Ethereum + Smart Contracts: Pure HYPE, or Bitcoin’s Challenger?

when i first got into crypto in the class of 2017 i like so many people who enter the space was immediately excited not just by bitcoin but by all the alternative coins or altcoins out there each one of them seemed to do something different to have different use cases a different purpose and at least it seemed back then its own unique potential of course as the platform on which over a hundred other coins as well as defy nfts and smart contracts are built ethereum stands out as the king of altcoins and is number two in market cap by a massive margin there is so much development and innovation happening in ethereum and it can be easy to believe that the flipping the point at which ethereum will overtake bitcoin as the number one cryptocurrency in the world is coming and yet for the overwhelming majority of people who have been around the block been through a market cycle or two or fundamentally understand cryptocurrencies at a deeper level ethereum is nothing more than well hype stick around because in this video i'm going to explain why [Music] when you first get into the world of crypto you'll no doubt hear all about ethereum one of the fastest growing assets of the last decade and for good reason ethereum is not only the number two cryptocurrency but it offers a whole host of features that bitcoin simply doesn't at least at first glance but as you start to understand more and more about cryptocurrencies and observe ethereum's history as it plays out you're likely to come to the conclusion that most of this is well just hype instead when you look at the core fundamentals of ethereum you see a cryptocurrency and an ecosystem that is deeply flawed from its foundations a massive insecure mess which is only going to get worse i know i know this is massively controversial but there are a lot of reasons to believe so let's take it point by point let's first start with one of the biggest issues plaguing ethereum centralization in order for a cryptocurrency to be truly censorship resistant unbreakable and secure it needs to be decentralized in other words there needs to be a lot of computers all over the world securing it and backing it up in a distributed fashion so that there are no central points of failure or obvious attack surfaces ethereum bills itself as a decentralized platform but it's not nearly as decentralized as they'd like you to believe you see because ethereum tries to fit everything from nfts to tokens on chain it's hard to run an ethereum node like really hard not only is the blockchain incredibly big but as this tweet from jameson lop shows it takes much more computing power to run the node this means that some people if their internet isn't fast enough won't even be able to catch up with the blockchain if they try to start downloading it now sure there are projects that run nodes on a raspberry pi but the reality is because ethereum is so bloated an estimated 60 to 70 of ethereum nodes run on amazon web services oh and by the way while ethereum proponents will tell you that there are somewhere between 6 000 and 8 000 ethereum nodes online at the time of this recording there are less than 3 000 discoverable nodes online over 50 percent of which are in the us and germany alone amazon web services 3000 might seem like a lot but it's not especially when it's compared to the over 10 000 widely distributed bitcoin nodes including the ones in people's homes and because of plug and play bitcoin node software like umbral and mynode there are hundreds or even thousands of new bitcoin nodes going online every single month in people's homes and offices and places of business you also might not think that this disparity is a big deal after all ethereum themselves will readily admit that yes they have traded some decentralization for advanced capabilities but you don't need to look far to realize that this is actually a massive flaw in the design and security of ethereum as a whole just recently in august of 2021 ethereum's blockchain split in two due to a bug in 54 of nodes when you have a relatively small number of nodes and most of them are running the same bug-ridden software it's relatively easy for this to happen as a result for hours and hours ethereum's miners were literally mining two different chains making it possible for someone to double spend their funds on each chain and also making it unsafe to transact on the blockchain until the correct chain was identified and the incorrect one orphaned this is a major embarrassment for a cryptocurrency that claims to be decentralized and secure but here's the best part it isn't even the first time ethereum has forked due to similar bugs in april of 2021 and also in november of 2020 and worst of all the price of ethereum actually went up eight percent during this recent fork this just goes to show you that the majority of ethereum investors don't understand just how unstable the currency really is but all of this pales in comparison to the bigger issue behind ethereum one of central authority as you probably already know ethereum was founded and created by vitalik buterin a russian canadian software developer who got his start writing about bitcoin back in 2011.

