Recently, some crypto holders have cried “Fallen into a trap”! They believe that the bull market has reached this stage, according to Ethereum’s “plot” as a big player, Ethereum should have outperformed Bitcoin. However, at this moment, facing Bitcoin’s stability, Ethereum has consistently failed to rise strongly like in the previous bull run. As a result, some people have started to spread FUD, believing that with the flourishing Bitcoin ecosystem ahead and the potential competition from the fast-growing public chain Solana behind, Ethereum may not be doing well!

So, is Ethereum undervalued? Is there still hope for a breakthrough? Let’s discuss it from the following six perspectives today…

Ethereum Is Always Growing & Innovating

1) Address Growth Continues

According to OKlink statistics (as shown in the figure below), Ethereum has shown a continuous and steady increase in total addresses, daily active addresses, and on-chain non-zero addresses since 2017.

2) Mature Implementation of Blockchain Core Scaling Technology

Previously, many people claimed that Ethereum had not made any progress over the years. However, Ethereum’s scaling roadmap, from sidechains to various Layer 2 solutions like Rollups, has essentially and reliably overcome the scalability bottleneck of blockchain technology. The fact that various public chains, including the Bitcoin ecosystem, are eagerly imitating and reusing Ethereum’s OP-Rollup and ZK-Rollup technology solutions to build Layer 2 solutions indicates that Ethereum’s Layer 2 has successfully addressed the most critical issue in the industry, which is blockchain scalability.

Ethereum total locked value, source: L2beat

According to L2Beat data charts, there are currently 50 well-known active Layer 2 projects in the Ethereum ecosystem, with a total locked value of approximately $38 billion. Layer 2 projects with over $1 billion TVL include Arbitrum One, Optimistic Ethereum Mainnet (OP Mainnet), Base, Blast, Mantle, and Starknet.

Currently, the most robust and secure public chains are Bitcoin and Ethereum. However, although both have Layer 2 solutions, Bitcoin lacks the ability, unlike Ethereum, to directly verify Layer 2’s fraud-proof and zero-knowledge-proof data through smart contracts. Therefore, existing Layer 2 solutions are more suitable for Ethereum and are easier to implement securely.

Most Bitcoin Layer 2 solutions often rely on centralized or third-party chain consensus mechanisms (such as POS or POW-UTXO isomorphic bindings) for processing transactions, and they also need to forcibly incorporate the Ethereum Virtual Machine (EVM) into Layer 2. Such Layer 2 solutions find it challenging to achieve the same level of security as Ethereum’s Layer 2, which almost entirely inherits the security of Layer 1.

Overall, the technical contributions brought by the Ethereum ecosystem are undoubtedly leading in the cryptocurrency industry.

The Advantages of Ethereum That Have Never Been Surpassed

1) Ecological Diversity and Sustainability

Since its inception, the Ethereum ecosystem has seen the emergence of established projects in almost every sector. Leading decentralized exchanges like Uniswap, prominent lending platforms like AAVE, the most widely used decentralized stablecoin and real-world asset platform Maker, leading staking platforms like Lido, synthetic asset leader Synthetix, innovative restaking solutions like EigenLayer, and top NFT platforms like BLUR, among others. These well-established, secure protocols, along with innovative applications with multi-billion TVL, serve as not only the foundation of the Ethereum ecosystem but also as the backbone of the entire crypto landscape. With these long-tested projects as the foundation, the ecosystem can “grow” diverse and sustainable applications.

2) The Most Comprehensive Infrastructure and User Experience

Thanks to the continuously growing user base of the Ethereum ecosystem, even though Ethereum was not the earliest deployed public chain, it possibly has the highest number of wallet developers and corresponding wallet applications. Wallets serve as the entry point and infrastructure for Web3 traffic, and the Ethereum community and developers have made significant contributions in this regard. Additionally, among all decentralized exchanges (DEXs) and centralized exchanges (CEXs), the number of those supporting ETH and ERC-20 tokens even exceeds those supporting Bitcoin.

Source: ethereum.org

Currently, Ethereum wallets cover a wide range of categories, including plugins, apps, and multi-platform client applications, achieving full coverage. These wallets offer domain name services, hardware wallet support, offline signing, multi-signature functionality, social recovery, and more. Some wallets even support custom gas fees, remote procedure call (RPC) imports, and cover support for nearly 60 languages worldwide, ensuring users in global regions utilizing these languages can find Ethereum wallet support.

