Bitcoin, Ethereum, and USDT have been among the top three in the market capitalization of the cryptocurrency industry for quite some time after their appearance. This begs the question, why did the market choose them?
Before thinking about this question, we need to review the original goals of these three cryptocurrencies.
Bitcoin is the first cryptocurrency that achieves decentralization and prevents double spending at the same time. Through point-to-point payment, it removes the management of any centralized organization and aims to become a currency solution that replaces paper money.
Ethereum is the first cryptocurrency that uses Turing's complete smart contract on the blockchain, and becomes a decentralized application platform that can replace the operation and control of large companies. Its goal is to become the world's computer and decentralized application platform.
USDT is the first cryptocurrency backed and anchored by the U.S. dollar. By linking with the sovereign credit currency, it takes advantage of its relatively more stable purchasing power and aims to occupy the position of the settlement unit in the encryption industry.
Since the emergence of these three, each has always faced its own corresponding problems, and the challenges and competitions against them have never stopped.
**Why can the centralized USDT stand out? **
First, take USDT as an example. Since its anchoring relies on the management of a single institution, it does not conform to the core of cryptocurrency decentralization. Therefore, the industry has tried to explore decentralized stablecoin systems, such as various algorithmic stablecoins. But algorithmic stablecoins ultimately proved unable to operate stably for a long time.
Algorithmic stablecoins cannot meet the three requirements of large-scale liquidity, decentralization and stable currency value at the same time. Therefore, the industry has to eventually tend to choose a stable currency value and large-scale circulation, while relatively sacrificing decentralization. This has also caused users to continue to worry about USDT, especially at the very moment when thunderstorm projects continue to appear in the industry and supervision becomes more stringent.
However, the biggest risk of USDT and other stablecoins anchored to fiat currencies lies in the fragility of the fiat currency credit system. The crisis of centralized finance and the legal currency system is one of the important reasons for the birth of Bitcoin. This is also an important reason why stablecoins anchored to fiat currency such as USDT cannot surpass Bitcoin: We need a high-quality asset that can hedge against the collapse of the fiat currency credit system.
However, paradoxically, USDT as another centralized currency system runs counter to the spirit of math and code in the encrypted world. Despite this, it is still able to sit firmly in the top three positions in market capitalization. This raises a question worth pondering, **Why can USDT gain a firm foothold in the encryption industry where decentralization is the soul? **
The lack of stable purchasing power of Bitcoin allows USDT to take advantage of it
To answer this question, we must explore a major problem facing Bitcoin from the perspective of monetary quality assessment: purchasing power stability.
Bitcoin OG and prominent economist Lawrence H. White pointed out that Bitcoin's price volatility makes it difficult for it to become a universally accepted medium of exchange in terms of its design to maintain purchasing power. He used the comparison of the purchasing power stability of gold and Bitcoin as an example, pointing out that while both Bitcoin and gold are inflation hedges, the supply mechanisms are very different.
Gold has better purchasing power stability because its supply can be adjusted according to market demand. When demand increases, higher prices stimulate more gold mining, increasing the supply of gold and thus stabilizing prices. The gold standard proved this too, with only a 1% price difference when the US rejoined in 1879 and left in 1914.
In contrast, Bitcoin's supply increases in a predetermined fashion and does not respond to demand. Rising BTC prices may trigger more mining activity, but this will not generate more Bitcoins, which would be a serious disadvantage to its popularity as a medium of exchange: the price would fluctuate more extremes.
WEI DAI, the pioneer of cypherpunk and the inventor of B-Money, the prototype of Bitcoin, also held the same view. In his own article, WEI DAI recalled that the reason why he ignored Satoshi Nakamoto’s email was because Bitcoin was listed in its white paper. does not include any stable currency design. WEI DAI said: "This may be partly my fault, because when Satoshi Nakamoto emailed me to ask my opinion on his manuscript, I did not reply to him. Otherwise, I might be able to persuade him not to use fixed currency circulation. The thought."
Bitcoin relies on a simple model of halving the total amount in four years, which has formed a global expectation that non-sovereign assets will become more and more expensive, and this also leads to the lack of any purchasing power stability design for Bitcoin, so that the central USDT, whose purchasing power anchors the stability of the U.S. dollar, can survive and grow in the encrypted world.
Presumably no user is really willing to frequently use a target with extremely unstable purchasing power as a daily settlement currency. Moreover, the value-added expectation of Bitcoin also makes users more inclined to store it instead of using it for daily consumption, which limits its circulation.
