<img src="https://cryptoslate.com/wp-content/uploads/2023/12/bitcoin–ethereum-1.jpg” />
The following is a guest post by John deVadoss, co-founder of InterWork Alliance.
First act: a new institution emerges from a crisis
On July 30, 2008, the United States Housing and Economic Recovery Act was formally signed into law, intended to address the subprime mortgage crisis (which had precipitated the then-current global financial crisis). Two weeks later, on Monday, August 18, 2008, the domain bitcoin.org was registered.
In November 2008, quantitative easing was in action and the United States Federal Reserve had begun purchasing mortgage-backed securities. In January 2009, the bitcoin code was released as open source, and by March 2009, the Federal Reserve held nearly $2 trillion in bank debt, mortgage-backed securities, and Treasury notes.
Suppose the goal was to beta test digital currency at scale to disintermediate secondary and tertiary financial institutions by directly linking citizens and a central bank. In that case, bitcoin has been a spectacular success, heralding the next era of CBDCs. If the goal was to familiarize the common man with digital currencies and their use, bitcoin would have been remarkably successful.
A revolutionary breakthrough when it was launched, bitcoin is many things to many people: a virtual currency, a new type of money, a store of value, and the promise of freedom. But more than anything, bitcoin is a new monetary institution for the digital age. bitcoin has proven that digital monetary institutions are the future; has done its job by moving the rules from why to when.
Some see bitcoin and its pseudonymous creators as a Robin Hood-type legend, a Zorro-like hero, or a populist protagonist taking on the system. It's not my place to deconstruct thematic illusions, but as the old saying goes, the truth is sure to make you smile when it arrives.
Second act: The rise of a monolith and its discontents
bitcoin begat ethereum, a 21st century application platform that rivals any of Silicon Valley's global-scale, enterprise-grade platforms. And the ethereum team did it all openly, with a team of mostly volunteer developers spanning time zones and political and geopolitical borders, long before working from home was a thing, guided by the genius of its founders and core developers.
Why ethereum? Contrary to popular perception, bitcoin is more than an application; It is more than the set of technical capabilities that make up the network and certainly more than a token. It is an institution, an autonomous institution. But it is not a platform. bitcoin, when it was released, had a level of scripting extensibility, but was not yet ready to allow developers to create new instances on top of it.
ethereum, with its vision of being the world's computer, set out to create the ultimate decentralized platform abstraction, a blockchain with built-in Turing-complete programming support, allowing developers to write smart contracts and create protocols, services and applications. decentralized. And by any measure, the ethereum project has been surprisingly successful.
Programmable money, fiat-backed stablecoins, and the digitization of real-world assets are just some of the ways ethereum has reshaped the world of monetary policy. Lending/borrowing platforms, prediction markets, and insurance are some of the financial domains where ethereum has helped rewrite the rules for historically highly intermediated products.
As a result of its extraordinary success, scaling turned out to be a critical issue for the ethereum project; It's worth noting that its scalability issues are due to the project prioritizing decentralization and security over scale. Scaling improvements are planned to address network congestion and reduce transaction costs; The ethereum gas fee issue has been a recurring topic.
There are two main ways to scale the ethereum network: on-chain and off-chain. On-chain refers to improvements in the base layer and modifications to the network. Off-chain refers to the use of a separate network (the so-called Layer 2) to process transactions; Layer 2 networks may choose to emphasize scale over decentralization and security, as they can benefit from the core network's strengths in these areas.
Now this is where things got very interesting. So-called “on-chain” proponents seem reluctant to let go, while “off-chain” exponents seem eager to innovate. This is the classic saga of a maturing platform: how loose is the coupling? How much composability? And, on the other hand, how much must the chain be consecrated before it becomes a net detractor of innovation?
For obvious reasons, ethereum doesn't want to end up primarily as a ledger for other networks and Layer 2 roll-ups, but at the same time, a monolithic approach imposes limits on a platform and its ecosystem and impacts a platform's ability to continue. . to grow your developer base. Things came to a head when ethereum made its Merge upgrade to Proof of Stake from Proof of Work.
Trust is now a facet of betting and no longer mining; Was the value now more in the tokens and the stakers? Or did it still lie in the underlying capabilities? And for how long? Could they be replaced by newer, more innovative capabilities? And this leads to the third act.
Third act: a new economic platform advances
ethereum begets EigenLayer, a one-of-a-kind economic platform.
In retrospect, it may seem linear, but it was great, a first-class paradigm shift. The world may not be different with a paradigm shift, but the developer now works in a different world as they say, with a new mental model. We will look back and see a clear transformation between decentralized applications in the Pre-EigenLayer era and those in the Post-EigenLayer era.
And it was Merge, with the shift to PoS that allowed EigenLayer to rethink the decentralized application model; PoW has no notion of negative incentives, but with PoS, while validators can earn rewards, their stake can also be reduced for misconduct. With the advent of PoS, EigenLayer can programmatically initiate and scale ethereum's trust model to ensure economic security for a number of new protocols and services.
Developers can secure their services without the need to create their validators, or launch tokens, etc. The promise of loose coupling can now be extended to economic abstractions by creating markets for decentralized trust. A fascinating play in three acts so far, it remains to be seen what the fourth act portends.
John deVadoss is a co-founder of InterWork Alliance and serves on the board of directors of the Global Blockchain Business Council.
