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highest level since mid-August and outperformed every other major asset in
both crypto and traditional markets.
Together, they highlight the unique advantage that Bitcoin draws from its status
as the oldest, most established and most decentralized protocol and from a
surprising new opportunity to harness that.
Layer 0
Over time, I see a situation emerging in which Bitcoin functions as a kind of
uber-anchor for everything. Its role will be to be a kind of ultimate “layer 0”
record of truth. Meanwhile, Ethereum and other smart contract platforms could
take on higher-level functionality, with each specializing in different types of
transactions and data-processing that the rather clunky, limited-function Bitcoin
blockchain is not built to perform. It will need greater cross-chain operability,
but there are plenty of people working on that.
Read more: Bitcoin NFTs Challenge the Blockchain’s Largest Use Case: Money
Most other layer 1 crypto protocols – meaning base-layer blockchains with their
own native tokens – are based on a proof-of-stake consensus mechanism,
including Ethereum. With the Securities and Exchange Commission shutting
down Kraken’s staking service in the U.S., signaling that it will be difficult for all
but the most sophisticated retail U.S. investors to participate in those
blockchains’ validating networks, investing in ether and other such tokens
seems poised to become the domain of institutional players.
The bottom line is that Bitcoin has proven to be sufficiently decentralized that
U.S. authorities have conceded that the leading cryptocurrency is not a security.
In this new, politically tense environment, this gives it a distinct advantage.
As that happens, it will drive others in the crypto community to build better
bridges and integrations between Bitcoin and alternative protocols. It could
accelerate the work already being done by developers working on Cosmos,
Polkadot, Polygon and other bridging and interoperability protocols to build
mechanisms for moving assets across chains and reduce crypto industry
participants’ dependencies on singular layer 1 blockchains.
The beauty of such arrangements is that users can have the security of a Bitcoin-
proven asset while also tapping the greater programmability of decentralized
applications and layer 2 protocols running on the Ethereum virtual machine, as
well as the deeper liquidity that exists in Ethereum-based NFT marketplaces
such as OpenSea.