrency assets aim to become larger by value and in terms of being a store of value.

So, you know, price and market cap are really what we look at when we assess the size of cryptocurrencies. I mean, there, you know, there's arguments to look at. Blockchain platforms buy activity and you know there are times where blockchains like Solana have been higher in terms of transactions per second but yeah I'm, in terms of value which is how we primarily assess blockchain, Ethereum is the largest smart contract platform.

So yeah, this is just a couple of metrics to sort of indicate the scale. So yeah, currently, in terms of total DeFi TVL, these metrics are taken from DeFi Llama. Ethereum is about 57 percent of total value locked into DeFi. So that's the amount of money people have put into liquidity provision, staking yeah, supporting financial markets you know, locking things into exchanges for governance rewards. And yeah, there's some other very big platforms, but you know, Ethereum sort of dominates this space. And yeah, in terms of total percentage of total crypto market cap currently Ethereum is about, yeah, close to 16 percent of the total cryptocurrency market cap.

And, I mean, the next largest smart contract platform is Solana, which currently sits, yeah, around 2. 5%. So, you know, crypto is a very, sort of, trade focused asset space. And, Ethereum's native currency and its, its defi influence is extremely large. It continues to, outperform other smart contract platforms and web3 focused assets despite a lot of hype surrounding the others and their growing influence.

So, I kind of talked about wanting to see the forest to the trees. But I think it's worth kind of covering the biggest thing happening in the Ethereum space right now, which is the announcement of the Eigen layer token. So the Eigen layer is a middle way solution that has been built to boost the wider security of Ethereum Eigen layer.

Pools allow individual users to assign their security with dApps and layer 2s. So I don't want to get overly technical with this section, and I'm gonna cover this later on, but the way Ethereum sort of is structured, it's sort of become a collective of blockchains with layer 2s also being a core part of the way Ethereum functions.

So Ethereum now it has created this thing called the Eigen layer, which is very similar to and structure to the Cosmos hub and the shared security model they have right now, where different protocols and layer twos can access stake so that have stronger proof of stake. That's a very simple explanation, but yeah, essentially you know, if you're a protocol or a layer to attach to a theorem, there is going to be a pool of. assets, which can be used to improve your stake based security. And that's what the Eigen layer does. For end users, the Eigen layer has become very popular because it is a way to boost your staking rewards.

So if you're currently an Ethereum staker, either indirectly through liquid staking tokens or directly yeah, there is this thing called the Eigen layer where you can also put your stake on top of the eigenlayer, so you're kind of staking two things at once. So, if you're just staking the Ethereum blockchain before and participating in Proof of Stake Consensus, you might be earning a 5 percent yield.

If you also take that stake and restake it on the eigenlayer, then you're probably earning an extra 3 4%, and it's become incredibly popular. I linked to a tweet here. And yeah, it's something like, you know, the Eigen layer has, which is only launched this year, is about 30 percent of the total Ethereum stake and yeah, it's, it's, it's become very popular. It's just announced that it's had a token called Eigen. So similar to layer two projects like Arbitrum and Optimism, where you had a period where the project was live and there was an airdrop offered to existing users based on activity. The Eigen layer is doing something different, so people have been using the eigen layer, have been staking on it will be allocated tokens for being early users and helping to bootstrap the group with project. And you know, airdrop tokens, like Bonk Arbitrium have been hugely successful over the last few years. Everybody's doing Airdrop. And Eigen is this big air drop project That's sort of dominating discussions and people are going to kind of calculate how much they're going to earn from it. So yeah a lot of ETH people are just talking about Eigen. And the eigenlayer at the minute. .

[00:09:46] History of Ethereum

Aditya: Okay, again, taking a step back, sorry for the sort of circular format of this presentation, but yeah let's talk about the history of Ethereum. So, sorry, the project has actually pretty humble beginnings. It wasn't built by, you know, I, there were more influential people that came on, but it began as a white paper written by a 19 year old Canadian developer named Vitalik Buterin.

And yeah, you know, it came out of nowhere, sort of Vitalik was this maverick prodigy teenager that seemed to understand the blockchain and holistically the potential and, you know, sort of the underlying value of, you know, decentralization and decentralized transactions. So he came up with this vision for a decentralized internet turing completeness so that you can have more complex transactions that could support transactions beyond just value transfers.

And yeah, the concept was immediately successful and had a very successful crowdfunding period in 2014. And you know, kind of grew in popularity from there. You know, there were things. preceding the 2017 ICO bull run, where Ethereum really had a big coming out party and became a part of the mainstream consciousness things like the DAO incident.

And, you know, it was sort of this fringe decentralized internet concept. And in 2017, people saw its real potential. And Vitalik is, you know, grown into becoming one of the most influential thought leaders and developers in the crypto space. Here's an image of Vitalik, kind of what you might think of. Sort of a teenage IT prodigy. Sort of, yeah, the image fits the description. So yeah, sort of the way I wanted to cover the history is to cover some of the key events and how they affected the philosophy and the perception of ETH. So the DAO incident, I think is personally, it's, it's very important because it raised a lot of key philosophical questions.

The DAO was set up in 2016 to be a decentralized investment project for the Ethereum community. It was a venture fund, but instead of traditional management it would be operated by smart contracts and governed by community voting. So essentially, a wisdom of the crowd venture fund where, you know, the Ethereum community could have skin in the game and push projects that they thought would develop the ecosystem and could be influential and sort of have this community wide sort of direction of development and growth.

