Bitcoin is not a competitor to Cardano. The two projects have completely different missions. While Bitcoin should be digital gold or money, Cardano should be a financial operating system. Bitcoin is just a transaction network whereas on Cardano third-party teams can build financial services through smart contracts. One of the old narratives claimed that if some interesting technology emerges, Bitcoin can implement it too. What if it's smart contracts? Can you imagine a lending platform being created on top of the first layer of Bitcoin? What if Bitcoin allows minting stablecoins and NFTs? Let's dive into an imaginary world in which the community would decide to make Bitcoin a smart contract platform. Is that even possible? If so, Bitcoin could take over the part of the market Cardano is targeting. TLDR Taproot upgrade introduced a new script type that increases the programmability of Bitcoin. If Bitcoin became a smart contract platform, fraud, hacks and scams would inevitably be part of the ecosystem. Bitcoin is seen as a conservative technology that doesn't change very often. There is no point in catching up with the technological advancements that have taken place on smart contract platforms. It would be necessary to change Bitcoin's governance model if it were to become a platform. What Bitcoin started, Cardano can finish. Bitcoin and Taproot Maybe it can be a surprise for you to find out that Bitcoin has a scripting language. It is called simply Script. It is a simple language that is not Turing complete, meaning it lacks several logical functions, including loops. One of the most popular Bitcoin smart contracts is the one used for Lightning Network. In general, transactions involving Bitcoin contracts are data-heavy and bad for privacy. But that has changed. Bitcoin’s Taproot upgrade introduced a new script type called Pay-to-Taproot (P2TR). Pay-to-Taproot is able to lock BTC to a script that can be unlocked by a public key or a Merkelized Alternative Script Tree (MAST). It allows BTC to be spent in a variety of ways. Taproot improves privacy and can be used to construct more complicated smart contracts. However, the implication that Taproot will make Bitcoin an innovative smart contract platform is misplaced. Cardano is designed from the ground up as a smart contract platform, so it has a significant lead over Bitcoin. Plutus is a Turing-complete language that allows you to write applications with Haskell-level security. Anyway, some members of the community have started talking about the Taproot upgrade in the sense that it is the first step towards making Bitcoin more programmable. There is also talk that it would be beneficial if tokens could be issued in the Bitcoin ecosystem. Maybe on the sidechain. Our imaginary world, at least for some people, is not that far from what many would like. Is a shift in narrative possible? I can't imagine the Bitcoin community accepting the change in narrative and wanting Bitcoin to be a smart contract platform. That would automatically weaken the digital gold narrative. I don't think one project can be both at the same time. I can imagine that a large number of transactions will take place on Cardano due to its usefulness in the financial world. Even if the market capitalization of Cardano approaches more to that of Bitcoin, or even surpasses it, ADA will never have the narrative of digital gold in the sense that it is a unique asset. All other native coins of smart contract platforms would have a similar status. While DeFi is very likely the future of finance, at this stage of its development you will find many scams, frauds and failed projects. Every month we see many hacks in the Ethereum ecosystem in which people lose tens of millions of dollars. If Bitcoin became a smart contract platform, we would see the same thing. Those who perceive DeFi negatively, and they are often Bitcoin fans, would necessarily start to perceive Bitcoin negatively as well. It is naive to think that DeFi on Bitcoin would be any better than on any other platform. Scams and hacks would become an integral part of the Bitcoin ecosystem and could destroy its reputation. Like the Internet, DeFi will overcome teething problems and become a relevant financial alternative. At the moment, Bitcoin is isolated from these issues and the community is trying to push the narrative that "Bitcoin is not crypto". If you think about it, you could rephrase that to "there is no DeFi on Bitcoin". What we described for DeFi could be described for NFTs, tokenization, stablecoins, etc. All have potential, but many doubt it. I don't believe the Bitcoin community is capable of deviating from the original narrative. If people have an opinion for a long time and build their image on it, they cannot easily change it. They lose honor and consistency of opinion. While it's perfectly normal to change your mind, I don't think we'll see that with Bitcoin influencers. Technology level battle Bitcoin is seen as a conservative technology that doesn't change very often. The Proof-of-Work consensus is seen as the