BitMEX Research recently published a report explaining why Ethereum dwarfs Bitcoin as the center of dapps and developer activity within crypto. While there are technical reasons for the discrepancy, the team claims that the bitcoin developer culture before Ethereum’s launch drove alternative use cases away from its ecosystem.
OP_Return Controversy
The report explores online discussions since March 2014 among Bitcoin Core developers concerning the application layer of Bitcoin. They started earlier that year with the launch of Counterparty Protocol – a layer 2 solution for creating new tokens and trading them on a distributed exchange.
The counterparty uses OP_Return to store data – a type of transaction output that is not expendable. “This function can be used to burn bitcoin or store arbitrary data on the bitcoin blockchain,” BitMEX explained.
Some say these types of transactions help bitcoin scale, as they don’t require cutting off bitcoin nodes to store their data. This makes a node less storage intensive for the average person, helping bitcoin maintain its decentralization.
Nevertheless, on 20 March 2014, bitcoin contributor Jeff Garzik began criticizing Counterparty’s use of the bitcoin blockchain space in the Bitcointalk forum. They argued that storing functions of arbitrary data in a blockchain can have “negative” or “unexpected consequences” and that more efficient scaling solutions – such as sidechains – already exist.
Fast forward and back, Counterparty developers eventually agreed with Garzik’s stance. He went on to discuss solutions with Bitcoin Core developers to see how the counterparty can survive while using the security of Bitcoin’s blockchain in a responsible way.
However, bitcoiners did little to support the lesser protocol. Instead, a bitcoin dev and mining pool operator named Luke-Jr. accused Counterparty users of forcing bitcoin nodes to store unexpected transaction types against their will. Like Garzik, he recommended a merge-mined sidechain as a place for such alternative access to blockchain data.
“Hopefully, as mining becomes decentralized, we will see less tolerance of abusive/spam transactions whether OP_RETURN version or otherwise,” he concluded.
Backing up his statement, Luke-Jr began censoring all counterparty-related transactions in his mining pool. On March 28, he compared Counterparty’s use of the blockchain space to the abuse of bitcoin nodes.
What about bitcoin?
Luke-Jr’s statements and actions angered many members of the Counterparty community. His counterarguments centered around Luke-Jr’s seemingly effort to change what the bitcoin blockchain was to be used for. “I can’t believe this attitude,” said one user. “I didn’t know who owned bitcoins.”
Others argued that the counterparty’s transactions constituted financial transactions and therefore agreed to store bitcoin nodes. “You have a very narrow view of bitcoin’s potential use cases compared to others,” said Counterparty co-founder PhantomFreak.
“Bitcoin does a lot of things it was not originally intended to do,” he continued. “We don’t want to extend the bitcoin protocol. We want to do something entirely within it and as simple and straightforward as possible, for the benefits of stability, security, etc.”
Based on the overwhelming response from the counterparty’s community, BitMEX suspects that the moment turned many developers away from Bitcoin to develop their projects on Ethereum.
Why not sidechain?
As BitMEX elaborates, sidechains had failed to gain critical mass as a scaling solution for bitcoin due to various limitations of the technology, despite the support of the counterparty’s opponents.
One of these limitations included the complexity of manufacturing such sidechains. Developers didn’t have time to build a secure, merge-mined sidechain before other protocols won market share. Although sidechains like Rootstock and Liquid now exist, they are dwarfed by Ethereum in popularity.
A second hurdle surrounds the use of bitcoin as the core asset on each chain while the rest is tied to the main bitcoin chain. To date, developers have yet to find a solution to create a fully reliable two-way peg between blockchains. In January, Ethereum co-founder Vitalik Buterin wrote a Reddit post that he believes the security of blockchain bridges is fundamentally flawed.
Finally, sidechains are believed to have limited use cases that ultimately do not require security guarantees from the mainchain. Therefore, depending on the application, sidechains may not completely solve the data storage issues of bitcoin.
“It seems that some of the people arguing in favor of sidechains as a solution were not particularly interested in the many dapp applications nor had they experimented with them,” BitMEX said.
Ethereum also has properties that make it more developer and user-friendly, such as faster block times, a less conservative blockchain barrier, and a more flexible scripting language.
“However … the most important factor is culture,” the report concluded.
Late last month, popular crypto venture capitalist and researcher Nick Carter wrote a scathing essay against bitcoiners who denied alternative use cases for blockchain, such as stablecoins and decentralized finance.
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