Where will Ethereum move?

and who will be fighting against it?

In this article, I will analyze some of the major movements for Ethereum over the next year or two. I think there is a general agreement around the moves I will outline. My opinions on the likelihood of the success of them and inertia from stakeholders may prove a bit controversial.

In the previous article, I presented two different Wardley maps of Ethereum 1.0 as I see the ecosystem right now. One was a high-level map of its capabilities and the second a more detailed map of the interactions and interdependencies of the different stakeholders.

Strength and Weaknesses

Before we address potential movements, let us first revisit the high-level map and look at Ethereum's greatest strengths and weaknesses.

Its greatest strength is, without a doubt, its Developer Ecosystem. I also include its loyal group of Crypto Investors as a significant yet secondary strength.

Its most significant weakness is transaction speed. In a twitter conversation, people rightly suggested that transactions per second is not the correct way of measuring this, so I'll use it a placeholder. The 20tx/s I have here is also not exact.

The other significant weakness of Ethereum is the lack of end-users from outside of the ecosystem. When I say from outside the ecosystem, I mean non-developers and non-investors using Ethereum dApps.

I believe all the above to be non-controversial, but wanted to highlight these first as most initiatives towards movement in the Ethereum space is towards improving the weaknesses listed.

The strengths are also essential to keep in mind. Hopefully, they will help the movement forward, but there is also a significant risk that these strengths could cause inertia halting the forward progress.


In the following map, I've highlighted what I see as the most significant movements going forward using thick blue lines.

The growth of Decentralized Finance (DeFi)

There is rightfully a lot of excitement about the DeFi market. It solves many of the same problems for crypto investors that the traditional money market does for traditional Investors.

Contrary to popular storytelling, there is still no widespread use of DeFi for consumer or business lending. It allows investors to earn revenue on their Eth holdings and even enable them to hedge their Eth positions.

That said there is a strong hypothesis that stable coins like DAI backed by the leading DeFi platform MakerDAO could make onboarding of regular users easier in the future.

I want to highlight a few areas of potential inertia.

The overall speed of the underlying Ethereum network is a limiting factor to the growth of the market. Layer 2 solutions could solve this.

We've already seen how the XDAI side chain has enabled successful small experiments in e-commerce using the XDAI Burner Wallet.

The other risk I see for inertia is that many DeFi projects rely on centralized price oracles or order books. There could be attempts to regulate these from securities or commodities regulators.

Finally, the nature of DeFi platforms makes it vulnerable to systemic risk. There is so much Eth locked up in novel instruments, that we should expect one or more financial or security black swan events. These could set the industry back a year or two.

Layer 2

There are many kinds of Layer 2 technologies. Generally, they work by locking up Eth or Tokens in a smart contract on Layer 1 and facilitate movement through some other cryptographically secure mechanism, that ultimate settles on Layer 1.

The most often described forms of Layer 2 technologies you hear about are:

  • Plasma

  • State Channels

  • Sidechains

The whole area is so diverse and complex with lots of movement happening that it deserves it's own article(s). So I will not go into detail here about the differences between the above nor their specific implementations.

Each of the above Layer 2 technologies has the potential to solve the scalability of Ethereum. In particular, payments could be improved by these.

A specific type of State Channels known as Generalized State Channels can also enable large scale throughput of more complicated applications such as games or even new kinds of DeFi projects. See Counterfactual to learn more.

The only real limiting factor from a scalability point of view is onboarding and settlement transactions. As specific platforms grow, this may not end up being necessary, as users may end up leaving their funds on the platform.

There is a lot of progress happening today here, and we already see sizable growth in the amounts of transactions processed.

Primary causes of inertia in the movement to Layer 2 is that developers need to use new tools. Each particular kind of Layer 2 network has it's own APIs and development tools. dApp browsers and wallets will, in many cases, also need to adopt these to improve user experience.

A final lesser appreciated risk is that many of the Layer 2 protocols require an intermediary service such as a relayer or validator. Regulators are still catching up on the technology, and have not made guidance yet on these. Looking at past guidance and existing regulation, it is realistic to expect that regulators would classify some of them as Virtual Asset Service Providers (VASPs) or Money Transmitters in the future.

With this comes requirements for KYC, (in the US state by state registration), reporting requirements and most likely require exchanging KYC information with other VASPs (AKA the FATF Travel Rule).

Work should be done together with experts in the field on designing Layer 2 protocols to minimize the above regulatory risk, or it could end up a major limiting factor.

Ethereum 2.0

All eyes are on Ethereum 2.0 right now. Progress is finally being made on Phase 0 and in general, it sounds like a fantastic architecture.

