Original title: ETH/BTC exchange rate continues to decline, perhaps the most important thing has been overlooked
Original author: Baihua Blockchain Mu Mu
Reposted: Luke, Mars Finance
Since this round of market, Bitcoin has been on a high note, making Ethereum and some older 'value projects' increasingly weak. ETH/BTC once hit bottom, which has become the strongest 'unsettled feeling' for many seasoned crypto enthusiasts. Bulls and bears have come and gone, yet they have never been able to let go of the unshakable ETH. The dissatisfaction of the crypto community towards ETH seems to have reached its peak.
A large number of complaints targeting Ethereum have begun to circulate in the crypto community
Has Ethereum's original intention changed?
Although ETH and BTC have different routes and not too many direct conflicts, since the bear market began, most long-term holders of ETH have hoped that ETH can outperform BTC, which means that ETH/BTC can yield good returns. Based on experiences from before this bear market, ETH has often been able to outperform BTC.
Similar to the mindset of Ethereum community members holding coins hoping to outperform BTC, Ethereum's original intention or differentiated development strategy is to take a path not taken by the Bitcoin community, which they believed was difficult: a blockchain-based smart contract application platform, planning to explore blockchain scaling to bring scalability and performance, and develop decentralized applications beyond digital gold.
Similar to some already existing 'alternative' projects at that time, all wanting to improve Bitcoin, whether through differentiation strategies or becoming a more successful Bitcoin.
Screenshot of the Ethereum Foundation's official website
If early crypto users had paid attention, they would have seen the above screenshot of the Ethereum Foundation's website, which clearly displays a slogan: Blockchain application platform, also the most accurate positioning given to Ethereum by the Ethereum community at that time. The background image seems to depict a skyscraper rising from the ground, perhaps foreshadowing the scaling and construction of blockchain.
Now, some people believe that Ethereum's original intention has changed since the Ethereum consensus mechanism transitioned to POS. Perhaps due to the price not rising, they blame Ethereum's downturn on the shift to the POS mechanism, thinking that such a major shift from POW to POS is a huge mistake. But in reality, Ethereum's transition to POS was included in the early design roadmap and was not a last-minute change; it was a choice and planning made under the demands of blockchain scaling and expansion for the smart contract public chain platform.
Recently, the largest holder of Bitcoin on social media released a chart of Ethereum's inflation rate post-merger, indicating that Ethereum's inflation rate surged in the past six months, attempting to illustrate the erroneous path of Ethereum's merger. But the rebuttal came quickly. Users in the Ethereum community published the full picture of this statistical chart, along with a comparison of Bitcoin's annual inflation rate (the ratio of new issuance to circulating supply), making everything clearer.
Initially, many people scoffed at Ethereum's unlimited issuance, believing that Ethereum would definitely issue an infinite amount. The current reality is that Ethereum, through the POS merger and EIP1559, not only does not affect security but also controls inflation, far lower than Bitcoin's current inflation rate, and is even further away compared to other well-known POS public chains.
Ethereum has firmly secured the second position in Crypto and has become a 'differentiated object' for many new public chain projects. Many projects aim to become a better 'Ethereum'. It can be said that besides adjustments in the details of implementation, Ethereum's route has not changed significantly, and its initial vision has been gradually realized.
Recently, Vitalik responded to the doubts about the foundation's selling on social media, along with 9 pieces of information related to ETH's fundamentals.
Vitalik:
The Ethereum Foundation is paying researchers and developers responsible for the following work
(1) Ethereum no longer loses 5 million ETH annually to the proof-of-work mechanism (POW)
(2) Your current fees are very low
(3) Your transaction will be packaged within < 30 seconds, rather than 1-30 minutes (eip-1559)
(4) zk technology allows people to maintain privacy while using ETH
(5) Account abstraction technology will allow ordinary people to use ETH safely without seed phrases or SBF-style central failure points
(6) Local ETH activities around the world, many of which hardly mention the foundation's name
(7) Since 2016, ETH has never stopped due to DoS attacks or consensus failures.
(8) Various security measures (internal development and grants) have prevented many fund losses
(9) The various libraries in the code you use (wallets, DeFi applications...)
From another perspective, the reason Ethereum exists and has been assigned a market value of over 300 billion USD is not necessarily solely due to the amount captured by its Gas fees; rather, it relates more to its expansion and innovation in the crypto field, thus continuously accommodating Bitcoin's value overflow. Therefore, during the previous two bull markets (2018, 2021), the ETH/BTC ratio rose relatively high, which is one of the main underlying logics for Ethereum's long-term outperformance.
