Bitcoin and Ethereum are the two largest crypto networks in terms of the market caps of their respective, underlying crypto assets. However, these two blockchain-based financial networks also represent opposite ends of the spectrum in terms of how this technology can be used.
With Bitcoin, creator Satoshi Nakamoto intended to disrupt the many trusted-third parties that exist in the traditional financial system, whether it be the central banks that are able to dilute the money supply or the commercial banks that are able to close customer accounts or censor specific kinds of transactions.
With Ethereum and other, newer crypto networks like Solana, the original intention was to take some of Satoshi’s original ideas and expand them to more areas of the financial system. While Bitcoin was useful for the creation of a decentralized monetary system, alternative crypto networks have more expressive programming languages that enable a greater level of experimentation for decentralized financial (DeFi) applications.
So, why isn’t Bitcoin also home to these sorts of DeFi apps? Let’s take a closer look at the tradeoffs made between Bitcoin and Ethereum.
What Does Ethereum Offer That Bitcoin Doesn’t?
Much of the functionality found on Ethereum that is not found on Bitcoin revolves around tokenization. While it is technically possible to issue tokens on top of Bitcoin via various protocols, the platform is not the best fit for that sort of activity. The ERC-20 standard on Ethereum has led to the issuance of a wide variety of different types of new digital assets from stablecoins to memecoins. Additionally, a separate standard exists for non-fungible tokens (NFTs) that act more as digital collectibles.
Through the use of tokenization combined with more expressive smart contracting systems, Ethereum and other alternative crypto networks can enable more on-chain use cases outside of the simple payments found on Bitcoin. Some examples include decentralized exchanges (DEXs) and crypto-collateralized lending.
These additional forms of DeFi have exploded in popularity in recent years, with DEXs like Uniswap seeing $72 billion in monthly volume and Aave accounting for $8.5 billion in outstanding loans. Much of the product market fit for these new DeFi protocols revolves around the combination of tokenized dollars in the form of stablecoins with Ethereum’s native ETH cryptocurrency.
Why Doesn’t Bitcoin Have These Features?
So, if these additional financial use cases enabled by Ethereum are popular and extend Bitcoin’s ethos of decentralization to other areas of finance, then why aren’t they also found on the world’s oldest and largest crypto network? The answer lies in the different set of values that is found amongst the Bitcoin userbase as compared to the other blockchain-based networks.
Many of the use cases found on Ethereum were originally intended to be included in Bitcoin. In fact, the world’s most popular stablecoin, Tether, originally launched on top of a Bitcoin meta protocol known as Omni (previously known as Mastercoin).
The Tether example is a great way to illustrate the differing philosophies found in Bitcoin and Ethereum. As the Bitcoin network became congested and transaction fees began to rise for the first time in 2017, transaction fees for Tether also spiked.
During this time, there was a debate among Bitcoin users as to whether Bitcoin should implement a hard-forking increase to the block size limit to help lower transaction fees and accommodate additional use cases such as Tether. The change, which was widely supported by major Bitcoin exchanges, wallets, and miners, did not gain sufficient support among the userbase, mainly due to the desire to keep the system as decentralized as possible. On top of that, there were two additional considerations that are more relevant when it comes to the acceptance of Ethereum-esque use cases.
First of all, Bitcoin is extremely difficult to change, which sounds like a negative aspect of the protocol at first glance but in reality solidifies its underlying value proposition as an apolitical, unchangeable, and digital monetary system. After all, if the rules of the system are easy to change, then how reliable is the often-touted 21 million supply cap? While a flexible base layer makes sense for more experimental blockchain use cases, it doesn’t fit with bitcoin’s fundamental value proposition.
Secondly, there are trade offs made when bringing additional tokenized assets to a decentralized network like Bitcoin. Many of these additional tokens come from a centralized issuer, as is the case with increasingly-popular stablecoins, so the benefit of issuing them on a decentralized ledger is not completely clear. Additionally, the use of the Bitcoin ledger for non-bitcoin assets would increase costs for those who wish to use the native bitcoin asset. In fact, many Bitcoin users view the issuance of stablecoins and NFTs on top of Bitcoin as nothing more than spam.
When taken to the extreme, a non-native token can become a Trojan Horse of sorts, as the incentives become skewed towards building around the non-native token rather than the crypto network’s native cryptocurrency. This is something that has been theorized in terms of large stablecoin issuers’ potential control over Ethereum.
I don’t want to hear anyone describe Ethereum as credibly neutral again
if you know how this works (big fiat stablecoins giving their issuers fork choice) and you still do, you are being intentionally deceptive https://t.co/hsIlD9SGvJ
— Ameen Soleimani (@ameensol) February 18, 2025
While Bitcoin is extremely difficult to change, it’s worth noting that many of the features found on Ethereum and other alternative crypto networks can be built on secondary Bitcoin protocol layers. For example, mechanisms for enabling instant payments from dollar-pegged bitcoin accounts already exist through a combination of the Lightning Network and discreet log contracts (DLCs). Additionally, there are multiple Bitcoin federated sidechains, such as Rootstock and Liquid, that can be used to implement Ethereum-esque use cases in a more directly-comparable manner. These secondary Bitcoin protocol layers may also become more secure in the future through the addition of one or more covenants-related opcodes to the network.
While these Bitcoin layer-two networks are more centralized than the base Bitcoin layer, much of the crypto ecosystem is already looking more and more like traditional fintech at this point due to the continued reliance on stablecoins and other centralizing forces. Coinbase’s layer-two Ethereum network, known as Base, is perhaps the best example of this phenomenon up to this point.
In short, the Bitcoin network seems poised to maintain its focus on the bitcoin asset itself at the base layer. While other crypto networks have more expressive programmability, this comes with tradeoffs that do not necessarily lead to a strict gain in the alternative blockchain’s value proposition. As the line between crypto and traditional fintech continues to blur, the bitcoin asset is able to differentiate itself from the rest of the pack with its adherence to true decentralization.
