BitMEX explains why Ethereum has more Dapps than Bitcoin

BitMEX Research recently published a report describing why Ethereum has dwarfed Bitcoin as a center for Dapp and developer activity in crypto. Although there are technical reasons for the discrepancy, the team claims that the Bitcoin developer culture before Ethereum’s launch drove alternative use cases away from the ecosystem.

OP_Return controversy

The report explores online discussions from March 2014 among Bitcoin Core developers related to Bitcoin’s application layer. They started with the launch of the counterparty protocol early the same 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 demonstrably useless. “The feature can be used to burn Bitcoin or store arbitrary data in the Bitcoin blockchain,” BitMEX explained.

Some say that this type of transaction helps to scale Bitcoin, since they do not require cropped Bitcoin nodes to store their data. This makes it less storage-intensive to run a node for the average person, and helps Bitcoin maintain its decentralization.

Nevertheless, on March 20, 2014, Bitcoin contributor Jeff Garzik began criticizing CounterParty’s use of the 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 side chains – already existed.

In a quick back and forth, counterparty developers finally agreed on Garzik’s position. They asked to discuss solutions with Bitcoin core developers on how the Counterparty can survive while responsibly exploiting the security of the Bitcoin blockchain.

However, Bitcoiners did little to support the smaller protocol. Instead, a Bitcoin developer 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 merging side chains as a place for such alternative use of blockchain data.

“Hopefully when mining returns to being decentralized, we will see less tolerance for abusive / spam transactions either the OP_RETURN variant or otherwise,” he concluded.

As a backup of his statement, Luke-Jr then began censoring all counterparty-related transactions at his mining pool. On March 28, he then compared the other party’s use of blockchain space with abuse of Bitcoin nodes.

What is Bitcoin all about?

Luke-Jr.’s statements and actions angered many members of the opposing community. Their counter-arguments centered around Luke-Jr’s apparent attempt to dictate what the Bitcoin blockchain was intended to be used for. “I can not believe this attitude,” said one user. “I did not know that bitcoin had owners.”

Others argued that the counterparty’s transactions constituted financial transactions and were therefore in line with what the Bitcoin nodes agreed to store. “You have a much narrower view of possible uses for Bitcoin than others,” said counterparty co-founder PhantomPhreak.

“Bitcoin does a lot of things that it was not originally meant to do,” he continued. “We do not want to extend the Bitcoin protocol. We want to do something completely within it, and as simply and directly as possible, in favor of stability, security, etc.”

Based on the overwhelming response from the other party’s community, BitMEX suspects that this moment drove many developers away from Bitcoin to develop their projects on Ethereum.

Why not side chains?

As BitMEX elaborates, side chains had not been able to gain critical mass as a scaling solution for Bitcoin due to various limitations in the technology – despite support from the other party’s opponents.

One of these limitations involved the complexity of building such a side chain. Developers simply did not have time to build a secure, merged side chain until other protocols gained market share. Although side chains such as Rootstock and Liquid now exist, they are still reduced by Ethereum in popularity.

A second limitation surrounds the use of Bitcoin as a natural asset on each chain, while remaining linked to the Bitcoin main chain. To date, developers have not yet found a solution to build a completely untrustworthy two-way link between blockchains. In January, Ethereum co-founder Vitalik Buterin wrote a Reddit post about why he believes the safety of blockchain bridges is fundamentally wrong.

Finally, side chains are assumed to have limited use cases that ultimately do not require safety guarantees from the main chain. Therefore, side chains may not fully solve Bitcoin’s data storage issues, depending on the application.

“It seems that some of the people who argued for side chains as a solution were not particularly interested in many of the Dapp applications, nor had they experimented with them,” said BitMEX.

Ethereum also has features that make it more developer and user-friendly, such as faster blocking times, a less conservative block size limit, and a more flexible scripting language.

“But … the most important factor is culture,” the report concluded.

Late last month, popular crypto-venture capitalist and researcher Nic Carter wrote a scathing essay against Bitcoiners who denied alternative uses for blockchains, such as stack coins and decentralized finance.