Original author: WILLEM SCHROE, founder of Botanix
Original translation: Block unicorn
Bitcoin and Ethereum, despite being twin forces in the promotion and adoption of cryptocurrency and blockchain technology, have historically been at odds with each other due to the “L1 war” and its active network supporters. To some, this competition may seem like just a culture war within the crypto community. However, fundamentally, this reflects very different underlying beliefs that have led to the disagreement.
Let’s dig deeper into these fundamental beliefs:
Bitcoin: A beacon of decentralization (and liquidity)
Bitcoin was designed to challenge the traditional financial system and provide an alternative that does not require intermediaries. Proponents resonate with this goal and therefore make decentralization their primary criterion.
An example of this commitment is the blocksize war between 2015 and 2017, where small blockers prioritized decentralization over scalability. Small blockers were determined not to compromise Bitcoin’s decentralized nature, even if it meant limiting its scalability. Proponents of increasing the blocksize argued that it would help scale the network, reduce transaction fees, and increase Bitcoin’s ability to process more transactions per second. Ultimately, the blocksize was not increased via a hard fork, but rather via a soft fork to implement Segregated Witness, which improved transaction capacity but was a one-time, non-repeatable blocksize increase. The result is a monetary system without central control.
Bitcoin continues to be the largest single cryptocurrency by market cap, with a market cap of approximately $1.3 trillion, accounting for approximately 50% of overall cryptocurrency liquidity. Bitcoin's asset hardness is enhanced by its high stock-to-flow ratio, second only to gold. Its growing prominence in global markets has sparked discussions about positioning Bitcoin as a reserve currency, one of the main factors in the "hidden erosion of the dollar's dominance." Due to Bitcoin's characteristics and form factors, it will continue to play an important role in the cryptocurrency space, and this liquidity should be further potentialized as more than just a unit of value.
Ethereum: A pioneer in practicality
“The EVM is now becoming the enterprise standard and the connective tissue between blockchains, and even the EVM’s fiercest critics are now investing in compatibility.” — Nitin Kumar (Industry OG)
While Ethereum shares the broad ethos of cryptocurrencies, it places a greater emphasis on practicality. Its supporters argue that the intrinsic value of a currency is closely tied to its practical applications, a philosophy reinforced by Ethereum’s extensive lineup of decentralized applications (dApps). These decentralized applications play an important role in the Ethereum ecosystem, contributing to the overall practicality of the Ethereum platform by providing a variety of features and services. The foundation of dApps and smart contract functionality is the Ethereum Virtual Machine (EVM), where all Ethereum accounts exist.
Recently, there is a growing consensus that the “EVM is inevitable” due to the increased interoperability, security, and developer efficiency. As the large Ethereum developer community supports the converged EVM standard, more and more protocols are migrating to the Ethereum ecosystem and building bridge mechanisms to facilitate interoperability. Therefore, real-world applications need to be centered around EVM compatibility to take advantage of the largest developer community.
Beyond Bitcoin and Ethereum: The Diversifying Crypto Landscape
However, the world of cryptocurrency is far more complex than just these two roles. The broader ecosystem encompasses a variety of beliefs and preferences. For example, Monero is a safe haven for those seeking privacy, offering one of the most private transaction systems. Conversely, the Solana blockchain, with its fast transaction times and scalability, excels for those for whom transaction speed is paramount.
All of these schools of thought have their merits and are not necessarily in conflict with each other.
Second layer: link gap
“However, the more cross-chain bridges and applications are used, the more serious the problem becomes… Cross-chain activity has an inverse network effect: when there is little activity, it is still quite safe, but the more activity there is, the greater the risk.” — Vitalik Buterin, Ethereum Foundation
In our current multi-chain cryptocurrency ecosystem, market solutions leverage EVM compatibility through connection mechanisms. However, cross-chain connections lead to a compounding of security issues and centralization risks. Assets held in the bridge will be vulnerable to attacks, and increased interconnectivity may lead to system contagion. In contrast, a cascading approach maintains the security integrity of each layer while minimizing interconnectivity.
Fusion of Visions
Despite their ideological differences, it is increasingly possible that Bitcoin and Ethereum could come together. Ethereum’s EVM is responsible for powering decentralized applications, and can coexist in the Bitcoin space through initiatives like Botanix, and bringing decentralized EVM sidechains to Bitcoin could create a space where both sides can thrive.
