Bitcoin vs Ethereum, who will win?

This article was first published on the WeChat official account: Hongyanweiyu (ID: hongyanweiyu), author: Xue Hongyan, director of the Internet Finance Center of Suning Financial Research Institute.

As the pioneer of blockchain digital currency, Bitcoin has always been the leading digital currency, far ahead of other competing coins (digital currencies that have been improved compared to Bitcoin) and copycat coins (digital currencies that have completely copied Bitcoin). However, since the beginning of this year, Ethereum has risen rapidly, with an increase of 20 times that of Bitcoin, and its total market value has increased rapidly, and it seems that there is a tendency for the latecomer to surpass the leader. In the eight years since its launch, Bitcoin has encountered a strong opponent for the first time.

As the main currency in Ethereum, Ether is the fuel for the normal operation of the entire Ethereum blockchain ecosystem. It rises and falls with the development of Ethereum. The challenge launched by Ether to Bitcoin is essentially a challenge from the Ethereum blockchain to the Bitcoin blockchain. One has an ecological advantage, and the other is a hit product. What are the prospects for victory or defeat?

The rise of Ethereum and the surge in ether

When Satoshi Nakamoto published Bitcoin: A Peer-to-Peer Electronic Cash System in 2008, blockchain existed only as a distributed ledger for Bitcoin. For Satoshi Nakamoto, the creator of Bitcoin and blockchain, blockchain exists only for Bitcoin. The programmability of blockchain only stops at "turning Bitcoin into programmable electronic currency" to implement some basic smart contracts, and its scalability is very limited.

Among them, a major flaw comes from the difficulty of simplifying payment verification. Bitcoin's Merkle tree structure supports the "Simplified Payment Verification" protocol. Through this protocol, nodes on the blockchain do not need to download the entire blockchain when verifying the authenticity of a transaction. Instead, they only need to ask other nodes for specific hash sequences related to the transaction, which greatly reduces the bandwidth and time required for verification.

Since the Bitcoin blockchain is mainly designed for simple Bitcoin transactions and value storage, its script system does not support simplified payment verification for complex financial applications built on the Bitcoin blockchain. Therefore, it greatly limits the operation of complex application systems on the Bitcoin blockchain.

So we see that as the world's largest blockchain, apart from applications such as exchanges and wallets, there are few other complex decentralized applications on the Bitcoin blockchain, which is far from forming an ecosystem.

At the end of 2013, Ethereum founder Vitalik Buterin released the first version of the Ethereum white paper, proposing the concept of building an innovative and open basic platform for blockchain. By providing an excellent underlying protocol with a powerful scripting system, any advanced contracts, currencies and other decentralized applications can be created on it. In June 2017, Vitalik Buterin shared this journey in a forum:

“I got into blockchain six years ago. I made 20 BTC and I used 8.5 to buy a shirt. The 8.5 BTC I spent is now worth $20,000 and the shirt is gone. But what I realized in joining this global experiment (Ethereum) is that if thousands of people around the world work on it together, this digital economy can work.

The idea that thousands of people connected to the Internet could create an independent financial system has left a lasting impression on me. Decentralization, cryptography, openness, and transparency all impressed me. However, the application of blockchain is not limited to cryptocurrencies. It has a huge potential to be applicable to all walks of life and can bring significant benefits to enterprises and organizations of all sizes. "

Soon, the concept of Ethereum attracted a large number of outstanding talents to join. On July 24, 2014, Ethereum started the Genesis pre-sale, issuing a total of 72 million ethers and raising a total of 31,531 bitcoins. In July 2015, the Ethereum network was released and the Ethereum blockchain was officially put into operation. As a universal payment tool within the Ethereum blockchain, Ethereum began to be traded on major exchanges.

As more and more financial institutions and large enterprises join the Ethereum blockchain development team, the number of Ethereum-based blockchain applications begins to increase. The development and growth of Ethereum provides a basis for the appreciation of Ethereum. From December 2015 to June 2016, in just six months, the price of Ethereum rose from RMB 6.1 to around RMB 100. After that, the value of the currency fell due to the DOA incident, but it has remained stable at more than RMB 50.

According to data from the Bitcoin exchange, as of December 31, 2016, the price of Ethereum was RMB 57.08. It has been rising rapidly since March 2017, reaching a high of RMB 3,000 during trading on June 10. As of June 14, 2017, it closed at RMB 2,615.99, up 4,483% from the end of last year. During the same period, the increase in Bitcoin was only about 200%.

Ethereum market trend since 2017 (RMB), data source: Bitcoin Exchange, Suning Financial Research Institute

The dialectic between technological perfectionism and ecological support

Compared to Bitcoin’s poor scalability, Ethereum’s excellent scalability has attracted many participants, including government agencies and corporate giants. Let’s look at them in reverse order.

In June 2017, at the International Economic Forum, Russian President Vladimir Putin met with Vitalik Buterin to discuss the application of Ethereum technology in Russia. President Putin reportedly supported the idea of ​​paving the way for new business relationships using blockchain technology.

