In God Protocol We Trust

Ethereum is shifting towards L1 scaling and privacy. The backend engine of the US stock market, DTCC, holding over 100 trillion USD, is beginning to migrate on-chain, hinting at an upcoming wave of new crypto prosperity.

But the profit logic of institutions and retail investors is completely different.

Institutions possess extreme resilience in both time and space, with ten-year investment cycles and leverage arbitrage on micro-spreads being far more reliable than retail’s fantasy of a thousandfold increase in a year. In the next cycle, it’s very likely to see a spectacle where on-chain prosperity, institutional influx, and retail pressure all occur simultaneously.

Don’t be surprised; the existence of spot BTC ETFs and DAT, the four-year cycle of BTC, the disappearance of altcoin seasons, and the Korean trend of “abandoning coins for stocks” have repeatedly validated this logic.

After 10·11, as the last barrier for project teams, VCs, and market makers, CEXs have officially entered the “garbage time.” The greater their influence on the market, the more they will promote conservative strategies, which will erode capital efficiency moving forward.

Altcoins without value and meme posts from the editors are interruptions in the established route of self-repression. On-chain migration is inevitable and helpless, but it will differ somewhat from the world of freedom and prosperity we imagine.

We initially hoped that wealth effects could compensate for the numbness after the loss of faith in decentralization. We hope we don’t lose both freedom and prosperity.

Today will be my last discussion of concepts like decentralization and cypherpunks. Old stories about freedom and betrayal can no longer keep pace with the rolling wheels of the times.

Decentralization: The Birth of Pocket Computers

“DeFi was never built on the ideas and entities of Bitcoin, and it never will be.

Nick Szabo, creator of “smart contracts” (1994) and Bit Gold (first proposed in 1998, refined in 2005), and an inspiration for Bitcoin’s PoW (Proof of Work) and timestamping.

Once affectionately called Bitcoin a pocket computer and Ethereum a universal computer, but after The DAO incident in 2016, Ethereum decided to roll back transaction records, and Nick Szabo began criticizing Ethereum.

During the ETH bull run from 2017 to 2021, Szabo was regarded as an outdated stubborn old-timer.

On one hand, Szabo sincerely believed Ethereum had surpassed Bitcoin, achieving better decentralization, with full implementation of PoW and smart contracts at that time.

On the other hand, Szabo believed Ethereum was reforming governance from the perspective of trust minimization; the DAO mechanism enabled efficient interaction and cooperation among strangers worldwide for the first time.

This sketches the actual meaning of decentralization: technological de-intermediation -> pricing costs + transaction consensus, governance de-trustification -> minimal trust.

Image caption: Composition of decentralization

Image source: @zuoyeweb3

• De-intermediation: no reliance on gold or governments; instead, computational proof-of-work certifies individual participation in Bitcoin production;
• Trust minimization: no reliance on social relationships; open to the outside under trust minimization principles, creating network effects.

Although Satoshi was influenced by Bit Gold, he did not endorse smart contracts. Under a minimalist philosophy, while some complex opcode combinations for operations were preserved, the overall practice centered around peer-to-peer payments.

This is also why Szabo saw hope in PoW ETH. Complete smart contracts and “self-limitation” were possible, but Ethereum faced similar L1 scaling barriers as Bitcoin. Vitalik ultimately chose L2 scaling to reduce harm to the L1 base.

This “harm” mainly refers to the full node size crisis. After losing Satoshi’s optimizations, Bitcoin rushed towards an unbridgeable path of mining hardware and computational power competition, effectively excluding individuals from the production process.

Image caption: Blockchain node size

Image source: @zuoyeweb3

Vitalik has at least shown resistance. Before surrendering to the data center chain model in 2025, he shifted to PoS but still tried to ensure the existence of personal nodes as much as possible.

Although PoW is equated with computational and electrical consumption, representing its fundamental production cost, in the early cypherpunk movement, proof-of-work and timestamps were used to confirm transaction times, forming a consensus, and enabling mutual recognition based on it.

Therefore, Ethereum’s shift to PoS fundamentally excludes individual nodes from the production system. Coupled with the “costless” ETH accumulated from ICOs, and nearly a hundred billion USD invested by VCs into EVM+ZK/OP L2 ecosystems, it has amassed enormous institutional costs. ETH DAT can be viewed as an institutional OTC exit.

After the failure of technological de-intermediation, although node explosion was controlled, the network moved toward mining pools and computational power competitions. Ethereum experienced multiple cycles of L1 (sharding, sidechains) -> L2 (OP/ZK) -> L1 again, ultimately embracing large nodes.

It’s necessary to objectively note that Bitcoin lost the “personalization” of smart contracts and mining power, while Ethereum lost the “personalization” of nodes but retained smart contracts and ETH’s value capturing ability.

Subjectively, Bitcoin achieved governance minimization but heavily relies on a few developers’ “conscience” to maintain consensus. Ethereum ultimately abandoned the DAO model, shifting towards centralized governance (not in theory, but practically, Vitalik can control the Ethereum Foundation, which can steer the ecosystem).

This is not about demeaning ETH to elevate BTC. From a wealth effect perspective, early investors in both have been successful. But in terms of decentralization practice, neither shows signs of changing course.

Bitcoin is unlikely to support smart contracts; Lightning Network and BTCFi still focus on payments. Ethereum retains smart contracts but abandons PoW as a pricing benchmark. Beyond trust minimization, it has taken a step backward into building a centralized governance system.

Good or bad, history will judge.