The concept was immediately popular and it raised 150 million worth of ether from 11, 000 members. And yeah, it was at the time one of the largest crowdfunding campaigns ever, and I think it remains as such. However a hacker was able to exploit a flaw in the core DAO smart contract and was able to send one third of the funds to a duplicate child DAO that they had created.

And yeah, those funds were lost. And it sort of was kind of shocking at the time, but, you know, kind of gave evidence of the volatility and instability of smart contracts. And, you know, it's a new form of technology. Everybody was still learning. And yeah, sometimes the hackers are just as good as the developers.

And, you know, as much research that went into writing the DAO smart contract, yeah, it seemed like the bad actors were ahead of the curve and were able to exploit it quite significantly and take, you know, a, you know, a third, 50 million out of that DAO smart contract. And kind of what was really interesting and probably why this is even more historically significant is the discussion about how to deal with the consequences of the DAO incident and what should be done and how to sort of either recover the funds or move on or sort of settle things. So there was a split in the Ethereum community about whether the blockchain should in, should essentially be like re-written and pulled back and rewound to pre hack. So what that would mean is all the ethe, all the ether that was lost would be returned to the original depositors and especially it was like, you're going to wipe out two months of history, the hack didn't happen, the DAO didn't happen. And, we just, you know forget about it and move on and, you know, kind of go back to square one. A lot of people were against this idea because one of the most, sort of core ethoses of blockchains, one of the key sort of distinctive elements is immutability. The fact that you can't change them. They're live, they're community driven, a centralized power. There is no controller that can say, we don't like the way this is happening and rewind it. So a lot of people were like, you know, blockchains are immutable they shouldn't be censored, they're censorship resistant, they're decentralized. This is part of, the growing pains of building a new technology, it sort of split the community. And in the end, the split was so bad that it led to a hard fork, and Ethereum Forking its blockchain and ending up with two separate blockchains Ethereum Classic and the Ethereum that we know now and yeah, remains the Ethereum and Ethereum classic was the immutable blockchain that still recorded the DAO hack, and there was fourth Ethereum, which sorry, original Ethereum that remained as is, and actually decided to rewind the blockchain and yeah, erase the history of the DAO. While, you know, I think there are arguments for Ethereum Classic, it has faded into obscurity because the rewound blockchain that erased the history of the DAO was what the developers wanted, what the thought leaders in Ethereum wanted. That's the Ethereum we know exists today. I think people still look at this incident and the fact that Ethereum like rewound as an example of, you know, a mistake. They look at, you know, something like Bitcoin over it, which doesn't have this history of rewinding it's something that Ethereum is always going to have to deal with, the fact that, it's potentially not immutable.

The second big historical incident that I want to discuss is the transition from proof of work to proof of stake. Again, primarily because it's, you know, a major philosophical discussion. And you know, it's really about the approach to scaling and getting larger. So yeah, in the 15th of September, 2022, Ethereum transitioned from proof of work to proof of stake during historic event called the merge.

So pre merge so there was sort of, there's sort of three areas in terms of Ethereum consensus. There was a time when it was exclusively proof of work. There was a time when you had almost two separate blockchains, where one was running on proof of stake and one was running on proof of work.

And then there was this event called the merge, where the proof of work stayed. Blockchain, the proof of stake blockchain merged together and then we ended up with one proof of stake blockchain. And that happened two years ago. So, you know, at that point, Ethereum transitioned from being secured by processing power competitions between miners that you'd see in proof of work to a stake based commitment to the network in the form of stake ether by validators.

So in this case you know, good behavior from validators is incentive aligned by a stake. So if they do a bad job or they aren't validating blocks or they're, you know, publishing false blocks, then they lose their stakes. You have a slashing type model where, yeah, instead of. You know, deploying machinery and processing power quite intensely and competing against other miners. You have a stake and consensus is more shared and perhaps less decentralized, but yeah, it works quite well for scaling. You know, it's more definitive, you know, how much stake you need to put in. It's, it's, you know, probably easier on validators. to, you know, build our business models, that sort of thing.

There's other implications there in terms of the environment and the amount of sort of computational resources and electricity that you need to use. And yeah, it's one of those things. For good or for bad the people who kind of are the decision makers at Ethereum thought that the transition from proof of stake was necessary and it really sort of changed who the supporters of Ethereum were, what the community looked like, what the stakeholders looked like you didn't have sort of big mining pools involved in Ethereum anymore following the transitioning to proof of stake and yeah, it sort of changed the identity and the image of the network.

So yeah, that's a little bit about the history.

[00:18:59] The impact of Ethereum

Aditya: I mean, there's a lot more than half, but yeah, because of time restraints and stuff, I'm going to move on to some of the biggest impacts of Ethereum. So I would say probably the biggest, most revolutionary thing that Ethereum introduced sort of the blockchain infrastructure space and the technology space was smart contracts.

So, Ethereum was launched in 2015 as a network, and it builds on the original blockchain innovations first introduced by Bitcoin. Both Bitcoin and Ethereum allow users to exchange value without payment providers or banks. Ethereum, however, takes things one step further by allowing application developers to build decentralized applications and it is able to do this because it supports more complex programmable transactions than bitcoin so the more complex transactions that Ethereum supports are facilitated by smart contracts, you know, these are self executing contracts, or agreements and conditions written into lines of code that, yeah, to investigate Peers interacting can assess and, you know, kind of govern their relationship between the two peers.

