Endgame Explained (Part 1): Ethereum Is Winning

Author: Gulu I believe the endgame of the crypto industry in finance is to form a massive, efficient, and neutral asset platform—the "Internet Financial Center" serving all humanity. I will write two articles to explain: 1) why only sufficiently decentralized blockchains with sufficient throughput can build such an Internet Financial Center; and 2) why an Internet Financial Center based on blockchain is particularly needed in our era, and what it might look like in the future. The Internet Financial Center is built atop blockchain protocols and serves as global financial infrastructure, directly and indirectly serving billions of users, with assets worth at least tens of trillions of dollars. A super-diverse range of assets are issued on this center. Because these assets reside on the blockchain, they are inherently programmable, enabling continuous, highly efficient operations: transfers, trades, collateralization, bundling, splitting, and serving as underlying assets for derivatives—all running non-stop on the blockchain. Why Does Blockchain Have Value? Why does blockchain have value? This is a question every crypto investor has asked. The accepted answer in the crypto space is: because of decentralization. I agree with this answer, but when we talk about "decentralization," what exactly do we mean? I believe "decentralization" is the means, while the goal is "trustlessness." So, what is trustlessness? Let's first define trust. When you place trust in someone, you grant them the power to harm you, while holding a positive expectation that they won't. People once stored gold in vaults, receiving deposit certificates promising redemption upon presentation. You trusted the vault, giving it the ability to harm you by refusing repayment—yet you believed it wouldn’t. As history shows, vaults realized not all depositors would redeem simultaneously, so they lent out portions of the gold to earn interest, eventually evolving into fractional reserve banking. Repeated bank runs followed. Then in 1971, the U.S. severed the dollar’s link to gold, rendering the "deposit certificate" obsolete—the "U.S. gold note" became unbacked "fiat dollars." Thus began the era of unrestrained fiat issuance—a credit-based monetary system where trust repeatedly breaks down. What is trustlessness? It means you don’t grant others the power to harm you. A "trustless service" allows you to receive services without granting that power to the service provider. Blockchain delivers trustless services. In the blockchain world, as long as you control your private key, no one can seize or freeze your BTC or ETH; paying miner fees guarantees your transaction reaches any address. No one can harm you. These trustless services are enabled through decentralization—the core value proposition of blockchain—and are especially suitable for finance: issuing assets according to predefined rules (BTC, ETH), and performing various asset operations such as transfers, trades, and collateralization. Today’s traditional financial centers—New York, London, Singapore—are all built upon robust legal systems. In traditional models, only strong rule of law can provide sufficient trust: you believe others won’t seize or freeze your bank deposits because they’d face legal consequences. This falls under "Don’t be evil"—but doesn’t mean they "Can’t be evil." Former financial centers can become "financial wastelands" because they retain the capacity to act maliciously, much like Hong Kong’s ongoing transformation today. Trust is inherently fragile. Things may appear stable for long periods, but when crises erupt, those who extended trust suffer severe losses—like large depositors "haircut" during Cyprus' 2013 banking crisis; like holders of gold-backed notes (dollars) in 1971; like Hong Kong emigrants today unable to reclaim their pension funds despite legal rights to do so. In contrast, trustlessness is inherently antifragile and extremely robust precisely because no harmful power is ever granted. Blockchain achieves "Can’t be evil" through decentralization—an advancement so profound it makes traditional systems seem primitive. With quiet confidence, blockchain establishes the Internet Financial Center. Blockchain Is 10x Better! Peter Thiel wrote in *Zero to One* that if a new product is over ten times better than its predecessor, it will sweep the market like a storm, drawing mass user migration. For building an Internet Financial Center, I believe blockchain surpasses traditional methods by