Additionally, the Ethereum community has introduced the concept of “account abstraction,” which is gradually being implemented. Soon, Ethereum wallets will offer a more optimized, convenient, secure, and user-friendly experience with lower entry barriers.

Many public chains adopt the Ethereum Virtual Machine (EVM) not only for its inherent advantages but also because EVM-based chains can leverage Ethereum’s infrastructure, such as wallets, without changing user habits and experiences, making interoperability with Ethereum easier. The Ethereum ecosystem can be easily replicated, leveraging existing technical resources and solutions while attracting more developers, thereby exponentially accelerating ecosystem development. Some projects have proposed “interoperability 2.0,” attempting to utilize Ethereum wallets for managing their own wallets as an interoperability upgrade.

Simultaneously, mainstream ERC-20 assets issued on Ethereum receive more support in terms of security and sustainability, making it easier to list on both centralized exchanges (CEXs) and decentralized exchanges (DEXs) due to the robust infrastructure.

3) More than 8 Technical Teams Developing Multiple Clients in Parallel

Parallel development of multiple clients is a technical feat rarely seen in other infrastructure projects. In a previous article titled “Top 10 Strongest Web3 Technology Teams Globally,” we mentioned:

“For a long time, the Ethereum community has maintained multiple open-source execution clients capable of interoperability. These clients are developed by several independent teams using different programming languages. The bulk of Ethereum core development work is done by these multiple teams.”

Currently, there are 8 teams dedicated to Ethereum 2.0 client development, including ChainSafe Systems, PegaSys, Harmony, Parity Technologies, Prysmatic Labs, Sigma Prime, Status, and Trinity. This diversity of clients and technical teams with different focuses makes the network stronger, more diverse, and more decentralized.

EVM Has Become a Standard

The Ethereum Virtual Machine (EVM) is increasingly becoming one of the universal standards in blockchain technology, with more and more new blockchain projects, including top-tier projects like CBDCs led by central banks worldwide, actively embracing EVM compatibility. Recently, the Paradigm policy team collected data from 63 blockchain-related experiments led by G20 central banks and found that a significant portion of projects across various use cases (such as CBDCs, tokenization, DeFi, etc.)—amounting to 47% of the sample—are compatible with the Ethereum EVM. Furthermore, an increasing number of projects are launching on public blockchains, demonstrating that public, permissionless infrastructure is not incompatible with the requirements of regulatory bodies.

Currently, the market’s ratio of projects compatible with EVM and those not compatible with EVM can be found on the Paradigm policy website: https://policy.paradigm.xyz.

Despite EVM becoming a standard, some individuals may view it merely as a solution that doesn’t necessarily benefit Ethereum itself. However, even though it may not seem directly related, adopting open-source, open-standards technological solutions can yield significant benefits.

As mentioned earlier, there are numerous benefits and capabilities gained by being compatible with the Ethereum EVM. Additionally, compatibility with EVM reduces the difficulty of cross-chain interoperability between “homogeneous” EVM chains. This tight interconnection allows a vast number of EVM-compatible blockchains to closely associate with one another, sharing technological innovations, infrastructure, user adoption education, and liquidity. With Ethereum being the most robust consensus EVM chain, it naturally becomes a central hub for interoperability among numerous chains.

Ethereum has become the central hub for cross-chain fund flow, attracting the most capital inflow. This information is sourced from Cryptoflows.

A very similar example is Google’s Chromium open-source project, which is akin to EVM’s role in Ethereum. Google has almost unconditionally open-sourced its browser product Chrome’s kernel, Chromium, and continuously maintains and updates it with developers worldwide. Due to its open-source nature, Chromium has gained favor from many internet companies, resulting in browsers based on the Chromium kernel spreading globally and quickly capturing market share. The once dominant “closed” browser, Microsoft IE, gradually declined. In 2018, when Microsoft announced its new browser Edge would adopt the Chromium kernel, everyone knew that this meant the future of the web was now in Google’s hands.

Currently, between Edge and Chrome, they share a common origin and have a slight competitive relationship. However, on the Windows platform, Chrome no longer faces hostility from Microsoft. The competition between Microsoft’s Edge and Chrome browsers in terms of technical standards and ecosystem platforms has disappeared, and they have all become part of the Chrome ecosystem. With the disappearance of competition, Google’s influence in the entire web ecosystem has grown.

Similarly, with EVM becoming the standard for public chains, Ethereum’s influence will dominate the entire Web3 market.

As the saying goes, “beggars can’t be choosers.” When Ethereum’s “competitors” start to adopt EVM compatibility, they themselves become part of the Ethereum ecosystem.

