Conclusion

The Ethereum network was the second blockchain to really gain traction, largely because of its new approach to smart contracts and programmable money. The transition to proof of stake turned the token deflationary as a burn mechanism was implemented (Ultra Sound Money tracks the burn rate, supply growth, issuance and other indicators, and lets you compare PoS to PoW). It’s not a perfect system, however, since much of the burn is actually done from gas fees, and gas fees have lowered significantly in 2024, not as much ETH is being burned. 

The roadmap for the project isn’t slowing down – the community is consistently proposing upgrades to achieve cheaper transactions, increased security, better user experience, and what they call “future proofing” which could include scalability and anticipating user needs. The ecosystem has the highest number of developers of all blockchains, and it’s estimated that over 85% of all blockchain devs have worked on EVM-compatible chains.

A common thought is that if Bitcoin is digital gold, Ethereum is the digital silver; though this isn’t exactly accurate, it does reflect the importance of both blockchains. Bitcoin has the strongest “digital cash” environment, and Ethereum has the strongest “world computer” environment that can also be monetized, which is a fundamental difference. The biggest challenge for Ethereum is scalability – they have great security and are further decentralizing every day (though read on for some thoughts about that), but have traditionally high fees that can be a barrier for regular every-day transactions and widespread adoption. The creation of layer 2s helped this, and an upgrade released in March 2024 included Proto-Danksharding (EIP-4844) that introduced temporary storage that further lowered fees on layer 2 rollups.

In summer of 2024, TradFi based ETH ETFs were approved, which has caused a larger inflow of capital into value of ETH, but its largely held but centralized organizations so actually poses a concern for the decentralization and possible control of the network. In addition, those assets aren’t liquid, so won’t be used to further ecosystem development. A Dune user has created a dashboard to track Ethereum ETF inflows.

Since staking is the basic way the network is secured, validated and processed, it’s important to keep in mind who is holding the most staked ETH and what that means. Another Dune dashboard tracks ETH stakers, and as of summer 2024 it is concerning that Lido and Coinbase together hold over 40% of staked ETH because between the two of them they could basically control the entire network. So far that hasn’t happened, but it is something to keep in mind if decentralization is a key concern. Staking in general requires a minimum of 32 ETH, which is part of why it’s so centralized, but the high minimum acts as a barrier to malicious entities, which is a tradeoff the ecosystem seems willing to make at this point. Another barrier is the high cost of the hardware needed to run a node, but solutions are being developed.

Something that could occur given this centralization risk (and often does), is MEV (miner or maximal extractable value) attacks, which are essentially when node operators reorder the transactions within a block to get lower fees or prioritize other transactions. In May 2024, Vitalik Buterin published a blog post addressing this issue and other related concerns. He outlined two strategies to tackle the MEV problem: (1) minimization, which is reducing MEV through smart protocol design, exemplified by platforms like CowSwap; and (2) quarantining, which is using in-protocol techniques to attempt to reduce or eliminate MEV altogether. 

A new development in the ecosystem is liquid staking and restaking, which some people are in favor of as it can help secure multiple networks rather than just one, and can increase liquidity in the ecosystem, but it also introduces new complexities and risks, such as further centralization of staked assets and issues with smart contract vulnerabilities. There are also often high minimum deposits and technical challenges, but some solutions to this include Verkle trees, lower staking minimums, and faster withdrawals. 

Overall, the Ethereum ecosystem includes thousands of decentralized applications, Decentralized Autonomous Organizations, and devs. This means that the ecosystem is constantly evolving and new genuine projects are coming out regularly, but it is also a hotbed for scams. If you are interested in participating in DeFi or other activities in the ecosystem, we strongly recommend that you start with well-known and trusted platforms like Uniswap, Aave, OpenSea, and make sure to understand what it is you are interacting with and how it works before signing any contracts! The ecosystem is likely to stick around for the foreseeable future, and unless the internet goes down altogether, we can be generally confident that the Ethereum network and EVM ecosystem at large will continue to be a thriving ecosystem and continue to change the possibilities of self-custody and programmability in a decentralized, secure manner.