Bitcoin Is the Asset, Ethereum Is the Platform

Blockchains are a technical miracle, but in this extremely competitive landscape I looked at the social consensus and the ecosystem around the blockchains, because by far their most important strategic asset. The social layer depends, but for various reasons depending on the chain.

Specifically, I have a hypothesis that the “layer 0” for any blockchain ecosystem can only excel in one primary mission. When I say a “layer 0”, what I’m really talking about are communities of people who maintain these networks. They are all from enthusiasts to engineers, developers, investors, risk capitalists and volunteers. As a public network that is created with an open source code, the power of each ecosystem is primarily a community around it.

Despite their superficial similarities, communities and ecosystems that support Bitcoins and Ethereum, are radically different. I have long said “Bitcoin is an asset. Ethereum is a platform.” In both cases, the social consensus around these blockchains is what keeps them together and each of them is ideally suitable for their mission.

Bitcoin first. Bitcoin is a lack of value. Better than Fiat Currency. Reliably rare than gold. Immune to politics and protected by huge proof of work infrastructure. Bitcoin is in the constant Battle of Mindshare with other cryptological devices and even more against traditional Fiat currencies and assets issued by the central bank.

This is not the same as other stores. There may be many types of government and corporate debts and their values ​​are associated with the probability of repayment. The next analogy of bitcoins is with gold that does not pay interest or create any cash flow. There is no meaningful industrial demand for gold. The value of gold is simply that it is rare and getting more is not easy.

One of the particularly important features of this crypto ecosystem is that it is a zero -sum game. If you admit that more than one cryptocurrency can be used as a storage of value, you are on a slippery slope, as there may be an endless offer of the same copies of bitcoins. If there may be two, there may be a thousand. If this happens, the bitcoin value is uncertain and probably low.

Right now there are no other cryptocurrencies that are even close to the value of bitcoins. Assets such as Litecoin, Bitcoin Cash, Dogecoin and others are a slight fraction of the market capitalization of bitcoins. The only benefit in the same general league is Ether, and I would say that it should be less considered to be a cryptocurrency and rather as a share in the computing ecosystem.

The result of this logic is a unique aggressive approach to Mindshare. The bitcoin value must be maintained by a constant memoric war against other cryptocurrencies. Browse R/Bitcoin and find a stream of memes aimed at strengthening the value of bitcoins. Typical content includes terrible warnings against the devotion of the US dollar with quantitative release, serious American federal debt, horrors of inflation and harsh predictions for future prices. This quantitative release did not cause inflation and that low to medium inflation causes this context that the economic harm does not matter in this context: political damage, yes, economic damage no. (See here and here)

A typical bitcoin meme reminds that long ago, a long time ago, a dollar would buy you a full bag of food. As a result, you are robbed by a gradual printing of money. This meme has never reached the most basic examination. Mild inflation is fine, necessary and infinitely better than deflation. We are extremely better than us when the dollar could buy a bag or food, but recognition that it would tell. But it doesn’t matter. Never let the facts get in the way of a good story.

Bitcoin needs a very assertive social consensus to maintain its value. And this must continue for an exceptionally long time. Using Gold as a shared global storage of values ​​at 650 BCE in ancient Türkiye, so they have a significant beginning of the head. And although there are other precious metals, none of them have ever come to gold in terms of overall market capitalization. Gold market cap is 10 times larger than the market ceiling of silver.

The social ecosystem that supports Ethereum is different. First of all, Ethereum is a world computer. Ethereum is an ecosystem with a positive sum where people are encouraged to build and expand. Discussion and tone R/Ethereum is again a good representative for the whole ecosystem: it focuses on engineering, development and new applications.

Ethereum, like Bitcoins, has the same passionate ecosystem of Zero and is as dominant compared to other blockchains of “intelligent contracts” as Bitcoin for other pure crypts. The dominance of Ethereum is visible on the market ceiling of the asset, but also in its share in tokenized assets. Ethereum is a dominant ecosystem for most assets of the “real world” and also most stablecoins. With more than 100 layers of 2 network, Ethereum has 20 times more “network extension” than any other ecosystem, including Bitcoins and Solan.

Bitcoin and Ethereum ecosystems have ardent believers who see things differently from the dominant narrative. A small but durable application layer is built on bitcoins. Bitcoin will soon have its own layer of two networks, including some that are compatible with EVM.

Similarly, there is a passionate group of Ethereum believers who think Ethereum should be a network computer and asset -based asset. The EIP-1559 (proposal to improve the Ethereum), which was adopted in August 2021, reduced the rate for which the new ETH has been issued, and moved the gas model, so some ETH is burned at each transaction. As a result, the amount of ETH in circulation grows at a slower pace than bitcoins and in some cases even decreases.

Neither of them is necessarily a bad idea and at least theoretically the ecosystem of both types of activity could be the host. In practice, the cultural requirements of each ecosystem are so different that they cannot stand out more than one function at once.

In the real world there are currencies like the US dollar, most effective as an exchange, but not necessarily as a value trade. You can use dollars to buy things, but a deflationary system that increased the value of the dollar would be catastrophic for the economy because it would force the actual interest rates. As Ben Bernanke discovered, trying to stimulate the economy when inflation is low is very difficult. The same problem is bitcoin unsuitable as the currency, although it can excel as a storage of value.

Ethere and I will see how well the current blockchain boom is played in the next few years. If the ecosystem retains its dominant share in the new tokenization of assets and intelligent contracts, I think we can declare it as the winner of the primary mission. Bitcoin has a longer game, but if we see growing gold correlation, it may be an indicator that investors in the real world buy an argument for a digital shortage.

Either way, it could be several years of experience in the real world before I can prove (or refute) my theory. This also means that memetic Warfare on Twitter will not leave between ecosystems soon.

Opinions reflected in this article are the author’s views and do not necessarily reflect the views of the global organization EY or its member firms.