Modify the Ethereum of the monetary economic model
If the lack of purchasing power and stable design of Bitcoin allows the centralized USDT to take advantage, then another flaw of Bitcoin: immature technology and too conservative** is to allow Ethereum to occupy the second place in market value important reason.
The world's computer ethereum is the leader in the decentralized application ecology, far surpassing the application system of bitcoin, and creating the DeFi and NFT ecology that leads and changes the industry. It even led to most public chains trying to challenge Ethereum, in order to continue to acquire users, they had to be compatible with EVM in the end.
The success of the Ethereum application ecology is self-evident. In addition to empowering the value of ETH through the application ecology, the entire Ethereum community has also carried out a major upgrade of EIP-1599 to the economic model of ETH. ETH can be destroyed from then on, forming a deflationary economic model.
The believers of Ethereum are now using the mechanism of ETH destruction to bring deflation, and the application ecology of Ethereum is stronger than that of Bitcoin to challenge Bitcoin, and even name ETH as a super-sound currency, but avoid talking about Ethereum The monetary economic model that can be changed at will, and the serious impact on ETH after the transfer of PoS from PoW, as well as the problem that the operation of its network full nodes has gradually become centralized.
Ethereum is trying to replace Bitcoin's monetary dominance, but it does not have the fundamental values of Bitcoin: decentralization, fairness, and immutability of the economic model. It can also be seen from ETH's changes to the currency model and its attempt to move closer to the currency value of Bitcoin that the design of the currency economic model is crucial to the long-term development of the blockchain, and even the most important foundation.
Part of the Bitcoin community is going to the Ethereum route
Although Bitcoin's originality, extreme decentralization, immutability of the monetary economic model, and pure commoditization of the PoW mechanism allow Bitcoin to always occupy the first position in the industry, some members of the Bitcoin community have been trying to Expand the application ecology of Bitcoin.
From the Taproot upgrade to the recent Ordinals, it has given the possibility of expanding the Bitcoin application system, and the market enthusiasm it has brought allows everyone to see users’ expectations for the Bitcoin application ecology. Various expansion projects and upgrades based on Bitcoin are also available. Start showing up and coming alive.
If you want to follow the decentralization and security features of Bitcoin, with the limitations of the current UTXO technology, it is difficult to achieve a Turing-complete application ecosystem like Ethereum, and you can only rely on less decentralized second-tier solutions. And if the application direction of Bitcoin is upgraded, it will definitely affirm the route of Ethereum from the side. For Bitcoin, it means the shift of its long-standing "electronic gold" value narrative: to imitate the technology driven by Ethereum. The development route of the application platform, instead of simply ignoring it as before.
A cryptocurrency with the same conditions in terms of currency core, market value scale, and degree of decentralization must be better if it can have a highly programmable application ecosystem. At least from the current status of Bitcoin and Ethereum, it can be seen that currency is the absolute foundation, followed by the prosperity of the application ecology. Because a high-quality currency core can be very smooth and simple to mount application technology, but for a project that only targets the application layer and ignores the core currency model, it is as difficult to change its rules of interest as it is to change its soul.
Each other's flaws make each other prosperous
Looking back at the centralized management of USDT, the modification of the currency model of Ethereum, the design of Bitcoin’s lack of purchasing power stability and the technical limitations of the application ecology, it is precisely because of their own defects that they have achieved mutual prosperity.
If the purchasing power of Bitcoin is stable enough to achieve a high degree of programmability while ensuring decentralization, then the glory must belong to Bitcoin, and USDT and ETH will not be as successful as they are today.
It is conceivable that what we need is a currency system with a more stable purchasing power than Bitcoin, and at the same time, based on or even surpassing all the advantages of Bitcoin, to achieve an application ecology similar to or beyond Ethereum. This may be the ultimate form of the entire encryption industry, giving birth to a great narrative and revolutionary project that can be larger than the combined market value of USDT, Ethereum, and Bitcoin.
In the future, we may continue to be in the encrypted world where Bitcoin, Ethereum and USDT stand together for a long time and are full of contradictions among them, or there may be one that can solve their mutual defects, inheriting the decentralization of Bitcoin, USDT The cryptocurrency project with the advantages of stable purchasing power and highly programmable and scalable Ethereum will lead the development of the industry and realize the ideal world that cypherpunks dream of.
