Bitcoin and Ethereum, despite being dual forces driving the adoption and advancement of cryptocurrency and blockchain technology, have historically been at odds with each other due to the “L1 Wars” and their active network supporters. For some, this competition may seem like a cultural battle within the crypto community. However, at its core, it reflects fundamentally different beliefs that have led to divisions.
Let’s delve into these fundamental beliefs:
Bitcoin: The Beacon of Decentralization (and Liquidity)
Bitcoin’s design aims to challenge traditional financial systems by providing an alternative that does not require intermediaries. Supporters resonate with this objective and thus prioritize decentralization as their primary criterion.
An example of this commitment is the block size war between 2015 and 2017, where small block supporters prioritized decentralization over scalability. They staunchly refused to compromise on Bitcoin’s decentralized nature, even if it meant limiting its scalability. On the other hand, proponents of increasing the block size believed it would help expand the network, lower transaction fees, and enhance Bitcoin’s capacity to process more transactions per second. Ultimately, the block size did not increase through a hard fork but instead implemented Segregated Witness through a soft fork, improving transaction capacity but not allowing for a one-time block size increase. The result is a currency system without central control.
Bitcoin continues to be the largest single cryptocurrency by market capitalization, standing at around $1.3 trillion, accounting for about 50% of the overall cryptocurrency liquidity. Due to its high stock-to-flow ratio, Bitcoin’s asset hardness is second only to gold. Its increasingly prominent position in the global market has sparked discussions about positioning Bitcoin as a reserve currency, one of the main factors eroding the dominance of the US dollar. Given Bitcoin’s characteristics and form factor, it will continue to play a significant role in the cryptocurrency space, with this liquidity further potentialized to serve not just as a store of value but beyond.
Ethereum: The Pioneer of Practicality
“The EVM is now becoming the enterprise standard and the connective tissue between blockchains, even the most vocal critics of EVM are now investing in compatibility.” – Nitin Kumar (Industry OG)
While Ethereum shares the broad spirit of cryptocurrencies, it places a stronger emphasis on practicality. Its supporters argue that the intrinsic value of a currency is closely tied to its real-world applications, a concept reinforced by Ethereum’s extensive lineup of decentralized applications (dApps). These dApps play a crucial role within the Ethereum ecosystem, contributing to the overall practicality of the Ethereum platform by providing various functionalities and services. The foundation of dApps and smart contract functionality lies in the Ethereum Virtual Machine (EVM), where all Ethereum accounts exist.
Recently, there is an increasing belief in the “inevitability of EVM” as a result of improved interoperability, security, and developer efficiency. With a large Ethereum developer community supporting the adoption of the unified EVM standard, more protocols are migrating to the Ethereum ecosystem and building bridging mechanisms to facilitate interoperability. Therefore, real-world applications need to be centered around EVM compatibility to fully leverage the largest developer community.
Beyond Bitcoin and Ethereum: Diverse Cryptocurrency Landscape
However, the world of cryptocurrencies is far more complex than these two roles. The broader ecosystem encompasses various beliefs and preferences. For example, Monero serves as a haven for those seeking privacy, offering one of the most secure transaction systems. Conversely, the Solana blockchain excels in transaction speed and scalability, catering to those who prioritize transaction speed.
All these ideological factions have their merits and do not necessarily conflict with each other.
Layer 2: Bridging the Gap
“However, the more cross-linking bridges and applications there are, the worse the problem gets… Cross-linking has anti-network effects: it is quite safe when there is not much activity, but the more activity there is, the more risk there is.” – Vitalik Buterin, Ethereum Foundation
In our current multi-chain cryptocurrency ecosystem, market solutions utilize the compatibility of the EVM through connecting mechanisms. However, cross-chain connections can compound security issues and centralization risks. Assets held in bridges can become vulnerable to attacks, and increased interconnectedness can lead to system contagion. In contrast, adopting a layered approach maintains the security integrity of each layer while minimizing interconnectedness.
The Fusion of Visions
Despite ideological differences, Bitcoin and Ethereum are increasingly poised to converge. Ethereum’s EVM drives decentralized applications and can coexist in the Bitcoin realm by introducing decentralized EVM sidechains, similar to initiatives like Botanix. This could create a space where both parties can thrive.
