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Am I a Bitcoin Maximalist?

No. I currently have about as much Bitcoin as Ether. However, I’m starting to reconsider:

  1. Proof of Work is underrated by the general public.

  2. Bitcoin Lightning is fast and cheap for doing transactions.

  3. Privacy is better with Bitcoin/Lightning than with Ethereum.

  4. Non-bitcoin non-ethereum cryptos seem to be no more than centralised versions of Ethereum 2.0.

  5. NFTs and wallet sign-in have proliferated on Ethereum, but are emerging now on Bitcoin.

  6. It seems Bitcoin has a regulatory advantage

Proof of Work is underrated by the general public.

The negative press around energy consumption of Bitcoin (and proof of work in general) makes it easy – too easy I think – to write off the track record of Bitcoin and it’s approach.

While energy use may be a weakness, it may also be a strength. Energy is fundamental to our modern existence and will likely continue to be. Computation requires energy use (or, more technically, exergy use), so it is hard to see what better to use as a scarce resource for a tamper-proof protocol.

Today energy is priced in dollars, but if Bitcoin were to grow by another factor of ten or one hundred, then energy might indeed become priced in Bitcoin. I think this is less crazy than it sounds. Ultimately, for a protocol or government to be strong, it has to be geopolitically strong, and the tie between Bitcoin and energy makes some good geopolitical sense by basing itself on a critical resource that is needed everywhere – energy.

Bitcoin Lightning is fast and cheap for transactions

I started a Lightning node almost half a year ago now and learned a few things:

  1. As a node operator, it is very hard to make any money. I have probably lost a small (<$10) amount just in setting up and closing channels.

  2. As a Bitcoin Lightning user, transactions are almost immediate and cheap, costing around 0.1-0.2% of a transaction. This is a lot better than Ethereum and Bitcoin itself.

Bitcoin Lightning is still quite small – there is only about $200M in liquidity on the platform, but it is growing reasonably fast. There were about 8,000 nodes when I joined earlier this year and now there are over 20,000.

Privacy is better with Bitcoin/Lightning than with Ethereum.

Lightning is a private network so there are no public transactions.

Layer 2 Ethereum protocols are typically public blockchains or roll-ups like Ethereum itself.

Bitcoin itself is a bit more private than Ethereum because with Bitcoin you have an xpub address that allows you to generate new receiving addresses for each transaction. With Ethereum, you could create a whole new address each time, but generally it is common to make one’s wallet public to receive payment. This is a small point overall but I think is a small design superiority for Bitcoin.

Non-bitcoin, non-ethereum blockchains seem to be no more than centralised versions of Ethereum 2.0.

I say this owning small amounts of Helium and Celo.

One argument is that non-Bitcoin non-Ethereum blockchains will find their own use cases. I am unsure of this because applications may always weigh towards the most trusted networks. That said, Helium seems like a network that perhaps could standalone as a communication/connectivity platform. Using tokens in place of profitshare or shares can make sense in my mind (but will be subject to regulation) – just as with the FTT token that FTX exchange have (note that FTT is an Ethereum ERC-20 token).

Another argument for altcoins is that non-Bitcoin non-Ethereum blockchains are faster – like Solana. However, many of these blockchains (Solana, Celo, Avalanche) get speed by trading off decentralisation. Therefore, they should be compared to traditional exchanges and financial systems that are centralised and fast.

In a sense, any non-Bitcoin non-Ethereum platform – if based on proof of stake – is a layer two for Ethereum (but often forgoing the security and decentralisation of Ethereum). So, I don’t have much of my holdings in non-Bitcoin non-Ethereum protocols.

NFTs and wallet sign-in have proliferated on Ethereum, but are emerging now on Bitcoin.

Digital art makes good sense to me as a long term and sustainable application of blockchains, and Ethereum is certainly ahead in this regard. Ethereum also seems ahead when it comes to identity and wallet sign-in (although Microsoft are building their identity product on Bitcoin).

Many people are unaware of whether and how they could build similarly on Bitcoin. As I understand, much of what is possible on Ethereum can be possible on Bitcoin – and much of the technology can be transposed in the future. As such, this makes Ethereum a test ground. It may well continue to be a high growth test ground until the robustness advantage of Bitcoin/Proof-of-Work becomes clear (if indeed Bitcoin does prove to be more robust long term).

For what it’s worth, it’s possible to do authentication using a bitcoin lightning node – much like signing in to a website with Metamask.

It seems Bitcoin has a regulatory advantage

Bitcoin – and to some degree Ether – have faired best over the last year when I listen to governments talk about regulation. A key sticking point for crypto is that many tokens are considered securities, which can pull them into complicated laws. Bitcoin (and Ether in some cases) are recognised as not being securities, and indeed the system not being owned or controlled by any one person or organisation.

So, why do I own Ether? A few reasons, although I’m reconsidering my total holding:

  1. Ethereum (and Ethereum-like platforms) is where most of the building is happening right now. So Ether is a bunch of bets on builders, maybe including that those bets might somehow be ported over to Bitcoin in a way that retains upside.

  2. Vitalik Buterin seems smart.

Thanks for reading.

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