more than tenfold: 1) Trustlessness is over 10x superior to trust; 2) creating a blockchain address is over 10x easier than flying to Switzerland to open a bank account; 3) a globally accessible financial platform built on blockchain will enjoy massive network effects and extreme operational efficiency—both exceeding traditional financial infrastructure by over 10x. Do you feel it too? Once you’ve used blockchain, returning to banks feels impossible. I’ll elaborate in part two of this series on why blockchain-based Internet Financial Centers answer our era’s call. Here, I continue arguing why Ethereum is the blockchain for this purpose. A blockchain capable of hosting the Internet Financial Center must satisfy two conditions simultaneously: (A) sufficient decentralization; and (B) sufficient throughput. In my view, Ethereum is the only contender in this race. Why must it be sufficiently decentralized? As argued above, decentralization enables trustless services—the foundation of the Internet Financial Center. Why is trust, or rather trustlessness, so critical? Imagine Bitcoin wasn’t decentralized, but ran on a single centralized server. Then: - Satoshi would need to manually onboard each user, verifying IDs, proof of address, etc. - Satoshi would ask: Where did your BTC come from? Please provide fund source documentation! - Satoshi would require operating licenses from governments worldwide. - Satoshi would report suspicious transactions to authorities. - Satoshi would provide tax-related data to governments. - Satoshi would comply with government orders to freeze BTC, sometimes transferring frozen funds to designated accounts. - Suppose the U.S. ordered: Freeze the Central Bank of Russia’s BTC. But Satoshi also holds a license in Russia—what then? - Another order comes: Let’s do BTC "quantitative easing"—please mint 700 billion new BTC. Thank you. Satoshi would realize a single server cannot run Bitcoin. Why does a decentralized network succeed? Because decentralization forms an "army," granting the blockchain network state-like "sovereign independence," providing neutral, independent, and predictable security for the Internet Financial Center. Indeed, blockchain networks resemble nations and deliver government-like services—especially property rights protection—over 10x better. Why do people need governments? What should governments do? Enlightenment pioneer John Locke wrote in *Two Treatises of Government*: "Everyone possesses inherent natural rights—life, liberty, property—which are not granted by government but are innate. People form governments by surrendering some rights precisely to protect these natural rights. Any government that violates these rights is tyrannical." Are there many tyrannical governments in the world? Yes—and their number has grown over recent decades, especially in protecting property rights. This was Bitcoin’s birth context. Its genesis block reads: *"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"*—the front-page headline of *The Times* on January 3, 2009. The independent space built by blockchain protects property rights better than governments, using trustless mechanisms. The numerous decentralized nodes form an "army," creating a long-lasting, centuries-spanning sovereign zone where a massive, universally accessible Internet Financial Center will emerge. This space is independent of governments—not aiming to destroy them or their order, but to compete by offering services and products 10x better, establishing superior systems. Governments dislike competition—nobody likes rivals. Switzerland remained neutral in WWII due to geographic advantage and strong military. Independence is never begged for—it’s earned through strength, standing firm among nations. So it is with blockchain. The blockchain hosting the Internet Financial Center must achieve sufficient decentralization to assert sovereignty, protecting an economy worth tens of trillions. Its army must be so formidable that potential attackers—especially powerful governments—find the cost of attack prohibitive, making coexistence preferable. After all, the Internet Financial Center merely offers competitive services without threatening governments’ existence or dismantling their order—just like offshore financial centers today. Second- and third-tier blockchains may save on "military spending" under the shadow of the leader, but their economic value will significantly lag. The Internet Financial Center enjoys strong network effects: all applications and users prefer collaborating on the