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Alternative View: Bitcoin’s Flaws Give Ethereum and USDT a Chance
Bitcoin, Ethereum, and USDT have been among the top three in the market capitalization of the cryptocurrency industry for quite some time after their appearance. This begs the question, why did the market choose them?
Before thinking about this question, we need to review the original goals of these three cryptocurrencies.
Bitcoin is the first cryptocurrency that achieves decentralization and prevents double spending at the same time. Through point-to-point payment, it removes the management of any centralized organization and aims to become a currency solution that replaces paper money.
Ethereum is the first cryptocurrency that uses Turing's complete smart contract on the blockchain, and becomes a decentralized application platform that can replace the operation and control of large companies. Its goal is to become the world's computer and decentralized application platform.
USDT is the first cryptocurrency backed and anchored by the U.S. dollar. By linking with the sovereign credit currency, it takes advantage of its relatively more stable purchasing power and aims to occupy the position of the settlement unit in the encryption industry.
Since the emergence of these three, each has always faced its own corresponding problems, and the challenges and competitions against them have never stopped.
**Why can the centralized USDT stand out? **
First, take USDT as an example. Since its anchoring relies on the management of a single institution, it does not conform to the core of cryptocurrency decentralization. Therefore, the industry has tried to explore decentralized stablecoin systems, such as various algorithmic stablecoins. But algorithmic stablecoins ultimately proved unable to operate stably for a long time.
Algorithmic stablecoins cannot meet the three requirements of large-scale liquidity, decentralization and stable currency value at the same time. Therefore, the industry has to eventually tend to choose a stable currency value and large-scale circulation, while relatively sacrificing decentralization. This has also caused users to continue to worry about USDT, especially at the very moment when thunderstorm projects continue to appear in the industry and supervision becomes more stringent.
However, the biggest risk of USDT and other stablecoins anchored to fiat currencies lies in the fragility of the fiat currency credit system. The crisis of centralized finance and the legal currency system is one of the important reasons for the birth of Bitcoin. This is also an important reason why stablecoins anchored to fiat currency such as USDT cannot surpass Bitcoin: We need a high-quality asset that can hedge against the collapse of the fiat currency credit system.
However, paradoxically, USDT as another centralized currency system runs counter to the spirit of math and code in the encrypted world. Despite this, it is still able to sit firmly in the top three positions in market capitalization. This raises a question worth pondering, **Why can USDT gain a firm foothold in the encryption industry where decentralization is the soul? **
The lack of stable purchasing power of Bitcoin allows USDT to take advantage of it
To answer this question, we must explore a major problem facing Bitcoin from the perspective of monetary quality assessment: purchasing power stability.
Bitcoin OG and prominent economist Lawrence H. White pointed out that Bitcoin's price volatility makes it difficult for it to become a universally accepted medium of exchange in terms of its design to maintain purchasing power. He used the comparison of the purchasing power stability of gold and Bitcoin as an example, pointing out that while both Bitcoin and gold are inflation hedges, the supply mechanisms are very different.
Gold has better purchasing power stability because its supply can be adjusted according to market demand. When demand increases, higher prices stimulate more gold mining, increasing the supply of gold and thus stabilizing prices. The gold standard proved this too, with only a 1% price difference when the US rejoined in 1879 and left in 1914.
In contrast, Bitcoin's supply increases in a predetermined fashion and does not respond to demand. Rising BTC prices may trigger more mining activity, but this will not generate more Bitcoins, which would be a serious disadvantage to its popularity as a medium of exchange: the price would fluctuate more extremes.
WEI DAI, the pioneer of cypherpunk and the inventor of B-Money, the prototype of Bitcoin, also held the same view. In his own article, WEI DAI recalled that the reason why he ignored Satoshi Nakamoto’s email was because Bitcoin was listed in its white paper. does not include any stable currency design. WEI DAI said: "This may be partly my fault, because when Satoshi Nakamoto emailed me to ask my opinion on his manuscript, I did not reply to him. Otherwise, I might be able to persuade him not to use fixed currency circulation. The thought."
Bitcoin relies on a simple model of halving the total amount in four years, which has formed a global expectation that non-sovereign assets will become more and more expensive, and this also leads to the lack of any purchasing power stability design for Bitcoin, so that the central USDT, whose purchasing power anchors the stability of the U.S. dollar, can survive and grow in the encrypted world.
Presumably no user is really willing to frequently use a target with extremely unstable purchasing power as a daily settlement currency. Moreover, the value-added expectation of Bitcoin also makes users more inclined to store it instead of using it for daily consumption, which limits its circulation.