It promises a combination of Proof of Stake (POS) and Sharding to improve the speed of Ethereum dramatically.

When working on new technological platforms, it is important to be able not to be held back by interoperability with legacy systems.

Therein lies Ethereum 2.0's strength, but also its greatest weakness. In reality, Ethereum 2.0 has very little in common with Ethereum 1.0. Yes, the Ethereum Foundation is funding it, and Vitalik is actively involved. But that is it.

There is the promise of Ethereum 1.x becoming a shard in Ethereum 2.0 as part of Phase 2, which is not likely before 2022.

I think there will be high levels of inertia against the adoption of Ethereum 2.0 from the existing Ethereum community.

  • Developers will have to learn entirely new tools

  • Miners will no longer have a role

  • The success of DeFi platforms may slow adoption until Ethereum 1.x becomes a shard on 2.0

  • Crypto Investors will be risk-averse against final hard forks integrating the two projects

As part of Phase 2, Crypto Investors holding ETH will be able to move it to a new ETH2 token on the Ethereum 2.0 beacon chain. ETH2 will let you stake and earn income.

These funds will be "stuck" in ETH2 until phase 2 is released, as it is a one-way process. You could probably still use custodial exchanges to transfer funds back to the ETH 1.0 world to access DeFi products.

One of my principal worries with Ethereum 2.0 is, is it too little too late?

There are other competing POS/sharded chains such as Cosmos and Polkadot. They are objectively much further ahead than Ethereum 2.0 and could be seen as less risky than Ethereum 2.0 by major Ethereum stakeholders. Add the inertia from existing Ethereum 1.0 stakeholders towards 2.0, and it looks even more worrying.

Ethereum 1.x

Work hasn't stopped on improving the Ethereum 1.0 chain. Hopefully, the next hard forks (Istanbul 1 and 2) will be released this year.

But a lot more work is being done to improve Ethereum 1.0 over the next year or two. These future hard forks could provide slight speed improvements as well as lower the cost of running full nodes.

There is already controversy about some of the more drastic improvements proposed.

This kind of inertia is typical within successful blockchains.

Many people are heavily invested in Eth, DeFi, and underlying tokens. They are now highly risk-averse against any changes to the underlying network.

Permissioned chains

The final move that has already been going on, albeit slowly is businesses using permissioned Ethereum chains.

We have seen quite a few POC's over the last few years, but these projects are now starting to be treated as MVPs or even production in a few cases.

Early on, large enterprises were worried about using public infrastructure, so they mostly experienced with small private chains. Often internally or in small consortia.

Many businesses have now learned more about what is possible. We see a trend away from smaller consortia chains towards consortia applications deployed on public permissioned chains.

Public Permissioned chains typically use Quorum, Geth or Pantheon using Proof of Authority consensus protocols.

These are typically designed to be similar to an Ethereum mainnet in that many different applications can live on the same chain and interoperate.

Most are typically promoted for use within a region. Two examples are Alastria from Spain and the new LACChain project from the Interamerican Development Bank for Latin America.

These are still permissioned chains, where nodes are permissioned, and end-users are verified through established Identity Verification standards.

The reason Ethereum based permissioned networks are taking off over others, is because of the large Developer Ecosystem. Any Ethereum developer can take their Solidity smart contracts and deploy them using the same tools to these chains.

How can you act?

I realize that all the talk in this article about inertia sounds less than optimistic. However, if we recognize and accept it exists or even that it might happen, we can find solutions around it.

Layer 2 technology is incredibly exciting and should help us going forward. The internal inertia such as learning new tools, is not insignificant but can be overcome.

I would be interested in other peoples analysis about these issues as well.

My next article will probably about UX and development patterns in blockchain applications. If you haven’t already subscribed, please hit the Subscribe button below.

If you're at Berlin blockchain week and see me, say hi.

Building a working map of Ethereum 1.0

10,000 feet view of Ethereum's user needs and capabilities

Ethereum is, without a doubt, one of the most complex ecosystems in the blockchain space.

This diversity is incredible, but it also makes it difficult to understand how the ecosystem works, where it's going, and how it will respond to future challenges.

The goal of this and the next couple of articles is for you to be able to understand how the ecosystem works today and where it might be moving. Most importantly, how does this let you make strategic decisions for your startup or your self.

A Wardley Map of Ethereum

One of the best tools I know for understanding complex systems is Wardley Maps.

A value chain — a chain of needs — (users, needs, and capabilities arranged and connected according to dependency) mapped against the four stages of evolution (Genesis, Custom, Product, and Commodity).