Their contracts in the sense that there is a value exchange with penalties and rules that are pre determined and it is smart because it's self executing, it's automatic and it's all sort of written by code. Without any kind of physical element. So, you know, the kind of things that, you know, smart contracts enable are marketplaces, sort of escrow it can replace like broker services decentralized exchanges options platform you know, financial contracts like futures.

So, yeah. You see sort of things like defi. And NFTs on Ethereum because of this ability to be Turing complete and have these smart contracts that, yeah, facilitate these more sort of complex use cases for the blockchain, as opposed to just simply like value transfer. And, you know, just a point that Bitcoin is starting to have these things, but they're coming later and they're more supported by sort of non native applications and layer twos and transaction formats. So yeah kind of going back into what decentralized applications and smart contracts have facilitated a, I, yeah, there's the three D's or the three decentralizations. So one is decentralized applications, the other is decentralized finance, which is essentially banking without a back office and finally, the third decentralization is Decentralized Autonomous Organizations. So, again, quite a unique concept, kind of facilitated for the first time by this self executing transaction format.

So Decentralized Autonomous Organizations are blockchain based entities governed by smart contracts. DAOs represent a new form of corporate governments. without centralized controls. So, you know, you can create systems within DAOs where let's say there is a proposal within a banking DAO to enable sort of a new type of fiat off ramp. You can have a system where in order to create a proposal, A DAO participant has to put up a portion of stake or a portion of their holdings, and if the proposal is rejected, they lose their holdings.

So you can have all of these sort of decentralized formats for governance. That, you know, facilitate transparency, they facilitate honesty, they facilitate sort of flat governance and community participation. And yeah, you know, it's, it's extremely popular within the crypto space both as a way to structure organizations so they're more regulatory friendly.

And also, yeah, they kind of facilitate faster inception, faster bootstrapping, and, you know, I think it's probably inevitable to see a big organization, a big traditional organization, either spin off a part of one of its arms to be a DAO or become a DAO itself, not just because of the operational benefits, but also the regulatory benefits.

So yeah, just to illustrate this a little bit more, I thought I'd talk about two kind of very historically significant, game changing, disruptive applications that were initially built on Uniswap, but now have sort of transitioned sorry, built on Ethereum, but now have transitioned to exist on other smart contract platforms as well.

So Uniswap. Uniswap was one of the earliest non custodial Ethereum based exchanges that could facilitate transactions between Ether and ERC20 tokens. So if you had some Ether and you want to diversify, Into a token built on top of Ethereum, like Dai, then Uniswap was the platform for that. And now it facilitates, you know, transactions between ERC 20 tokens and can do a lot more as well.

But what really made Uniswap special was its backend and how it facilitated trading. So, most people, when they go to trading platforms, are used to an order book based strategy. System where, you know, you match up buyers and sellers. There's a buyer that wants to sell at a certain amount. There's a seller that wants to sell at a certain amount and a buyer that wants to buy and you match them up and yeah, that's how markets are balanced and that's how the system works.

With Uniswap we don't have an order book. Or you know, an interaction between buyers and sellers. What you have is pools of tokens where you might have a pool that contains ether and ship, and the price is determined by a formula that calculates an exchange rate based primarily on the supply of both the tokens.

So yeah, I mean, you know, if you've got a linear, linear pricing model, then, you know, you might have it one for one, but yeah, there's some more complex models and Uniswap has its own sort of quite sort of mathematical technical version to determine the best exchange rate. But what makes it interesting is it's automated and all there needs to be is a supply of ether token. So yeah, there's no sort of, yeah, it's, it's, it, it works very well for illiquid tokens or you might not get the price, best price, but you'll always be able to find a trade or find a swap. And yeah, it's become quite popular. It's often the way people choose to launch tokens because it's so good at supporting transactions for illiquid tokens.

So small tokens, if you want to bootstrap and grow bigger and you don't have that initial liquidity, an AMM is an excellent solution to kind of facilitate early trading till a market becomes liquid. It's also, you know, as a lot of DEXs have, there's fewer, there's less red tape. It's easier to find liquidity providers. It's easier for liquidity providers to contribute to pools. And yeah, it's sort of create this self sufficient smart contract powered exchange machine that's, you know, does massive, massive amounts of volume. So yeah, the current daily volume of Uniswap is about two and a half billion us dollars and yeah, it fluctuates in the two to three billion us dollar range, depending on, yeah, how markets are and you know, whether people are bullish or bearish.

The other kind of game changing protocol that I want to talk about is makerDAO. So makerDAO is probably the earliest version of a kind of true defi protocol on Ethereum you know, a be your own bank or a bank run purely by smart contracts. And in its most simple form, MakerDAO allows you to take out overcollateralized loans and be issued a stablecoin. So you can set yourself up with an overcollateralized loan and receive a stablecoin in return. So it's a credit facility and yeah, it's interesting because you know, all the loans are liquidations, for example, are automatically triggered. You have a marketplace where if a loan is triggered, then people can, can buy it.

And yeah, it's, it's sort of revolution remains quite interesting and revolutionary. It's also notable for its governance system and really promoting the use of forums and chat rooms and sort of a fluid roadmap where things are constantly changing. Like, the maker protocol has recently gone through some major shifts, you know, the tokenomics change quite consistently, the number of assets change quite consistently and yeah, you know, there's a lot of discussion. It's very vibrant. And you know, it's, it's very difficult to know what the MakerDAO is going to look like five years from now because of this very active governance system and all of this thought leadership about the best way to run this sort of very interesting system where you are your own bank.