Ethereum is run as a non-profit organization and purports to be a democratic and open consensus protocol but make no mistake vitalik and the ethereum foundation maintain an outsized influence on the future of ethereum both intentionally and unintentionally here's an example many people entering the space today don't even stop to ask why is there an ethereum classic and an ethereum it's a great question and although we don't have the time here to go into it in too much depth the story goes like this back in april of 2016 a project called the dao or decentralized autonomous organization was launched it was intended to be a fully autonomous organization that raised money and invested in novel projects sort of like a decentralized venture capital fund in just 28 days it raised a staggering 150 million dollars from more than 11 000 investors amazing right here's the problem on june 17 2016 a bug in the dow was exploited allowing 50 million dollars to be sent to the attacker's own wallet bugs happen and that's just life but what happened next is the real problem rather than stand by their own cody's law mantra the ethereum foundation chose to hard fork the currency splitting it into ethereum classic and ethereum the latter of which provides a revisionist history where this little oops never happened does that sound like a currency that you can trust what happens when it's a government insisting that the ethereum foundation step in and force changes even if today vitalik aspires to be relatively impartial and focus mostly on research and allow the ecosystem to decide its own future as its visible founder he cannot help but have an influence on the community simply by virtue of which projects he uses which conferences he attends and which topics he decides to research for example when vitalik chose to donate and burn millions of dollars worth of shib coin that was sneakily gifted to him it made news and affected the price of shib what's more vitalik and the ethereum foundation itself serve as a highly highly visible set of targets should governments ever wish to shut it down sure ethereum would probably continue running but just imagine the impact on ethereum as a platform if vitalik was mysteriously arrested and the ethereum foundation forcefully shuddered and that of course is assuming that the government takes their action above table what if vitalik or someone else in the foundation is pressured to do something behind the scenes and under the code compare this to bitcoin where the shadowy founder satoshi nakamoto has never been identified and hasn't been heard from in over 10 years even if satoshi were to come back today it's likely that he would not be able to prove his identity and therefore even satoshi himself could exert little if any influence on the future of bitcoin heck even if he had the cryptographic keys to access his wallets or sign messages it would be impossible to know if it was really him or just someone who found the keys i mean just look at craig wright who claims to be satoshi but is widely recognized as a fraud what's more it's important to note that in many ways bitcoin has already deviated significantly from satoshi's original vision and influence including the development of a second layer for payment networks and the decision to keep small block size proving that no one person can influence bitcoin in fact many of the original figures in bitcoin such as gavin andreessen and roger ver have been effectively ousted by the community because they've fallen on the wrong side of history for one reason or another in this way bitcoin is the only true consensus cryptocurrency unlike other coins it is not plagued by the opinions or influence of its founders or core developers nobody has more influence on bitcoin than anybody else and there is nobody that you could arrest that would make a dent in bitcoin's success bitcoin like the internet is an open standard that anyone and everyone can build on equally a standard where the best ideas not the ideas supported by the biggest names get ahead there's simply no other cryptocurrency that can make that claim while we're talking about things that only bitcoin can lay claim to let's talk about the fact that anyone can build the next ethereum and they are working on it quite actively each one of them proposes to solve the many problems of ethereum in new and novel ways with unique solutions and even bigger promises in this way ethereum is only as good as its features and functionality and when something better comes along the developers will move on and build on that instead but there can only be one first only one currency can maintain the longest record of security bitcoin is the first cryptocurrency the reason blockchain technology was developed and still the only one that has proven both its usability and its security in the real world everything else therefore is just a copy in some way shape or form people often ask me don't you worry about someone making another bitcoin that's better and bitcoin losing its value no no i don't because by definition that something else will be a copy or a copy of a copy and it'll be susceptible to copies as well plus if it's truly demonstrably better in some way then bitcoin the original and still strongest cryptocurrency in terms of developer resources will just integrate their ideas with a bitcoin improvement proposal after all it's not like bitcoin is stagnant or standing still think about it this way there is no internet too we are still building on and improving upon the original internet bitcoin isn't myspace waiting to be replaced by facebook bitcoin is the internet most people who are serious about ethereum at least acknowledge this one thing ethereum is not hard money nor is it intended to be it's barely even money at all but it's used as money to pay for transactions fundraise for new projects and more therefore it's worth asking what is the monetary policy of ethereum to be honest the answer isn't really clear unlike bitcoin ethereum's monetary policy was not etched in stone from the genesis block instead ethereum does not have a fixed supply limit sure they're reducing the block reward and therefore the supply rate but that is of course dependent on them hitting various development milestones including the transition to ethereum two and of course like everything in the world of ethereum that is subject to change as things come up or as the foundation just changes their mind it's