The following map is a high-level map of the Ethereum ecosystem. It is impossible to do a single complete map. I will create more detailed maps of some critical regions in future articles.

Positioning and Point of View

The Point of View of the map is essential. I sketched this map from the Point of View of the leadership team of a fictional Ethereum Inc.

Positioning is equally crucial, and since it has meaning, it also allows us to see and show movements.

The Y-axis indicates visibility. Stakeholders, their needs, and the capabilities they directly use are towards the top, with less visible yet still fundamental capabilities are further down.

The X-axis is where most of the game takes place. The further to the left indicates that the component is more of an idea or hypothesis, as we prove or develop things further, it moves to the right.

Just glancing at the map you can see most of Ethereum is towards the right and thus proven. There are, however, key areas that are still in the Genesis phase. In my diagram, most importantly, the infamously hard to find End Users.

Layer 1

I've grouped all of Ethereum's Layer 1 in the bottom right. I'm treating the Ethereum Mainnet as a being a singular thing in this map and thus a product.

If I was creating the map from the POV of a developer, I could have looked at EVM (Ethereum like) chains as a commodity.

ETH the token of the Ethereum Mainnet is a commodity both literally and figuratively. It is essential for the Ethereum Mainnet ecosystem but may not even exist in other maps.

Other parts of Layer 1 such as client implementations (Geth, Parity, Pantheon, etc.) for running full nodes, and the EVM itself have become commodities. They are now being used for many other blockchains, in particular in the enterprise space.

Developer Ecosystem

One of the most critical parts of Ethereum is its Developer Ecosystem.

One of the most critical parts of Ethereum is its Developer Ecosystem.

Some analysists only look at core developers, which is the small group of developers building and improving Layer 1. You can quickly work out this number by analyzing a few GitHub repos.

But the Real Power of Ethereum comes not from its Layer 1, but the incredible amount of diversity happening above:

  • dApps (Decentralized Apps)

  • Wallet developers like Metamask and enablers like WalletConnect

  • Solidity and other smart contract languages

  • Truffle and other development tools like OpenZeppelin

  • Public nodes like Infura making it easy to get dApps and wallets running quickly

  • Higher-level abstractions like uPort for Identity and 0X for token exchanges

The Developer Ecosystem is Ethereums greatest strength, its primary viral loop. New developers are excited by what they can do with existing tools and frameworks, join the community, and add to it.

In the map, the Developer Ecosystem straddles the Product and Commodity columns. There are so many developers and tools out there that it makes it relatively easy to get started building new projects.

Stakeholders and Needs

Decentralized technologies like blockchains do not have traditional centralized leadership, so to understand how they behave, understanding the various kinds of stakeholders and their needs is critical.

Ethereum is also a very complex platform with no clearly defined customers nor suppliers.

There are many more types of stakeholders than I could include in the high-level map above. Here is a separate map of most principal stakeholders.

You may notice I intentionally have not included Vitalik or the Ethereum Foundation. While they are founders, by design, I don't believe them to be that important for understanding the movements of the Ethereum 1.0 ecosystem today.

They still have an essential role in building Ethereum 2.0, which I will cover later.

Crypto Investors

Crypto investors are the financial foundation of the Ethereum ecosystem. New investors keep growing the size of this.

Their needs are:

  • Primarily they want their ETH to grow so they HODL (Hold on for Dear Life)

  • They also need to manage their ETH and tokens using wallets etc.

  • Their needs for hedging their Ethereum holdings or temporarily converting ETH to fiat has been primary drivers for the growth of DeFI projects such as the MakerDAO's CDPs and DAI.

In 2017/2018 they were also significant investors in the ICO space and thus funded much of the early and current development work. Regulatory put a halt on this, but as STO's become common, I'm sure they will be active in the startup funding scene again.


I mentioned Developers and the viral growth loop around them earlier. Due to their technical capabilities, they are also often Crypto Investors themselves and form most of the early adopters of products in the whole Ethereum ecosystem.

Their needs are:

  • Primarily they need to make a living, which I believe is oddly one of the least appreciated parts of the Ethereum ecosystem

  • They want to develop dApps and other tools

  • The kinds of developers attracted to the Ethereum ecosystem also want to to work on exciting, challenging problems


Startups in the Ethereum space fund most of the innovation happening outside of Layer 1. Like in the Developer Ecosystem, there also exist many different kinds of startups.

Their needs are:

  • Primary need early on is to Fundraise

  • Ultimately they want revenue and a business model

  • To get there, they need to acquire users

  • Finally, since many of these startups are operating in the financial space, they need to KYC users, so they don't go to jail


Unlike the Bitcoin world, miners don't seem to have an outsized influence in the Ethereum world at the moment. When implementing hard-forks, they tend to follow the wishes of the overall community.