And yeah, it's, it's a cool model that lots of people have replicated since and yeah, just I think it would be a miss to not talk about perhaps Ethereum's most powerful application, the ERC20 token. So the ERC20 is the technical standard for fungible tokens created using the Ethereum blockchain.

So, ERC20 allows developers to create smart contract enabled tokens beside Ether that can be used to underpin products and services and communities, memes and yeah, it's just this ability for anybody to create an investable financial product slash currency that people can invest in. You know, created this incredible period of wealth generation initially in 2017, again in 2021, and something we've seen sort of another time with main coins in 2024.

And yeah, I think the ability for anybody in the world to create this sort of community value signal token thing has really galvanized financial markets. It's allowed, you know, people to have power that may have exclusively been for venture capitalists before. And yeah, for, you know, in that, in that sense, like startups.

which would often, you know, be limited to limited partners in venture capital or angel investors or accredited investors could now sort of pitch these sort of high return, high risk startups to retail investors through ERC20 tokens. You know, it's, it's, it's sort of open Pandora's box. And for good or for bad, I'd say probably more for good.

Cause you know, liquidity is, is, is markets and you know, there's always risks involved in investing, but you got to give people the opportunity to kind of have that multi generational love. Yeah, I mean, there's sort of, you know, criticisms that it's led to like a crypto casino of these random tokens and.

You know, there's too many out there and the value has been lost and the identity has been lost, but yeah, you can't throw the baby out with the with the bath water. And even though they are always going to be spammers and scammers, no industry is yeah can, can just go by and not suffer with that kind of thing.

The other thing that yeah, it has contributed and has been very significant is the non fungible token and the non fungible token standard ERC721. And yeah, so a non fungible token is a type of cryptographic token that represents something unique. So something non fungible you know, node to NFTs are the same and yeah, they're not mutually interchangeable.

The ways to ask us like a theorem are like they all have unique identifiers and individuality. And that makes them, you know, excellent vehicles. art work media essays, notes, that sort of thing and yeah, you know, A lot of people think, you know, NFTs are sor of a basic fringe, you know, the same way people might look at investing in art as sort of you know, a fringe investment, or, you something more is a diversification option.

However, yeah, NFTs have been one of the most sort of explored externally successful in, in, in the sense like it's brought in new money. Yeah. Things ever in the crypto space, it's one of the most relevant use cases. And again, I'm not much of an NFT investor and I do have been guilty in the past of sort of turning my lip up at it, but no, it's, it's very relevant and very important and is another kind of crazy thing that Ethereum has contributed to the space.

[00:32:27] Why so many hates Ethereum

Aditya: This is an important section of the presentation and yeah, I just want to cover why Ethereum gets a lot of hate and yeah, a lot of naysayers and doubters. So I think one of the biggest issues and Ethereum is currently facing the ire and the wrath of the SEC in the US because of this and some security like accusations is that Ethereum is sometimes looks a little bit centralized.

Sorry. I wrote July, 2024, but that should say July, 2014. The Ethereum currency had a pre mine where around 60 million. Ether was sold for 18.3 million US dollars to the Ethereum Foundation. And early contributors also kept aside 12 million Ether for themselves. So the current estimated supply of Ether is 120 million and 72 million was, you know, sold in the pre mine and kept aside for early contributors.

So, you know, these token holders. Who got involved early and, and may have, might've been through luck. It might've been through influence. It might've been through, you know, actual visionary contribution. Cause you know, the hardest time to invest in a project is in its earliest stages, so, you know, credit to them.

But you know, Ethereum is meant to be the world computer. It's meant to be. This bastion of decentralization and we don't have big players controlling the flow of assets or decision making unfortunately it does look like one that is Some of the early contributors kept money aside for themselves that perhaps could have, you know, been given back to the community.

And also that because they own such a large chunk of tokens, because of this like early participation, there is an element where they have control. They have, you know, large stakes and yeah, you know, if somebody wants to buy a stake, you know, because over half the supply is, you know, with a few entities.

Yeah, there, there is some issues there. The other thing that I find quite interesting and really, you know, kind of differentiates Ethereum from a number of other crypto projects is its unlimited supply. So it does have a hard cap supply. You know, you look at an asset like Bitcoin, everybody is very obsessed with that 21 million number.

It's a real sort of differentiating separating sort of metric. But yeah, I mean, Ethereum has chosen to be a little bit different. It has no hard cap on its supply. You know, the reason they say they do this is they want their asset to be more like money not to be a safe haven. It's not focused on scarcity.

There needs to be enough ether for everybody. And that's why they, they don't have that hard cap and you can respect that. They also, you know, don't have this issue where with Bitcoins often discussed, like what's going to happen when block rewards. or validator rewards go to zero. Ethereum is not gonna have that issue where it's relying on transaction fees.

