An early Bitcoin advocate: Why I left Bitcoin and embraced Ethereum

Bitcoin is the only cryptocurrency that can reject innovation and still win; but right now, Ethereum might be the better choice.

I first got into crypto by buying Bitcoin in 2013. Last week, I finally sold my last BTC and bought ETH. I keep getting asked “Why did you leave Bitcoin?” and this post will answer that question.

First, I don’t hate Bitcoin. It’s a great asset and worth holding, but here are a few reasons why I choose not to hold it anymore:

Bitcoin is not a productive asset

In general, I try to own assets that have real end-user demand, real benefits, and cash flow, rather than assets that are strictly dependent on market supply and demand.

On the contrary, due to applications such as NFT and DeFi, users have a huge demand for ETH. The market value of ETH is less than half of BTC, but the daily fee of the Ethereum network is more than 10 times that of the Bitcoin network, and the fee represents the demand for block space.

Bitcoin has done a good job of winning the "digital gold" / store of value asset class. But from a practical application perspective, there is little demand to actually use it. And as commodities such as NFTs are increasingly denominated in ETH, ETH begins to compete with BTC for who is the better store of value.

Once Ethereum transitions to Proof of Stake, anyone can easily stake their ETH and earn a yield (expected annualized yield of around 5-10%), making it more attractive as a productive asset.

Bitcoin will face serious security and decentralization issues

The block rewards received by miners who maintain the Bitcoin network are halved every 4 years, and Bitcoin is expected to be fully "mined" in 2140, at which time miners will not be able to receive block rewards. In the Bitcoin white paper, the solution to this problem is to hope that by then there will be a high network adoption rate, and transaction fees will make up for the reduced block rewards.

It’s clear that Bitcoin is great as a store of value asset, but it’s not how people want to transact. Whereas in the Ethereum community, people are using their ETH to buy new NFTs, trade Dogecoin, etc.

Without moderate inflation or a dramatic shift in attitudes toward actual Bitcoin transactions, it’s hard to see how Bitcoin can remain secure and decentralized.

ESG concerns about energy consumption caused by Bitcoin mining

Although Bitcoin mining operations are increasingly turning to clean energy, environmental issues caused by mining are still a concern. Ethereum can solve this problem well: Ethereum is switching from proof of work to proof of stake, which will reduce the network's energy consumption by more than 99%.

The Bitcoin community does not support capitalism

Bitcoin holders are generally against new tokens and anything that creates wealth for builders without considering the whole picture. Getting rich from ICOing new coins in the ecosystem is a badge of honor for the Ethereum community.

This leads to an atmosphere that is more like communism (Bitcoin) vs. capitalism (Ethereum), where our innovation, progress, and economic returns are ultimately dependent on capital to drive growth.

Bitcoin community focuses on community loyalty rather than innovation

Bitcoin users have been fiercely resistant to change, while other competitors in the crypto industry are developing at an alarming pace. Perhaps BTC can win the competition by adding smart contracts and developing a long-term inflation plan to protect the network.

But the community (at least for now) will never let this happen. The Bitcoin community has become incredibly conservative, and it is very possible that someone has entered the crypto space in the past 2 years, has a 4-digit asset, but has never used a DApp. In my opinion, this tribalism has alienated the smartest people in the crypto world, who are no longer working on Bitcoin, but are working on solving cutting-edge problems in the crypto space.

Bitcoin Doesn’t Act as a Hedge Against Inflation or Bear Markets

Historically, a lot of the narrative around Bitcoin has been that it will act as an inflation hedge, a bear market hedge, or a currency or something like that.

That is not the case now, and over the past year, BTC and ETH have been strongly correlated to the Nasdaq. For better or worse, the market sees them as risk assets and treats them like tech stocks. If I were to own a crypto asset, I would want to own one that looks more like a tech company that is innovative and in line with user needs, rather than Bitcoin.

Here are some common rebuttals I get, and my thoughts on them.

Ethereum merger, transition to proof of stake will make the rich get richer?

In fact, Proof of Work makes this problem worse. Traditional mining operations have huge economies of scale and barriers to entry. If you can't order ASIC miners and negotiate large energy contracts at once, you will be at a huge disadvantage in Proof of Work mining. With liquid staking options such as Lido, Rocket Pool, and exchange staking programs, it is very easy to participate in Proof of Stake no matter how small your capital is.

Will Bitcoin be able to do everything Ethereum can do?

The fact is that the Bitcoin community has been very resistant to change. There are almost no smart contracts on the Bitcoin ecosystem. As long as Ethereum and other smart contract blockchains innovate at a breakneck pace, Bitcoin will not be able to take their market share.

Ethereum has been saying they will upgrade to proof of stake for seven years

If you follow the merger, you know it’s coming. There’s a 66% chance that it will happen in the next 12 months.

Summarize

Again, I am not bearish on Bitcoin. Its inherent advantages and consensus effect make it the only cryptocurrency that can reject innovation and still win (as a store of value). But for now, I prefer to hold ETH.