The crypto world is much larger and different from Bitcoin and its philosophy

Trends, narratives, beliefs, and stories are very important factors in the investment world. The Bitcoin community has been consistently trying for many years to legitimize the largest and most popular cryptocurrency as digital gold, a „safe-haven“ type of asset whose primary use case is long-term holding. Digital gold is an excellent and simple comparison that an increasing number of investors can relate to.

In the last few months, there has rarely been a week in which we haven’t heard a well-known traditional investor stating that Bitcoin could be a new store of value, which, like gold, can play an important role in a diversified portfolio. It is rarely mentioned that Bitcoin is slow and that it is very little or not used at all as a currency in everyday transactions. The so-called HODL narrative has definitely won.

Bitcoin’s value has been growing in the long term due to the strong actions of the Bitcoin community. We could say that digital gold is actually a meme. When the word meme is mentioned, most people immediately think of Dogecoin. However, memes can also be interpreted as a strong form of internet culture that does not have to relate only to jokes (although in most cases they do), but as a form of interpretation around which people agree and understand very well. Digital gold is certainly one of the best memes created by the Bitcoin community. One of the more well-known memes in earlier days was magic internet money.

Visualization also plays a significant role. People, as visual beings, who receive more than 90 percent of information through the sense of sight, like to imagine things in physical form. Although Bitcoin is invisible, intangible, and exists exclusively in digital form, i.e., only as a digital ledger, we all imagine it in the form of a gold coin.

Bitcoin shares many similar values and properties with gold:

• besides holding, it is not used for much (gold is still used as jewelry and less frequently as an industrial raw material, but for the most part, it serves as financial property)
• no one has privileged access to gold, in terms of quantity and deposits, both assets can be mined anywhere in the world
• energy intensity and weight of the mining process
• the predictability of supply and the exact amount of gold is not absolute as with Bitcoin, however, if by any chance a golden meteor does not land on Earth, the supply is quite predictable
• both assets have somewhat mystical origins, Bitcoin has Satoshi, while gold was revered by ancient ancestors for its „divine“ properties

Different views

Differences in attitudes have generally always been broader than Bitcoin and cryptocurrencies themselves. Especially in Bitcoin’s short history, there have been many discussions about what Bitcoin’s role is and which path the community and the entire movement should take. Also, throughout the crypto space, tens of thousands of new projects have been launched with different purposes, worldviews, and goals.

It is worth noting that most discussions about Bitcoin have revolved around technical details, there have also been political elements with doubts that certain individuals have tried to control the network for their specific purposes. In any case, Bitcoin has remained unchanged, with a few technical upgrades around which the community has reached a majority consensus. Generally speaking, the fundamental philosophy of Bitcoin’s development is extremely conservative and resistant to change. This is in complete contrast to the ethos of Silicon Valley.

Of course, there are a large number of people who acknowledge and celebrate Satoshi’s achievement of the first establishment of decentralized and digital scarcity, but there are also people who want to do something more with blockchain technology, beyond just holding.

One of the most prominent individuals who wanted to do something more was Vitalik Buterin, who published the Ethereum whitepaper in 2013, claiming that with some modifications, blockchain could serve for much more than just a monetary database. His vision included, among other things, a repository of identity, a decentralized way of storing data, and financial derivatives. Essentially, most of the things that many are excited about today, such as decentralized finance (DeFi), non-fungible tokens (NFT), decentralized autonomous organizations (DAO)…

Bitcoin vs Ethereum

There is an opinion that both Bitcoin and Ethereum could be described as the official currencies of two different digital tribes. Many investors clearly own both cryptocurrencies due to the advantages and potential they offer.

Generalizing the behavior of the Bitcoin community through social media, especially Twitter, Bitcoiners tend to place great value on contradictory thinking.

„Trust no one. Immediately upon purchase, transfer your Bitcoins to a hardware wallet. Run your own node so you can directly monitor the network“ – some of the many well-known statements from the Bitcoin community.

In the last few months, Bitcoiners have launched the „laser eyes“ movement, thus putting laser eyes on their Twitter profiles. As the well-known Bitcoin podcaster and influencer Anthony Pompliano recently tweeted, „Bitcoiners vs The World“. Bitcoiners do not trust banks, and they are especially against central ones, which they claim cause inflation and create uneven wealth distribution through irresponsible money printing. They argue that Satoshi’s disappearance and anonymity is an advantage.

The Ethereum community is completely different. Their founder is well-known and highly influential. Vitalik does not have laser eyes, but he has been photographed several times wearing cat-themed shirts. The largest decentralized exchange on Ethereum is called Uniswap, which has a unicorn theme as its main motif. After Pompliano’s tweet about Bitcoiners against the world, the Ethereum community responded that their mission is for the world, not against it.

Although this is a generalization, I have highlighted examples of typical behavior from both communities. The crypto space has significantly expanded in the last year, and an increasing number of people are involved and part of one or both communities. Intense philosophical debates are taking place between the Bitcoin and Ethereum communities. There is a part of the Bitcoin community (Bitcoin maximalists) that does not recognize other cryptocurrencies and refers to them as shitcoins. Sometimes enthusiasm can turn into toxic maximalism, which becomes cult-like.

