Bitcoin and Ethereum, despite acting as twin forces for accelerating and adopting cryptocurrencies and blockchain technologies, have historically been at odds with each other due to the “L1 wars” and their vocal online proponents. To some, the rivalry may seem like a mere culture war within the crypto community. However at its’ root, it's a reflection of distinct foundational beliefs resulting in divergence.
Let's delve deeper into these foundational beliefs:
Bitcoin: A Beacon of Decentralization (and Liquidity)
Bitcoin was designed to challenge traditional financial systems, presenting an alternative that removed the need for intermediaries. The support base resonates with this aim, and thus places decentralization as its’ primary criterion.
An example of this commitment was the blocksize war between 2015 and 2017 where small blockers prioritized decentralization over scalability. Small blockers were adamant about not compromising on Bitcoin's decentralized nature, even if it meant limiting its scalability. Proponents of increasing the block size counter argued that it would help scale the network, reduce transaction fees, and improve Bitcoin's ability to handle more transactions per second. Ultimately, the block size was not increased through a hard fork, as some big blockers had proposed. Instead, Segregated Witness was implemented via a soft fork, which improved transaction capacity with a one time blocksize increase that isn’t repeatable with the same mechanism. The result was a monetary system devoid of central control.
Bitcoin also continues to be the largest single cryptocurrency by market capitalization, valued at ~$500B, and representing ~50% of overall crypto liquidity. It has benefited from increased asset hardness due to its high stock-to-flow ratio, which is second only to gold. Its increasing prominence in global markets has led to discussions positioning Bitcoin as a reserve currency, as one of the main factors of “the stealth erosion of dollar dominance.” Due to Bitcoin’s features and form factors, it will continue to play a major role in crypto, and this liquidity should be further potentialized beyond a unit of value.
Ethereum: The Utility Vanguard
“EVM is now becoming an enterprise standard and the connectivity tissue between blockchains. Even the most ardent detractors of EVM have now invested in compatibility.”
- Nitin Kumar, zBlocks
Ethereum, while sharing the broader ethos of cryptocurrencies, emphasizes utility. Its proponents assert that the intrinsic value of a currency is closely linked to its practical applications. This philosophy is reinforced by Ethereum's extensive array of decentralized applications (dApps). These decentralized applications play a vital role in generating value within the Ethereum ecosystem. As these dApps facilitate various functions and services, they contribute to the overall utility of the Ethereum platform. The enabling foundation for dApps and smart contract functionality is the Ethereum Virtual Machine (EVM), where all Ethereum accounts live.
Recently, there has been a growing movement towards “the inevitability of EVM,” due to interoperability, security and developer efficiency. With the large ETH developer community behind the converging EVM standard, more and more protocols are migrating to the Ethereum ecosystem and building bridging mechanisms to facilitate interoperability. Hence, real world applications need to center EVM compatibility to leverage the largest developer community.
Beyond Bitcoin and Ethereum: The Diverse Crypto Landscape
The world of crypto is however far more nuanced than just these two players. The broader ecosystem captures an array of beliefs and preferences. Take Monero, for instance. This cryptocurrency is a haven for those seeking privacy, offering one of the most private transaction systems available. Conversely, the Solana blockchain, with rapid transaction times and scalability, is superior to those for whom transaction speed is paramount.
All these schools of thought have merit and don't necessarily conflict.
Layer 2s: Bridging the Gaps
“However, the more usage of cross-chain bridges and apps there is, the worse the problem becomes…cross-chain activity has an anti-network-effect: while there's not much of it going on, it's pretty safe, but the more of it is happening, the more the risks go up.”
- Vitalik Buterin, Ethereum Foundation
In our current multi-chain crypto ecosystem, market solutions leverage EVM compatibility through bridging mechanisms. However, cross-chain bridging results in the compounding of security issues as well as risks of centralization. Assets held in bridges would be vulnerable to attack, and the increased interconnectedness could result in system contagion. In contrast, a layer on layer approach maintains the integrity of the security of each layer, while minimizing interconnectedness.
A Convergence of Visions
Despite ideological differences, it is increasingly possible for Bitcoin and Ethereum to come together. Ethereum's EVM is responsible for powering decentralized applications and can coexist in the Bitcoin realm through initiatives like Botanix. Bringing a decentralized EVM sidechain to Bitcoin could create a space where both flourish.
Botanix exemplifies this vision, functioning as a decentralized layer 2 EVM integrated with Bitcoin. Learn more about it at: www.botanixlabs.xyz.
This is a guest post by Willem Schroe. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
via bitcoinmagazine.com