Ultrasonic Currency: ETH

Due to recent advancements such as EIP-1559 and the transition from Proof of Work (PoW) to Proof of Stake (PoS), Ethereum has the potential to become a deflationary cryptocurrency in the long term. This has led people to refer to it as “ultrasound money.” The concept was proposed by Justin Drake, a researcher at the Ethereum Foundation, and has been widely propagated with the support of Bankless.

In simple terms, with the upgrades and transition mentioned earlier, Ethereum is currently the only blockchain that can provide stable and sustainable incentives for nodes without the need for significant issuance (and potentially even achieve deflation). Moreover, it can support security while benefiting all holders. Previously, it was widely believed that pure deflation was conducive to value aggregation but detrimental to ecosystem development, while inflation was beneficial to ecosystem development but diluted the value. Ethereum has managed to strike a balance between these two aspects quite well.

Ethereum supply situation, source: ultrasound.money

Layer 2 May Not Necessarily Weaken Ethereum’s Value Capture

Many believe that the implementation of Layer 2 solutions, which offer high speed and low fees, has led to a shift of transactions away from Ethereum, thus weakening Ethereum’s value capture, particularly in terms of gas revenue. Some even point to situations like the post-Dencun upgrade scenario where Layer 2 growth has led to a fragmented landscape.

At first glance, these analyses seem reasonable. However, they may not be entirely accurate. While Layer 2 solutions divert gas value capture from Ethereum on the surface, gas fees actually constitute a small portion of ETH’s value. For example, for a long time, Bitcoin’s transaction fees were much lower than Ethereum’s, yet Bitcoin’s market value far exceeded Ethereum’s. This is because Bitcoin serves not only as a payment system but also as a value store and hedge against inflation.

Ethereum, as another hard currency in the crypto asset space, possesses different functionalities from Bitcoin. ETH, often referred to as “digital oil,” derives its value more from liquidity and adoption. When a currency becomes more liquid, it can generate more value. With the increasing deployment of Layer 2 solutions in the future, Ethereum’s position is likely to be further solidified.

Moreover, when Ethereum’s security and stability, backed by first-class staking rates, become the benchmark, assets like stETH, backed by ETH collateral, could transform into “government bonds” within the crypto asset space.

In reality, the concept of “fragmentation” has always been an excellent consolidation tool. Ethereum’s value proposition has always been about openness and inclusivity. Layer 2 scaling solutions will only accelerate the growth of the Ethereum ecosystem and foster closer connections within it.

Is Ethereum Really a Security?

Is Ethereum really a security? This is the recent focal point of debate sparked by the U.S. SEC. Simply put, the U.S. SEC aims to assert jurisdiction over Ethereum. If defined as a security, it could lead to significant confusion regarding the legality of issuing numerous crypto tokens. The timing of this debate is noteworthy, as potential issuers of Ethereum spot ETFs have submitted aggressive applications, prompting the U.S. SEC to expedite action and initiate a series of investigations into Ethereum.

Currently, most analyses suggest that Ethereum spot ETFs will not be approved in May and may face further delays.

Furthermore, the reasons given by the SEC for classifying Ethereum as a security are not entirely convincing. If the rationale is financial security or investor protection, then the approval of Ethereum futures ETFs earlier undermines these reasons.

Of course, there are also disagreements among various U.S. departments/agencies. For example, in recent news, Patrick McHenry, the chair of the U.S. Financial Services Committee, criticized the SEC’s investigation into Ethereum, accusing the chairman of deliberately misleading Congress. McHenry pointed out that this incident highlights the urgency of Congress passing the bipartisan 21st Century FIT Act to provide a clear regulatory framework and strong consumer protection for the digital asset market. Republican committee members will continue to demand that the U.S. SEC, led by Gary Gensler, be held accountable for its regulatory overreach, which stifles innovation, fails to protect American consumers, and jeopardizes our national security.

Summary

Although Ethereum demonstrates many irreplaceable advantages, the market often behaves irrationally, driven perhaps by people’s tendency to embrace novelty or succumb to FUD sentiment. However, as the initial excitement fades, shortcomings may become more apparent, but value always tends to revert. Patience is key.

In the long term, there’s actually no need to be overly concerned about what disruptions the U.S. SEC may cause. Even XRP was not successfully classified as a security by the SEC. Ethereum’s current status and influence cannot be easily swayed by any single entity. Its representation of Web3 and cryptographic innovation is an undeniable fact for the future.

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