We may see this change eventually as a move to Ethereum 2.0 minimizes their role in the ecosystem.

Their primary need is:

  • to earn mining rewards


Crypto Exchanges are currently the primary onramp for both users and investors into Ethereum. In the early days of crypto, we expected these to become utility services reasonably quickly.

Unfortunately, the increased regulatory heat has made this much more difficult and expensive for new entrants to join.

Well funded early innovators like Coinbase were able to invest heavily in regulatory compliance in first-world markets and have been able to build a moat around their offering in these markets.

Many exchanges have invested heavily in offerings for institutional markets.

Their needs are:

  • Earn Transaction Fees

  • Be regulatory compliant

  • Maintain banking connections


Since the fall of the ICO market, VCs are again the primary source of funding for startups in the Ethereum world.

Many people felt that ICO's would displant VCs in the blockchain space. I do think the experience in curation, analysis, and due diligence that a good firm has is going to be necessary for a long time.

Their primary need is:

  • Earn good overall returns for their Limited Partners


You often hear people in our space say that Governments should not touch blockchains. A truly decentralized system could theoretically operate without government intervention.

But looking above at the other stakeholders in the Ethereum world, they primarily consist of regular people and businesses. They live and operate in countries with governments and have customers in other countries.

Governments will get involved, whether we like it or not. It is crucial to understand the actual requirements governments have while regulating Ethereum related businesses. Not just to be compliant today, but also have an idea where things will move to over the next year or two.

Many governments and regulators will be very interested as Layer 2 relays, DeFi startups, DEXs, and other such new capabilities reach more widespread adoption.

Their needs are:

  • Ensure Tax compliance for most larger economies

  • Comply with FATF guidelines for most smaller economies

  • Protect citizens from fraudulent investment offerings


It is all about end-users, right? We need to make it easier for them to onboard. Depending on who you talk to, it could mean:

  • Performing KYC

  • Download an in-app browser so they can try my new dApp

  • Open an account at an exchange and purchase ETH

  • Pay Gas

The above are probably all correct. There is, however, an even more significant problem.

Your average, typical person does not have any good reason to use Ethereum yet. Even if onboarding was simple, without a good reason, most people would not join.

The reality is that Ethereum today does have end-users. They happen to be developers, investors, or work for a crypto startup. They all have good reasons to use Ethereum and went through the steps required.

For this reason, I have placed end-users in the Genesis column. As the industry develops and more non-core stakeholders start becoming end-users, I will move it towards the right.

As this happens, old UX patterns that work with current sophisticated end-users may have to change. There could be pushback from early adopters to the requirements of newer less crypto-savvy users.

End users needs are:

  • Buy ETH

  • Manage ETH

  • Interact with dApps

  • Use a Stable Coin

Ethereum strongholds

In my view, Ethereums greatest strengths are its Developer Ecosystem, the startups working in the space, and the new DeFi platforms being built by them.

How Ethereum moves in other areas such as scalability will determine if it's current strength is enough to hold the new generation of blockchains at bay.

This article was primarily about laying a basic map for discussing where the market is going in future articles.

In the next article, I will cover some of the significant movements I think we will see over the next year in the Ethereum space.

Analyzing movement is an essential pre-requisite for building a strategy. It lets you look for strategic areas where you or your startup can compete.

Where to next?

I will continue to cover Ethereum, but this newsletter will be about the blockchain space as a whole.

There are a lot of similarities between maps of individual blockchains. It will be fascinating to map the differences and movements between them.

One of the most significant risks to successful blockchains is inertia from core stakeholders. Bitcoin has suffered in the past from this, but Ethereum is starting to do so as well.

Do blockchains even have strategies?

Lets bring situational awareness to the blockchain industry

As a business, investor, or even just a solo-developer working in the blockchain space, it is crucial to think smartly about where we invest our time.

You don't have to spend much time on crypto twitter to realize that we base many of the decisions we make daily on emotions. Doing this is in itself not surprising since we have invested time in learning and building on our chosen chain.

Blockchain maximalist tendencies are very similar to programming language wars or Android vs. iOS. What makes it even harder to think clearly, is that many in the industry have also invested actual money in the underlying token.

It is very important though for everyone in this industry to develop some level of situational awareness of the blockchain industry and develop strategies for your own business, your career and even helping you push through change in your favorite blockchain.

Blockchains are decentralized and leaderless, how can they have a strategy?

