Wednesday, 20 December 2023
by Rose White
Bitcoin Maxis are patting themselves on the back after the launch of the Taproot Assets protocol for Bitcoin and Lightning. And they’re quite right to do so.
Lightning Labs mainnet Alpha launch last month was big news. Up till now Ethereum and Tron dominated smart contracts. Now with this latest protocol Bitcoin is poised to challenge their dominance and bring new vigor to the network. This new feature will equip developers with the tools needed to make Bitcoin a multi-asset network, enabling users to hold real-world assets like gold on the Bitcoin blockchain, marking a critical moment for Bitcoin’s evolution.
But Lightning’s Taproot Assets have even wider consequences than what they initially received hype for. With the next bull run warming up on the sidelines, the demand for diverse use-cases is intensifying. This will create huge opportunities for networks and developers alike. Not only will a diverse ecosystem expand blockchains global reach but it will foster an environment of inter-functionality that will in itself breed novel use cases.
Bitcoin may have entered a new stage in its development, but it isn’t just Bitcoin that stands to benefit from this. Rather than seeing Web3 as a zero-sum game, Isn’t it time we eschewed maximalism in crypto and welcomed an industry that supports a wide and healthy ecosystem?
The Ethereum platform has, up till now, been the de facto platform for smart contracts and DeFi. As the world’s largest cryptocurrency by market capitalization, if Bitcoin extends its role beyond being merely a store of value and ventures into the realm of smart contracts, it could unsettle Ethereum’s standing. But this doesn’t mean it will definitely become the leader in this field.
With the pace of technology pushing Web3 to the forefront of many sectors, innovation houses around the world are rushing to keep up with the demand for Web3 solutions. An isolated network cannot hope to build Web3’s future by itself. Rather than viewing the development of a second major multi-asset chain as a shift in the Web3 leaderboard, this is instead an opportunity for the industry to diversify.
Ryan Gentry, Head of Business development at Lightning Labs shared his thoughts in a recent interview on how the Taproot Assets will contribute to a “spiderweb network of tunnels” that augments the network’s capabilities: “When I think about the lightning network from an infrastructure perspective, I think about it in the same breath as electrical power grids, oil pipelines, fiber networks. This is mission critical infrastructure, or it will be mission critical infrastructure for the world”.
This idea of a network of tunnels spreading in Web3 brings to mind Metcalfe’s law, a term initially pitched by Bob Metcalfe, inventor of Ethernet, who described the network effect as a centripetal force that makes networks more valuable the more things they connect to. Essentially, the more people join any network, the more other people are likely to join. Social media is the biggest example of this, but this phenomenon will hold increasing significance in Web3 as we witness greater use-cases emerging.
While it is true that the network effect can help incumbent projects and networks maintain their competitive advantage, the demand and popularity generated by one one group can also have a similar impact for others.
Web3’s thought-leaders in the space have been quick to share their thoughts on Taproot Assets, largely focusing on how this will benefit Bitcoin’s scalability. But while many Web3 pundits may converge on Bitcoin as standard, the reality is that Web3’s future is more extensive than most of us will ever get to experience. Antoni Trenchev, Co-founder of Nexo, talked about the broader implications of Taproot Assets in a recent Tweet: “think about overall ecosystem scalability – imagine how many more users and transactions can be processed by blockchain companies with a second major multi-asset chain. This is a treasure trove for adoption. It’s not Bitcoin OR Ethereum, it’s Bitcoin AND Ethereum.”
Those who believe that Bitcoin is the only blockchain-based digital asset that will be needed in the future cannot foresee the use-cases that will require niche blockchains as well as major multi-asset chains to support them. Beyond just financial solutions, Web3 is experiencing a boom that is pushing it into almost every area of technology, revolutionizing the entire economy. Hundreds of billions of capital is locked into Bitcoin, most of it as a passive store of value, and the demand for use cases around Bitcoin is increasing. Instead of competing with Bitcoin, other layer-2 protocols, such as Stacks and Liquid Network provide novel use cases for holders of bitcoins. And many more Layer 2s are emerging, looking to tap into the hundreds of billions in capital that currently lies dormant.
As our world’s economic landscape shifts, brought about by advances in AI, machine learning, and other technologies, it is becoming increasingly clear that Web3 will be a centrifugal force in the new digital era, opening the door to new innovations and business models. This large scale adoption will require diverse networks and infrastructure that will support future use-cases. As important as healthy competition is for disruption, the industry needs to make sure it also champions inclusivity and fosters the community that it was built on. Bitcoin maximalists, or anyone who believes in a single-chain monopoly, need to step back and look at the bigger picture, that network scalability is not as valuable as ecosystem scalability. Having more than one major network is not only valuable, it’s essential in order for Web3 to scale and its many startups to have the best chance at success.
This is a guest post by Sadie Williamson. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.