More people have lost money interacting with the Ethereum blockchain than anywhere else in crypto. Today, we will explore the downsides of Ethereum which few usually stop to discuss. If you prefer to watch/listen to this, the full video is at
Despite the heaps of praise for Ethereum, few, apart from Bitcoin Maximalists (which I am not), actually discuss its pitfalls. It's crucial to be informed about these drawbacks to make sound portfolio decisions.
Firstly, there's no denying that many have lost significant sums on the Ethereum blockchain in various ways. A popular YouTube video labeled crypto as the world's biggest scam, references many incidents that occurred within the Ethereum space. Some users have faced losses simply from purchasing Ethereum at a high and selling at a low.
However, that's just one aspect. More significant are the losses due to Ethereum's high gas fees. Ethereum's fee-burning protocol, which renders the network deflationary, means users always pay fees higher than necessary to sustain the network. These high fees mostly benefit insiders, venture capitalists, and entities staking, leaving regular users and developers at a disadvantage.
My own experiences reflect these challenges. I've lost money in Ethereum's gas fees in recent years, especially when engaging with NFTs like Gods Unchained. The integration of layer two solutions exacerbates the gas fee issue, requiring users to pay hefty fees just to bridge Ethereum or other coins.
New users, unfamiliar with these costs, often feel blindsided. Ethereum's gas fees have cost users hundreds of millions, with most of this expenditure being unnecessary to maintain the network.
Then there are the notorious ERC 20 tokens. Many of these have turned out to be scams, costing investors billions. Hex, for instance, has made significant losses for many. Unfortunately, such losses on Ethereum are too common, and there's rarely anyone to hold accountable.
Many argue that the free market allows for such scenarios, but this has led to the majority suffering significant losses, while only a few profit. NFTs have a similar story, with countless collections acting as money grabs, offering no real value. I've always advised against investing in these.
The narrative, then, becomes that crypto, as a whole, is a scam. This perspective, largely formed from negative experiences on Ethereum, generalizes all of crypto, including assets like Bitcoin.
While Ethereum dominates the crypto landscape, it isn't the only problematic platform. Binance Smart Chain has had its fair share of issues, but Ethereum remains the primary platform where people face losses.
Sadly, the Ethereum narrative tends to overshadow Bitcoin's value proposition as digital gold. Despite Ethereum's dominance, Bitcoin remains a stable store of value. Ethereum has, inadvertently or not, detracted from Bitcoin's role as a store of value.
People worldwide need a reliable place to store value, especially as traditional currencies are continually devalued. Bitcoin's scarcity and stable inflation make it a prime candidate for a global reserve currency. However, Ethereum has sought to fill that role, despite its centralization issues and the recent controversial move from proof of work to proof of stake.
Ethereum has evolved into this massive entity that can now dictate its own terms. This transition, particularly the switch to proof of stake, has marginalized regular individuals who can't afford to stake 32 or more $ETH. This change has also led to the majority of miners operating similar nodes, facilitating the censorship of various transactions on the Ethereum network.
If you're a global player, like a Russian billionaire looking for a universal currency, Ethereum isn't your ideal choice. It's now easy to censor transactions based on countries or even specific protocols or addresses. This has eroded the core value proposition of the Ethereum network.
Surprisingly, even Vitalik Buterin, one of Ethereum's founders, doesn't stake his Ethereum. The move to proof of stake has made Ethereum's ecosystem precarious, with power resting in the hands of a few. This contrasts with Bitcoin, where even collective efforts by major miners can't bring about significant changes without broad consensus.
Recall when Bitcoin Cash $BCH attempted a fork. Despite major players like Coinbase pushing for it, the wider Bitcoin community resisted. This resistance prevented even well-funded entities from making potentially beneficial changes to the Bitcoin network.
Today, Ethereum's landscape resembles a police state. And yet, despite the risks of staking Ethereum (like the potential of having your staked Ethereum slashed), Ethereum continues to attract investors. Earlier this year, I even mentioned how Ethereum seemed a more enticing investment than Bitcoin if you just looked at number of users and tokenomics wher Ethereum has almost double the amount of holders compared to Bitcoin.
Yet, Ethereum's platform, despite its potential, is marred by numerous failed startups and projects. I remember buying Ethereum when it was just $9 and witnessing its evolution. Its journey has been marked by a handful benefiting at the expense of the many.
In fact, Ethereum has inadvertently detracted from Bitcoin's potential. Bitcoin's value has been suppressed by the rise of stablecoins on Ethereum, which have diverted billions of potential investment. Historically, to invest in altcoins, one would first have to acquire $BTC. But now, trading is predominantly done through stablecoins, bypassing Bitcoin entirely.
Unfortunately, many have been lured into holding stablecoins like USDT, which are not only detached from government backing but also lose value due to inflation. The irony is, while the masses hold these stablecoins, their issuers profit and invest in assets like Bitcoin.
If Ethereum didn't exist, Bitcoin's price would probably be in the hundreds of thousands by now. And with Ethereum's technological limitations and the emergence of alternatives like Solana $SOL and Internet Computer $ICP, Ethereum's dominance is increasingly in question.
In my view, Bitcoin should serve as our global reserve currency. For other applications, we should turn to more efficient and scalable networks like Solana. Ethereum, despite its early promise, has become a hindrance in the crypto world. I refuse now to invest in anything that is a part of the Ethereum ecosystem from ETH itself to ERC-20s or layer 2s.
If you found my insights valuable, I invite you to connect with me directly on my website at https://jerrybanfield.com/