hard to overstate the importance of this inflation and currency manipulation is one of the biggest reasons bitcoin was created and it is one of the most central value propositions most people don't realize it but bitcoin is revolutionary in that it is the only scarce asset in the world besides time there's tremendous power in the fact that there will only ever be 21 million bitcoin how many ethereum will there be and as a result how much inflation will there be and as a result how much will your transactions cost who knows and how do we know that they won't just change their mind later and issue more if or when proof of stake doesn't pan out without a fixed monetary policy encoded into the protocol itself ethereum is no better as a store of value than government-backed fiat money the price of ethereum today is largely based on the promise that ethereum will power the future that the world is going to run on smart contracts whether it be paying for your shipment automatically on arrival storing the deed to your house on the blockchain or programming your prenuptial agreement into immutable unhackable code and yet as we've already seen from the case of the dow ethereum's claim that code is law is mostly bs at the end of the day complex human interactions require a lot more judgment and reason than we think which is why we have courts judges and juries plus if you're going to say that code is law awesome but stick by it you can't claim that code is law up until the point when someone executes that code in a way that you don't like in my mind this entire argument was completely debunked by ethereum themselves the moment they decided to fork away their little mistake what's more it seems like every time ethereum tries to show the world their smart contracts in action they blow up in a blaze of glory just last month hackers stole an amazing 600 million dollars worth of ethereum simply by exploiting a bug in the creator's smart contract there was talk of blocking or blacklisting their address financial censorship but eventually they just begged the hacker to give it back when you allow people to program whatever they want onto your transaction layer mistakes are going to happen that's why these types of attacks scams and exploits are quite commonplace in the land of ethereum in fact there are so many of them that someone has actually built a website to keep track of all of them in this way smart contracts at least in the way that ethereum describes them are mostly hype they're more than just unproven they've proven themselves to be extremely risky and unusable okay fine but what about defy nfts and all the other amazing innovations happening on ethereum decentralized finance is already being built on bitcoin by folks like bisc and more recently even square is looking to build a decentralized trading platform for bitcoin only so that's not news and it's not special from what i can see there are really only two real world unique use cases that ethereum has demonstrated successfully the first was initial coin offering or ico pump and dump schemes in 2017 and 2018 where the ethereum platform enabled anyone with a little bit of coding knowledge and a white paper to raise tens or even hundreds of millions of dollars by promising that their coin would be the next big one how many of those coins have lived up to even a fraction of what they were promised to be the second as we're seeing in 2021 are non-fungible tokens or nfts which are basically jpegs that you can buy the rights to proponents of nfts say that they have the potential to change the entire art market and maybe even the way we look at ownership of private property as a whole but from where i'm sitting it looks no different than the current copyright system we already have but worse sure you may have paid 2.25 million dollars to own the rights to this picture of a monkey but does that give you the ability to stop me from using it in my videos for that you're going to need to go through the traditional routes of copyrighting the image and then going through the traditional legal system to defend your ownership rights so what exactly has your nft accomplished and while we're at it why do you need to store this ownership information in the blockchain anyways wouldn't it just be easier to store it in a database with backups like the us patent and trademark office has been doing successfully for a century do we really need immutability to tell me that you own a jpeg maybe i'll be wrong about ethereum maybe someday someone will build that killer app that actually adds value to our lives but i doubt it and that doesn't solve any of the other problems lurking under the hood so you might be thinking what then are we just to give up and rely on bitcoin which has no more features than sending and receiving money yes the beauty of bitcoin is that the base layer itself is insanely simple and capable while allowing you to build upon it off-chain this is exactly how lightning network works it uses its own form of smart contracts that fit within the existing features and functionality of bitcoin but allows you to add powerful functionality such as instant and free transactions messaging dispute resolution and more plus with the tap root upgrade now voted in bitcoin's layer 1 functionalities are going to get even better it's kind of like this the difference between bitcoin and ethereum is the difference between the tortoise and the hair ethereum is the hair rushing to make it easy to build out anything you could possibly want at the expense of centrality bugs and hacks bitcoin is the tortoise also building and innovating but it's taking its sweet time to get it right it's incredibly hard to change bitcoins later one requiring all kinds of consensus and signaling but if you want to build on top of this system with side chains or second layers you are free to do so as long as you abide by the rules on chain in this way nobody can make mistakes in bitcoin that undermine its security this is without question the right way to build a secure system because when you're rebuilding the foundations of money as we know it security is more important than features as we just learned bitcoin has made some very different choices along the way than ethereum none of them stands out more than the choice of how to scale on bitcoin scaling was achieved with only minor changes to the block size and structure and then complemented by subsequent layers alongside bitcoin's