What is interesting about Ethereum is that besides being a cryptocurrency, it is also a token. And what is the definition of a token? The simplest explanation is that a token is a kind of money/asset that can be redeemed for goods or services within a specific environment or system. In the Ethereum ecosystem, Ether serves as the currency for running various applications and numerous use cases.

Bitcoin’s value arises from the widely accepted belief and acceptance as a store of value. The value of a token involves much less belief. The value of a token arises from the use of specific applications. By owning Ether, one has the opportunity to use a range of different projects throughout the environment.

One of the first use cases of Ether was ICOs. In 2017, you had to own Ether if you wanted to invest in a specific ICO. Although ICOs are a great and efficient way to raise capital, things got out of control, and the trend turned into hype that quickly faded. Today, ICOs carry negative connotations due to numerous cases of fraud and failure to meet high investor expectations.

Another possibility is the emergence of new cases of social coordination. In this concept, Ethereum’s blockchain may end up as the foundation for a new type of decentralized social network in the future. There are countless possibilities opening up, perhaps the most striking being the digital world of art, objects, games, organizations, and financial applications. From the very beginning, many have been fascinated by the concept of decentralized autonomous organizations (DAOs) where individuals gather capital like corporations and invest and allocate it in various ways and for different purposes.

The world of decentralized finance (DeFi) possesses enormous potential. In the last few months, there are few people who have not heard or read something about DeFi. The term encompasses many different things and use cases. From lending and borrowing applications, stablecoins, decentralized exchanges, protocols for earning passive income… However, so far the main use case (although many crypto enthusiasts would disagree) has been speculation on individual cryptocurrencies.

Speculation is the most interesting part for many and will always exist, especially in the crypto market. But DeFi certainly has greater potential than a mere „gambling game“. From a technological perspective, it is an exciting idea that anyone can launch their own banking protocol, where lenders and borrowers negotiate and coordinate without the presence of a third intermediary.

Currently, all loans in DeFi are over-collateralized, meaning if you wanted to take out a loan of $100, you need $110. In this way, the criticized process of money creation through the multiplication of deposits via fractional lending has been replaced. So far, this process has mostly been used for speculative purposes, where individuals holding large amounts of Ether borrow money to buy more cryptocurrencies.

The question arises whether executive authorities will continue to observe DeFi from a distance and allow the launch of applications that are essentially nothing more than banks and exchanges, without adhering to existing financial regulations. There is no registration process when trading on Uniswap. Regulators do not have names, there are no KYC and AML procedures, all they have are numbers and letters that make up an Ethereum address.

If regulators wanted to prevent DeFi, the general opinions and views at this moment are that they could not because it is essentially just open-source software, and even if projects shut down, the software continues to live on.

The problem Ethereum faces is speed and capacity. Bitcoin is also slow, inefficient, and transactions are expensive. However, there is not as much pressure on Bitcoin as there is on Ethereum, precisely because of the numerous use cases.

A few weeks ago, the cost of using the Ethereum network skyrocketed. The reason for this was the frenzy that arose around Shiba Inu, a meme token that tried to replicate the success of Dogecoin. Since there is a finite capacity, individuals who wanted to execute a transaction at that time paid extremely high fees.

Solutions are being developed for these complex problems. The most popular solution is the so-called layer 2 systems, designed to make transactions faster and cheaper. But building and testing takes a lot of time. In the meantime, we must accept the fact that if market volatility suddenly increases or if there happens to be another meme token mania, the cost of transactions will naturally rise.

Different visions

All blockchain systems share two basic ideas. The first is that for the first time, anyone can truly prove ownership of something on the internet. Cryptocurrency, token, or NFT, no third party or intermediary has rights to a certain form of property. The second builds on the first, namely that for digital ownership to function, a decentralized network of computers is needed, so that no individual, company, or executive authority has a vote and cannot decide independently.

However, a difference in ideology arises between the communities. The vision of Bitcoin is to create a new form of money outside the jurisdiction of a central issuer. The vision of DeFi is completely different; the creation of a new form of money is out of the question. After all, dollars can be sent on the Ethereum network via stablecoins. Instead, the vision is based on building an unstoppable blockchain system that enables the provision of censorship-resistant and limitation-resistant services.

The DeFi vision is more connected to the ethos of Silicon Valley. Creating a new form of money? Many do not agree with such an idea. Building software that has the potential to disrupt the traditional financial sector? This type of thinking makes more sense. Moreover, Bitcoin frustrates many in the tech community due to its slow and cautious moves.

All these different views and factions mostly remain as discussions within crypto communities. It is not entirely clear how much the average crypto investor pays attention to the mentioned models and different visions. Looking at the entire crypto space, there is a high degree of correlation. Either all cryptocurrencies rise or fall together. An interesting example is Litecoin, which is still one of the largest cryptocurrencies, despite the fact that development has significantly stalled. Many view Litecoin as silver, in relation to Bitcoin as gold, which is an outdated way of formulating theses and investment decisions, however, it is clear that it still holds value.

Differences in approach and philosophy between different projects are very real. The crypto space has much more than Bitcoin, as confirmed by Ethereum and other cryptocurrencies like Cardano, Solana… For now, Ethereum has proven to be the strongest and most used blockchain. An approach prone to changes and upgrades can seriously threaten Bitcoin’s current top position.