same platform, maximizing efficiency for everyone. When I ran a startup in Shanghai, I could meet four groups a day—impossible elsewhere. If all 1.4 billion Chinese could live in one city without physical constraints, it’d be optimal for collaboration and efficiency. Yet the physical world lacks scalability—that’s why I believe high blockchain throughput (scalability) is as crucial as decentralization for building the Internet Financial Center. The gap between first and second place may mirror Google versus other search engines. As a nation-like entity, a blockchain’s network consensus is its constitution. Unlike nations, every action on a blockchain undergoes real-time scrutiny by all consensus nodes against constitutional rules. Unconstitutional acts are blocked immediately—judicial efficiency here is again over 10x higher. As a more efficient model of social order, blockchain could help build next-generation human institutions—decentralized systems benefiting all humanity, independent of governments. How Much Decentralization Is Enough? If hostile external forces attack a blockchain, they must target numerous decentralized consensus nodes. For example, a major country demands freezing BTC from a specific address—requiring over 50% of Bitcoin’s consensus nodes to reject any block containing such transactions. Or a large cross-border remittance company seeks to disrupt Ethereum transactions to eliminate competition, requiring over 1/3 of Ethereum’s nodes to refuse service, preventing finality. Attack methods include: 1) sending legal threats to node operators (yes, laws can be arbitrary); 2) disconnecting nodes from the internet; 3) injecting malware into node hardware; 4) launching missiles at nodes; 5) shutting down the entire internet. How can the decentralized node collective defend itself? 1) Maintain a large number of nodes so that losing a few doesn’t compromise the network; 2) Nodes operate under pseudonyms, making it hard to identify and threaten real individuals; 3) Nodes span diverse jurisdictions with differing laws; 4) Node participation is dynamic—nodes can play guerrilla warfare. Thus, with enough well-organized nodes, defeating this "army" becomes difficult. If attackers lack strong motivation or face high difficulty, attacks won’t happen. Motivation depends on the blockchain economy’s size and its impact on powerful potential adversaries. Larger economies demand stronger defenses. Also, blockchain practitioners should avoid provoking powerful attackers. For instance, I believe fully anonymous blockchain services are unacceptable to governments—they’d severely disrupt existing national orders and likely trigger coordinated crackdowns. So how much decentralization is sufficient? Judgments vary, and the threshold dynamically shifts with external hostility. We know today’s environment isn’t friendly. China has banned all cryptocurrencies. Many in the U.S. government dislike crypto—such as the SEC, which after 10 years of delay reluctantly approved BTC spot ETFs this year. I believe dozens of consensus nodes are clearly insufficient for an Internet Financial Center; hundreds may still fall short; thousands begin to inspire confidence. Beyond node count, node characteristics matter greatly. For example, if nodes require data-center-grade hardware, even thousands of nodes remain vulnerable—privacy disappears, and "soldiers" lose guerrilla mobility. The Ethereum community believes ordinary consumer computers must be able to run consensus nodes—a cornerstone of Ethereum’s decentralization. Another factor in assessing sufficient decentralization is preventing corruption within decentralization itself. If billions entrust their fundamental property rights to just 21 nodes, how can we ensure those nodes won’t corrupt? How can we guarantee “we’re not treated as human resources but as people”? Could those 21 nodes collude with certain states to enforce capital controls—effectively blocking you from taking your hard-earned money abroad, even if you physically leave? Greed—for profit and power—is evolution’s factory setting. From Louis XIV declaring “L’État, c’est moi” as the Sun King, to revolutionary Robespierre’s dictatorship, to Napoleon consolidating personal rule under the banner of preserving revolutionary gains—all reveal humanity’s greedy nature. Plato’s philosopher-king doesn’t exist in the real world; instead, we get Robespierres and Napoleons. Therefore, we must sacrifice some efficiency for checks and balances—a democratic path manifested in blockchain as