On May 5, 2017, South Korea officially became the world's largest ETH exchange market, with a daily trading volume of US$105 million, accounting for 21% of the global ETH exchange market share, higher than the United States and China.

In March 2017, the Ethereum Alliance (EEA) was established, with members including Microsoft, Intel, JPMorgan Chase, Deloitte, Accenture, ING, ConsenSys and Toyota Research Institute. It is committed to exploring the future of blockchain and creating the next generation economy based on the Ethereum blockchain.

In January 2017, the United Nations food aid agency World Food Programme (WFP) used Ethereum-based aid for the first time in Sindh Province, Pakistan. 100 people received 100 rupees and food worth 100 rupees, and the channel for distributing donations and supplies was based on the Ethereum blockchain network.

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According to incomplete statistics, by the end of 2016, there were already hundreds of Ethereum-based projects. It is foreseeable that such projects are still popping up like mushrooms after rain. These projects can call each other, and the business and business models can be interconnected, which is very conducive to forming a strong ecosystem, which is not available in other blockchain products at present.

As the fuel (payment and reward tool) of the Ethereum blockchain, Ether will naturally continue to appreciate as Ethereum grows and develops. As of June 10, 2017, the market value of Bitcoin reached $46 billion, while the market value of Ether reached $24 billion, ranking second in the market value of encrypted digital currencies, twice as much as the third-ranked Ripple.

In essence, Ethereum was created based on improvements to the Bitcoin blockchain, hoping to fully leverage the advantages of the blockchain through Turing-complete technology so that developers can freely implement various business models. The maturity of various business models will in turn promote the prosperity and development of Ethereum itself.

This model is good in an ideal state, but it also has potential problems. In order to maintain sufficient scalability, Ethereum technology needs to be flexible enough and will become very complex. Developers' code will become more and more difficult to understand, and developers will become more and more dependent on the developer team. At the same time, as the ecosystem becomes more and more complete, there will be more and more new problems to deal with and more and more matters to coordinate, which will be further and further away from the ideal of decentralization.

In fact, Ethereum’s handling of the DOA incident has been questioned. Let’s first briefly review the incident itself:

In June 2016, TheDAO, the largest crowdfunding project on Ethereum, was attacked. The project, which raised more than 150 million US dollars, lost more than 3.6 million ether. In July 2016, the Ethereum team modified the code of the Ethereum software and forcibly transferred all the funds of TheDAO to a specific refund contract address in block 1920000. In this way, the coins controlled by the hacker were obtained, thus forming two paths, one for the original chain (ETC, currently ranked 6th in market value among encrypted digital currencies), and the other for the new fork (ETH).

After the DOA incident, Ethereum holders were delighted to recover their losses, but more people were generally critical and began to worry that such an operation would damage its "decentralized" authority. After all, as a virtual currency asset, if Ethereum wants to be accepted by more people, the immutability and decentralization of transactions are indispensable prerequisites.

Affected by this, the price of Ethereum ETH plummeted, falling by as much as 60% at one point, and consolidated at a low level for half a year. In contrast, although the scalability of the Bitcoin blockchain is poor, it also makes Bitcoin more pure as a digital cryptocurrency, the decentralization trend is more significant, and the blockchain itself is more resilient.

Therefore, from the perspective of blockchain's scalability, Ethereum is undoubtedly a winner and a classic representative of the blockchain 2.0 era. However, from the perspective of cryptocurrency itself, whether the world wants a pure currency or prefers a currency that carries and serves an ecosystem may be the root issue that determines the core development prospects of Bitcoin and Ethereum.

Outlook: Bitcoin may not be vulnerable

The ass determines the head is a classic rule in the investment field, and the same is true for digital currency. In the eyes of those who are optimistic about and buy Ethereum, Ethereum represents the evolution direction of encrypted digital currency, while Bitcoin is an antique from the 1.0 era.

In the eyes of those who hold a large number of Bitcoins, Bitcoin, as the first application of blockchain, solves the defects of the sovereign currency system that has accumulated over the years in the world economy. A currency that transcends national boundaries and resists inflation has a wide and huge demand. For Bitcoin, purely achieving this desire is enough to support the broad prospects of value-added.

Of course, more people choose to bet on both sides. Whether it is Ethereum or Bitcoin, the transaction volume is still pitifully small compared to the current monetary system. Each has huge room for growth, and each faces many restrictive conditions. It is far from the time for tit-for-tat.

*The article is the author's independent opinion and does not represent the position of Huxiu.com. This article was authorized by Xue Hongyan to be published on Huxiu.com and edited by Huxiu.com. Please indicate the author's name at the beginning of the article when reprinting this article, keep the integrity of the article (including Huxiu's note and other author's identity information), and attach the source (Huxiu.com) and the link to this page. Original link: http://www.huxiu.com/article/200405.html