Core Analysis of Ethereum: From Underlying Logic to Ecosystem Future
Foreword
"As an old-school C++ programmer, Satoshi Nakamoto's programming skills were not brilliant, but he was lucky."
—— Vitalik Buterin
After reading this quote, you may think the speaker, Vitalik Buterin, is overly arrogant for daring to publicly comment on Satoshi Nakamoto and Bitcoin in this way. But if you learn that this man is the legendary "V God" (as he is widely known in the Chinese crypto community), who created Ethereum at the age of 20, most people will surely agree: he does have the capital for such "arrogance".
Ethereum (ETH), adorned with numerous prestigious titles including the "King of Public Blockchains" and the "World's Second-Largest Digital Asset by Market Capitalization", is also highly anticipated by the industry: it is expected to surpass Bitcoin in market cap and become the underlying infrastructure of the future blockchain world. It is no exaggeration to say that Ethereum's contribution to the prosperity of the current blockchain and crypto asset industry is no less than that of Bitcoin, and even surpasses it in many dimensions.
So, what exactly is Ethereum? Why does it hold such a core position in the industry? What is the upper limit of its future development? This article will answer these questions one by one.
1. Core Definition of Ethereum: A Distributed Computing Platform
The essence of Bitcoin is a distributed ledger, with its core function being on-chain bookkeeping. Ethereum, by contrast, can be understood as a distributed computing platform that can run executable programs on-chain in addition to basic bookkeeping functions.
A popular analogy explains this clearly: Bitcoin is like the early Nokia feature phones, whose core use is making calls and sending text messages; Ethereum, on the other hand, is the iPhone smartphone that came later. In addition to basic calling and texting functions, it can host a variety of applications (APPs) to meet the diverse needs of users.
2. Ethereum Layer2 Scaling Solutions: The Core Path for Ecosystem Scaling
2.1 Classification of Mainstream Layer2 Solutions
Current mainstream Layer2 scaling solutions include: State channels, Sidechains, Plasma, Rollup (including ZK Rollup, Optimistic Rollup), Validium, and others. Different solutions have differences in core dimensions such as security, performance, and usability, which determine that they will be suitable for different application scenarios and use cases in the future.
Currently, the well-known Layer2 projects in the industry include: Arbitrum, Optimism, Base, zkSync Era, Scroll, StarkNet, Polygon zkEVM, etc.
2.2 Industry Controversy and Consensus on Layer2 Development
Regarding the development of Layer2, there are two core views in the industry: bullishness and skepticism.
The bullish view holds that: Although the Ethereum mainnet has reduced on-chain fees through upgrades such as EIP-4844, high-frequency trading scenarios still rely heavily on scaling solutions, and Layer2 is the core support for the large-scale development of the Ethereum ecosystem. If Layer2 solutions are maturely implemented, the valuation of Ethereum ecosystem projects will see a systematic increase, and the high valuation logic of exchange public chains and emerging public chains will face direct challenges. The more prosperous the Ethereum ecosystem and the stronger the on-chain demand, the more it confirms the core value of Layer2 scaling solutions.
The skeptical view holds that: The security of Layer2 relies on the underlying guarantee provided by the Ethereum mainnet, and there are still technical bottlenecks in the compatibility and interoperability between different ZK-based Layer2s. The core advantage of Ethereum has always been its high degree of decentralization, and excessive sacrifice of decentralization in pursuit of performance will directly shake the foundation of the network. For trading scenarios, trading depth and liquidity are still core indicators. Layer2 mainly achieves faster transaction speed and lower costs, and cannot directly solve the problem of insufficient asset depth.
Whether bullish or skeptical, both views confirm the core importance of Layer2 in the Ethereum ecosystem, and the ultimate development prospect of Layer2 will eventually be verified by time.
3. Ethereum Network Upgrade: The Core Foundation for Securing Future Development
As is well known in the industry, Ethereum has long faced industry pain points of excessive on-chain fees and insufficient TPS (Transactions Per Second) in its early stage. From the perspective of consensus mechanism, the original Proof of Work (PoW) mechanism could no longer meet the needs of large-scale network development. Therefore, Ethereum has gradually promoted the upgrade and iteration to Proof of Stake (PoS) and modular architecture. At present, the industry no longer uses the name "Ethereum 2.0", and relevant upgrades are continuously iterated on the original mainnet, rather than building a brand-new blockchain.
