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The birth of the Ethereum blockchain in 2015 gave rise to an ecosystem of decentralized applications and the foundations of what is now being called “Web3”, an entirely new kind of internet.
Ethereum’s dominance of the dApp landscape, including decentralized finance, NFTs and GameFi, comes from its ability to handle smart contracts, which are self-executing programs that run when predetermined conditions are met. Bitcoin, the oldest and most widely-used blockchain, does not support smart contracts, hence it has never evolved beyond its intended purpose as a cryptocurrency and a store of value.
At least, not yet. While Ethereum is still the most ideal platform for building dApps, thanks to its Turing completeness and higher throughput, it has struggled to cope as the crypto industry heats up. The problem Ethereum faces is that it needs to match the reliability, scalability and security of traditional technology infrastructures, yet it has struggled to do so. That’s because of its inability to solve the “Blockchain Trilemma” of ensuring decentralization, security and scalability at the same time. While scalability can be increased, it can only be done by sacrificing one of the other two attributes, and that’s unacceptable to the majority of its users.
Many alternative blockchains have emerged to try and solve Ethereum’s scalability issues, including projects such as Fantom, Avalanche, Polkadot and Solana, vying with one another for the status of “Ethereum killer”. Yet to date, none of these new projects has managed to surpass Ethereum, or even come close to it. One of the key challenges these projects face is that of adoption – they simply cannot compare to the massive numbers of users, and liquidity, that’s currently locked into Ethereum.
It could well be that the solution lay much closer to home. Due to some key advancements in blockchain technology, it has now become possible to build smart contract functionality into Bitcoin itself, meaning dApp developers can now take advantage of its key benefits, including its superior security and its enormous network effects.
The ability to build dApps on Bitcoin is made possible by the Layer 1 blockchain Stacks, which works similarly to many Layer 2 scaling solutions in the way it relieves much of the processing burden from Bitcoin, while still relying on its network for security. Stacks is an independent blockchain that’s integrated to Bitcoin through its unique Proof-of-Transfer consensus mechanism, which ultimately settles all of its transactions on the world’s original blockchain.
Stacks’ advantage is that while it relies on the secure, permissionless and open structure of Bitcoin, it adds new capabilities including smart contracts, meaning it’s possible to build DeFi applications that can execute transactions in BTC.
In other words, Stacks makes it possible to build smart contract-based applications on Bitcoin without making any changes to the Bitcoin protocol itself. This includes DeFi, NFTs, wallets, marketplaces and social networks, to name just a few.
Super Strong Security
There are a number of reasons why Bitcoin holds an edge over other blockchains, including Ethereum, with the most obvious one being its unparalleled security.
If DeFi is ever going to achieve mass adoption then users will need to feel secure when they use it. They’ll want to ensure their data, digital assets and transaction history enjoy the same level of protection as it does on Web 2.0 applications.
The problem is that many blockchains are struggling to achieve this. Ethereum has suffered multiple security setbacks in the past, with numerous protocols falling victim to high profile hacks in recent years. The forked version of Ethereum, known as Ethereum Classic, has suffered no less than three 51% attacks, and many others have suffered similar problems.
In contrast, Bitcoin enjoys a stellar reputation of never being hacked. That’s because its network is so widely used that attacking it simply isn’t realistic. To achieve the 51% computing power to successfully hack Bitcoin’s blockchain would cost so much in financial resources that these would outweigh any gains an attacker could expect to make. As a result, Bitcoin has remained immune to attacks and stress since its inception more than a decade ago. Anyone who builds a decentralized application atop of Bitcoin can therefore rest assured their application is protected by the strongest security architecture in the crypto world.
Loads Of Liquidity
A second reason to build on Bitcoin is to take advantage of its incredible network effects and liquidity. Bitcoin is by far and away the most well known cryptocurrency with the most widespread adoption. It has been declared legal tender in both El Salvador and the Central African Republic, and is widely accepted by businesses in hundreds of countries, including the U.S. and many European countries. What’s more, it has become incredibly popular as a medium of exchange in developing countries, particularly those with chronic economic problems like Argentina and Venezuela. Many Asians and Africans report using Bitcoin for day-to-day expenses, to pay for products and get paid, and to send money internationally. At the same time, Bitcoin is the favorite crypto investment of multiple Fortune 500 companies and institutional investors, including Tesla.
The broad adoption of Bitcoin means it boasts far greater liquidity than any other cryptocurrency, including Ethereum. At present its market capitalization stands at more than USD 405 billion, and the vast majority of those funds are not being put to any good use.
