There is a mindset among the greater Bitcoin development world, known as ‘Bitcoin Maximalism’. It refers to the opinion that building apps upon Bitcoin, and its’ particular blockchain, is the best and most efficient way of going forward, and other crypto currencies, and their respective blockchains, will eventually succumb to the Network Effect.
The classic network effect example is the telephone. The more people who own telephones, the more valuable the telephone is to each owner. A user may purchase a telephone without intending to create value for other users, but does so in any case. Online social networks work in the same way, with sites like Twitter and Facebook becoming more attractive as more users join.
Bitcoin Maximalism is a term coined by Ethereum creator Vitalik Buterin. Ethereum, however, has its own appcoin, Ether, which runs on its own blockchain independently of Bitcoins. Buterin described Ether as “simply a token useful for paying transaction fees or building or purchasing decentralized application services on the Ethereum platform.”
The Ether sale was the largest crowdsale in crypto history, and the fourth largest in the history of the internet, raising 31,591 bitcoins, worth US$18,439,086 at the time.
In Daniel Krawisz’s classic and controversial article ‘Appcoins are Snake Oil,’ posted on the Nakamoto Institute, Krawisz argued that appcoins, like Ethereum’s Ether, are not immune to the network effect, no matter how useful they are to the underlying application.
"Because any appcoin must compete with Bitcoin, there is inherently an aversion to holding the appcoin rather than Bitcoin. This means that an app can always improve by transitioning to use Bitcoin instead [of] the appcoin. Since we are talking about open source projects, it is always possible for anyone to fork an existing app and make the changes himself."
— – Daniel Krawisz
His argument centers around the fact that requiring a secondary exchange to convert from one coin to another makes using appcoins less efficient than using bitcoin within the application.
Bitcoin-to-Ether conversion fees are commonly around 2% per trade, creating “trade barriers” that make large-scale use of the appcoin uneconomical. Krawisz also argues that it’s a matter of user convenience, who wants to carry around two different kinds of money when you can have just one?
Understandably, the article was not well received in the “Bitcoin 2.0” community. Ethereum is only one, albeit the largest, out of a number of projects that use their own internal cryptocurrency token. Some, like Augur, use a unique token as currency, but based on the Ethereum blockchain.
The arguments for and against have long been fought in forums and chat rooms. The debate around bitcoin maximalism, with Ethereum as a well funded example of success, now has a new topic, Rootstock.
Rootstock is another project for advanced smart contracts on a blockchain, and has gathered a lot of talented coders. It purports to do everything that Ethereum does, but without the cryptocurrency Ether. It uses the Bitcoin blockchain instead of Ethereum’s chain, leveraging Bitcoin’s network effect and security.
“RootStock is a smart-contract peer-to-peer platform built on top of the Bitcoin Blockchain. Its goal is to add Value and Functionality to the core Bitcoin network by the implementation of sophisticated smart contracts as a Sidechain.”
— – Rootstock
The Rootstock team, which includes at least one bitcoin core developer, has been discretely working on the platform for two years. A recent post on Reddit says that when it is launched, it will be fully compatible with Ethereum, at least to begin with.
“The good thing is RootStock VM is fully compatible with Ethereum VM so now you will have two platforms to run your application with two different security models and user bases. We are actually empowering the Ethereum development community not threatening it.”
— – Diego Gutierrez Saldivar
The Rootstock platform is said to be completely open-source and more information will become available at the 2015 Latin American Bitcoin Conference, LaBITConf Mexico on December 4 and 5, when the Rootstock whitepaper will be released.
The whitepaper is currently in the hands of a select few industry experts, including computer scientist, legal scholar and cryptographer Nick Szabo, who announced the project in a couple of tweets on Wednesday:
“Best of Bitcoin (currency and settlement system) + best of Ethereum (smart contract programming environment).”
— – Nick Szabo
By using a variant of Ethereums’ open source Virtual Machine as a Bitcoin sidechain, Rootstock claims to have removed the need for any secondary cryptocurrency entirely. But the platform will use a unique token, called Roots.
Through the use of sidechains, Roots will be exchanged for bitcoin in a 2-way peg. This locks in their value, but allows them to be exchanged and used seamlessly.
Detractors are quick to remind everyone that Sidechains have yet to be perfected and are not a proven technology. However, the development team at Rootstock has made the call to move ahead with implementing Roots on a sidechain anyway. If anything, the added pressure of Rootstock using them is likely to speed up sidechain development and be a boon for the whole crypto community.
In the meantime, Sidechains are already working in a less secure fashion, as a “semi-trust based alternatives to a trust-less 2-way peg.” According to Rootstock’s Saldivar, that is most likely good enough to start.
"Until [a true two-way peg is established], a federated peg using a majority multi-sig with respected members is the best we can have."
— – Sergio Demian Lerner
Coincidentally, in September, banking giant UBS revealed its interest in both sidechains and Ethereum, according to IBTimes. "If folks make [sidechains] work very well then we might find we take advantage of that. It’s just too nascent to make hard technology decisions at this point," stated Alex Batlin, a director in UBS’s technology innovation and research team
While the inclusion of sidechains may give Rootstock an edge, the question of which platform triumphs may come down to funding. Rootstock’s Saldivar recently said that they are not lacking in that department. “Suffice to say that we are well funded for the moment and we are not proactively seeking for more funds.”
Meanwhile, despite the record breaking crowdsale a year ago, Ethereum has seen its reserves dwindle and is starting to actively seek new funding.
“It is indeed true that the foundation’s finances are limited, and a large part of this was the result of our failure to sell nearly as much of our BTC holdings as we were planning to before the price dropped to $220; as a result, we suffered roughly $9m in lost potential capital, and a hiring schedule that was meant to last over three years ended up lasting a little under two (although bolstered by a “second wind” from our ETH holdings). Second, the project’s needs have grown.”
— – Vitalik Buterin
Although Ethereum’s development fund is closed to the public, the number of Ether they own is known, as is their worth. At current rates, the Ethereum foundation has about 9 months of funding remaining, assuming the price of 1 Ether remains around US$1.50. Of course, if Rootstock takes off before then, and eats into Ethereum’s space, that price could suffer.
KnCMiner’s Director or Marketing, Nanok Ƀie, recently laid out a plan on his popular blog Webonanza, titled ‘It’s not too late to save Ethereum.’ The post addressed several problems, including the funding shortage that the project faces, a lack of coherent direction, and the lack of security in its’ present mining state. In the post dated Oct 1, Ƀie argued that using a blockchain that could be merge-mined with bitcoin, much like Namecoin, would solve a lot of the project’s problems.
However, upon learning about Rootstock just six days later, Ƀie had a quick change of heart:
“UPDATE (Oct 7) – wait… actually, backtrack that – maybe it is too late. Rootstock looks exactly like what I’ve been wishing for, without the troubles of actually moving Ethereum and it’s investors onto the main chain. Things move fast in Bitcoin speed.”
— – Nanok Ƀie
In all likelihood, Ethereum developers will find the funding they need to continue forward, and both platforms will be available for use at the same time. Perhaps Buterin will follow through on his comments in Bitcoin Magazine, in April 2014, “it is very likely that as soon as the Ethereum genesis block launches, there will be side-chains for Bitcoin, Litecoin and Dogecoin implemented as contracts within three months.” The Genesis block was created on 30 July, 2015. Perhaps Ethereum can evolve into something with even more functionality than either group imagined.