Bitcoin Maxis is patting itself on the back after launching the Taproot Assets protocol for Bitcoin and Lightning. And they are absolutely right to do so.
The launch of Lightning Labs mainnet Alpha last month was big news. So far, Ethereum and Tron have dominated smart contracts. Now with this latest protocol, Bitcoin is poised to challenge its dominance and bring new vitality to the network. This new feature will provide developers with the tools to make Bitcoin a multi-asset network, allowing users to hold real assets such as gold on the Bitcoin blockchain, marking a defining moment for Bitcoin's evolution.
But Taproot's Lightning assets have broader consequences than the hype it initially received. With the next rally on the margins, the demand for diverse use cases is increasing. This will create huge opportunities for networks and developers alike. A diverse ecosystem will not only expand blockchain's global reach, but will foster an environment of shared functionality that will in itself generate new use cases.
Bitcoin may have entered a new phase in its development, but it is not just Bitcoin that will benefit from this. Instead of seeing Web3 as a zero-sum game, isn't it time we eschew the extremes of cryptocurrencies and welcome an industry that supports a broad and healthy ecosystem?
Ethereum or Bitcoin? Firstly?
Ethereum has, until now, been the de facto platform for smart contracts and decentralized finance. As the world's largest cryptocurrency by market cap, if Bitcoin expands its role beyond being just a store of value and projects into the world of smart contracts, it could destabilize Ethereum. But this does not mean that it will definitely become the leader in this field.
With the pace of technology pushing Web3 to the forefront of many sectors, innovation around the world is accelerating to keep up with the demand for Web3 solutions. An isolated network cannot hope to build the future of Web3 on its own. Rather than viewing the development of a second major multi-asset chain as a shift in the Web3 leaderboard, this instead represents an opportunity to diversify the industry.
Ryan Gentry, Head of Business Development at Lightning Labs, shared his thoughts in a recent interview on how Taproot Assets contributes to the “web of spiderweb tunnels” that augment the network’s capabilities: “When I think about the Lightning Network from an infrastructure perspective I think about it the same way “I'm thinking of electric power grids, oil pipelines, fiber networks. This is mission-critical infrastructure, or it will be mission-critical infrastructure for the world.”
The idea of a tunnel network deployed in Web3 brings to mind Metcalfe's Law, a term initially introduced by Bob Metcalfe, inventor of Ethernet, who described the network's effect as a centripetal force It makes networking more valuable the more things you connect to. Basically, the more people join any network, the more likely other people will join. Social media is the biggest example of this, but this phenomenon will be increasingly important in Web3 as we see larger use cases emerge.
While it is true that the network effect can help existing projects and networks maintain their competitive advantage, the demand and popularity generated by one group can also have a similar impact on other groups.
Diversification is the key to Web3's success
Web3 thought leaders in the space were quick to share their thoughts on Taproot Assets, focusing largely on how it will benefit Bitcoin's scalability. But while many critics of Web3 may agree on Bitcoin as the standard, the reality is that the future of Web3 is more expansive than most of us will ever experience. Anthony Trenchev, co-founder of Nexo, spoke about the broader implications of Taproot's assets in a recent report tweet: “Think about the overall scalability of the ecosystem – imagine the number of additional users and transactions that could be processed by blockchain companies with a second multi-asset main chain. This is a treasure trove of 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 predict the use cases that will require specialized blockchains as well as multi-asset main chains to support them. Beyond just financial solutions, Web3 is witnessing a boom that is pushing it into almost every area of technology, revolutionizing the entire economy. Hundreds of billions of capital are locked in Bitcoin, much of it as a passive store of value, and demand for Bitcoin-related use cases is growing. Instead of competing with Bitcoin, other Layer 2 protocols, such as Stacks and Liquid Network, provide new use cases for Bitcoin holders. Many second tiers are emerging, looking to tap hundreds of billions in currently idle capital.
Survive in the new digital age
As the global economic landscape transforms, as a result of advances in artificial intelligence, machine learning, and other technologies, it is becoming increasingly clear that Web3 will be a disruptive force in the new digital age, opening the door to new innovations and business models. This widespread adoption will require diverse networks and infrastructure to support future use cases. While healthy competition is important in driving change, the industry needs to ensure it also supports inclusivity and strengthens the community it is built on. Bitcoin purists, or anyone who believes in a single-chain monopoly, need to step back and look at the bigger picture, which is that scalability in the network is not as valuable as scalability in the ecosystem. Having more than one main network is not only valuable, it is essential for Web3 to scale and for its many startups to have the best chance of success.
This is a guest post by Sadie Williamson. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
