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

The upcoming Cancun/Deneb upgrade of Ethereum is expected to lower the block space costs for Rollup operators, which may adversely affect Ethereum's revenue in the short term. As Rollup projects achieve stronger interoperability with other high-performance, low-cost settlement and data availability chains, the performance of ETH may be impacted.

In the long run, if the modular theory of blockchain is validated, the main source of revenue for layer one public chains like Ethereum will be the layer two Rollup service providers, rather than end users. Moreover, as layer two public chains increasingly adopt account abstraction, the individuals who will primarily hold Ether to pay for block space fees in the future are expected to be Rollup operators, rather than end users.

Since the beginning of 2023, the trading activity of Ethereum Layer 2 networks has significantly increased. Among them, Base and zkSync Era have experienced the fastest growth in total value locked. The sequencer revenue of Optimism, Base, and Arbitrum has reached $140 million.

The main change in the Cancun/Deneb upgrade is EIP 4844, which will create dedicated block space for Rollup transactions, expected to reduce Rollup's block space costs by more than 10 times. This may lead to a decrease in Ethereum's revenue in the short term.

Currently, Rollup still faces challenges in scalability, decentralization, and interoperability. As these issues are resolved, user adoption of layer two networks is expected to increase. Meanwhile, alternative data availability solutions like Celestia are also emerging, providing Rollup with more cost-effective options.

In the long term, as blockchain-based applications and services are widely adopted, Ethereum's revenue may rise, and the usage rate of Rollups will also increase significantly. New application scenarios will enhance the overall demand for Ethereum's block space. However, the emergence of multiple optimized data availability layers may accelerate the migration of Ethereum's layer two networks to other solutions.

Despite the challenges, Ethereum still has significant advantages as the most decentralized, secure, and network effect-driven settlement and data availability layer. Core developers are working to enhance Ethereum's data availability features through upgrades.

The development of new technologies such as account abstraction and re-staking will also affect the long-term value accumulation of Ether. These innovations may change the way users interact with the blockchain and provide new earning opportunities for stakers.

Overall, although it may face a decline in revenue in the short term, Ethereum is expected to benefit from greater transaction activity brought by layer two networks in the long run. As Rollup technology matures and adoption rates increase, the value of Ethereum as an infrastructure layer will be highlighted. However, competition from other data availability solutions will also become increasingly fierce, and Ethereum needs to continuously innovate to maintain its competitiveness.