biggest advantage. It is certainly not clever for the Bitcoin community and the team to go into battle with smart contract platforms that are progressive and their success is based on technological innovation. The IOG team, that is building Cardano, has several hundred employees and facilities at several universities. Bitcoin is backed by venture capital funds, but I don't think it currently has the quality team that other projects have. Brains are leaving Bitcoin to build other ecosystems. Of course, they could come back, but we don't see that happening. For Bitcoin to compete to become a major smart contract platform, it would have to change fundamentally. Smart contract platforms use Proof-of-Stake consensus (or others) because they need to have much higher scalability. If the blockchain doesn't scale, and there is more demand for transactions than the network can handle, fees will start to rise into the tens or hundreds of dollars. There are completely different requirements for the financial system than for a gold bar. The higher utility of Bitcoin could solve the security budget problems. On the other hand, imagine a platform with such expensive fees. People wouldn't use it anyway because they could use another one. Cardano and many others. Another question is whether a 10-minute PoW consensus would be a competitive disadvantage. Probably yes. It would take quite fundamental technological innovation at the consensus level for Bitcoin to compete with Cardano or Ethereum. Consider that Bitcoin resists change at the monetary policy level. For example, it is not possible to change the reward mechanism. It would of course be possible to produce blocks 10x faster, split the block reward into 10 parts and keep the halving mechanism. Major changes, or even a switch to PoS, are unlikely to be possible without implications for monetary policy. If the programmability options were increased, token minting would become a theme. Many DeFi services need tokens to function. For example, if you provide liquidity in BTC, there needs to be a way to get the BTC back. Within DEXs, this is usually handled through token minting which represents a claim to get tokens back. There are many sub-problems associated with tokenization. Higher demands on disk storage, privacy, implementation, standards, etc. Cardano is incredibly similar to Bitcoin and even uses a similar UTXO model. It is said that if Bitcoin were to be a smart contract platform, it is essentially Cardano. The Bitcoin team would have to take concepts from Cardano and implement them into Bitcoin or come up with another solution. This could take years maybe even decades. Is there still time for this? Within the next decade, the current smart contract platforms will be well-established in the market. It will be very hard to compete with them. Now it is still possible to come up with a new platform. Every 4 years we see new projects appear and disappear. Adoption is still low and new concepts are being tried. However, this phase will not last forever. Try competing with Amazon or Google. It's extremely difficult. The platforms that exist today will have a big advantage. People know them and use them. Important partnerships can be made. Those projects that will be around longer will gain the trust of users. It is best for Bitcoin to remain as it is. If it were to change on the fly, people might start to lose trust. It is of course possible to gradually improve Bitcoin, but it is probably too late to catch up with the developments that have taken place on smart contract platforms. For Bitcoin, current smart contract platforms are not competitors as they have other applications. However, this could change if Bitcoin becomes a platform. It would make more sense to start with a detailed comparing the features of Bitcoin and Cardano in terms of scalability, transaction fees, programmability, ability to mint tokens, and so on. Bitcoin would have to surpass Cardano in many areas to become the go-to solution for financial services. The monetary properties of Bitcoin would be overlooked and Cardano might seem like a better solution. Objectively, higher scalability at the first layer is an advantage for the financial system. It's the same as, for example, it's more profitable to buy a car that can travel a longer distance on a given volume of fuel than others. Subjectively, people may view the topic differently. For example, buying a car that will travel a shorter distance because it has more comfortable seats. Comparing Bitcoin and Cardano is unnecessary if we accept their missions. If Bitcoin wanted to catch up with other projects, it risks a reputational loss. It is not necessary if people will use the projects for what they are intended. People can hold BTC and simultaneously use Cardano for financial services. If influencers advise people to use a single project, there will be a logical split in the community and a weakening of the cryptocurrency mission. Governance The IOG team plans to hand over Cardano to the community in the Voltaire era. This means that the community