Ethereum faces multiple challenges, but the long-term outlook remains bright

The upcoming Cancun/Deneb upgrade on Ethereum is expected to reduce block space fees for Rollup operators, which may negatively impact Ethereum's revenue in the short term. As the interoperability of Rollup projects with other high-performance, low-cost settlement and data availability chains continues to strengthen, the performance of ETH may be affected.

In the long run, if the modular theory of blockchain is validated, the main network fee sources for a layer one public chain like Ethereum will come from second layer Rollup service providers rather than end users. Additionally, as more second layer public chains increasingly adopt account abstraction, individuals who primarily hold Ether in the future are likely to be Rollup operators rather than end users.

Since the beginning of 2023, trading activity on Ethereum Layer 2 has more than doubled. Emerging Layer 2s like Base and zkSync Era have seen the fastest value growth. Layer 2 sequencers have generated $140 million in revenue from user fees.

The EIP 4844 upgrade in Cancun/Deneb will create dedicated block space for Rollup transactions, which is expected to reduce the block space fees that Rollups pay to Ethereum by more than 10 times. In the short term, since Rollup technology is not yet mature, most of Ethereum's revenue may still come from end users rather than Layer 2.

In the long term, with the large-scale adoption of blockchain applications, Ethereum's revenue may increase, and the usage rate of Layer 2 could be 10 times or even higher than that of Ethereum. Lower Layer 2 fees can bring new blockchain application scenarios to various industries such as gaming and social media.

Although public chains like Celestia, which specifically support Rollup activities, create competition, Ethereum's advantages as the most decentralized and secure general-purpose public chain may continue to attract users. The development of new technologies such as account abstraction and re-staking will also impact Ethereum's long-term value accumulation.

Overall, despite facing challenges in the short term, the long-term prospects for Ethereum remain bright as the Layer 2 ecosystem matures and Ethereum itself upgrades. Continuing to pay attention to technological developments such as Layer 2 adoption, account abstraction, and restaking will help better grasp the future direction of Ethereum.