Protocols and culture
Thu Jun 16 2022
Ethereum was born out of a desire to do more with blockchains. Bitcoin development is excruciatingly slow and meticulous. Many high-profile devs rage quit over the slow pace of changes. Bitcoin is the slowest-moving software to be the most sound form of money ever. Bitcoin has used smart contracts since its inception. No coin can be released without executing a smart contract (Bitcoin Script) that determines who can move the coins. This is how multi-signature is implemented in bitcoin. Bitcoin Script is limited by design. There are no loops or recursions, so there’s no possibility of a smart-contract ending in a hung state. A limited language also limits attack vectors, making bitcoin script hard to screw up, hard to break, and hard to hack.
The founding of Ethereum was born out of the desire to extend blockchain smart contract execution. After being rejected as an upgrade to Bitcoin, Ethereum came into its own as the “World Computer.” Ethereum smart contracts are Turing complete, which means you can program anything you want on them (including a simulation of the universe). Ethereum launch was the most successful crypto launch ever. The system delivered on the promises with a javascript-like programming language. Smart contracts on blockchain flipped the script on building distributed apps. The coin’s value shot up 1000x in the next year, making early adopters instant millionaires. The culture of Ethereum had been born.
Before Ethereum, Bitcoin was the unquestioned king of crypto. After Ethereum, there was talk of the flippening, an event where the Ethereum market cap overturns the Bitcoin market cap. The engine was ignited, and Ethereum rocketed forward in capability and product offering: Betting markets, ICOs, NFTs, and Defi, to name a few. Ethereum is the collective community for all who feel like Bitcoin is old, slow, boring, and non-inclusive. With Ethereum also came the advent of many other smart-contract blockchains that try to solve the limitation of Ethereum (scaling, privacy, etc.).
Ethereum is currently amid the merge, a highly anticipated upgrade that will shift the consensus protocol from proof of work to proof of stake. Proponents of Ethereum are bullish on improvements in power usage and scaling in the form of support for 2nd layer rollups. Bitcoin’s successful upgrade enabled Lighting (Bitcoin’s L2) a few years back. Lightning improved Bitcoin’s throughput from ~5TPS to 1,000,000 TPS (Visa is around 10,000). This introduced no new token and is as trustworthy as the Bitcoin base layer with no additional risks. By contrast, Ethereum L2s are blockchains with their tokens and submit their executions to Ethereum. Ethereum L2 implementations (of which there are many and growing) have different tradeoffs and have a theoretical security equivalent to Ethereum once the rollup is posted to the original chain. In contrast, Bitcoin’s lighting network has a guaranteed security equivalent to the Bitcoin network, and there’s no need to choose between different lightning networks. If you use Bitcoin Lightning to buy something, the funds you provide are Bitcoin, and lightning wallets/channels are compatible with all lightning wallets/channels. If you use Ethereum L2 Optimum to run your smart contract and your NFTs, the execution is persisted in Ethereum for security, but your NFT lives on Optimum. Ethereum uses the same L2 terminology as Bitcoin, but the implications are vastly different. Your NFTs on an L2 (optimism) does not exist on Ethereum or other L2 chains.
Recently a high-profile team announced they were working on a Web5 project (Web2 + Web3 = Web5). The project will use Bitcoin as a security and identity layer and build a new network for sovereign data. While Bitcoin is not necessary for their implementation, it is the most secure place to put identity information. The project insists on no new tokens/blockchains. The standard play for much of Web3 is to develop your token (possibly an ERC20 on Ethereum), determine some tokenomics to bootstrap your project, and convince retail investors to fund your project with some kind of get-rich-quick pitch. This has worked spectacularly well in the last few years. Still, these projects are failing even more spectacularly, with tokens like Cel losing 99% of their value in the previous year and possibly pushing Celsius into insolvency.
Ethereum’s ecosystem and those inspired by it take a product-centric approach of “more is more.” Bitcoin, by contrast, is an academic and backend systems approach where the burden is on new proposals to prove value while not adding risk (less is more). Early Bitcoin attracted many kinds of talented Devs. Now Bitcoin attracts those who prefer to think rather than build. Ethereum projects have a high degree of vitality, with new ideas exploding in variation and complexity. Ethereum’s inclusive nature tends towards disorder. As protocols (side chains and L2s) compete, new standards emerge and require additional systems to bridge between protocols. Each protocol is a potential point of failure, and retail investors desperate for yields flock to new DeFi Instruments with little understanding or regard for the risks leading to systemic collapse (Luna/Terra).
Ethereum’s continued growth and rich ecosystem will continue to provide new investment opportunities and attract devs excited about the next new thing. Bitcoin will continue to grow slowly and methodically, much to the chagrin of bright developers wanting to make their mark. Bitcoin is like gold; it has few applications, but it doesn’t change, and the supply is fixed. Ethereum is like oil; there’s always more that can be produced (if it pleases the Ethereum Foundation), and the applications are expanding by the day. It’s not an accident that Bitcoin’s motto is HODL and Ethereum’s is BUIDL. But trying to HODL Eth is non-sensical, and BUIDL on Bitcoin will make you want to pull your hair out. Bitcoin is a commodity, and Ethereum is a product. Better leaving the Bitcoin development to the philosophers and the theorists.