main chain ethereum on the other hand is still trying to achieve everything from nfts and icos to normal peer-to-peer transactions on-chain leading to a bloated blockchain and insanely high transaction fees this year ethereum transactions have ranged anywhere from four dollars to over 70 dollars per transaction while bitcoin's on-chain fees have plummeted as a result of more and more transactions being conducted virtually for free on lightning network but not to worry because the very smart people at ethereum have plenty of solutions to offer for this scaling conundrum first there's sharding where the blockchain is split horizontally to spread the load after all ethereum's chain just loves to be split why not try doing it intentionally for a change sharding creates a bunch of new chains so that each miner only needs to work on a portion of them if it sounds complicated it's because it is i'm not even going to pretend i understand it but if you think ethereum had a problem syncing up nodes and creating consensus before oh boy i bet this one is going to be a catastrophe before they get it working properly then there are roll-ups where transaction execution happens off-chain either by zero knowledge or optimistic roll-ups because you know optimism is a big part of what powers ethereum here basically the hard work of mining is done off chain and then cryptographic proof is provided to reintegrate the transactions back into the ethereum main chain this sounds a lot like bitcoin's lightning network but a lot worse instead of opening payment channels where infinite numbers of transactions can be securely done before settling back to the chain rollups are simply taking the hard work of settling transactions off chain and then pushing it back on of course i'm not a cryptography or blockchain expert but even i can see all types of security holes and attack surfaces that this will open up before the technology is maybe one day perfected and it's not like ethereum was free of attack surfaces before this all sounds pretty bad but don't worry it's only going to get worse for years ethereum has been promising its users a move to ethereum 2.0 built not on proof of work like bitcoin but rather on proof of stake or fittingly named pos the idea behind this is simple the old archaic proof of work that bitcoin uses takes a lot of energy and expensive computing equipment and 99.99 of that energy is wasted by making the algorithm extremely and unnecessarily difficult after all processing the transactions is quite easy so why not instead of letting whoever has the most energy and the most computing power solve the blocks we let whoever has the most coins at stake solve them we can trust them not to do anything funny because after all they have so much money in the system they don't want to undermine his security right does this sound familiar to you let's let the rich people with the most money maintain the power and make the decisions whether or not they do any work commit any resources or take any kind of risk that should work out when you phrase it like that proof of stake sounds like a disaster and it is you see bitcoin's energy consumption is not a bug it's a feature it ensures that anyone who wants to attack the network would have to expend a lot of money energy and resources in the real world to do so more than most nation states could even muster what's more and ensures that if they do so they would lose all of that investment because bitcoin's value would go to zero the moment they succeeded this combination of game theory and real world stakes are what makes bitcoin so secure and what makes proof of stake such a bad idea as i mentioned before when people enter crypto there is an inherent temptation to try and look for the next big thing they feel that they've missed the boat with bitcoin they haven't and they want to get in on the ground floor of something big so they can get rich like the pioneers of bitcoin and ethereum did this makes these people easy targets for pump and dump schemes scams or even genuine projects which have no future these people are fleeing for the exits from a broken fiat system and instead of bitcoin the hardest soundest most trustworthy form of property ever created they are tempted into an even less sound money system because of glitz and hype so yes i fundamentally believe that if ethereum and other altcoins didn't exist the world would be a better place this is because more and more people would put their money into bitcoin instead of the hot new coin and therein accelerate our transition away from the broken fiat system not to mention this would prevent the hundreds of millions of dollars that people have lost when their coin goes bust or gets stolen so what then is ethereum just a bunch of hype and broken projects with no observable real world value well honestly yep i'm sure that the comments below will be full of what i lovingly call affidiates telling me how i'm a toxic maxi i'm blind or i don't understand ethereum and you're right i don't i don't understand it or why people still believe in it given everything i've just explained and i have a really solid understanding of blockchain so if i don't understand it how is the mainstream ever going to and to be honest i'm not even sure all of the people building things on ethereum fully understand it of course you don't have to go all the way into toxic maximalism like me and believe that bitcoin is and will always be the only successful and necessary implementation of blockchain but know this most of ethereum's promises have yet to materialize and aren't going to anytime soon week after week with every new hack chain split or over complicated scaling solution ethereum is proving it's not trustworthy if only you're willing to listen conversely week after week with every new block found without a hiccup every new node added and every new scaling milestone achieved on lightning network bitcoin is proving its security and scalability there's no competition bitcoin has already won the cryptocurrency wars it's just a shame that not everyone has heard the news hey thanks for tuning in to this video if you liked it and want to learn more about bitcoin as opposed to other alternative currencies i encourage you to smash the subscribe button hit the like button and leave me a comment below they're probably going to be really really rough comments but i can take it thanks for watching and happy huddling [Music]

You May Also Like