3.1 Core Objectives and Roadmap Evolution of the Upgrade
The core goal of the Ethereum upgrade is to support the landing of larger-scale on-chain applications by improving the scalability, security and operating efficiency of the network. Its upgrade roadmap has been adjusted many times, no longer adopts the phase division of 0/1/2/3, and is no longer a "brand-new project separated from the original network", but a continuous optimization and iteration of the existing Ethereum mainnet.
3.2 Detailed Explanation of Core Upgrade Contents
Beacon Chain and The Merge (Completed in 2022): Introduced the PoS consensus layer, realized the full transition of the entire network from PoW to PoS, and officially terminated the PoW mining mechanism. Users can participate in network consensus by staking ETH and obtain corresponding staking rewards.
Data Sharding and Danksharding: Abandoned the early planned 64 shard chains scheme and turned to the direction of data availability scaling. Through upgrades such as EIP-4844, it provides low-cost on-chain data storage for Layer2, greatly reducing the operating cost of Layer2.
Execution Layer Optimization and Parallel Processing: Continuously optimize the Ethereum Virtual Machine (EVM) to improve the transaction processing efficiency of the mainnet; the eWASM plan is no longer included in the core upgrade roadmap.
Among them, the Beacon Chain is the coordination core of the Ethereum PoS system, responsible for validator management and consensus security maintenance, and is no longer the so-called "beginning of a brand-new blockchain". The core idea of sharding technology has been transformed into data layer scaling. Instead of splitting the mainnet into multiple shard chains to process transactions, it focuses on improving data throughput and providing underlying support for Layer2, thereby achieving an order-of-magnitude increase in the overall TPS of the network.
After the PoS mechanism replaced the original PoW mechanism, the network achieved higher energy efficiency and operating efficiency. ETH staking has become the core cornerstone of network security, and the pressure of network congestion and high fees has been significantly alleviated.
3.3 Long-Term Value Expectation After Upgrade Completion
It can be said that the Ethereum upgrade is a grand systematic project, which is not only reflected in the improvement of network performance, but also in the continuous evolution of the overall architecture towards modularization and layering. Its consensus mechanism, transaction processing mode, and data availability design have undergone fundamental changes compared with the early PoW stage, but it is always the continuation of the same Ethereum mainnet, not a brand-new independent blockchain.
If the Ethereum upgrade is advanced smoothly, the "Matthew Effect" of the network will be further highlighted: Ethereum's position as the core settlement layer of the Web3 world will continue to be consolidated, and ecosystems such as Layer2, DeFi, and NFT will usher in sustained prosperity; the demand for ETH staking will exist for a long time, and the circulation will remain in a relatively tight state; the staking model has greatly lowered the threshold for ordinary users to participate in network governance, and the scale of ecosystem users and applications is expected to achieve further expansion.
In a word, the implementation effect of Ethereum's continuous upgrade is the fundamental for it to win the future of the industry.
Although the market cap of ETH has not yet surpassed Bitcoin, its industry position as the core infrastructure of the blockchain world is continuously being consolidated.
Although the market cap of ETH has not yet surpassed Bitcoin, its industry position as the core infrastructure of the blockchain world is continuously being consolidated.
In 2015, the Ethereum mainnet was officially launched, delivering a disruptive impact on the global blockchain ecosystem. Through technological practice, Ethereum has fully proven that the core value of blockchain goes far beyond supporting the circulation of crypto assets. Relying on its smart contract system, this technology can enable the implementation of richer commercial and decentralized scenarios. Since then, various decentralized applications (DApps) have been able to complete architectural design and on-chain deployment, officially ushering in the innovation era of the blockchain application layer.
As a digital crypto asset that has consistently ranked among the top in the world by market capitalization, Ethereum has maintained an overall long-term upward price trend since the launch of its mainnet in July 2015. Its initial crowdfunding price was approximately $0.3, with a cumulative price increase of about 15,000 times in the seven years after its launch. Even calculated based on the current market price, its return on investment (ROI) still remains at the top level of the industry. Compared with Bitcoin's historical maximum increase of more than 10 million times, Ethereum's price growth performance is more stable. Meanwhile, its shorter development cycle and broad prospects for the application ecosystem have earned it continuous high attention from the market and professional institutions.
