Ethereum Ecosystem: Challenges and Contradictions

Problem 1: Centralized Control in a Decentralized Project

While Ethereum is often described as decentralized—with over 1 million independent network validators—the reality is more complex. Decisions about the ecosystem’s future are often made in a centralized manner.

Unlike Bitcoin, whose founder has disappeared and no longer influences its future, Ethereum has a clear governance structure led by the Ethereum Foundation.

The foundation’s strategic direction is largely shaped by a small group, including Vitalik Buterin. Other key figures, such as Aya Miyaguchi (Executive Director since 2018) and board member Patrick Storchenegger, are responsible for making critical decisions.

Ethereum’s Leadership Team. Source: ethereum.foundation

The Ethereum Foundation consists of around 20 key staff members, including key researchers like Justin Drake and Dankrad Feist, developer Hsiao-Wei Wang, project manager Rodrigo, protocol support lead Tim Beiko, and team lead Peter Szilágyi. However, their voting power within the organization is limited, and their influence is largely formal rather than practical.

Even though Ethereum aims to maintain decentralized development, the network’s changes are implemented through the Ethereum Improvement Proposal (EIP) system.

This process involves several steps:

1. Proposal: Anyone can propose an improvement (EIP).
2. Discussion: The proposal is reviewed by the developer community.
3. Formalization: The proposal is refined and finalized.
4. Approval: If the community supports the proposal, it is approved.
5. Implementation: The change is integrated into the Ethereum network.

Ethereum’s development structure is split into two layers: the Execution Layer (EL) and the Consensus Layer (CL). Each has its own independent development teams working on different areas of the protocol.

One of the primary forums for decision-making is the weekly All Core Developers (ACD) online meetings. These open Zoom calls allow anyone in the community to follow the discussions between Ethereum developers and improvement proposal authors. The meetings are broadcasted live and recorded, providing transparency.

However, the fact remains that the most significant decisions about Ethereum’s future are still made by a relatively small group of people, which raises concerns about the true decentralization of the ecosystem.

Problem 2: Unclear Leadership

Layer 2 solutions have become essential to Ethereum’s ecosystem, offering better scalability and lower transaction costs. Their rapid growth and popularity have made them a prominent aspect of Ethereum, attracting more users. Yet, this expansion comes with its own set of challenges.

Ethereum ecosystem problems:

1. L2 solutions, in their quest for user growth, could deviate from core blockchain principles like censorship resistance and transparency.
2. The fast pace of L2 development increases security risks, with poorly designed solutions leading to exploits and hacks.
3. Establishing a robust governance system for these L2 solutions is a complex task, and the lack of unified standards risks fragmenting the ecosystem.

In this context, it’s critical to find a balance between L2 scaling solutions and maintaining the decentralized nature of Ethereum.Developing common standards for interaction between L2s and encouraging community governance in these layers could be vital for the ecosystem’s growth. Vitalik Buterin seems to acknowledge these concerns, as shown by his refusal to publicly mention L2 projects that don’t meet Ethereum’s standards.

However, whether simply ignoring underdeveloped L2 startups with unclear tokenomics will prevent their widespread use remains to be seen. This raises further questions, and Ethereum, as a major platform, will be challenged to find answers.