An acute spike of interest around Bitcoin thanks to the OG blockchain’s recent “Halving” event has coincided with the ascension of prominent tokenized bitcoin projects built on Ethereum, like WBTC, tBTC, and PieDAO’s BTC++.
What comes next, then?
Debates have accordingly kicked off in the cryptoeconomy regarding what the years ahead look like for Bitcoin and Ethereum. Nothing’s settled for now, but the discussions are heating up as the stakes continue to come into focus.
The Big Questions
Will the BTC price be able to keep pace with Bitcoin’s decreasing block rewards over time? Some analysts aren’t so sure. And if the BTC price can’t keep up in a meaningful fashion, then transaction fees on Bitcoin will prove increasingly pivotal over time with regard to keeping miners profitable.
For instance, on May 11th the Bitcoin blockchain’s latest “Halving” sent Bitcoin’s block rewards from 12.5 BTC to 6.25 BTC. Since the bitcoin price didn’t double alongside that rewards decrease, more than a few miners instantly became unprofitable.
Indeed, per The Block‘s research director Larry Cermak, Bitcoin miners’ revenues have already been slashed by nearly 50 percent in just around 48 hours since the last Halving.
Who knows where the BTC price goes from here, but the latest acute drop in revenues for miners is a window into what the future may look like if bitcoin doesn’t effectively double in value upon every Halving. Again, such a possibility raises the specter of BTC transaction fees going forward.
Yet what if tokenized bitcoin projects on Ethereum continue to siphon off tr ansaction fees to Ethereum that would’ve otherwise hitherto gone to paying Bitcoin miners? Will Bitcoin and Ethereum’s relationship thus be zero-sum, i.e. winner take all, or much more mutualistic and complementary in the days to come?
Bitcoin Tokens Are Here to Stay
Such tough questions don’t have clear answers for now. What is clear, though, is that Ethereum’s tokenized bitcoin sector is heating up and is set to continue doing so for the foreseeable future.
For example, WBTC was just voted in as an approved collateral type in Maker, Ethereum’s top DeFi project to date, and 1,000 new WBTC were minted on May 12th alone. And tBTC, the hottest new bitcoin token on the scene, is on the verge of going live.
Where do these tokenized “IOUs” prove nimbler than BTC? For starters, they can be transacted with more quickly and more affordably on the Ethereum blockchain than on the Bitcoin blockchain. Moreover, they can be used to earn interest in Ethereum’s rising DeFi sector, so there are novel revenue opportunities on Ethereum that don’t exist elsewhere right now.
Who Will Win?
These aforementioned dynamics potentially bode for a bustling tokenized bitcoin sector in relatively short order. But is such bustle better for Bitcoin or Ethereum, or is it good for both?
Presumably, the answer isn’t black and white but in the gray.
In some respects, tokenized bitcoin is better for Ethereum, insofar as these tokens take away transaction fees that would’ve otherwise gone to Bitcoin. In other regards, tokenized bitcoin is really bullish for bitcoin: it extends what BTC is and can be and makes the cryptoeconomy’s OG asset more useful, more flexible, and maybe even more popular than ever before.
Zooming out, some will say the matter isn’t so simple, i.e. BTC isn’t directly competing with anything but physical gold and thus if BTC remains secure digital gold, it wins no matter what. That stance is probably closest to the truth.
Indeed, ETH theoretically passing BTC in market cap would hardly negate bitcoin’s success as digital gold if both projects continue to rise together as asymmetric bets against mainstream, centralized, and paper-intensive finance.
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Source: Tokenized Bitcoin on Ethereum: Is the Relationship Mutualistic or Zero-Sum?