Summary: The underlying logic behind Ethereum's price rally can be roughly summarized into two points: first, the ecosystem built on Ethereum is growing continuously and expanding in scale; second, there are inherent mechanism factors supporting the upward movement of Ethereum's price.
In terms of ecosystem, the two largest application areas at present are: DeFi (Decentralized Finance) and NFT (Non-Fungible Tokens).
Among them, the all-time high of Total Value Locked (TVL) in Ethereum DeFi has exceeded 116 billion US dollars. Despite multiple rounds of market volatility and adjustments, it remained stable at around 55 billion US dollars as of March 2026, accounting for 62% of the total TVL of DeFi across the entire network, which fully demonstrates that its ecosystem has reached maturity. Among the top-ranked DeFi projects at present, core protocols including Aave (AAVE), Uniswap (UNI), Curve (CRV), Lido (LDO), and Sky (formerly MakerDAO) are all built on Ethereum. Among them, the TVL of Aave V3 has reached 21.92 billion US dollars, and the cumulative loan volume processed by the Ethereum network has even exceeded 1 trillion US dollars.
With the advancement of institutional DeFi, innovations such as compliance tools and Real World Asset (RWA) tokenization have expanded the audience of DeFi beyond the traditional crypto circle, attracting more participation from traditional financial capital. Compared with DeFi, NFT still maintains a more extensive cross-border influence. Off-industry groups including artists, sports stars, entertainment celebrities, game companies, and auction houses remain continuously active, consistently driving fans and cross-border users into this field. Despite the rapid growth of NFT projects on public chains such as Polygon, Ethereum remains the world's largest NFT market. In a single month of 2026, the total NFT transaction volume on Ethereum reached 1.731 billion US dollars, accounting for 88.13% of the total transaction volume of the four major public chains. The core ecosystem of leading NFT projects is still concentrated on the Ethereum network, and its NFT ecosystem is continuously horizontally penetrating into more daily life scenarios.
This vertical and horizontal expansion has made Ethereum truly "down-to-earth", transforming it into a foundational platform for the crypto world, with an increasingly three-dimensional and robust presence. As a platform, the richer its ecosystem, the greater its value.
Two other notable ecosystem applications are the various token projects and stablecoins issued on Ethereum. It can be said that Ethereum's real take-off and entry into the public eye began with the ICO boom that started in 2017. Although most of these projects were short-lived, they brought a huge amount of popularity and users to Ethereum. Moreover, with the improvement of technology, some of these projects will definitely accumulate lasting value in the future.
According to on-chain data, as of March 2026, the circulating supply of stablecoins on Ethereum is approximately 176 billion US dollars, firmly ranking first among all public chains. A large amount of stablecoins not only provides abundant liquidity for projects on Ethereum to support their development, but also brings a large number of users to Ethereum itself. This effect will build a sufficiently high barrier and moat for Ethereum over time as the number of users grows.
Looking solely at the ecosystem, no other chain currently has the scale and vitality of Ethereum. It can be said that the direction of Ethereum is also the direction of the entire cryptocurrency industry. It represents the future, the trend, the value orientation, and a new consensus. In this sense, the Ethereum ecosystem continues to prosper, but as of now, Ethereum's own market capitalization has not yet surpassed that of Bitcoin.
From the perspective of the mechanism factors driving Ethereum's price rise, the EIP-1559 proposal and Ethereum Merge Upgrade (PoS transition) are the two most important factors.
Ethereum completed the Merge in September 2022, fully transitioning to the Proof of Stake (PoS) model. Coupled with subsequent optimizations such as the Dencun upgrade, it has greatly alleviated the two major pain points of high transaction fees and low TPS, placing Ethereum in an invincible position in competition with other public chain projects, thus winning not only the present but also the future. From the perspective of ETH staking alone, the large amount of staked ETH has effectively reduced the circulating supply in the market, which has a direct positive effect on the appreciation of its value. As of March 2026, the amount of staked ETH is approximately 37.24 million tokens.
We know that Ethereum adopted a moderate inflation model in its early stage, which was beneficial for ecosystem construction in the initial phase, but unfavorable for long-term value appreciation. The EIP-1559 proposal was officially deployed with the London Hard Fork in August 2021, which changed Ethereum's inflation model through a fee burn mechanism. Currently, Ethereum is in a state of low inflation, with phased deflation during periods of network congestion. It has no fixed upper limit on circulating supply, and the current total circulating supply is approximately 121.5 million tokens.
