Web3 should be built on Bitcoin, not its imitators

A fundamental debate in the Bitcoin community has been revived by the recent launch of Bitcoin Ordinals: to build or not to build on Bitcoin?

Creating new applications on Bitcoin provides an opportunity to leverage the most secure, robust and fluid network to build Web3. From social networks to financial services, Web3 applications appear to be converting our most sensitive daily touchpoints into trustless systems. Eliminating centralized control means that the systems underlying Web3 applications must be as stable and, ironically, reliable as possible.

Bitcoin (BTC) has long been seen almost exclusively as a currency and store of value. However, the Bitcoin blockchain has proven, through over a decade of unfailingly solid and routine operation, to be the most secure and economically viable blockchain network and therefore the ideal foundation for Web3. To fail to build on Bitcoin would be to abandon key applications for the network that have the potential to make the internet, and the world at large, a better place.

Bitcoin’s unprecedented level of decentralization among other cryptocurrencies directly correlates with its resistance to tampering. Just an attack that seizes the computing power of 51% or more of the network can result in theft or reversed transactions. This would be borderline impossible due to the prohibitive costs of acquiring so much computing power.

Bitcoin is the cryptocurrency best positioned to lead the future of money and serve as a widespread medium of global commerce. Besides being the most decentralized, it is also the most liquid cryptocurrency with a current market cap of over $500 billion. It also has the strongest network effects; more people own bitcoin than any other cryptocurrency.

Building new applications on Bitcoin thus allows the subsequent applications – whether they facilitate digital assets, decentralized finance (DeFi) or decentralized autonomous organizations (DAOs) – to benefit from Bitcoin’s network effects, all while stimulating further use of good money. BTC’s liquidity, the highest of any cryptocurrency including ether (ETH), is particularly critical in decentralized finance, which runs on liquidity pools. The greater liquidity a protocol has, the better suited it is to drive financial use cases.

Bitcoin also has the distinct advantage of its senior, established position in the markets. The level of security, scarcity and liquidity means that it will not be replaced by another currency as a store of value. In short, Bitcoin’s theoretical value proposition – a hard money network designed to persist indefinitely – has been achieved.

Furthermore, unlike other cryptocurrencies, BTC has also hovered above enforcement actions by the Securities and Exchange Commission (SEC) and other regulatory agencies – an advantage that is at least partially due to its total and provable decentralization. People can speculate with BTC as they do with other cryptocurrencies, but there is no single entity that will benefit the most from its adoption and use.

Nevertheless, Ethereum has become de facto choice for building Web3 applications, mainly due to the fact that Ethereum can naturally support the kind of flexible smart contracts that Bitcoin cannot due to its limited programmability.

Contrary to popular belief, however, this aspect of Bitcoin’s design is a feature, not a bug, to facilitate decentralized finance and other Web3 applications. Bitcoin was built to support a large volume of sensitive, complex monetary transactions, and the subsequent level of security and stability makes it an ideal platform for building Web3 applications.

To date, Bitcoin has been chronically overlooked as a network for building new decentralized applications. As of late 2022, $35 billion of Ethereum’s $200 billion market cap was attributed to DeFi alone. By comparison, only $550 million of bitcoin’s $400 billion market cap has been powered by the big four Tier 2 Bitcoin scaling systems—Liquid, RSK, Lightning, and Stacks—designed in part to run more complicated applications.

Ethereum also attracted the largest developer crypto ecosystem in 2022, 2.8 times larger than the next chain, with an estimated 5,819 developers compared to Bitcoin’s 946. While Bitcoin tripled its monthly active developers in 2022, blockchain-related cryptocurrencies Polygon, Polkadot and Solana. in 2022, according to a widely cited Electric Capital report.

In this sense, the primary obstacle to using Bitcoin’s power for broader Web3 applications is not technological, but cultural. In the Bitcoin community, resistance to innovation is common, largely due to a purist understanding of Satoshi’s original mission for BTC to serve as a peer-to-peer digital currency.

The Bitcoin community’s aversion to change and innovation has in many ways served as a boon to the network. Bitcoin developers and enthusiasts have doggedly preserved the core design of the network—such as the energy-intensive proof-of-work consensus algorithm and a fixed token supply—and thus the integrity of the network.

However, for some, protection of the network’s fundamental properties has become mutually exclusive with the development of its potential. Bitcoin was created to be a payment system, but this does not mean that it should serve as money to the exclusion of everything else.

In the same way that dollars are used to both produce and purchase goods, Bitcoin can be used both to generate digital goods and services and in turn to purchase them. After all, throughout history money has been used to facilitate the creation of expressive, practical and usable goods.

While Bitcoin has lagged behind other protocols for smart contract development, it can easily outperform other protocols building decentralized applications given its inherent advantages – not to mention the new scalability potential created by the Taproot upgrade. However, this will require energetic initiatives to build within the Bitcoin community, as well as a concerted effort to integrate builders into the ecosystem.

Building on Bitcoin as a base layer for DeFi, payments and non-fungible tokens (NFTs) will catapult Bitcoin to even higher levels of visibility and adoption.

Leading companies including Starbucks, Amazon and Salesforce have all attempted to establish “Web3 strategies.” All have looked to protocols like Ethereum and Polygon to help create the backbone infrastructure for products that will reach billions of people and power adoption of the supporting cryptocurrency, including loyalty programs and NFTs.

While altcoin networks lack Bitcoin’s market dominance and level of decentralization, they boast a degree of investment in innovation to meet the needs of large global consumer audiences. Still, the possibilities of using Bitcoin to power Web3 are revolutionary. The Ordinals project, which has surged in adoption in a few months with over 400,000 Ordinals minted in a matter of weeks, highlights the huge public appetite for Bitcoin digital assets.

Other technologies such as zero-knowledge calls (zk rollups) on Bitcoin can also create powerful ways to settle global payments in BTC in a way that is fast, free and energy efficient. Zk-rollups, an experimental scaling model adopted on Ethereum, inherit the blockchain’s unique attributes of immutability and settlement security, and can play a key role in driving decentralized finance with bitcoin.

Web3 platforms built on Bitcoin will serve as a secure foundation for making financial services available to everyone in the world. In a Bitcoin-based Web3 future, everyone in the world with Wi-Fi will be connected through a complete digital and social economy powered by bitcoin as both currency and productive capital.

Bitcoiners are already dreaming of ways to deploy Bitcoin apps to improve processes like election voting. Using smart contracts on Bitcoin to facilitate voting could end up providing more transparency and security, while reducing the opportunity cost of in-person voting and eliminating the mistrust that plagues modern politics.

By not building beyond economic use cases, Bitcoin risks losing out to other protocols despite its biggest head start. This anti-innovation sentiment will continue to discourage all but the most committed developers from building on the network, continuing to send talent to protocols like Ethereum where the opportunities to build are more and more lucrative.

It is up to the Bitcoin community and its developers to mobilize to achieve this future, or risk leaving Bitcoin’s full potential unfulfilled.