Opinion: The Bitcoin ecosystem is currently unable to surpass Ethereum
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Opinion: The Bitcoin ecosystem is currently unable to surpass Ethereum
If the Lightning Network can develop more sophisticated asset issuance and smart contracts, the probability of an explosion in the Bitcoin ecosystem increases.
Navigating Web3 tides with focused insightsAuthor: Huang Shiliang
With the continued boom of inscriptions, especially gaining strong dual support from OKX and Binance, the entire blockchain industry has begun debating whether the Bitcoin ecosystem could surpass the Ethereum ecosystem, or even the entire EVM ecosystem.
As of now, in my subjective judgment, I believe this is impossible.
There are many reasons, but the fatal and decisive one, in my view, is this: "The current Bitcoin scripting engine does not support moving native BTC coins into various ecosystem protocols."
To date, I have not seen any Bitcoin-based protocol—apart from the Lightning Network—such as BRC20, ARC20, RGB, RSK, STX, or Liquid—that can issue a two-way pegged token representing the "L1 native BTC" under decentralized conditions.
Let me elaborate a bit on what this means.
On the Ethereum ecosystem, applications like Uniswap swaps or Aave lending allow direct use of Ether (ETH) without requiring any bridge or conversion (technically, there is a distinction between ETH and ERC-20 wrapped ETH, but this process is fully decentralized and imperceptible to users). Thus, smart contracts on Ethereum have direct control over ETH itself.
Let me use an analogy: Chinese banks can accept houses located within China as collateral for loans because, if borrowers default, the bank can legally seize and auction the property.
However, Chinese banks cannot accept U.S. properties as collateral, because if a borrower defaults, how could the bank possibly seize and auction a house in the United States? That would be out of reach—the U.S. government would never allow it.
If Chinese banks could accept U.S. real estate as collateral, then those foreign properties could appear on their balance sheets as assets. If that were possible, imagine how much more prosperous China's financial sector could become.
Smart contracts within the Ethereum ecosystem are like domestic banks managing local real estate collateral. In contrast, currently visible Bitcoin ecosystem protocols resemble Chinese banks attempting to accept U.S. properties as collateral—simply unworkable.
Why is the ability for "Bitcoin ecosystem protocols to truly and effectively manage L1 native BTC" the decisive factor for ecosystem prosperity?
First, I believe blockchain ecosystems are fundamentally financial ecosystems—what people are engaging with is essentially the financial industry.
And I see "assets" as the core element of finance—the decisive force. Assets themselves are the key to economic prosperity.
Just as Mao Zedong said, "the people are the decisive factor in war," assets are the decisive factor in financial prosperity.
More precisely, the financial industry's ability to continuously inflate bubbles fundamentally relies on its capacity to efficiently conduct ownership pledging and property rights trading of various assets. Based on this foundation, more complex financial instruments can emerge, enabling even larger bubbles. If certain assets cannot be effectively pledged or traded, they contribute little to the overall financial system.
Why has the A-share market been struggling since last year, despite all the stimulus policies? Because China’s most important asset class—real estate—is faltering.
Similarly, Chinese farmers own 1.8 billion mu of land—the most valuable resource beneath our feet—but due to the lack of institutional frameworks enabling mortgage and trading rights, this land remains entirely disconnected from the national financial system.
The driving force behind Ethereum’s ecosystem success lies in its abundance of assets and the ability for smart contracts to effectively pledge and trade them.
In contrast, within the Bitcoin ecosystem, we currently see no comparable technology that enables effective pledging and trading of native Bitcoin assets under truly decentralized conditions.
BTC is by far the largest asset in the Bitcoin ecosystem; all others are junk assets. Yet existing protocols cannot utilize BTC. Under such circumstances, I don’t see how a high-quality financial ecosystem could possibly emerge.
Perhaps we can borrow accounting concepts here: the Ethereum ecosystem can form a complete and coherent balance sheet, whereas assets in the Bitcoin ecosystem remain isolated and cannot be consolidated onto a single statement.
Of course, the Bitcoin ecosystem may spawn projects primarily based on speculation, such as NFTs and meme coins. But so far, there's no clear path toward developing more sophisticated financial ecosystems. This results in tokens within these ecosystems behaving as economically isolated entities, unable to build upon or interconnect with each other.
On Ethereum, however, assets can be combined and composed together—this composability is exactly what has fueled its thriving financial ecosystem.
The Lightning Network truly enables the transfer of "L1 native BTC" between the L1 Bitcoin network and the L2 Lightning Network via deposits and withdrawals, and does so without relying on centralized bridges.
If the Lightning Network could evolve to support more complex asset issuance and smart contracts, I would consider the potential for a Bitcoin ecosystem breakout significantly higher. However, for Bitcoin ecosystems built on inscription, RGB, sidechains, etc., I subjectively believe the chances remain slim as of now.
But is there still hope for Bitcoin to develop protocols capable of truly utilizing native BTC?
I think yes—if the Bitcoin scripting engine undergoes substantial modifications.
The most critical direction would be covenant (restriction clauses). BCH developers have placed great emphasis on this. As a chain technically over 99% similar to BTC, BCH has already implemented decentralized swap-like functions and on-chain contracts similar to dYdX. It is also developing a Dai-like stablecoin lending protocol. These features already enable on-chain assets to stack and compose into a financial ecosystem. However, due to the lack of high-quality assets on the BCH chain, building a vibrant financial ecosystem remains unlikely.
Therefore, I believe that if BTC’s scripting engine could undergo more radical improvements, Bitcoin could absolutely give rise to an extremely prosperous financial ecosystem.
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