In 2021, Ethereum's role as "ultrasonic currency: moving towards deflation" and "flipping: surpassing Bitcoin" are two important narratives.At present, the dynamics of the competition game between Ethereum and Bitcoin have undergone significant changes
In 2021, Ethereum's role as "ultrasonic currency: moving towards deflation" and "flipping: surpassing Bitcoin" are two important narratives.
At present, the dynamics of the competition game between Ethereum and Bitcoin have undergone significant changes. Since 21 years ago, three new variables have emerged:
(1) Bitcoin has gained greater recognition as the only inflation hedge and value store
(2) Ethereum, as a public chain, is facing real competition from Solana.In 2021, Ethereum performed well in the public chain, but now it faces real competition in this dominant market.
(3) A second tier solution for Bitcoin is emerging,This breaks the narrative that Bitcoin cannot be used to build applications and is not a productive asset.
This is not an article about the end of Ethereum. Ethereum may still have a lot of room for growth and has added value to our industry. The goal here is to analyze the constantly changing dynamics and new environments.
Bitcoin - an inflation-resistant asset
Comparison between Bitcoin and Ethereum: Bitcoin as an asset (BTC) has become the only inflation hedging tool more clearly. The following factors contribute to this:
(1) The fixed supply of Bitcoin is 21 million units, which is more concise and persuasive than Ethereum's supply dynamics (such as after a merger).
(2) Due to Ordinals, Bitcoin transaction fees have increased by 50 times, undermining the argument against Bitcoin's underlying security.
(3) Bitcoin's institutional investments (Microstrategy, BlackRock, etc.) are far ahead of any ALTCoin competitor.
Ethereum - Public Chain Monopoly
As a public chain, Ethereum's market is mainly focused on decentralized applications. Most of the arguments about 'disruption' are based on the growth of developers and users using applications on Ethereum (such as increasing fuel revenue). In 2021, there are no real competitors in this market. People refer to other primary chains as' ghost towns', 'too small', or 'unsafe'. Solana has changed this situation. Other competitors are also on the rise. Solana's success also affects another aspect - EVM's dominant position. Solana is not based on EVM, which indicates how non EVM solutions gain market share.
The Bilateral War between Ethereum and Solana
The unilateral war between Ethereum and Bitcoin has evolved into a bilateral war, and Solana has also joined the fray.
Not only has Solana brought more competition to Ethereum, but the revival of Bitcoin developers has also driven the growth of Bitcoin developer activities and fee markets.
Most of the new Ethereum user growth may occur on ETH second tier platforms such as Arbitrum and Optimism. The second tier solution for Bitcoin, such as the upcoming StacksNakamoto, allows developers and users to run applications on a complete virtual machine, and Bitcoin can be freely circulated as an asset on the second tier. Solutions like BitVM can greatly enhance the trust assumption of Bitcoin moving between the primary and secondary chains, without the need for any upgrades to the Bitcoin primary chain.
The Trilateral War of BTC Ecology, ETH, Solana
The revival of Bitcoin developers has occurred both in primary chains (Ordinals, BitVM, etc.) and secondary chains (new Rollup projects such as StacksNakamoto, sBTC, ZeroSync, etc.).
As Bitcoin's second tier solution and projects on the first tier chain further mature, Ethereum's bilateral war may evolve into a trilateral war:
(1) Bitcoin as a hedge against inflation, as opposed to the ultrasonic currency of Ethereum's flaming gimmicks
(2) Solana's expansion capability opposes the use of Ethereum layer1, and ultimately
(3) Bitcoin Layer 2 vs. Ethereum Layer 2. The last category currently has the smallest scale, but may become more mature in 2024.
However, increasing competition for Ethereum is beneficial for the industry and decentralization.
And the second tier of Bitcoin, as an important part of the trilateral war, also faces the problem of "impossible triangle"
In three ideal attributes
(a) Open Network
(b) No new tokens
(c) Full/Global Virtual Machine)
Developers can only choose two of them
In 2023, we saw a significant increase in interest in the second tier solution of Bitcoin (or if you prefer this term, it can be called a side chain). Unlike other parts of the cryptocurrency industry, the Bitcoin community is more skeptical of new tokens,This introduces an interesting technical challenge for designing a second layer solution for Bitcoin.
Choose the following:
(a) Either an open network (ideal) or a federation.
(b) Not introducing new tokens (ideal), or introducing one.
(c) Possess complete/global virtual machines, or have limited off chain contracts.
Liquid selects (b) and (c) and runs as federation. Lightning network selection (a) and (b), without global state or complete virtual machines. Stacks selected (a) and (c) and introduced a new token (STX).
The attempt to solve this triangle problem aims to utilize existing Bitcoin miners to mine the second layer. RSK and Stacks are examples of this. Among these methods, the incentive for miners is an unresolved issue, as simply fuel costs, especially in the early stages, may not be enough to motivate them.
Introducing a new opcode on the Bitcoin primary chain can help solve this triangle problem, while introducing a new opcode similar to op-snark-verify on the Bitcoin primary chain can be used to verify the calculations of the secondary chain.
It is very difficult to perform soft or hard forking on the first level chain of Bitcoin, so new opcodes may not occur on the first level chain for a period of time. In the coming months and years, we need a vibrant second tier ecosystem of hundreds of Bitcoins to develop the Bitcoin economy. This means that developers need to balance the second layer three challenges of Bitcoin.
I personally believe that (a) having an open network that anyone can mine and freely access, and (b) providing developers with a complete execution environment for contracts with global status are essential attributes. Most systems like Ethereum and Solana have these two attributes, and developers also expect them as basic requirements. Overall, let's enable various types of experiments as Bitcoin L2. The market can decide which technology compromise solution is the winner.
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