The timing for Ethereum to launch deflation-related mechanisms is perfect: Ethereum has a complete Layer2 scaling ecosystem, where ecosystem applications can run efficiently with significantly reduced fees on Layer2 networks. Therefore, today's Ethereum has, to a certain extent, broken free from the shackles of price, and EIP-1559 has provided a fundamental mechanism for price appreciation, fully opening up the upside for Ethereum's price.
With a vibrant and fast-growing ecosystem and unconstrained upside for its price, Ethereum naturally gives people enormous room for imagination, and there is a persistent expectation that Ethereum's market capitalization will approach that of Bitcoin in the future.
Ethereum Layer2: Advancing Amid Optimism and Skepticism
Ethereum's ecosystem has maintained a sustained growth trend in its long-term development, with thousands of DApps running on the Ethereum network. Behind the prosperity of the ecosystem, the network once faced problems of congestion and high transaction fees in previous years, which affected the healthy and rapid development of the Ethereum ecosystem to a certain extent, and even caused some users to leave Ethereum for other public chains. In the process of the gradual rollout of Ethereum mainnet scaling upgrades, Layer2 technology has always been highly anticipated by the community.
Simply put, Layer 2 is a scalability solution proposed to alleviate the scaling pressure on Layer 1. While keeping the functions of Layer 1 sufficiently simple, robust and stable, it moves some of the computations and operations originally performed on Layer 1 off-chain or processes them in batches, to achieve scaling outside the Ethereum blockchain, thereby providing instant and low-cost transactions to meet the needs of more users.
The core concept of Layer2 originates from the layered architecture design of blockchains. Bitcoin's Lightning Network put forward the idea of layer-2 payment channels, while Ethereum Layer2 is a native scaling solution for smart contract platforms. Public chains like Bitcoin and Ethereum are collectively referred to as Layer1 (the base layer network). Its main functions are to ensure security, decentralization and state finality, achieve state consensus, act as a "crypto court" to arbitrate according to the rules designed by smart contracts, and transfer trust to Layer2 through economic incentives.
Layer2, as the "layer-2 network", pursues ultimate performance. It can undertake most of the computing work for Layer1, for example, by separating Ethereum transactions from the mainnet, reducing the burden on the base layer network, improving business processing efficiency, and thus achieving scaling. Although Layer2 relies on Layer1 to reach final consensus, it can meet the needs of various high-frequency scenarios.
There are several types of Layer2 solutions, including State channels, Sidechains, Plasma, Rollup (ZK Rollup, Optimistic Rollup), Validium, and others. They differ in terms of security, performance, usability and other aspects, and these differences mean they may be applicable to different use cases and scenarios in the future. Currently, the most well-known Layer2 projects include: Arbitrum (ARB), Optimism (OP), Base, zkSync Era, StarkNet, Scroll, Polygon zkEVM, among others.
Opinions on the development of Layer2 are currently divided between bullishness and skepticism. Those who are bullish believe that: although the Ethereum mainnet has completed the PoS upgrade and EIP-4844 scaling optimization, high-frequency scenarios still need to be supported by Layer2. Layer2 is the key support for the scaling of the Ethereum ecosystem and is critical to the future development of the Ethereum ecosystem. If Layer2 succeeds, the valuation of Ethereum ecosystem projects will be boosted, and the high valuation logic of exchange public chains and new public chains will be challenged; the stronger the demand in the Ethereum ecosystem, the more valuable Ethereum is, and the greater the multiplicative value of Layer2 scaling becomes.
On the other hand, skeptics argue that: ZK Rollup technology has high development complexity, still has bottlenecks in EVM compatibility, and the cross-L2 interoperability experience needs to be optimized. The core advantage of Ethereum at present is its degree of decentralization, and if Layer2 excessively pursues performance at the cost of security coordination with L1, it will shake the foundation of the ecosystem. For trading, trading depth and liquidity remain the core indicators. Although some Layer2 solutions have solved the problems of speed and cost, their trading depth still needs time to accumulate and has not yet fully matched mainstream demand.
Both bullishness and skepticism demonstrate the importance of Layer2. As for the development prospects of Layer2, let us verify them with time.
