The More Bitcoin Acts Like Ethereum, The Less Investors Should Like It

[ad_1]

When pseudonym Satoshi Nakamoto published the original Bitcoin (CRYPTO:BTC) white paper in 2008, he envisioned cryptocurrency as a peer-to-peer digital payment system and the ultimate form of “sound money”. Some even imagined that one day Bitcoin could replace the US dollar as the world’s reserve currency.

Flash-forward to 2023, and we’re starting to see unexpected innovations coming to Bitcoin’s ecosystem that seem to contradict this original premise – including highly speculative meme tokens and new non-fungible tokens (NFTs). What is of concern that these innovations are leading to higher transaction fees, network congestion and complaints about market disruptions? What’s going on here and how should it impact your decision to buy Bitcoin?

The “new” bitcoin

Perhaps the easiest way to describe what is happening here is that it is a battle between “old” Bitcoin and “new” Bitcoin. Old Bitcoin is the cryptocurrency originally offered by Nakamoto. The main purpose of its blockchain is to manage digital currency transactions. From this point of view, the blocks of its blockchain should only contain transaction data, nothing more. Proponents of New Bitcoin, however, believe that Bitcoin’s main blockchain should be used for more than just digital currency transactions. Why not create NFTs or even meme tokens, like those found on the Ethereum (CRYPTO:ETH) blockchain?

Image source: Getty Images.

In January, one of the hottest things happening in the crypto world was the creation of Bitcoin Ordinals, which are a new form of NFT called “registrations”. Innovators have found a clever way to “inscribe” text, images, and other content into blocks on the Bitcoin blockchain. At the end of February, these ordinals were so popular that Yuga Labs, creator of the Bored Ape Yacht Club, even created an NFT collection for Bitcoin.

The excitement over Bitcoin NFTs, in turn, led to the creation of a new type of token, known as BRC-20, which can be traded on the Bitcoin blockchain. These started appearing in early March, and where applicable, have even been more sensational than Bitcoin NFTs. In just two months, BRC-20 tokens nearly surpassed a total market capitalization of $1 billion. In early May, signs of a bitcoin token mania surfaced.

Real-world impact

According to a blockchain analytics service, 65% of all Bitcoin transactions on May 7 were tied to BRC-20 tokens. In other words, 65% of traffic on the Bitcoin blockchain last Sunday involved people trading meme tokens. Things got so out of control, in fact, that Binance (CRYPTO:BNB) – the world’s largest cryptocurrency exchange – had to temporarily suspend Bitcoin withdrawals.

The important point here is that we are starting to see disruptions in the way Bitcoin is used, and these are leading to higher fees and network congestion. In El Salvador, where bitcoin is legal tender and used for everyday purchases, the transaction fee to withdraw $100 in bitcoin would now reach $20. Think about it: if your bank charges you $20 every time you withdraw $100 from the ATM, you might start looking for another bank.

Of course, the innovators who brought us Ordinals and the new BRC-20 tokens will describe how much functionality and utility they bring to Bitcoin. Maybe they’ll tell you how they’re helping Bitcoin achieve wider adoption. And they will claim that they helped create a billion dollar market opportunity literally overnight. Fair enough.

But I can’t help thinking about that 65% number. Are two-thirds of bitcoin transactions now solely related to meme token speculation? Please, nobody tell Gary Gensler. As soon as the chairman of the Securities and Exchange Commission finds out that crypto enthusiasts have turned Bitcoin into a speculative playground for memes, it’s game over. And that’s one of my main concerns. How can anyone reasonably describe Bitcoin as a “sound currency” when people are playing with chips even in the background and writing funny images on its blockchain?

Should you invest in Bitcoin?

At one point, I thought the new NFTs might be a good thing for Bitcoin’s future valuation. However, with the arrival of BRC-20 meme tokens, I began to change my mind. Many of the most popular Bitcoin BRC-20 tokens are clearly designed to be meme tokens. The top tokens in this category by market cap now include a pizza-themed token, a frog-themed token, and a token that’s called, yes, “meme.” Now that larger and more mainstream cryptocurrency exchanges are starting to list these tokens for trading, this problem could get worse as more people get into the meme token mania.

For now, I remain bullish on Bitcoin over the long term. But, in the short term, I’m looking closely at what’s going on with NFTs and meme tokens. If Bitcoin’s main purpose – to act as a peer-to-peer digital payment system – is hampered by high fees, congestion, and other forms of market friction, it might be time to put the brakes on. If Bitcoin is trying so hard to become Ethereum, why not just invest in Ethereum?

[ad_2]