Middleman Economy: The Fall of the World Computer

“Where there is organization, there will be internal strife; where there is unity, there will be centralization, followed by bureaucratic self-creation.

In token pricing mechanisms, there are two narratives and demands: Bitcoin’s narrative is application-oriented — peer-to-peer electronic cash, but demand for Bitcoin is digital gold; Ethereum’s narrative is “world computer,” but demand for ETH is application-oriented — Gas Fees.

Wealth effects favor PoS mechanisms. Participating in Ethereum staking requires ETH first; using Ethereum DeFi also requires ETH. ETH’s value capture capability, in turn, enhances the rationality of PoS. Under real-world demand, abandoning PoW was the right choice.

But on the narrative level, the transaction volume✖️Gas Fee pattern closely resembles SaaS and fintech, unable to match the grand narrative of “computing everything.” When users who don’t use DeFi leave, ETH’s value can no longer be sustained.

Ultimately, no one trades using Bitcoin; everyone wants to compute everything with Ethereum.

Image caption: BTC and ETH address profitability

Image source: @TheBlock__

Decentralization ≠ Wealth Effect. But after Ethereum shifted to PoS, ETH’s capital value became its only pursuit. Price fluctuations are repeatedly scrutinized excessively by the market, further questioning its vision versus reality.

In comparison, the price fluctuations of gold and Bitcoin are highly correlated with market sentiment changes. When gold surges, people worry about global stability; no one doubts Bitcoin’s fundamental value during dips.

It’s hard to say whether Vitalik and EF caused Ethereum’s “de” decentralization, but it must be admitted that the Ethereum system is increasingly middleman-oriented.

Between 2023 and 2024, it has become fashionable for Ethereum Foundation members to serve as advisors for project teams, like Dankrad Feist for EigenLayer, but few remember The DAO and many core Ethereum members are vague about the details.

This situation only eased when Vitalik publicly declared he would no longer invest in any L2 projects. But the systemic “bureaucratization” of Ethereum has become inevitable.

In a sense, middlemen are not necessarily negative like brokers; they refer to efficient matching and facilitation of needs. For example, Solana Foundation, once considered an industry exemplar, largely depends on market and ecosystem development to propel projects.

But for ETH and Ethereum, ETH should be the “middleman” asset. Yet, Ethereum should remain fully open and autonomous, maintaining a permissionless blockchain architecture.

Image caption: Ethereum DEX Volume by Token

Image source: @blockworksres

Within the Ethereum ecosystem, signs are emerging that stablecoins are gradually replacing ETH. Liquidity migration from Perp DEXs on-chain, and the deepening of USDT/USDC’s role, are reshaping the old order. Stories of stablecoins replacing ETH/BTC as the benchmark are unfolding on-chain.

USDT/USDC are centralized assets. If ETH cannot sustain large-scale applications, it can only be used as an “asset.” To maintain ETH’s price amid the push for speed and cost reduction, Gas Fee consumption must be sufficiently high.

Moreover, if Ethereum is to fully open, any asset should be allowed as an intermediary asset. But this would severely undermine ETH’s value capture. Therefore, L1 must reclaim power from L2, re-expand capacity, and in this context, privacy can be seen as an essential requirement for institutions, or as a choice to stay true to original intentions.

There are many stories here, each worth listening to. But you must choose a direction to follow.

Complete decentralization cannot achieve minimal organization; it leads to everyone acting independently. Under the principle of efficiency, trust is continually minimized, relying on the order derived from Vitalik, and the extreme freedom given to black and gray industries by Sun哥 is no different.

We can either trust Vitalik or trust Sun哥’s “cut.” Simply put, decentralization cannot establish a free, self-sustaining order. People crave extreme chaos internally but despise environments lacking security externally.

Vitalik is a middleman; ETH is a middleman; Ethereum will be a middleman between the traditional world and on-chain. Ethereum aims for a productless product, but all products inevitably involve marketing, falsehoods, and deception. Just use Aave and UST, there’s no fundamental difference.

Only by repeating the failed first actions can the financial revolution succeed. USDT first failed on the Bitcoin network; UST failed after buying BTC; then TRC-20 USDT and USDe succeeded.

Or, people suffer from ETH’s decline and sideways movement, as well as Ethereum’s expansion, leaving retail helpless and Wall Street divided. Originally, Wall Street should buy ETH from retail investors, but now they are buying the bitter fruits of ETF and DAT.

Ethereum’s limitation is rooted in ETH’s capital itself: producing for the sake of production, for ETH’s sake. It’s a duality—self-evident. The East and West do not take each other’s tokens. Favoring one ecosystem, one entrepreneur’s capital, and projects, ultimately, it’s not about the project tokens but about ETH itself producing.

From De—>“Centralization”: The Future of Financial Computing

“From the Second International to LGBT, from Black Panther Party to Black Panther, from Bitcoin to Ethereum.

After The DAO incident, Nick Szabo began to detest everything related to Ethereum. Satoshi has long retreated into the shadows, but Ethereum’s performance isn’t bad. I don’t suffer from split personality—I criticize Ethereum and then praise Vitalik.

Compared to next-generation blockchains like Solana and HyperEVM, Ethereum still balances decentralization and wealth effects the best, even Bitcoin’s biggest flaw is its lack of support for smart contracts by design.

As a 10-year-old chain, ETH and Ethereum have transformed from “opponent” to “official opposition,” needing to rally for decentralization and cypherpunks from time to time, then continuing to march toward the future of financial computing.

The owl of Minerva can only take flight at night. The debates over wealth effects and decentralization will be buried in Königsberg. The harsh realities of history have long buried these two narratives together.