decentralization—so this "decentralized system" benefits all humankind. Throughput Matters Just as Much! Building the Internet Financial Center requires not only sufficient decentralization but also high-throughput capabilities. Before Layer 2 (L2) technologies emerged, the crypto industry widely accepted the "impossible triangle" theory: scalability, decentralization, and security cannot coexist—only two are achievable. Security is non-negotiable, so scalability (high throughput) and decentralization must be traded off. Many blockchains sacrificed deep decentralization for performance—relying on just 21 high-performance consensus nodes. As previously argued, such compromises disqualify them from hosting the Internet Financial Center. [Image: https://upload.techflowpost.com/upload/images/20240220/2024022018044817450766.jpeg] Years ago, I believed the "impossible triangle" was flawed—it wrongly assumes every node must verify every transaction individually. L2 technology breaks this assumption. L2 comes in many forms, often conceptually muddled, with bad actors deliberately confusing terms—even labeling separate blockchains as Ethereum L2s. My criterion is simple: Can the L2 system, by design, achieve the same level of "trustlessness" as L1 (Layer 1, the base blockchain)? L2 extends L1, forming a unified internal blockchain ecosystem. If this extension loses the essential "trustless" property, it doesn’t belong to the broader blockchain ecosystem, cannot provide the sovereign space needed for the Internet Financial Center, and thus shouldn’t be called L2. Otherwise, logically speaking, centralized exchanges could claim to be L2s—after all, once you deposit (or "bridge") funds, you can transfer and trade. Setting aside self-proclaimed "pseudo-L2s," among genuine L2 technologies, Rollup stands out as most important. Rollups bundle and compress thousands of transactions into a single batch transaction uploaded to L1. Two types exist today: Optimistic Rollup and ZK Rollup—both shatter the so-called "impossible triangle." Optimistic Rollup outsources verification work originally done by Ethereum nodes. Anyone can challenge the post-Rollup state on Ethereum within a set period (typically seven days), with incentive mechanisms rewarding successful challengers—encouraging public oversight. In ZK Rollup, cryptographic zero-knowledge proofs mathematically guarantee the correctness of the post-Rollup state. Moreover, zk-proofs allow Ethereum nodes to quickly verify large batches of transactions using minimal computational resources. I see ZK Rollup as magical—not only achieving extreme compression efficiency, but cleanly extending L1’s trustless properties without introducing hard-to-assess security assumptions. "L1 + L2" Is the Future! Long-term, I believe Ethereum’s future lies in the combination of "L1 blockchain + L2 systems equivalent to L1 in trustlessness" (hereafter "L1+L2"), especially once ZK Rollup supports general-purpose smart contract platforms. This architecture preserves Ethereum’s current decentralization while delivering high throughput—the ideal foundation for a tens-of-trillions-dollar Internet Financial Center. The road ahead is bright yet winding. Reaching the "L1+L2" vision faces significant challenges: 1) technical hurdles; and 2) abandoning the principle of "trustlessness." L2Beat (L2Beat.com) is an invaluable resource—a website built by a young team deeply committed to decentralization and trustlessness. It meticulously tracks both "true L2s" and "pseudo-L2s." If you support and wish to invest in the "L1+L2" future, regularly visiting L2Beat is highly recommended. We’ll use L2Beat’s data to examine these two challenges. The screenshot below shows all 38 active L2 projects ranked by L2Beat’s "STAGE" maturity metric, from highest to lowest. [Image: https://upload.techflowpost.com/upload/images/20240220/2024022018045152435163.jpeg] [Image: https://upload.techflowpost.com/upload/images/20240220/2024022018045193391601.jpeg] Let me introduce L2Beat’s "STAGE" evaluation framework. L2Beat assesses five risk factors to measure the degree of "trustlessness," calling it "maturity." The five risks are: (1) State Validation (validity of state updates), (2) Sequencer Failure, (3) Proposer Failure, (4) Exit Window (user escape window), and (5) Data Availability. As shown below, only projects scoring green across all five qualify for STAGE 2. Among all ZK Rollups today, only DeGate achieves this rating. [Image: https://upload.techflowpost.com/upload/images/20240220/2024022018045350694152.jpeg] To