Ethereum's Ten-Year Journey and Future Challenges

Ethereum just celebrated its tenth birthday. Ten years ago, when its genesis block was first launched, it was merely an experimental project. Today, it has become a massive network managing over $44 billion in Layer 2 locked value and has become one of the key infrastructures for global cryptocurrency ETFs.

In the past decade, Ethereum has undergone one of the most dramatic evolutionary processes in the history of blockchain. From the fork triggered by the DAO incident to the successful implementation of the merge upgrade; from the notoriously high Gas fees to the widespread promotion of Rollup technology. Each crisis has become a new starting point for technological leap.

However, as we enter the second decade, the challenges facing Ethereum are becoming increasingly severe. While account abstraction technology has been implemented, it has exposed security vulnerabilities; although the Layer 2 ecosystem is thriving, it faces the risk of "fragmentation warfare"; the MEV issue continues to erode the fairness of the network; and the global regulatory environment brings both opportunities and challenges. These core issues hang over us like the sword of Damocles and require careful handling.

At the same time, institutional funds are flowing in on a large scale through ETFs, while ordinary users are looking forward to a more convenient interaction experience. Ethereum must find a new balance between adhering to technical ideals and making real-world compromises.

Account Abstraction: A Trade-off Between Convenience and Security

In May 2025, a report of a user encountering funds being stolen attracted attention. The user accidentally authorized a malicious contract while using a certain wallet's "one-click upgrade account abstraction" feature, resulting in 120,000 worth of ETH being drained within 15 minutes. This is not an isolated case. According to security firms, just two weeks after the Pectra upgrade, over 100,000 wallets were stolen due to the EIP-7702 authorization vulnerability, with total losses reaching up to 150 million dollars.

Pros and Cons of EIP-7702

The Pectra upgrade, launched on May 7, 2025, has achieved a significant breakthrough in "account abstraction" through EIP-7702. Regular user wallets (EOA) are endowed with the ability to temporarily execute smart contracts, supporting new features such as batch transactions, Gas fee payment, and social recovery. Theoretically, this resolves the long-standing user experience issues in Ethereum. For example, DeFi exchanges that previously required multiple steps can now be completed in one step, and developers can even cover Gas fees for users, making it possible for "zero ETH to play Web3."

However, the increase in convenience has also brought new security risks. The security team pointed out that EIP-7702 breaks the fundamental assumption that "EOA cannot execute contract code," leading to old contracts that rely on tx.origin==msg.sender facing reentrancy attack risks. More seriously, hackers exploit users' curiosity about new features to lure them into authorizing malicious contracts. Data shows that novice users who first encounter account abstraction make up as much as 73% of the victims.

Future Development Direction

To address these challenges, the Ethereum Foundation is advancing the "Smart Account Security Standards". The new standards require wallets to display the open-source status of delegated contracts and introduce a 72-hour cooling-off period. However, the real challenge lies in how to balance flexibility and security. Institutional users need complex permission management mechanisms, such as multi-signature with time locks, while ordinary users prefer operations that are simple and intuitive. As Vitalik said, account abstraction is not the end point, but rather a continuous game between "user sovereignty" and "security barriers".

Layer2 Ecosystem: Prosperity and Fragmentation Coexist

With the development of Layer2 technology, user experience has significantly improved. For example, transferring USDC on Arbitrum only requires a fee of $0.01, while on the mainnet it costs $5. However, cross-chain operations still have inconveniences, as some developers reported that purchasing NFTs on zkSync takes 30 minutes for asset cross-chain.

By 2025, the total locked value of Ethereum Layer 2 will exceed 52 billion USD, with a daily transaction volume of 40 million transactions. However, users still need to frequently switch between different Rollups, and the experience needs improvement.

Technical Route Dispute

Currently, the Layer2 ecosystem shows a polarized pattern. In the Optimistic Rollup camp, Arbitrum and Optimism have become the developers' top choices due to their EVM compatibility advantage, collectively accounting for 72% of the market share. In the ZK-Rollup camp, zkSync and Starknet are rapidly catching up, with their zero-knowledge proof technology compressing transaction confirmation times to 2 seconds and reducing fees by 60% compared to Optimistic Rollup.

However, there are also hidden worries behind the prosperity:

• Liquidity Fragmentation: There is a huge liquidity difference between different Layer2s, and users need to recharge repeatedly every time they cross chains.
• Technical Fragmentation: Optimistic Rollup and ZK-Rollup each have their advantages and disadvantages; the former requires a 7-day wait for withdrawals, while the proof generation cost of the latter is still relatively high.
• Centralized risk: Some key components of Layer 2 are still controlled by a few institutions, posing a single point of failure risk.

The road to integration is long and arduous.

To address these issues, the industry has proposed multiple solutions. The "Superchain" plan proposed by Optimism aims to connect all Optimistic Rollups through a shared security layer. zkSync and Starknet have jointly launched the "ZK Alliance" in an attempt to achieve proof mutual recognition. However, these plans are progressing slowly, and technical compatibility remains a major obstacle.

Whether the final form of the Layer2 ecosystem can become "a seamless network" or evolve into "multiple fragmented territories" will directly affect whether Ethereum can support a scale of 1 billion users. The answer to this question may gradually become clear in the coming years.