Ethereum Mainnet Upgrade: The Foundation for Winning the Future
As we know, Ethereum faced the pain points of high transaction fees and low TPS in its early days. From the consensus level, the original Proof of Work (PoW) mechanism could no longer meet the needs of large-scale transactions. Therefore, Ethereum has gradually promoted the upgrade of its consensus and architecture. The name "Ethereum 2.0" has now been officially deprecated, and the relevant upgrades are continuous iterations on the original mainnet, not a brand-new project.
The Ethereum mainnet upgrade aims to accelerate the adoption and application of Ethereum by improving its performance, including scalability, security and efficiency. The upgrade adopts a modular approach to the blockchain architecture, and is an in-depth optimization rather than a reconstruction of the original mainnet.
According to the current official roadmap, the core upgrade of Ethereum has completed key phases, and the original four-phase division is no longer valid. The core progress is as follows:
Consensus Layer Upgrade: The Beacon Chain was launched in December 2020, and the Merge with the original PoW mainnet was completed in September 2022. The entire network officially switched to the Proof of Stake (PoS) mechanism, and users can participate in ETH staking through wallets to earn rewards.
Data Layer Scaling: Abandoned the original plan of 64 shard chains for transaction execution, and turned to data availability sharding (Danksharding). EIP-4844 (Proto-Danksharding) was launched with the Dencun upgrade in March 2024 to provide low-cost data storage for Layer2, and Full Danksharding will continue to be promoted in the future.
Execution Layer Optimization: The eWASM virtual machine plan is no longer the core roadmap. Instead, the focus has shifted to EVM parallel execution and ZK proof integration. The Glamsterdam upgrade will be promoted in the first half of 2026 to further improve the processing efficiency of the mainnet.
In April 2020, the official launched the Beacon Chain testnet, the Beacon Chain mainnet was launched in December 2020, and the completion of the Merge in September 2022 marked the implementation of the Ethereum consensus layer upgrade. Currently, Ethereum is in a critical phase of modular scaling.
From the core content of the Ethereum mainnet upgrade, the key technologies include: Beacon Chain, Data Sharding, and Proof of Stake (PoS).
The Beacon Chain, where "Beacon" means a lighthouse or signal buoy, is the core coordination layer of the Ethereum PoS system. It is responsible for managing validator nodes, maintaining consensus security, and resolving network consensus issues.
The purpose of Data Sharding (Danksharding) is to solve the scalability problem of Ethereum. As the data layer, it is responsible for the storage and transmission of massive transaction data. Its mechanism does not split the execution logic of the main chain, but carries Layer2 transaction data by scaling the data layer, and cooperates with Layer2 parallel processing. Conservatively, it can increase the overall throughput of the Ethereum ecosystem by hundreds of times, which is sufficient to support the implementation of large-scale applications.
Proof of Stake (PoS) is an upgrade of Ethereum's original Proof of Work (PoW) consensus model, bringing higher efficiency and scalability, with energy consumption reduced by 99.95% compared to PoW. The PoS mechanism lowers the threshold for ordinary users to participate in network consensus, which brings many benefits to the development of the Ethereum ecosystem. The current network congestion and high fee problems have been greatly alleviated through the Merge + Dencun upgrade.
It can be said that the Ethereum mainnet upgrade is a grand project. Its "grandeur" is reflected not only in the performance improvement, but also in the transformation of the overall architecture to modularization. The fundamental source of Ethereum's performance improvement is architectural optimization and technological iteration. After the upgrade, its core components (such as consensus mechanism and data processing method) have made great progress compared with the early PoW stage, while the assets and ecosystem still maintain continuity.
If the Ethereum upgrade proceeds smoothly, the "Matthew Effect" will become more obvious: the differentiated advantages of other public chains will be further narrowed, while ETH will further expand its ecosystem, and projects such as DeFi, NFT, RWA, as well as various tokens and stablecoins based on Ethereum, will further develop and prosper; the circulating supply of ETH in the secondary market will remain in a relatively tight state due to continuous staking, strengthening the price support logic; the staking model has greatly lowered the participation threshold, allowing more small and medium-sized users to participate in the Ethereum ecosystem, leading to further expansion of the user base.
In conclusion, the continuous advancement of the Ethereum mainnet upgrade will be the fundamental for it to win the future. Although its market capitalization has not yet surpassed that of Bitcoin, its position as the core infrastructure of the blockchain world continues to be consolidated.