BitMEX Research recently published a report detailing why Ethereum has dwarfed Bitcoin as the center of Dapp and developer activity within crypto. While there are technical reasons for the discrepancy, the team claims that Bitcoin developer culture prior to Ethereum’s launch drove alternative use cases away from its ecosystem.
The OP_Return controversy
The report explores the March 2014 online discussions among Bitcoin Core developers regarding Bitcoin’s application layer. 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.
Counterparty uses OP_Return to store data – a type of transaction output that is provably unspendable. “The function can be used to burn Bitcoin or store arbitrary data in the Bitcoin blockchain,” explained BitMEX.
Some say these types of transactions help scale Bitcoin because they don’t require pruned Bitcoin nodes to store their data. This makes running a node less storage intensive for the average person, helping Bitcoin retain its decentralization.
Nevertheless, on March 20th, 2014, Bitcoin contributor Jeff Garzik began criticizing CounterParty’s use of Bitcoin blockchain space in a Bitcointalk forum. He argued that the function’s storage of arbitrary data in the blockchain could have “negative” or “unintended consequences” and that more efficient scaling solutions – such as sidechains – already existed.
In a quick back-and-forth, the Counterparty devs finally accepted Garzik’s position. They asked to discuss solutions with leading Bitcoin developers on how Counterparty can survive while using Bitcoin’s blockchain security responsibly.
However, Bitcoiners did little to support the lesser protocol. Instead, a Bitcoin dev and mining pool operator at the time named Luke-Jr accused Counterparty users of forcing Bitcoin nodes to store unexpected transaction types against their will. Like Garzik, he recommended merge-mined sidechains as a place for such alternative uses of blockchain data.
“Hopefully as mining becomes decentralized again, we will see less tolerance for abusive transactions/spam, be it the OP_RETURN variant or otherwise,” he concluded.
Backing up his statement, Luke-Jr then began censoring all Counterparty-related transactions at his mining pool. On March 28th, he then compared Counterparty’s use of blockchain space to abuse against Bitcoin nodes.
What is Bitcoin?
Luke-Jr’s statement and actions angered many in the Counterparty community. Their counter-arguments centered on 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 Counterparty’s transactions constituted financial transactions and therefore were in line with what Bitcoin nodes agreed to store. “You have a much narrower view of the possible use cases for Bitcoin than do others,” said Counterparty co-founder PhantomPhreak.
“Bitcoin does a lot of things it was not originally intended to do,” he continued. “We don’t want to extend the Bitcoin protocol. We want to do something entirely within it, and as simply and directly as possible, for the benefit of stability, security, etc.
Based on the overwhelming reaction from Counterparty’s community, BitMEX suspects that this moment drove many developers away from Bitcoin to develop their projects on Ethereum.
Why not sidechains?
As BitMEX explains, sidechains had 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 these limitations involved the complexity of building such a sidechain. Developers simply did not have time to build a secure, merge-mined sidechain before other protocols won market share. Though sidechains like Rootstock and Liquid now exist, they are still dwarfed by Ethereum in popularity.
A second constraint 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 an entirely trustless two-way peg between blockchains. In January, Ethereum co-founder Vitalik Buterin wrote a post on Reddit explaining why he thinks the security of blockchain bridges is fundamentally flawed.
Finally, sidechains are thought to have limited use cases that don’t ultimately require security guarantees from the main chain. Therefore, sidechains may not fully solve Bitcoin’s data storage issues, depending on the application.
“It appears that some of the people advocating for sidechains as a solution weren’t particularly interested in many Dapp apps, nor had they experienced them,” BitMEX said.
Ethereum also holds properties that make it more developer and user-friendly, such as faster block times, a less conservative blocksize constraint, and a more flexible scripting language.
“However… the most important factor is culture,” the report concludes.
Late last month, the popular crypto venture capitalist and researcher Nic Carter wrote a scathing essay against Bitcoiners who denied alternative use-cases for blockchains, such as stablecoins and decentralized finance.