MEV: A Test of Fairness in Blockchain

In March 2025, a Uniswap user fell victim to a typical "sandwich attack." While exchanging $220,000 USDC, an MEV bot raised the price and quickly sold off, causing the user to receive only 5,272 USDT, resulting in a loss of up to $215,000. On-chain data shows that the validator received a $200,000 "tip" for packaging this transaction, while the attacker only made a profit of $8,000. Ordinary users became the biggest victims.

MEV Industrialization and Network Fairness

After Ethereum transitioned to PoS, MEV (Maximal Extractable Value) evolved from "miner privilege" into a specialized industry. Arbitrage scripts are written by seekers, builders are responsible for packaging transactions, and validators select the optimal blocks. In the first quarter of 2025, the total MEV extraction on Ethereum reached $520 million, with DEX arbitrage and liquidations accounting for 73%. Ordinary users' trading costs include 15%-20% that are effectively paid as "hidden taxes" for this.

What is even more concerning is the trend of MEV centralization. 65% of block building rights are controlled by leading builders, and validators often choose high MEV blocks in pursuit of higher returns, making it difficult for small and medium builders to survive. Scholars warn that if block ordering rights are monopolized by a few institutions, Ethereum may become a "high-frequency trading playground."

Solution: Emphasizing both technology and mechanisms

To address these challenges, the Ethereum community is advancing multiple solutions:

• Encrypted Memory Pool: Reduces the pre-monitoring opportunities for MEV bots by concealing transaction information.
• MEV-Burn: Destroy a portion of MEV profits to weaken the rent-seeking motivation of validators.
• Proposer-Builder Separation (PBS): Separating the roles of validators and builders to reduce the risk of single point control.

However, these solutions still need to find a balance between "fairness" and "efficiency." As one core developer said, "MEV is not a vulnerability, but an inevitable result of blockchain transparency. Our goal is not to eliminate MEV, but to distribute the benefits more fairly across the entire network."

Regulation and Financialization: The Double-Edged Sword of Institutional Entry

In 2025, with the approval of the Ethereum ETF by the US SEC, institutional funds surged in. The net inflow into the ETF reached $2.2 billion, and the proportion of institutions holding ETH skyrocketed from 5% to 18%. At the same time, the EU introduced the "Smart Contract Transparency Act," requiring Rollup to disclose trading algorithms; Hong Kong implemented KYC requirements for all crypto service providers. Ethereum is facing the ultimate test of "compliance" versus "decentralization."

Global Regulatory Landscape

• United States: The new bill will usher in a wave of DeFi compliance, with ETH defined as a "commodity," allowing banks to custody it. At the same time, DeFi platforms must register as "exchanges."
• EU: The MiCA regulation requires stablecoin issuers to hold 100% fiat reserves, and privacy coin transactions require additional approval.
• China: Although the policies in the mainland are still relatively strict, the scale of cross-border settlement using the digital yuan is expected to exceed 3.5 trillion yuan by 2025. Hong Kong, as a testing ground, has opened up the free circulation and trading of digital assets, and the stablecoin legislation has injected vitality into the market.

Regulatory differences have given rise to the phenomenon of "regulatory arbitrage": a leading DeFi protocol deploys a KYC module in the EU while maintaining anonymous pools in Singapore; US users can only access compliant trading pairs. This "fragmented compliance" not only increases development costs but also undermines the vision of Ethereum as a global unified infrastructure.

The impact of financialization

Institutional capital inflows have improved liquidity but also brought new challenges. The correlation between Ethereum prices and traditional financial markets has significantly increased. When the Federal Reserve raised interest rates by 0.5% in June 2025, ETH experienced a single-day drop of 8%, far exceeding Bitcoin's 5%. This phenomenon was unimaginable five years ago.

The deeper impact is reflected in the changes to the "value capture mechanism". In the past, the price of ETH was mainly driven by on-chain Gas fees and ecological growth, but now ETF fund flows and macro interest rates have become the dominant factors.

Industry experts point out that Ethereum needs to find a balance between "compliance innovation" and "maintaining decentralization" in its second decade. Hong Kong may become the best testing ground, capable of connecting with China's digital yuan while also attracting global crypto enterprises.

Conclusion: Seeking Breakthroughs in the "Impossible Triangle"

The first decade of Ethereum answered the question of "Can it survive?" through a series of upgrades such as "The Merge," "Shapella," and "Dencun." In the second decade, it needs to answer the more daunting challenge of "How to become a truly global infrastructure."

The four major challenges of account abstraction security games, Layer 2 ecosystem integration, fair distribution of MEV, and compliance adaptation to regulation essentially continue the "decentralization, security, scalability" impossible triangle. The difference this time is that the trust of 1 billion users is being used as a stake.

As Vitalik said in his tenth anniversary speech: "We don't need a perfect blockchain, we just need a 'constantly evolving blockchain'". Perhaps, the ultimate value of Ethereum is not to solve all problems, but to demonstrate that decentralized networks can continue to progress in the tug-of-war between technological ideals and real-world compromises.

The curtain has been raised on the second decade, and the answers will be written in every line of code, every upgrade, and every user's wallet.