Another thing there to consider is Ethereum actually has like a fee burn mechanism. Where you can, you know, burn a portion of fees in order to get your transactions. In front of miners quicker. And the fee burn sort of according to the Ethereum talking heads and, you know, the developers sort of helps to balance things out. And it is true. You have periods where Ethereum has been deflationary because so many fees are being burned. And yeah, this sort of balances out the, the mechanism. Yeah. And it's really interesting because, you know, just like, you know, it kind of reminds me of what happened with the DAO incident is you have like a real split between the community because of this different approach to monetary policy. So, in February, the Ethereum Foundation released a proposal which essentially said, we need to reduce the pace of issuing new ether tokens. And the idea was that, you know, too much rewards are going to Ethereum stakers there are, you know, too many people focusing on just staking Ethereum as opposed to spending it because Staking rewards are too high and this staking rewards come from newly issued ether tokens So they were like, okay, we need to pull back staking the foundation put this proposal forward and there was a lot of pushback to it because you know for most end users reading between the lines of it and, you know, kind of saying things quite clearly and calling a spade a spade is that if crypto is for most people an investment and having a high sort of yield on your crypto holdings is very, very appealing. Ethereum has grown in scale and, you know, kind of outperformed other, I think, it's shown less alpha in the sense like it's had less sort of upside volatility than assets like Solana, but it's downside volatility is reduced because of the staking element, and the fact that you can hold Ethereum passively and earn a pretty decent yield on it, so like 5 percent on an, an a big asset like Ether which has upside volatility which does you know rise like, you know, 80 90 percent during like bull runs it's very appealing and for most end users.

That's what they are enjoying about their Ethereum investments so when the foundation came up with this proposal to kind of reduce staking rewards and make Ethereum, a higher velocity spending asset, there was a lot of pushback. One, because people liked the way Ethereum currently worked, and they were like, if a machine isn't broke, then why try to fix it?

And also, it's because they felt that, you know, core developers like the Ethereum cat herders and the Ethereum Foundation were sort of exerting too much influence on Ethereum and the direction of its development. end. You know, it's unclear where this proposal is going to go from here, but I see both sides, but honestly, as an Ethereum holder, I do think I am quite happy with the way staking rewards, you know, currently function.

So I don't think the issuance rates needs to be slowed down. Another issue with Ethereum is it is considered slow and expensive. You know, Ethereum can handle, you know, About 15 to 30 transactions per second is much less than competitor blockchains like Solana and Avalanche. And you know, it's not even close to traditional finance players like Visa.

And you know, there's this question about like, isn't new technology meant to improve things like user experience? But yeah, I mean, at the minute that's not really Ethereum's focus, it's, you know, more to do with decentralization and security and yeah Vitalik is a big fan of our talking about the trilemma security. Scaling and decentralization and, you know, scaling is probably the toughest one of those challenges to kind of get around and yeah, at the minute, Ethereum is a little bit slow and reliant on layer twos to speed up throughput. The other issue with Ethereum is it's got a gas based fee model, which means that you know, things get more expensive based on demand to use the network.

So, you know, you have periods because of like an NFT drop or a new protocol launching where, Demand for computational power on the network is quite high, so the fees, you have to pay for transactions, even if you're not participating in the NFT drop or the protocol yeah, you still suffer because, yeah, network fries, fees arise.

And yeah, just, I kind of said this briefly, but the answer to this is layer twos, and this idea that layer twos will be the transaction layers where the majority of activity takes place, and Ethereum is a settlement layer. So, you know, it's sort of the central bank or the reserve bank for this EVM. Web3 ecosystem where most transactions happen and for finality or, you know, every month or so, if you need to confirm whether transactions are valid, then that's where Ethereum steps in as, you know, sort of a, a verifier of last resort.

You know, Ethereum has sort of said this out loud. The foundation and Vitalik have said that we're focused on a low rollup centric roadmap, so Rollups the most popular form of layer twos. So yeah. Now it seems like layer twos are integrated and particularly rollups are integrated into the Ethereum philosophy and the Ethereum vision.

And I think we're going to see more of this. I mean, we are going to see more of this with zero knowledge layer twos and yeah, some more privacy focused layer twos. Yeah. Other factors to consider to why people might not like Ethereum. I mentioned, is it immutable? Probably should be, but maybe it isn't.

The proof of work versus proof of stake debate. And also everybody has you know, their perspective on communities and what people are like. And you know, for example, Bitcoiners have this reputation of being sort of outdoorsy and meat eaters and, you know, sort of libertarian. Ethereum is more like vegan computer nerds basement dwellers. And yeah, I think for as stupid it is, people dislike Ethereum for that reason.

[00:42:04] Ethereum's roadmap

Aditya: So just quickly, just a couple of things about Ethereum's roadmap. So Ethereum is very different from a lot of crypto projects and in the sense like it's, it's, a roadmap is extremely detailed. It's very long term. It's very ambitious and it makes it quite clear with just at the beginning, even though the project is really small. Been around for 10 years. It looks like the scale of it, trying to be the world's computer, you know, it's a big job. It's a big mission. It's very ambitious. And it is not designed to align with investor trends.

It's not like something where you would say, Hey, there's this update six months from now, it's going to boost the value of the token. That's not really the way Ethereum works. It's much more long term visionary. And I, you know, I, I, I do quite like that. So yeah, it is quite cool. However, there is some question marks about who controls the direction of the development of Ethereum, do like a small group of core developers have too much control and also, you know, at times, you know, investors are major stakeholders.

