This article will delve into the three main reasons Buterin identified as likely to cause Ethereum to fail.

As we navigate the transformational maze of blockchain technology, it is critical to examine Ethereum’s trajectory. According to co-founder Vitalik Buterin, Ethereum faces several major challenges that, if not properly addressed, could lead to its failure.

Primary Obstacle: Layer 2 Scaling Shift. As blockchain capabilities expand and demand grows, Ethereum needs to provide a scalable solution that maintains its philosophy of decentralization. It’s a balance issue — if it isn’t addressed, users could become frustrated by high transaction costs and turn to centralized workarounds, undermining Ethereum’s core selling point.

Secondly, Ethereum wallet security. Like seasoned fortress guards, Ethereum must keep user assets safe. If users cannot trust Ethereum to protect their funds, they may flock to centralized exchanges, which poses another potential threat to Ethereum.

Finally, privacy is paramount in today's digital world. If Ethereum fails to provide strong privacy protection mechanisms, it may lose users, who may move to centralized solutions that can provide at least some data protection.

1. What is Ethereum?

Ethereum was created by Vitalik Buterin and is the second largest cryptocurrency by market capitalization. Emerging in the industry due to the introduction of smart contracts. Its significance is considered beyond Bitcoin. Ethereum has built an entire ecosystem for decentralized applications (DApps) and has become the cornerstone of many other cryptocurrencies.

Ethereum represents an ecosystem of interconnected diverse communities and toolsets, empowering individuals to transact and communicate without centralized control.

Ethereum, which debuted in 2015, expands on the seminal concepts introduced by Bitcoin and has several unique features. Both platforms enable the use of digital currencies without the involvement of banks or payment service providers. However, Ethereum introduced programmability, allowing the creation and deployment of decentralized applications on its platform.

While Bitcoin only allows for simple value transfer messages, Ethereum takes this concept to a higher level: it allows not only message exchange, but the creation of any general program or contract. This unlimited potential for contract creation has sparked tremendous innovation in the Ethereum network.

Unlike Bitcoin, which is primarily used as a payment network, Ethereum is a diversified market. It hosts a variety of services, including financial platforms, games, and social networking. These applications respect user privacy and resist censorship, cementing Ethereum's unique position in the digital world

Ethereum relies on three fundamental elements to thrive: Layer 2 (L2) scaling, wallet security, and privacy. These three elements are inherently interrelated, each of which plays a vital role in the functioning of Ethereum, and if one of these elements fails, the entire system risks collapsing. Please do not confuse this with the blockchain trilemma, which refers to the fact that no blockchain can optimize the three properties of decentralization, security, and scalability at the same time.

2. Three key elements of Ethereum

L2 extension

Crucial for Ethereum to handle increased usage. Imagine a busy bar with just one bartender struggling to serve a growing crowd. In this case, L2 scaling is like hiring an extra bartender, it enables Ethereum to process transactions faster and avoid high costs per transaction. Without efficient L2 scaling, Ethereum’s transaction costs could be as high as $3.75 ($82.48 during the bull market), which will drive users to seek centralized solutions.

Wallet Security

Wallet Security: Similar to how we trust the stability of our stools. Users must feel safe storing their funds and assets in the system. Without strong wallet security, users may turn to centralized exchanges.

privacy

Public visibility of all transactions is a sacrifice of privacy for many users, who may turn to centralized solutions that provide at least some data hiding. Without strong privacy protections, Ethereum could lose most of its users.

Three, L2 expansion

L2 scaling involves offloading most of the computational load from the main Ethereum chain (layer one) onto "sidechains," or layer two networks. These sidechains can process transactions faster and at a lower cost, much like an extra highway eases traffic congestion.

However, this transition is not without challenges. It requires users to adapt to a new framework where multiple L2s exist instead of just one address. This shift is akin to having multiple bank accounts at different institutions, each with a different purpose, rather than being dependent on a single account.

There is already evidence of this trend, such as the use of Optimism in ExampleDAO, the implementation of ZkSync in stablecoin systems, and the application of Kakarot in other use cases. In each case, users must create an account on the respective L2, and the transition to L2 scaling is both challenging and critical. Migrating to L2 scaling is the hurdle that must be crossed in order for Ethereum to continue progressing towards its goal of becoming a global, open, and permissionless platform.

4. Wallet Security

The second key point in the Ethereum ecosystem is wallet security. Wallet security is an important feature in the cryptocurrency space as the first line of defense against unauthorized access and potential theft of digital assets. Since digital wallets are a critical component of the overall functioning of the Ethereum blockchain, any security issues or breaches could cause serious damage and reduce trust in the platform.