Modify the Ethereum of the monetary economic model
If the lack of purchasing power and stable design of Bitcoin allows the centralized USDT to take advantage, then another flaw of Bitcoin: immature technology and too conservative** is to allow Ethereum to occupy the second place in market value important reason.
The world's computer ethereum is the leader in the decentralized application ecology, far surpassing the application system of bitcoin, and creating the DeFi and NFT ecology that leads and changes the industry. It even led to most public chains trying to challenge Ethereum, in order to continue to acquire users, they had to be compatible with EVM in the end.
The success of the Ethereum application ecology is self-evident. In addition to empowering the value of ETH through the application ecology, the entire Ethereum community has also carried out a major upgrade of EIP-1599 to the economic model of ETH. ETH can be destroyed from then on, forming a deflationary economic model.
The believers of Ethereum are now using the mechanism of ETH destruction to bring deflation, and the application ecology of Ethereum is stronger than that of Bitcoin to challenge Bitcoin, and even name ETH as a super-sound currency, but avoid talking about Ethereum The monetary economic model that can be changed at will, and the serious impact on ETH after the transfer of PoS from PoW, as well as the problem that the operation of its network full nodes has gradually become centralized.
Ethereum is trying to replace Bitcoin's monetary dominance, but it does not have the fundamental values of Bitcoin: decentralization, fairness, and immutability of the economic model. It can also be seen from ETH's changes to the currency model and its attempt to move closer to the currency value of Bitcoin that the design of the currency economic model is crucial to the long-term development of the blockchain, and even the most important foundation.
Part of the Bitcoin community is going to the Ethereum route
Although Bitcoin's originality, extreme decentralization, immutability of the monetary economic model, and pure commoditization of the PoW mechanism allow Bitcoin to always occupy the first position in the industry, some members of the Bitcoin community have been trying to Expand the application ecology of Bitcoin.
From the Taproot upgrade to the recent Ordinals, it has given the possibility of expanding the Bitcoin application system, and the market enthusiasm it has brought allows everyone to see users’ expectations for the Bitcoin application ecology. Various expansion projects and upgrades based on Bitcoin are also available. Start showing up and coming alive.
If you want to follow the decentralization and security features of Bitcoin, with the limitations of the current UTXO technology, it is difficult to achieve a Turing-complete application ecosystem like Ethereum, and you can only rely on less decentralized second-tier solutions. And if the application direction of Bitcoin is upgraded, it will definitely affirm the route of Ethereum from the side. For Bitcoin, it means the shift of its long-standing "electronic gold" value narrative: to imitate the technology driven by Ethereum. The development route of the application platform, instead of simply ignoring it as before.
A cryptocurrency with the same conditions in terms of currency core, market value scale, and degree of decentralization must be better if it can have a highly programmable application ecosystem. At least from the current status of Bitcoin and Ethereum, it can be seen that currency is the absolute foundation, followed by the prosperity of the application ecology. Because a high-quality currency core can be very smooth and simple to mount application technology, but for a project that only targets the application layer and ignores the core currency model, it is as difficult to change its rules of interest as it is to change its soul.
Each other's flaws make each other prosperous
Looking back at the centralized management of USDT, the modification of the currency model of Ethereum, the design of Bitcoin’s lack of purchasing power stability and the technical limitations of the application ecology, it is precisely because of their own defects that they have achieved mutual prosperity.
If the purchasing power of Bitcoin is stable enough to achieve a high degree of programmability while ensuring decentralization, then the glory must belong to Bitcoin, and USDT and ETH will not be as successful as they are today.
It is conceivable that what we need is a currency system with a more stable purchasing power than Bitcoin, and at the same time, based on or even surpassing all the advantages of Bitcoin, to achieve an application ecology similar to or beyond Ethereum. This may be the ultimate form of the entire encryption industry, giving birth to a great narrative and revolutionary project that can be larger than the combined market value of USDT, Ethereum, and Bitcoin.
In the future, we may continue to be in the encrypted world where Bitcoin, Ethereum and USDT stand together for a long time and are full of contradictions among them, or there may be one that can solve their mutual defects, inheriting the decentralization of Bitcoin, USDT The cryptocurrency project with the advantages of stable purchasing power and highly programmable and scalable Ethereum will lead the development of the industry and realize the ideal world that cypherpunks dream of.
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