So yeah, maybe like an investor focused. roadmap isn't the worst thing, but yeah, I do think Ethereum's like bigger visionary side roadmap is probably preferable to what you see versus, you know, what you see from a lot of other projects in crypto. So this roadmap is quite small. It's hard to read, but essentially, you know, there's a kind of, yeah, I don't want to go into too much detail. But yeah, there's all of these different sort of parallel parts that Ethereum is going through. And yeah, so there's a line that you can kind of see about, like, sort of where we are in each of these streams. So there's the merge, the surge, the scourge and all of these other things that are happening. The splurge. And actually what's happened recently I, I, there's link to Ethereum's roadmap on the Ethereum Foundation page. which is a more like interactive and more like a webpage. And the version on this slide is Vitalik's personal version. And yeah, actually the foundation has said that while, you know, the Ethereum roadmap is similar to the way Vitalik lays it out. It's actually trying to move away from the naming convention of diverge, splurge, which, yeah, I can understand. And it's a little bit like I don't know. Yeah, a bit childish. I think some of those, some of those words and yeah, broadly they've said they've simplified it and they said there's four core goals for each of the theorems upgrades.

They either are focused on cheaper transactions, extra security, a better user experience and future proofing. So what you're going to see from Ethereum upgrades is a specific focus on one of these four core goals. And Yeah, you know bigger sort of philosophical technology things being implemented, like zero knowledge proofs you know, deeper layer two integrations, consensus changes, sort of, yeah underlying these kind of smaller upgrades, which are focused on, you know, kind of the base demands and core requirements for blockchains.

[00:45:12] Closing thoughts + Q&A

Aditya: And yeah think there's some things, some things I, I didn't cover, but you know, the main purpose of this presentation was to yeah, talk about Ethereum a little bit more holistically kind of acknowledge some of its major successes. And yeah, for me I'm an Ethereum investor. It's one of the first projects that really got me excited about crypto, but I can also acknowledge why I'm being a big fan of Ethereum. that it's got its flaws. Many of them are philosophical, you know, the immutability question and the centralization question for me are major red flags. And I do think, you know, this ongoing sort of investigation by the SEC into whether Ethereum is a security is extremely concerning. And if they do, if the regulatory walls do close and yeah, I do think that yeah, looking back on it, there's a few things. That it could have done differently. However, Yeah, I think, Ethereum for what it is now, yeah, philosophically, is super interesting. There's some people working on the project that really care about it. It's not a cash grab like you see in a lot of other projects in crypto. And, yeah, I, I hope for the best. And I hope it keeps improving and things like Layer 2s make it a, you know, an even more efficient version of Web3 and, Yeah, it continues to be the leading smart contract platform in the world.

Kellie: That was awesome, you put a lot of basis there, and I really liked it as well, very entertaining.

Aditya: Oh, thank you. Yeah. Yeah. It was a lot to cover. And, you know, I probably did remove a few things cause yeah, it's just vast. And once you start like researching these things, like more question, more questions arise than answers do.

Kellie: That was awesome. Thank you. Did anyone want to ask questions?

Harry: Thank you for the presentation mate. It was really interesting and good to see you. I was just wondering, so, you know, 15, 20 years from now when we're in the sort of metaverse, future digital, you know, hyperspace, do you think personally that Ethereum has a pretty good chance of making it there and becoming the, you know, the true, you know, universal computer do you think that like Facebook and other centralized platforms will integrate into Ethereum or do you think that Ethereum will sort of be an obscure offsite, you know, universe just for the sort of dedicated, ethos based individuals?

Aditya: Yeah, I flip flop on this quite a bit. Like I do sort of agree that you don't need like eight different versions of the metaverse or you don't need like eight different platforms doing essentially the same thing, you know, supporting interactions and supporting facilitations and yeah, but it seems like the way I think particularly investments work and particularly the way money flows into people are always looking for new things to invest in and new ways to gain value.

And some of it is a little bit like facetious in the sense, like, you know, why do we need another layer on blockchain? We have enough, but people would just create one and spin one up because they want to make more money. And that's something that that's a trend I see. And it's very frustrating for me to see like, You know, new layer twos and new layer ones being spun up constantly so at least I think in the near term we're gonna continue to see these projects arises.

We're not going to have like a definitive, web three or ethos driven blocking. You're going to see like I am Solana, but with this extra feature, or I am Ethereum, but with private chains. Yeah, I it's tough. I do think. Ethereum is the best equipped, you know, version of that sort of future metaverse style internet.

I do think it's going to remain quite relevant, at least within, like, the crypto space and, you know, for, like, libertarians and people who are okay interacting with Web3, you know. I'm sure things like Facebook and, you know, X and stuff will have their audiences and, you know, their segments. Yeah. And, and yeah, to, so to answer the question, I think, I think it's going to look pretty similar to now where you're going to have, you know, different camps using different Web3s and different metaverses for their own purposes.

Harry: For sure. Like people, people use iOS and then others use Android. Right. And, you know, Yeah. And the crypto markets are just like a giant hotpot of innovation. It's open source. Everyone's taking the little bits and implementing it, you know, to their own chains. I just wonder if there'll be some supreme chain to rule them all.

Aditya: Yeah. Yeah. And it's funny because like, you know, I remember when cross chain became a big thing and, you know, multi chain things interacting with each other. And I was like, Oh, you know, these platforms are getting hacked all the time. Yeah. Yeah. They, they're unstable. Like what's the point in having, you know, all of these chains interacting with it and, you know, smart contracts being moved, but that's, you know, the, the market demand, that's the direction we've gone in, as opposed to like consolidating, we've gone more multi chain and more cross chain.