reach STAGE 2 on L2Beat’s scale, a project must offer users at least a 30-day exit window—ensuring that anyone acting within this period enjoys Ethereum L1-level trustless security. I find this standard reasonable and appropriate for the current stage of L2 ecosystem development. I admire the L2Beat team not only for their commitment to trustlessness but also for avoiding dogmatism. For example, they didn’t set infinite exit windows as a requirement—too impractical and potentially harmful to L2 innovation. In 2024, Ethereum will implement EIP-4844, introducing cheaper "Blob Data." To leverage this, Rollups will need upgradeability—making infinite exit windows impossible unless they redeploy entirely. That would abandon old deployments, waste prior investments, and force users to migrate—all excessively costly and detrimental to ecosystem growth. Thus, L2Beat’s current framework strikes a sensible balance between principle and practicality. Now, let’s discuss the first major challenge: Why is it so technically difficult to achieve L1-equivalent trustlessness in L2? The core reason is complexity—more complex systems are harder to secure and take longer to build safely. Both Optimistic and ZK Rollups are novel technologies. Zero-knowledge proofs used in ZK Rollups are cutting-edge in cryptography. In fact, ZK Rollup applications are rapidly advancing academic research in zero-knowledge proofs. Among L2 systems listed on L2Beat, Loopring—the earliest ZK Rollup project—took at least five years from inception. DeGate, which achieved STAGE 2, spent three years, underwent five rounds of "security audits," and launched an ongoing "bug bounty program." Despite technical difficulties, I remain optimistic—as a mature "L1+L2" blockchain system will enable a tens-of-trillions-dollar Internet Financial Center serving all humanity. Currently, five projects on L2Beat have reached STAGE 1 or higher: DeGate, Fuel, Arbitrum, dYdX, and zkSync. Hats off to them. The second challenge is abandoning the "trustlessness" principle—designing systems that inherently cannot achieve L1-level trustlessness, which I call "pseudo-L2s." I suspect the main motivation is lowering gas costs to offer cheaper services. Cost matters, but not at the expense of blockchain’s core value: trustlessness. Such compromises cross a line. These systems cannot become part of the "L1+L2" trustless ecosystem. Only "true L2s" can jointly sustain a multi-trillion-dollar Internet Financial Center. Meanwhile, true L2s can reduce costs through other means—their biggest cost being data publication on L1, which will drop dramatically after Ethereum implements EIP-4844, likely by over 80%. Recently, the blockchain industry has discussed modular Data Availability (DA) layers—proposals to move DA services off Ethereum onto cheaper alternatives. If such solutions preserve L1-level trustlessness in design, I fully support them. Indeed, such designs exist (see Faust, Geek Web3’s article), and excellent teams are actively exploring them. However, recent discussions actually involve sacrificing L1-level trustlessness, downgrading L2s to "pseudo-L2s" for lower costs. I believe all financial application-focused L2s aim to scale and become key players in the "L1+L2" ecosystem. Whether to abandon L1-level trustlessness from the outset must be carefully considered—because a rusted "golden necklace" worn around the neck isn’t real gold. Abandoning trustlessness will severely hinder pseudo-L2s from scaling. Among the 38 L2 projects currently tracked by L2Beat, true L2s hold over ten times more funds than pseudo-L2s. Clearly, the market cares—no one wants to end up as "human mining fuel." Summary To summarize, this article has argued: - Why does blockchain have value? Because of decentralization. - Decentralization is the "army" whose purpose is to achieve "trustlessness." - Only a sufficiently strong "army" can safeguard the Internet Financial Center. - Explored what level of decentralization is sufficient. - Building the Internet Financial Center requires both (A) sufficient decentralization and (B) high throughput. Currently, only Ethereum qualifies. - Explained how L2 breaks the "blockchain impossible triangle." - Provided criteria to distinguish "true L2" from "pseudo-L2." Capital is intelligent—the market chooses true L2s. In the next article, I will explain why a blockchain-based Internet Financial Center is especially needed in our time, why it has vast market potential, and what it might look like in the future. Thank you for reading.