In this round of market, although Ethereum's fundamentals are good, I found that many people only mention issues like the fragmented on-chain liquidity of the Ethereum ecosystem and face new public chain competition, while ignoring the most important thing: the Ethereum ecosystem's reception of Bitcoin's value overflow.
Is Bitcoin's unresolved dilemma an opportunity for Ethereum?
In design, Bitcoin is undoubtedly a 'divine-level' work, but such a system does not equal 'perfect'. After all, many projects want everything and cater to everything in their design, appearing perfect but actually being complex and riddled with loopholes, making rapid breakthroughs difficult.
Satoshi Nakamoto left some unresolved issues or regrets for Bitcoin, waiting for future generations to optimize. For instance, the contradiction between the decreasing issuance and ecological development threatens the sustainability of the Bitcoin system.
Simply put, during the process of Bitcoin's continuous halving until its limit, the increasingly smaller inflation rate will promote Bitcoin's scarcity as a favorable factor for price increases. However, this may not be the case for the Bitcoin system, as halving inevitably leads to reduced income for POW miners, which will also lower miners' enthusiasm, potentially affecting the system's security and stability.
Of course, the Bitcoin community has proposed a solution: to develop the Bitcoin ecosystem. When future halving leads to insufficient miner income, the prosperity of the Bitcoin ecosystem can compensate for the reduction in system rewards, continuously incentivizing miners to provide strong system protection. This is also a lesson learned from the Ethereum community's blockchain scaling route. However, high prices and transaction fees, along with the low efficiency of the mainnet, pose significant sustainability challenges for the Bitcoin ecosystem.
The issues facing Bitcoin are still 'on the table'. The only solution right now is to have Bitcoin continuously rise; naturally, there will be no problem. But obviously, this is not very likely. Thus, when capital pushes Bitcoin towards a bottleneck, value will overflow to other blockchains. Currently, the only large-scale project capable of bearing the majority of Bitcoin's value overflow is Ethereum, with no others.
Bitcoin L2 and Ethereum L2 are on the same ship
Currently, the development of the Bitcoin ecosystem is in full swing, with many teams bringing numerous scaling solutions, especially those borrowed from Ethereum's Layer 2 solutions. It can be said that Ethereum's leading exploration of Layer 2 is guiding Bitcoin's Layer 2 scaling solutions. Bitcoin Layer 2 and Ethereum Layer 2 are different paths converging, and some say that Ethereum is Bitcoin's largest testnet.
Of course, current Bitcoin Layer 2 still faces some challenges, such as the difficulty of inheriting Bitcoin's security, and Bitcoin's slow block time affecting the settlement efficiency of Layer 2 transactions, etc. Therefore, if idle BTC wants to participate in DeFi, it will still choose to cross to the Ethereum chain for reliability and security.
Image source: CryptoFlows
According to CryptoFlows data, Bitcoin has output about 3.8 billion USD in assets to Ethereum mainly through stablecoin bridges, not including Layer 2. The inflow to Ethereum's mainnet accounts for a significant portion of Bitcoin's cross-chain output, indicating recognition of on-chain funds by Ethereum. In the future, with the continuous development of BitcoinFi, the Ethereum ecosystem will inevitably gain more inflow share.
In fact, if we change our perspective, in the era of multi-chain interconnection and chain abstraction, where Web3 applications are landing on a large scale, the seamless interoperability among the vast crypto ecosystem, isn't Ethereum also becoming Bitcoin's largest sidechain or broadly speaking, a Layer 2 on its way? The best DeFi protocols in the Ethereum ecosystem are helping to activate dormant Bitcoin funds.
Whether it’s a scaling solution on the same ship or the cross-chain flow of funds, the future of Bitcoin and Ethereum seems to be increasingly intertwined.
Summary
From the current perspective, Ethereum's original intention has not changed; what has changed is merely the 'fickle' holders who cannot resist temptation. Against the backdrop of liquidity exhaustion in the broader environment, the shrinking of crypto narratives, chasing memes is not surprising (economic downturn, gathering at the village entrance to try their luck), but the upcoming global interest rate reduction cycle leading to gradually released liquidity may bring changes. Don't forget that the adoption of crypto assets and the landing value of Web3 applications will ultimately return.
As the leaders of crypto assets, Bitcoin and Ethereum are increasingly intertwined in the future. This is not an adversarial relationship, nor is it black and white. Regardless of which camp the crypto community stands in, it should stop internal strife and 'biting the hand that feeds' behavior, and together move towards the broader and large-scale adoption of the next-generation internet, which is the right path. I hope that the upcoming ETH will not disappoint.