By building on Bitcoin, developers can provide a way for BTC holders to put those funds to use in liquidity pools, where they can provide funds for decentralized lending, generating yield and interest. Moreover, Bitcoin’s unrivaled onramps to the world of traditional fiat will ensure that dApps compatible with the network are more enticing for investors, as they can easily enter and exit their positions.
Diehard User Base
Bitcoin is also the cryptocurrency project with the single biggest community of users, enthusiasts and advocates, far surpassing any other project. Building on Bitcoin is the only way to tap into this incredible user base, many of whom are committed “Bitcoin maximalists” who refuse to touch any other kind of crypto.
While it’s impossible to estimate the number of Bitcoin users in the world, we can say with definitive authority that its user base exceeds tens of millions worldwide. For instance, Blockchain.com – just one of many popular wallet providers – has more than 38 million unique wallets, and more than 60% of those wallets have held an actual balance of BTC for over 12 months.
That in itself is a telling sign that suggests much of the Bitcoin community has less of a speculative instinct than many other, smaller crypto communities. Rather than jumping from one coin to the next in an effort to chase the next asset that “moons” and cash in on that growth by cashing out, the Bitcoin community retains its belief in the value of the world’s original crypto and its long-term destiny. For application developers, that means a steady audience of users and reduced churn, as they won’t be cashing out and jumping onto the next hot dApp the moment someone comes along offering higher potential returns.
The Universal Standard
If there’s one thing we can say with any certainty about crypto, it’s that Bitcoin has cemented its status as the universal standard for all other digital assets. Wherever Bitcoin goes, the rest of the crypto community follows. If Bitcoin’s price goes up, “alt season” quickly follows with most other cryptocurrencies racing to new all-time highs in the wake of BTC’s gains. However, if the price of BTC falls it always results in a bloodbath, with crypto assets collapsing all around it.
Bitcoin is the pacesetter and the gold standard for all other cryptocurrencies, and some believe that it could one day emerge as the standard for international banking too. In his book, The Bitcoin Standard: The Decentralized Alternative to Central Banking, Dr. Saifedean ammous notes that Bitcoin is completely free of counterparty risk, making it extremely advantageous as a network for settling large volumes of payments.
Ammous said that Bitcoin has the potential to serve as a fast and low cost settlement layer between central banks and other large financial institutions, with the advantage being that it’s verifiable, secure and infinitely cheaper than existing mechanisms.
“Bitcoin can support an international network of 850 central banks capable of performing daily final settlement with one another,” Ammous states in his book.
It remains to be seen if Bitcoin really will emerge as the final settlement layer for all other assets, but in any case it does seem certain that its prominence as a financial tool is only going to increase. With Bitcoin dominating all other cryptocurrencies, it makes sense that developers will be better served by building their applications directly within its ecosystem.
The Decentralization Of Trust
It’s for these reasons that Trust Machines has set itself the ambitious but achievable goal of transforming Bitcoin from being an unproductive, multi-billion asset into a more fertile economy that’s able to grow exponentially by tapping into that underlying value.
Having emerged earlier this year with an impressive USD 150 million in venture capital funding from the likes of Breyer Capital, Digital Currency Group, GoldenTree, Hivemind, Union Square Ventures and others, Trust Machines is aiming to bring the vision of Stacks forward. While Stacks has created the infrastructure necessary to build on Bitcoin, Trust Machines aims to be the one to develop that new economy with an ecosystem of dApps and technologies that can leverage Bitcoin’s liquidity and security in multiple new industries.
Trust Machines is bringing transformative applications to Bitcoin with the intention of making it a more productive asset. In doing so, it believes it can create more programmatic demand for Bitcoin, growing its ecosystem through the introduction of transformational applications in DeFi, business and other areas.
Trust Machines has yet to reveal the exact nature of its work, but its ambition of transforming Bitcoin to become more than just a store of value – its primary use today – tells us that it’s a project worth watching.
One of the most promising aspects of Trust Machines is its commitment to the “decentralization of trust”, an idea it says is perfectly embodied by the Bitcoin blockchain. Just as the Internet has transformed communications and access, leading to major changes in the way people live their lives, Bitcoin transforms trust by putting full control of our financial lives into the hands of the people. This is important, because trust is a key aspect of the most important human actions, including transactions, arbitration, identity and governance, to name just some.
Until now, trust has always been guaranteed by centralized entities such as banks and governments. Bitcoin changes this, enabling trust to be automated through its protocol without the need for any intermediary. What this means is that Bitcoin-based applications can be reimagined in ways that were never before possible, becoming more secure, economically efficient, transparent and democratic.
This is the future that Trust Machines is building on Bitcoin, and it’s one that developers must strive to be a part of.