The three-sided war between BTC ecosystem, ETH and Solana
Original author: muneeb.btc
Original compilation: SevenUp DAO
1. The competition between BTC and ETH is ongoing
In 2021, Ethereum as “Ultrasonic Money: Going Deflation” and “Flip: Beyond Bitcoin” are two important narratives.
Currently, the dynamics of the competition-game between Ethereum and Bitcoin have changed a lot. Since 2021, three new variables have emerged:
(1) Bitcoin is gaining greater recognition as the only inflation hedge and store of value——The proportion of institutional investment in Bitcoin far exceeds that of Ethereum.
(2) As a public chain, Ethereum is facing real competition from Solana.Ethereum has excelled as a public chain in 2021, and now it faces real competition in this dominant market.
(3) Bitcoin’s second-layer solution is emerging,This breaks the narrative that Bitcoin cannot be used to build applications and that Bitcoin is not a productive asset.
This is not an article about the end of Ethereum. Ethereum probably has a lot of room to grow and is already adding value to our industry. The goal here is to analyze changing dynamics and new environments.
2. The essential attributes of the two are more distinct.
Bitcoin – an inflation-proof asset
Bitcoin vs. Ethereum: Bitcoin as an asset (BTC) has more clearly emerged as the only inflation hedge. Several factors contribute to this:
(1) Bitcoin’s fixed supply of 21 million Bitcoins is simpler and more convincing than Ethereum’s supply dynamics (e.g. post-merger).
(2) Bitcoin fees increased 50x due to Ordinals, undermining the argument against Bitcoin’s underlying security.
(3) Institutional investment in Bitcoin (Microstrategy, BlackRock, etc.) is far ahead of any ALT Coin competitors.
Ethereum - public chain monopoly
As a public chain, Ethereums market is mainly decentralized applications. Much of the argument for disruption is based on the growth of developers and users using applications on Ethereum (e.g. more gas fee revenue, etc.). In 2021, there are no real competitors in this market. People call other first-tier chains “ghost towns,” “too small,” or “unsafe.” Solana changes that. Other competitors are also emerging. Solanas success also affects another aspect - the dominance of EVM. Solana is not EVM-based, which shows how non-EVM solutions are gaining market share.
3. The three-sided war between BTC ecology, ETH and Solana
Ethereum and Solana’s Bilateral War
The one-sided war between Ethereum and Bitcoin has turned into a bilateral war, and Solana has also joined the fray.
Not only does Solana bring more competition to Ethereum, but the resurgence of Bitcoin developers is also driving growth in Bitcoin developer activity and the fee market.
Most of the new Ethereum user growth will likely occur on ETH second layers like Arbitrum, Optimism, etc. Second-layer solutions for Bitcoin, such as the soon-to-be-released Stacks Nakamoto, allow developers and users to run applications on a complete virtual machine, and Bitcoin can circulate freely as a second-layer asset. Solutions like BitVM can greatly improve the trust assumption for Bitcoin to move between primary and secondary chains without requiring any upgrades to the Bitcoin primary chain.
The three-sided war between BTC ecology, ETH and Solana
Bitcoin’s developer renaissance is happening both on primary chains (Ordinals, BitVM, etc.) and on secondary chains (new Rollup projects like Stacks Nakamoto, sBTC, ZeroSync, etc.).
As Bitcoin’s second-layer solutions and projects on the first-level chain further mature, Ethereum’s two-sided war may evolve into a three-sided war:
(1) Bitcoin serves as an inflation-hedging asset against the ultrasonic currency of Ethereum’s burning gimmick
(2) Solana’s scalability against the use of Ethereum layer 1
(3) The second layer of Bitcoin versus the second layer of Ethereum. This last category is currently the smallest, but may become more mature in 2024.
However, increased competition for Ethereum is good for the industry and decentralization.
4. BTC-L2s is not easy, and there are still three problems
The second layers of Bitcoin, as an important part of the three-sided war, are also facing the problem of the Impossible Triangle.
in three desirable attributes:
(a) Open Network
(b) No new tokens
(c) Full/Global VM),
Developers can only choose two of them.
In 2023, we’ve seen a clear increase in interest in Bitcoin’s second-layer solutions (or sidechains, if you prefer that term). Unlike the rest of the cryptocurrency industry, the Bitcoin community is more skeptical of new coins, which introduces an interesting technical trilemma for designing Bitcoin layer 2 solutions.
The options are as follows:
(a) Either an open network (ideal) or a federation.
(b) No new tokens are introduced (ideal), or one is introduced.
(c) Own a complete/global virtual machine, or have a restricted off-chain contract.
Liquid chooses (b) and (c) and runs as a federation. Lightning Network options (a) and (b) have no global state or full virtual machines. Stacks chooses (a) and (c) and introduces a new token (STX).
Attempts to solve this triangular puzzle aim to leverage existing Bitcoin miners to mine the second layer. RSK and Stacks are examples of this. Miner incentives are an open question among these approaches, as gas fees alone, especially in the early stages, may not be enough to motivate them.
The introduction of new opcodes on the Bitcoin primary chain can help solve this triangle problem, and the introduction of new opcodes like op-snark-verify on the Bitcoin primary chain can be used to verify calculations on the secondary chain.
It is very difficult to soft or hard fork the Bitcoin primary chain, so new opcodes may not occur on the primary chain for some time. In the coming months and years, we will need a vibrant second-layer ecosystem of hundreds of Bitcoins to grow the Bitcoin economy. This means that developers need to make trade-offs in the three-layer-2 puzzle of Bitcoin.
I personally believe that (a) having an open network where anyone can mine and enter and exit freely, and (b) providing developers with a complete execution environment for contracts with global state are essential attributes. Most systems like Ethereum and Solana have these two properties, and developers expect them as basic requirements. Overall, let’s enable various types of experiments as Bitcoin L2. The market can decide which technology compromise is the winner.