will decide on changes through ADA coin voting. The consensus in the Ethereum community is that the team knows how best to improve the protocol. Could Bitcoin be improved with the current governance model? That's the big unknown. BTC holders have no decision-making rights. Changes are made by the team. Major changes must be confirmed by the miners. In case of disagreements, it is possible to "vote" through a version of the client. I am not sure that this structure is the best possible one for reaching a consensus on major changes. Governance would probably have to change to allow those who matter most, the BTC holders, to decide on changes. Who should actually decide that Bitcoin become a smart contract platform? Can only the team and the miners do it despite the fact that BTC holders would not want it? The current state of affairs is that everyone favours a conservative approach to changing the Bitcoin protocol. If there's not much to decide, it can work. But that would not be the case if Bitcoin were to become a smart contract platform. What can we expect in the future? Bitcoin will never become a full-fledged smart contract platform. The community doesn't want it and technologically it's a big challenge. It is better for Bitcoin to maintain the narrative of digital gold and not compete with smart contract platforms on a technological level. After the bankruptcy of CeFi companies, everyone is talking about the need to get rid of unreliable middlemen. Satoshi wanted to allow us to get rid of our dependence on the banks. CeFi is not and cannot be a substitute for banks. This mission is not complete and Bitcoin is not capable of freeing us from our dependence on banks. This is a mission for Cardano and other platforms. In this context, it makes no sense to separate Bitcoin and other cryptos. What Bitcoin started, Cardano can finish. The transaction system can replace PayPal, but not banking services such as loans, trading, investments, savings and insurance. What changes the rules of the game is self-custody. Self-custody is where Lightning Network and PayPal differ. It doesn't make sense to keep cryptocurrencies on hardware wallets and resign yourself to self-custody every time you want to use them for anything else. Decentralised finance has enormous potential to improve the functioning of the banking system. Cardano and Bitcoin will coexist and can benefit each other. BTC can be a great reserve currency. Cardano is able to handle volatility and create stablecoins that will be backed by BTC. Other financial services can be created on this basis. This solution can exist completely independently of traditional banks. We assume that part of the BTC that people will want to use will be tokenized and used on smart contract platforms like Cardano. Once the miners have mined most of the BTC, there won't be enough coins to reward them. If Bitcoin has trouble maintaining a high enough security budget in the future, tokenization of BTC may be the only way to preserve the existence of coins. By tokenizing BTC, the Cardano ecosystem will collect transaction fees that would otherwise be collected by the Bitcoin network. However, there will be many other networks, including those in the Bitcoin ecosystem, that will be interested in the fees. It is difficult to predict future developments, but with a high degree of certainty those networks that are most efficient, secure and useful will win out. The cryptocurrency revolution is monetary in nature, but also technological. One cannot be separated from the other. Bitcoin will never be a technological leader. As a basis for a new monetary policy, Bitcoin can be excellent if people accept it. Cardano is a leader in innovation and can maintain that status. It makes sense for decentralised ecosystems to connect with each other. It's definitely a better option than relying on CeFi. We have come to the conclusion that our imaginary world can only exist in dreams. Bitcoin will never have the same capabilities as Cardano. The question is whether people will use Cardano. We might as well ask if people will use Bitcoin. Nobody knows. It's good that Bitcoin and smart contract platforms offer something different. Each project can impact the world in a different way, and their existence is not mutually exclusive. Conclusion It's ironic that the cryptocurrency community is trying to fight the traditional world of finance and instead of focusing on that, fans of each project are fighting amongst themselves. They naively think that one project can replace both the traditional financial system and all competition in a decentralized world. This is a very silly notion. We will never understand the efforts to separate Bitcoin from other cryptocurrencies. Anyone who doesn't see the point in DeFi must be blind. Bitcoin started the decentralized revolution, and Cardano is the logical successor that can help complete it. While the two projects have different missions and target different uses, their goal is fundamentally the same. Let's get rid of unreliable and inefficient middlemen.
