BitMEX Research recently released a report detailing why Ethereum has overshadowed Bitcoin as the hub of Dapp and developer activity within crypto. While there are technical reasons for the diversion, the team says that the culture of Bitcoin developers prior to the launch of Ethereum pushed alternative use cases away from its ecosystem.
The OP_Return controversy
The report explores the March 2014 online discussions among Bitcoin Core developers regarding the application layer of Bitcoin. They started with the launch of the Counterparty protocol earlier this year, 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 obviously can’t be spent. “The function can be used to record Bitcoin or store arbitrary data on the Bitcoin blockchain,” BitMEX explained.
Some say that these types of transactions help Bitcoin scale because they don’t require pruned Bitcoin nodes to store their data. This makes running a node less storage-intensive for the average person, which helps Bitcoin maintain its decentralization.
However, on March 20, 2014, Bitcoin contributor Jeff Garzik began criticizing CounterParty’s use of the Bitcoin blockchain space in a Bitcointalk forum. He argued that the function storing arbitrary data on the blockchain could have “negative” or “unintended” consequences and that more efficient scaling solutions already exist, such as sidechains.
In a quick back-and-forth, the Counterparty developers finally accepted Garzik’s position. They asked to discuss solutions with leading Bitcoin developers on how Counterparty can survive while using the security of the Bitcoin blockchain responsibly.
However, Bitcoiners have not done much to support any protocol. Instead, a Bitcoin mining and development pool operator at the time named Luke-Jr accused Counterparty users of forcing Bitcoin nodes to store unexpected types of transactions against their will. Like Garzik, he recommended fusion-mined sidechains as a venue for such alternative uses of blockchain data.
“Hopefully, as mining decentralizes again, we’ll see less tolerance for abusive/spam transactions, be it the OP_RETURN variant or otherwise,” he concluded.
To back up his claim, Luke-Jr began censoring all transactions related to the counterparty in his mining pool. On March 28, he compared Counterparty’s use of the blockchain space to abuse against Bitcoin nodes.
What is Bitcoin?
Luke-Jr’s statement and actions angered many in the Counterparty community. Their counterarguments centered around Luke-Jr’s apparent attempt to dictate what the Bitcoin blockchain was supposed to be used for. “I can’t believe this attitude,” said one user. “I didn’t know Bitcoin had owners.”
Others argued that the counterparty transactions constituted financial transactions and were therefore consistent with what the Bitcoin nodes had agreed to store. “He has a much more limited view of possible use cases for Bitcoin than others,” said PhantomPhreak, co-founder of Counterparty.
“Bitcoin does a lot of things that it was not originally intended to do,” he continued. “We do not want to extend the Bitcoin protocol. We want to do something entirely within it, and in the simplest and most direct way possible, for the benefit of stability, security, etc.
Based on the overwhelming reaction from the Counterparty community, BitMEX suspects that this moment has turned many Bitcoin developers away from developing their projects on Ethereum.
Why not sidechains?
As BitMEX explains, sidechains failed to gain critical mass as a scaling solution for Bitcoin due to various limitations of the technology, despite support from Counterparty adversaries.
One of those limitations was the complexity of building such a sidechain. Developers simply didn’t have time to build a secure, merged sidechain before other protocols gained market share. Although sidechains like Rootstock and Liquid now exist, Ethereum still dwarfs them in popularity.
A second restriction concerns the use of Bitcoin as a native asset on each chain while remaining attached to the main Bitcoin chain. To date, developers have yet to find a solution to create a fully reliable two-way link between blockchains. In January, Ethereum co-founder Vitalik Buterin wrote a post on Reddit explaining why 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, sidechains may not fully solve Bitcoin’s data storage issues, depending on the app.
“It seems that some of the people advocating sidechains as a solution were not particularly interested in, nor had they experienced many Dapp applications,” BitMEX said.
Ethereum also has properties that make it easier to use and developer, such as faster block times, a less conservative block size restriction, and a more flexible scripting language.
“However… the most important factor is culture,” the report concludes.
Late last month, popular venture capitalist and cryptocurrency researcher Nic Carter wrote a scathing essay against Bitcoin users who denied alternative use cases for blockchains, such as stablecoins and decentralized finance.
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