A key challenge facing Ethereum is the potential risk to wallet security. In essence, if Ethereum fails to provide users with strong and reliable wallet security, it is likely to cause users to transfer their funds to centralized exchanges. Centralized exchanges can offer advanced security measures such as two-factor authentication, cold storage, and insurance against potential theft, making them a more attractive option for storing digital assets.

There have been several instances in the past where Ethereum wallet security has been compromised, adversely affecting the ecosystem. For example, in 2017, Ethereum-based company Parity suffered a major security breach in which attackers exploited a vulnerability in their multisig wallet, resulting in the loss of more than $30 million in ether. This security breach not only resulted in huge financial losses, but also shook the trust in the security of Ethereum wallets.

These events underscore the importance of developing advanced digital wallet security features within the Ethereum ecosystem. Without proper wallet security, Ethereum risks losing users and their trust in the platform's ability to safely secure digital assets. Therefore, in order for Ethereum to succeed and maintain its place in the cryptocurrency space, a high priority must be given to enhancing wallet security and ensuring safe storage of digital assets. This is an issue that needs to be given the highest priority in the Ethereum development roadmap.

5. Privacy

Privacy bears the heavy responsibility of protecting the confidentiality of transactions in the Ethereum network. However, as we continue to move forward in the digital maze, we must face the reality that the privacy in the operation of Ethereum is not as safe and reliable as we expect.

The essence of the blockchain is a public ledger that records every transaction and every interaction between users. In Ethereum, every transaction, every Proof of Attendance Protocol (POAP), can be seen by anyone. In principle, this provides transparency, an important factor of trust in any transaction. But at the same time, it also poses significant challenges to personal and transactional privacy. The public nature of these transactions reveals a wealth of information about the parties involved and their transactions, leading to potential abuse.

If privacy measures are insufficient or fail, it will have a profound impact on the entire Ethereum ecosystem.

In the history of Ethereum, there is no lack of incidents in which privacy was breached and resulted in serious consequences. In particular, in 2016, a Decentralized Autonomous Organization (DAO) was hacked worth 60 million ETH. In another example, a 2020 privacy breach led to ethereum's "accidental hard fork," a glitch that split ethereum into two separate blockchains.

In conclusion, the success of Ethereum and its ambition to become a full-fledged technology stack is heavily dependent on how it handles the delicate balance between transparency and privacy. Failure to address this critical issue will destabilize Ethereum's infrastructure and hinder its progress toward a global, open, and permissionless experience.

6. Transition plan to meet these challenges

Adapting to these major transitions will necessarily reshape the familiar relationship between Ethereum users and addresses, potentially creating a more complex landscape. Take L2 expansion transition as an example. In this new world, users will no longer be limited to a single address. Instead, they will have multiple accounts, spread across various L2 solutions, each with its own unique address. This change, far from cosmetic, introduces new complications and potential confusion for users accustomed to using only one address.

However, these challenges are not limited to the user's perspective. These transitions also require developers to make significant adjustments. As Buterin points out, the existing "one user ≈ one address" mental model is fading away, replaced by the need to coordinate interactions across different addresses, L2s, and applications. This transition requires deep and fundamental changes to how we interact with Ethereum, which may seem daunting at first. The difficulty will be in coordinating these efforts across the ecosystem to ensure a smooth transition.

For example, simple payments now require more than a 20-byte address. It also requires the recipient to provide their L2 solution and address, and the sender's wallet will automatically route the funds to the specified L2 through a bridge system. This is just one example of the many changes that need to happen in the Ethereum ecosystem.

Seven. Looking to the future

Can Ethereum withstand the stress?

Despite these significant challenges, Ethereum is not sitting idly by. To deal with scalability issues, developers are turning to Rollups (Layer 2 solutions), which are designed to process transactions off-chain and then bundle them together and add them to the main ethereum chain. Doing so increases throughput and reduces costs while maintaining the security guarantees of the main chain.

In terms of wallet security, efforts are underway to transition users to smart contract wallets. These wallets provide a more secure storage solution, leveraging the inherent security mechanisms of Ethereum itself.

Privacy concerns are being addressed with various innovative techniques, such as zero-knowledge proofs, which allow users to prove ownership without revealing any vital information.

For these challenges, Vitalik's solution is based on an architecture that separates verification logic from asset holding. Through the keystore contract, the verification logic can be placed in one location, corresponding to different addresses on the L2, which greatly reduces the complexity of dealing with multiple addresses and the associated security risks.