Most of the most prominent blockchains are in theory leaderless. That does not mean they have no direction. Communities built this direction through a joint mission, culture, tradition, and lore that has been built up over time.

These qualities are admirable for an ongoing decentralized protocol, but also in particular present often massive opportunities from inertia from stakeholders similar to those seen in large profitable communities.

Overcoming Inertia

Many leading tech companies historically, went to irrelevancy almost overnight. The more profitable and successful, the easier it became to them have strong organizational inertia against the new technical changes disrupting their industries.

The Harvard Business School professor Clayton Christensen calls the phenomena The Innovator's Dilemma and is well understood now by most investors and leaders in Silicon Valley, but rarely discussed in blockchain circles.

A few profitable ones such as Apple, MSFT, and IBM were all close to irrelevancy due to this inertia from significant stakeholders (employees, product groups, and investors). Strong leadership in the above three forced disruptive change to their business, which ultimately made them stronger and survived.

Others like previous giants like Digital Equipment, SUN and Kodak mostly disappeared either through acquisitions or bankruptcy.

People like to use examples of venerable tech companies disappearing like this. But many early leaders in the technology adoption curve also go through this process, only more rapidly. This process often happens as the technology started crossing the chasm.

My alma mater AltaVista is a good example. I was the corporate webmaster during 1996, when we attempted to turn a research project into a business. As the undisputed leaders of internet search in the 90s, the leadership had a certain arrogance about the value of its tech and market position. Google very quickly lept by them, in a year or two AltaVista was irrelevant.

Can successful decentralized projects disrupt themselves?

How can this process be driven in decentralized projects, is complicated. Since the blockchain industry is new, I don't know of good clear examples of groups that have done this. That doesn't mean it can't happen.

Culture and ultimately, the power of individual types of stakeholders can hopefully drive necessary changes, but we have already seen the difficulty of innovation in Bitcoin. Major stakeholders like the core team, miners and large early investors have all fought and are still fighting to avoid disrupting their particular positions.

There are great tools for analyzing and driving Strategy

So what can we do to think clearly about the space and avoid always being driven by emotions?

The traditional non-decentralized business world has lots of tools and ideas that are used to analyze businesses and their strategy.

Sometimes these are used internally to figure out the right next steps in the current competitive climate. It is also good practice to analyze your competitors' strategies.

Some of the tools and ideas I will be using in this newsletter for making sense of blockchains are:

In particular, I plan to use Wardley Maps to visualize my thoughts about specific chains and protocols. I find them useful for making sense of businesses and platforms from a strategic point of view. I recommend this short intro to Wardley Maps by their inventor Simon Wardley.

Whats Next?

My first in-depth analysis will be on my own favorite blockchain Ethereum. I will do my very best to filter my own biases and look at the significant risks and inertia that I believe are facing it. I'll also look at ways to potential ways to mitigate these risks and turn them to our benefit.

Please do subscribe to continue receiving these articles.

Strategic Analysis of the Blockchain world

The blockchain world is moving rapidly and not always in the direction early adopters like me thought it would.

Some of the interesting and perhaps controversial areas I’ll likely cover are…

  • How do large permissioned Ethereum networks affect Ethereum's long term value?

  • Will FATF eventually require Layer 2 operators to follow KYC/AML rules, and how will that shape the industry going forward?

  • Is Ethereum 2.0 too little, too late with Polkadot and Cosmos nearly ready? Does it even matter?

Make sense of the blockchain industry

In this newsletter, I'll attempt to make sense of the blockchain industry as a whole, through a few different lenses:

  • look at individual use cases

  • How changing requirements from relevant but underestimated stakeholders move the industry in ways most of us may not expect

  • Analyze specific blockchains based on the above

Who am I?

My name is Pelle Brændgaard, as my surname is impossible for non-Danes, so please call me Pelle (pronounced like Pelé, the footballer). I'm Danish but have lived in both North and South America, various places in Europe as well as surviving a failed bitcoin startup in Kenya.

I've been working in the internet and crypto industry since the early days of the dot com boom. I've seen businesses and technologies seemingly take over the world and then be gone one year later.

As a member of the 1990s cypherpunk movement, I have been thinking about the implications of using crypto for financial and business applications longer than most people.

My primary interest is in using Blockchain for enabling new kinds of business applications. So I am very interested in how to apply contract law to blockchains and how regulators feel about such things.

I have had to stop four different crypto related startups since the late 90s due to not being able to solve regulatory issues around KYC and AML. This led me to join ConsenSys in early 2016, where I now lead uPort the decentralized Identity project. There we are trying to work across the industry to solve this problem.

This newsletter will be my own personal opinion and may not be the same as my employer.

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