Blockchains are a technical amazing -surprise, but in this broad competitive scene, I have seen the social consensus and ecosystem around blockchains that up to their most important strategic possession. The social layer is important, but for a variety of reasons depending on the chain.
Specifically, I have a hypothesis that “Layer 0” for any blockchain ecosystem can only be more than one major mission. When I say “Layer 0,” what I’m really talking about is the communities of people who maintain these networks. They are all from lovers of engineers, developers, investors, venture capitalists and volunteers. As public networks built using the open-source code, the strength of each ecosystem is mainly the community around it.
Despite their superficial similarities, the communities and the ecosystems that support Bitcoin and Ethereum are radically different. I have long said that “Bitcoin is the owner. Ethereum is the platform.” In both cases, the social consensus around these blockchains is what keeps them together and makes each one suitable for its mission.
Bitcoin first. Bitcoin is a scarcity-based store-of-value. Better than Fiat Currency. Lack is more reliable than gold. Political immune and protected by a broad proof of work infrastructure. Bitcoin is in a constant battle for Mindshare along with other crypto-assets and, even, against traditional fiat currencies and assets released by the central.
This is not the same as the other stores-of-value. There can be many types of government and corporate debt, and their values are all tied to the possibility of payment. The closest analogy for Bitcoin has gold, which does not pay interest or produce any cash flow. Nor is there any significant industrial request for gold. The value of gold is simply that it is scarce and getting more is not easy.
One particularly important feature of this crypto ecosystem is that it is a zero-sum game. If you admit that there may be more than one cryptocurrency used as a value store, you are on a slippery slope because of the technical, may have an endless supply of identical Bitcoin copies. If you can have two, there can be a thousand. If that happens, the value of Bitcoin is unsure and probably low.
So far, there are no other cryptocurrencies of value even far from Bitcoin. Assets such as Litecoin, Bitcoin Cash, Dogecoin and others represent a small portion of the Bitcoin market capitalization. The only owner in the same general league is Ether, and I would say that it should be seen less as a cryptocurrency and more as a stake in a computing ecosystem.
The result of this logic is a unique aggressive approach to mindshare. The amount of bitcoin should be maintained by the ongoing memetic warfare against other cryptocurrencies. Scroll through R/Bitcoin, and you will find a stream of memes aimed at boosting the value of Bitcoin. Common content includes warnings about US dollar debasement with easing volume, the US federal debt, terrible inflations, and predictions that predict for future prices. That amount of emergence did not cause inflation and that low in moderate inflations were not measured economic damage was not important in that context: political damage, yes, economic damage was not. (See you Here and Here)
A typical Bitcoin meme includes a reminder that a long, long ago, a dollar will buy you a whole bag of markets. The implication is that you are robbed by gradually printing money. This meme never stands on the most basic review. Moderate inflation is well, necessary, and infinite better than deflection. We are widely better than us when a dollar can buy a bag or groceries, but the recognition that will distract the narrative. It doesn’t matter, however. Don’t let the facts get in the way a good story.
To maintain its value, Bitcoin requires a very much social agreed. And that needs to continue for a long time. The use of gold as a shared global store dates at 650 BCE in ancient Türkiye, so they have a significant head start. And while there are other precious metals, none of them approach gold in terms of total market capitalization. The gold market cap is 10 times larger than the market cap for silver.
The social ecosystem underpins Ethereum is different. First and foremost, Ethereum is the computer in the world. Ethereum is a positive ecosystem in which people are encouraged to build and expand. R/Ethereum’s discussion and tone are, again, a great proxy for the whole ecosystem: it focuses on engineering, development, and new applications.
Ethereum, like Bitcoin, has an equally emotional layer zero ecosystem and dominant compared to other “smart contracts” blockchain because bitcoin is in other pure crypto-assets. Ethereum’s dominance is reflected in the market cap of the owner but also in the tokenized assets. Ethereum is the dominant ecosystem for most “real-world” properties and most of the stablecoins too. With more than 100 layer 2 networks in operation, Ethereum has 20 times more “network extensions” than any other ecosystem, including Bitcoin and Solana.
Both Bitcoin and Ethereum ecosystems have an enthusiastic believer seeing things different from dominant narrative. There is a small, but elastic layer of application built in Bitcoin. Bitcoin is about to have its own layer of two layers of two networks, including some compatible with EVM.
Similarly, there is a passionate group of Ethereum believers who think that Ethereum should be both a computer computer and a property-based deficiency. The EIP-1559 (Ethereum improvement proposal), adopted in August 2021, reduced the rate at which the new fuel model was issued and transferred so that some ETH was burned in each transaction. The result is that the amount of ETH in circulation increases to a slower speed than bitcoin and, in some cases, even decreases.
Any of these necessarily a bad idea and, at least in theory, either ecosystem can host the same type of activity. In practice, the cultural requirements of each ecosystem are so different that they can’t really avoid more than one -time function.
In the real world, currencies like the US dollars are most effective as a way of exchange, but not required as a value store. You can use dollars to buy things, but a deflationary system that has increased the amount of dollars, over time, will be a disaster for the economy because it forces real interest rates. As Ben Bernanke discovered, trying to stimulate an economy when inflation is low is very difficult. The same problem makes Bitcoin not suitable as a currency even though it can be as good as a value store.
In Ethereum, we can see how well the blockchain is currently playing over the next few years. If the ecosystem maintains the dominant part of the new tokenization of ownership and intelligent contracts, I think we can declare a winner of the main mission. Bitcoin has a longer game to play, but if we see the increasing relationship with gold, it can be an indicator that investors in the world are buying in the argument for digital deficiency.
Either way, it could have been many years of real world experience before I could prove (or not to lose) my theory. It also means that the memetic warfare on Twitter between ecosystems will not disappear anytime soon.
The views found in this article are the views of the set and not necessarily reflect the views of the global EY organization or its company members.
