ETH vs BTC part 1 – The Beginning

[I explain the concepts of this article in both video and podcast format]

When I talk to my friends about ETH and BTC it often surprises me the lack of information they possess about them. Most people only look at the price and are unaware of some key factors that differentiate them or how they came about. My objective now is to explain a few things so that hopefully whoever reads this gets a clearer understanding of this dilemma. I urge the reader not to take my word for it, but use this article as a launching point to guide further research, in search of a greater understanding of these new assets.

The first thing we need to discuss is the history, how did these two assets get started? Their origin stories are quite different and tell us a lot of what they seek to accomplish in the world.

Bitcoin was created by Satoshi Nakamoto (this is his pseudonym and no one knows his real identity) as a direct reaction to the 2008 housing crisis. His objective was to give the world an economic structure that would be fair, stable, uncensorable and trustless. Most of all, this monetary system was to be DECENTRALISED. This means no one entity (or a small group) could ever have a predominant role in deciding the future of the protocol.

Satoshi (as many others) realized the problems in our current economic situation, where a few politicians and bankers can change money policy overnight, where the common working man has no power to resist. So far in Bitcoin’s short history this vision has come true, the protocol has been working as it should, there have been attempts of small groups to take control of it, but they have all failed.

On the other hand, ETH was created by a group of people spearheaded by Viatlik Buterin. They saw the potential a digital currency could have, well beyond a simple ledger that keeps track of who owns what. They thought that by adding a more complex code could allow for a programming language to be built on the blockchain, this would provide the ability to create what is now known as “Smart Contracts”.

The idea of Smart contracts is brilliant, the amount of possibilities this provides seems to be endless. Today we see the most popular applications of this new technology are games and DEFI (decentralized finance). In this we can see that Ethereum was a great success.

But, let’s go back to the origin point. At the beginning, the Etherum crowd wanted Bitcoin to be able to support Smart Contracts, they didn’t go straight to creating their own coin. However, as we stated above, no one has control over the Bitcoin protocol. In order to make a single change you need to convince the whole support system (miners and node operators), this is a very difficult thing to do.

People were divided, some wanted further functionality on Bitcoin, others preferred to stick with the original vision and keep the source code (and it’s ethos) intact. They argue two things.

Firstly, they wanted to keep the layer one as simple as possible. They thought Bitcoin should only do a few things, but be extremely good at it. They wanted the layer one to be safe and resilient. To act as the sturdiest base upon which further things could be built on top.
Secondly, they wanted to add the ability for smart contracts further down the road, when layer two would change from being a promise and would become a reality.

What we need to understand about crypto is that the coins work on layers (I’ll do a proper article on this point later on). In that sense you can think of Bitcoin as both a finished project and a work in progress.

The layer one will always remain as we know it, this gives us stability and reassurance that no one will change the rules on us overnight (the original vision). Yet on top of it, one can create extra layers that give it more functions, even the ability for smart contracts.

Here is where the road of the two projects is divided. As the Etherum crowd failed to convince the Bitcoin protocol to change at it’s base layer, and were not willing to wait until layer two functionality came online (it wouldn’t for a few more years). They decided to create their own layer one blockchain, completely separated from Bitcoin.

From a price/adoption point of view, ETH launch was nothing short of an incredible success. Many companies are using their Smart Contracts function to create incredible things, to experiment and test the limits of this technology. You would think everyone would be happy and excited about this, however the Bitcoin crowd are not.

It is not that they don’t appreciate the stuff being built, or the growth it is having for the whole space, it’s not envy or jealousy. It’s the fact that because ETH made so many changes at the base layer, many of the concerns that lead Satoshi to create Bitcoin as an alternative exist today in Ethereum. Much of the decision making lies in the hands of a few people, their money policy changes frequently and there is no limit on the amount that can be printed. For many in the crypto space these are all the things we wanted to get away from.

At the same time this year we are seeing huge developments on Bitcoin’s layer two (will write about them in further articles). Many of the stuff that runs on Ethereum today can be replicated in it (some already have been). But because they sit on top of Bitcoin they also share all the amazing qualities and protections of it’s layer one and are completely decentralised. Plus, the mining network of Bitcoin is magnitudes bigger than any other crypto (including of course ETH).

All this leads many to believe that, even though Etherum has been a great experiment to test what  “Programable Money” can do. More and more things will start switching to Bitcoin as layer two expands. I am in this camp, I don’t expect it to happen overnight, I’d say the future for ETH in the short/mid term looks quite bright. But for the reasons in this article, and the ones that will follow (there is more to go into but this is already quite a lengthy read). I am inclined to believe that Bitcoin will eventually absorb much of the alt coin space.

Again, I just want to end by saying you should not take what I have said as fact, but as a starting point to dig deeper into all these fascinating subjects. I am blown away by the amount of people who own ETH yet know nothing of its history, what it seeks to accomplish, the difference between it and BTC and the new challenge that faces now that Bitcoin’s layer two is starting to get traction. As always, just keep your eyes opened, pay attention and have a great day! 

Stay tuned for ETH vs BTC  partt 2 🙂