And yeah, it's, it's, it's all a bit surprising, but yeah, I think it's just, you know, market dynamics. And unfortunately, you know, sometimes I think greed is the biggest motivator and driver or like development and. I think for, for lots of people, the easiest way to make the most money is to spend something up from scratch and try to get in early investors and yeah, and then sell it to retail when they can.

Harry: Yep. Oh, no one else is going to ask a question. I might as well ask another one. Are you guys going to be at EthGlobal in the next couple of days in Sydney?

Aditya: No, I won't be. I've got, yeah, some stuff to do over here, but yeah, I Kellie was saying this, there's a decent NZ contingent there. A few Web3 members, but no, unfortunately, I won't be there. Looks like a cool event though. for your time.

Jeff: Thanks, Aditya. So what's your what's your short term conclusion? Has it lived up to the hype?

Aditya: Yes, I would say it has lived up to the hype. I think what Ethereum has done so far is pretty impressive. And I would say primarily because of ERC 20 tokens and NFTs.

I mean, if you remove all of the stuff from there, I think, yeah, it's, it's, It's showing that the smart contract model and the Web3 model works.

Jeff: And when you talked about the DAO, you concluded, you said, and so it's not immutable. So do you think that when we see DAOHACK v2, should a massive event occur in the future? What do you think the outcome would be? Would the community vote to re org?

Aditya: Yeah, I mean, if it's happened before, I think it might happen again. I would be on the side of no re org. I do think, yeah, blockchains are meant to be immutable. Yeah, I think I, I, I, you know, even Ethereum Classic at the time, I think, you know, there was some, some good ideas there and it's a shame that it wasn't able to sustain itself with its, its own developer base and, you know, all the, you know, kind of progressive technical application driven, you know, developers stuck to Ethereum. But yeah, I do think if there was an incident like that, because the precedent's been set. And yeah, I, I mean, I'm sure there would be like a big community split and, you know, now you have alternatives like Solana and, you know, Phantom and stuff where, you know, people have already opted out of, and even Bitcoin to be honest you know, recently with NFTs and I think, you know, there's a lot of people for philosophical reasons have been crying out for an alternative to Ethereum and we kind of have that.

So, yeah, I think if it does happen, then there would be an exodus.

Jeff: Oh yeah, I think it would be apocalyptic.

Aditya: Yes, yeah, I agree. I, I, I hope they don't do it again. And you know, if they do something, if something like that happens, they'll be like, Oh, we made a mistake in the past and we shouldn't have done that. And we're not doing that again.

Jeff: And so like, what's next on your dominance chart there, Solana is at like 2. 3%. Yeah. Yeah. I would have, I would have thought that Solana seems like it should be a little bit higher. And so like, what's next is, is Solana going to live up to the hype?

Aditya: And that's market cap dominance. It's not in terms of usage. So I think if you look at some of the metrics, like active addresses and daily transactions, I think, you know, Solana might actually be more in terms of daily transactions.

Jeff: Yeah. I think their daily transaction figures are like wash trading. They're not to be trusted.

Aditya: True. And, also the nature of like, you know, when you have a higher throughput chain and stuff, there's also, you know, that factor to consider. Yeah it's tough. I do think there is like a historical edge. And, you know, even today I see it like when we're building projects or working with startups, like it's like Ethereum first, Ethereum is, you know, has all the Open zeppelin like toolkits, you know, it's got the most documentation. It's the easiest to get off the ground So it's got that edge over, you know chains like Solana, you know You have heaps of auditors and smart contract people, you know, it's rare from I think, you know, even looking locally and Yeah, just in terms of whatever my telegram small ecosystem the number of Ethereum developers is probably I don't know 10 to 1 in terms of Solana developers Yeah, or, or higher, or higher.

Yeah. So I think in that sense, you know, it's, it's, it's a tough bridge to cross and yeah, what's happening even more so is the layer twos or like the arbitrums and the optimisms and the polygons are sort of EVM compatibility is like a big, big deal. And yeah, I'm not sure how it's all going to play out, but yeah, I, I kind of put the EVM chains as like Ethereum secondaries almost.

So in that sense, in terms of, you know, what sort of languages and what sort of platforms are apps and dApps and DeFi protocol is going to be bent on. It's, it continues to be EVM focused for me and Ethereum centric.

Jeff: And one more for you. Where are your thoughts on our Ethereum ETF in America?

Aditya: Yeah, good question. I think there was a point a couple of months ago where it seemed like an inevitability because, you know, the BlackRock application and everybody knows about BlackRock's history of getting ETFs over the line. And you know, sort of the backing they have and the influence they have and yeah.

Yeah. everybody was sort of going crazy about it. Things have changed quite drastically because of all of these subpoenas, the SEC have put to the Ethereum foundation and kind of early Ethereum investors to determine whether ETH is a security. That sort of cools things off. So yeah, I don't know, it seems like we're in like an awkward spot right now, where yeah, a few chips have to fall to determine, you know, whether the ETF still happens, but yeah, it seems like once this security talk started happening, and it became clear that the SEC was trying to deep dive into, you know, these, the pre mines, and who has what, and what the foundation does, and yeah, it's, it's sort of made a few investors jittery, and I'm not sure where the ETF issuers stand on that.

Jeff: And is it suppressing price?

Aditya: Yeah, I mean, it seems like it. I do think what's been going on with price is more to do with macroeconomic conditions and the strength of the US dollar, more so than anything. And just, you know, sort of Yeah. Sellers being stronger than buyers. I'm sure there are still lots of people that are bullish about Ethereum, but, you know, sellers and bears are, are, are stronger at the minute.

