Bitcoin is well known for being a store of value crypto asset, having a meteoric rise against currencies such as the USD, Euro, CAD and AUD over the last few years and has been the dominant player in the cryptocurrency space with Ethereum a distant second.
However, in news certain to shake the crypto industry, Bitcoin is going to enable smart contracts on its blockchain network and allow bitcoin to be locked into these smart contracts known as Bitcoin defi.
This will be in competition to other cryptocurrencies such as Eth and Comp and a bold bid for Bitcoin to retain its crypto dominance.
Will Bitcoin Remain The Top Cryptocurrency?
The digital asset insights firm Chainalysis is analyzing how Bitcoin will retain its dominance in an increasingly crowded marketplace filled with crypto contenders.
In a new blog post, the firm’s chief economist Phillip Gradwell says BTC doesn’t need to adopt smart contracts and compete with Ethereum (ETH) and Layer-1 crypto assets.
Instead, he says BTC should focus on being a scarce, decentralized and fungible asset.
“Bitcoin can still have a very high long-term value, but it has become clear in the last six months that it competes for investor demand, and does not always win.
However, I don’t think that BTC should compete on innovative use cases. Bitcoin is highly unlikely to be upgraded to have the functionality of Ethereum and other Layer-1 assets.
It just isn’t designed for that, technologically or philosophically. And such a change would likely undermine its unique selling point: that it is a scarce fungible asset.”
Gradwell says that although the competition is fierce, Bitcoin can remain dominant if used as a form of capital in Web 3.0 and decentralized finance (DeFi) applications.
He notes that wrapped Bitcoin, which are crypto assets that run on blockchains such as Ethereum and represent a 1:1 peg with the top cryptocurrency, are already bringing BTC into the decentralized finance (DeFi) movement.
He says a fully decentralized and widely adopted form of Bitcoin wrapping emerges would go a long way towards cementing BTC’s status as the dominant form of crypto capital.
“230,000 Bitcoin is currently wrapped. However, this requires Bitcoin to be deposited with a centralized third party. That is a fine model – millions of Bitcoin are currently held by centralized custodians. But this may prevent the programmatic wrapping of bitcoin that DeFi would likely require.
I believe that a decentralized way of wrapping bitcoin is needed to unlock the use of Bitcoin as high quality capital in DeFi.”
Bitcoin is exchanging hands at $62,408 at time of writing, according to CoinGecko.