JAN 19, 2024
Opinion: Why can’t the Bitcoin ecosystem surpass Ethereum?
by 吴说猫弟, WuBlockchain
The author's views do not represent the views of WuBlockchain.
With the continued popularity of Inscriptions, especially with strong support from OKEx and Binanc0e, the entire blockchain industry is starting to discuss whether the Bitcoin ecosystem will surpass the Ethereum ecosystem, or even the EVM ecosystem.
As of now, based on my subjective judgment, I think it's unlikely.
There are many reasons, but the decisive one, in my opinion, is as follows: "Currently, Bitcoin's script engine does not support migrating native BTC to various ecosystem protocols."
Currently, I haven't seen any protocol based on Bitcoin that (excluding the Lightning Network) can issue tokens anchoring the "L1 native token BTC" in a decentralized manner with protocols like Brc20, ARC20, RGB, RSK, STX, Liquid, etc.
Let me explain what this means. In the Ethereum ecosystem, for activities like swapping in Uniswap or lending in Aave, you can directly use Ethereum (ETH). There's no need for any bridges or conversions (although there are conversions between ETH and ETC-erc20 tokens, users are not aware of them). So, smart contracts on the Ethereum network have direct governance over ETH itself.
To use an analogy, it's like Chinese banks accepting houses within China as collateral for loans because if a user defaults, the bank can auction the house collateral.
However, Chinese banks wouldn't accept American houses as collateral for loans because if Americans default, how can Chinese banks auction American houses? It wouldn't work. If Chinese banks could accept American houses as collateral, it means American houses could be included in the asset-liability sheet of Chinese banks as assets, contributing to the prosperity of China's financial industry.
The smart contracts in the Ethereum ecosystem manage assets within the country, similar to how banks manage houses as collateral. But in the current protocols visible in the Bitcoin ecosystem, it's as unreliable as Chinese banks accepting American houses as collateral.
Why is the ability to "effectively manage L1 native token BTC in BTC ecosystem protocols" a decisive factor for ecosystem prosperity?
Firstly, I believe blockchain ecosystems are essentially financial ecosystems; they revolve around the financial industry.
I believe "assets" are the core elements of finance, the decisive force. Assets themselves are the key to economic prosperity.
Just as the professor said, people are the decisive factor in the outcome of a war; assets are the decisive factor in whether finance thrives.
More precisely, the financial industry can keep creating bubbles essentially because it can effectively mortgage various assets and trade property rights. This enables the derivation of more complex finance and the blowing of bigger bubbles. If some assets cannot be effectively mortgaged and traded, they won't have much impact on the entire financial system.
For example, last year, A-shares weren't doing well despite the government's positive policies because China's most important asset is real estate, and when real estate doesn't perform well, it affects the entire country's financial system.
Just like Chinese farmers owning land, 1.8 billion mu (Chinese unit of land measurement), but the most precious land is useless because there is no system to ensure that they can be mortgaged and traded. So, they are entirely unrelated to the country's financial system.
The prosperity of the Ethereum ecosystem is the decisive force of the various assets in the Ethereum ecosystem and the effective mortgage and trading of these assets by smart contracts.
In contrast, in the Bitcoin ecosystem, I currently don't see any technology that can effectively migrate native BTC assets and effectively mortgage and trade them in a decentralized manner.
The biggest asset in the Bitcoin ecosystem is BTC, and all other assets are junk assets. However, current protocols cannot utilize BTC. I feel that under these circumstances, it's impossible to create a genuinely high-quality financial ecosystem.
Perhaps we can use knowledge of accounting to say that the Ethereum ecosystem can form a complete balance sheet, but the assets in the Bitcoin ecosystem are isolated from each other and cannot be reflected in a single table.
The Lightning Network is a real solution that can recharge and withdraw "L1 native token BTC" in L1-Bitcoin and L2-Lightning without relying on centralized bridges.
If the Lightning Network can develop more complex asset issuance and smart contracts, I think there's a greater chance of the Bitcoin ecosystem exploding. However, based on protocols like Ordinal, RGB, sidechains, etc., up to now, I subjectively think the chance is small.
But does Bitcoin have a chance to develop protocols that can truly use native BTC?
I think if Bitcoin's script engine can be significantly modified, there is a chance.
The most important direction should be covenants (restrictive clauses). BCH developers attach great importance to this direction. As a BCH with a technical similarity of over 99% to BTC, it has already implemented decentralized swaps similar to decentralized swaps and on-chain contracts similar to dydx's products and features. It is also developing stablecoin lending protocols similar to Dai. These can already allow on-chain assets to be combined and stacked into a financial ecosystem. However, BCH lacks high-quality assets on-chain, so the hope of building a prosperous financial ecosystem is slim.
Therefore, I think if Bitcoin's script engine can be significantly improved, Bitcoin can completely create a super prosperous financial ecosystem.And just to clarify, I am not bearish on Bitcoin.