And yeah, it's still a very volatile market. You know, we've seen some price some upward price activity today because of Jerome power statements in him saying that there won't be an interest rate hike. So I do think. you know what this, you know, next few months or like the short to medium term for crypto pricing, the price of assets in general is, there's more to do with macroeconomic events, you know the wars the elections, the price of the U S dollar, you know, there's like, you know, even in.

across crypto publications, everybody was sort of more interested in what was going on with the yen and the yen being at lows against the dollar not seen since like the 1990s and the beginning of the last decade. So yeah, it seems like it's, it's a macro focused market at the minute and it's still a little bit volatile.

Jeff: Sweet eyes man, thank you very much.

Harry: Just one last question. So, you know how like the Incorporated Societies Act doesn't really fit within the sort of reality of like DAOs? Do you think that, you know, the sort of legacy financial systems, framing of securities and all that sort of thing, do you think that that sort of throttles adoption within Web3 and Ethereum as a whole? Do you think Ethereum will be able to sort of surpass whatever is to become of the SEC ruling?

Aditya: Yeah, I mean, I mean, massively, I do think, you know sort of, that sort of thing really hampered, you know, ICOs, like, you know, what is a utility token. What do I put in my white paper to get around like, you know, legal things, you know, I want to say that there's staking rewards for governance, but how active does governance need to be?

It's really like projects do have their hands tied behind their back. And you know, even in terms of DAO incorporation, like it's very uncertain and you know, there's a lot of like jurisdictional sort of play, like do I register in Abu Dhabi or do I register here? And everybody's sort of playing this guessing game.

You know, I work a lot with like deal syndication, helping like early stage crypto projects that raise funds. And yeah, I mean, it's pretty much the bookend of every conversation is how do we make our token less security like, but also more appealing to investors. Because at the end of the day, I mean, yeah, there is a security like element to all crypto projects.

or an investment like element. Like at the end of the day, a lot of these tokens are launched to help raise funds and people buying these tokens, have an expectation of a value increase. So it's sort of this, uncomfortable position. And yeah, I do think, and I, and I'm, this is not like a new thought.

There needs to be a separate category or some sort of balance for crypto projects and yeah, they sort of sit in this weird place between securities and, and assets and commodities. But yeah, I, I, I, I'm not sure where things are going to go from here or what's the best possible answer. But yeah, I do think, yeah, it needs to be a separate category and hopefully there are some jurisdictions, big jurisdictions that get ahead of the game.

Because yeah, I mean, you'll have places like, you know offshore, like Puerto Rico or the Maldives or, you know, wherever the Caribbean islands or Pacific islands pushing crypto regulations and, you know, having separate crypto has a separate investment class, but I think until a big jurisdiction sort of pushes ahead and make some sort of major decisions about crypto and where it stands as a security or not, then yeah, it's, it's, it's going to, there's going to continue to be uncertainty.

Harry: Just obviously, you know, everyone sort of knows this, it's sort of unspoken, but you know, the, the crypto space is basically innovating and being, you know, while being regulated by the people that it's trying to innovate against. It's interesting. We'll see what happens.

Aditya: Yeah, yeah, yeah. And I mean, it's part of the game. It's like, you know, it's like the Ethereum thing, you know, Ethereum did some stuff. in 2016 in terms of raising funds and doing the pre mine and now it's seeing some major regrets eight years later and I'm sure if they did have a time machine and you know they could have sort of framed things a little bit differently and it's a lot to do with optics and words now they probably would have and yeah it's I it is unfortunate that it's panned out that way and I'm sure you know it won't be the only project where because they misworded things or they weren't careful with the allocations and who they gave tokens to at the beginning.

Yeah, a few years down the road regulators may come after.

Kellie: Awesome. Were there any more last questions before we wrap up?

Jeff: What do you think about ultrasound money as a meme?

Aditya: Yeah, it's, it's a good meme. I'm not sure I'd call it if they have ultrasound.

Kellie: What is the ultrasound?

Aditya: It's not, it's not more. Sorry, I was just gonna say it's not, you know, a better version. I think gold is still a better version of Bitcoin is a better version of gold, of digital gold than Ethereum is.

Jeff: As a meme, it kind of arose to like counteract Bitcoin's sound money meme after the merge, looking at the issuance being deflationary when you factor in the token burn, but I think it's a, I mean, it's like a fun meme, but I think it's like a net negative actually for Ethereum. I don't think that the community wants Ethereum to be sound money, but I'm, That's just my point of view on that

Kellie: Cool. Any last closing remarks before we wrap up?

Harry: Thank you. for the work you guys do.

Kellie: Yeah. Thanks so much. That's an awesome presentation. I'm looking forward to uploading it later this week.

Aditya: Cheers. Thank you, Kelly. And yeah, second Harry's thoughts on yeah, Web3NZ. This is cool. It's really awesome to have the opportunity to present to like minded people and have these discussions. And yeah, I think a lot of people working in crypto in New Zealand are used to working with different time zones and. You know, people from all over the world. So it's, yeah, it's cool to you know, be working in a local space and yeah, it's always nice to have that little bit of personality and personability.

Kellie: Yeah, it's great to have knowledgeable people like you share as much and know as much as you do. So yeah, still processing it. Thank you. Thank you again. And yeah I'll upload this later today and enjoy ETHGlobal for who everyone who's going and until next time. Thank you so much again. Thanks everyone.