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Why Bitcoin Has to Embrace DeFi and Decentralized Apps to Achieve Mass Adoption

Bitcoin needs to improve its Layer-2 solutions

Bitcoin's journey towards mass adoption is entering a pivotal phase, with Layer-2 developers advocating for its integration with the $57 billion decentralized finance (DeFi) sector. Despite Bitcoin's stronghold as a digital currency and "digital gold," its potential as a platform for a myriad of applications remains largely untapped. 

Developers argue that limiting Bitcoin to peer-to-peer (P2P) payments curbs the blockchain's innovative possibilities. The emergence of Bitcoin Virtual Machine (BVM) and similar technologies marks a significant step towards expanding Bitcoin's functionality, connecting it with Ethereum's versatile ecosystem and beyond.

Expanding Bitcoin's utility: DeFi and custom blockchains

The call for Bitcoin to embrace DeFi and consumer applications is growing louder among Layer-2 developers. "Bitcoin can only 'stand a chance' at mass adoption if it opens up to decentralized finance," one developer shared, highlighting the pressing need for Bitcoin to evolve beyond its current limitations. The creation of platforms like Bitcoin Virtual Machine (BVM) in January 2023 exemplifies this shift. BVM's founder, known as "punk3700," envisions a Bitcoin ecosystem bustling with activity: 

"Restricting developers to solely P2P payments stifles creative exploration and potentially excludes valuable use cases."

BVM connects the Ethereum Virtual Machine (EVM) with Bitcoin, fostering a bridge between two of the most influential crypto spaces. This integration not only enhances Bitcoin's capabilities but also invites a diverse range of applications and innovations onto the network. 

Punk3700 asserts, emphasizing the significance of DeFi applications in driving Bitcoin's adoption:

"The decentralized world should empower developers to build freely with the autonomy to scale their creations," 

Willem Schroé, founder of Botanix Labs and creator of Spiderchain, echoes this sentiment. Schroé's work on Spiderchain, a proof-of-stake Layer-2 that implements EVM-to-EVM bridges, aims to connect Bitcoin with the broader financial system, including Ethereum-based assets, stablecoins, and non-fungible tokens (NFTs). Schroé remarked, pointing to the untapped potential awaiting Bitcoin's integration with DeFi.

 

"That’s a huge amount of value and development waiting to happen," 

Controversies and challenges: navigating the new frontier

As Bitcoin's Layer-2 ecosystem flourishes, it's not without its share of controversies and challenges. One notable project, SatoshiVM, aimed to bridge Bitcoin with the Ethereum Virtual Machine (EVM) using zero-knowledge rollups, marking a significant step towards interoperability. However, its journey was marred by controversy surrounding the launch of its SAVM token. 

A claim that stirred considerable debate within the community and led to a sharp 38% drop in the SAVM token's value:

"One of SatoshiVM’s advisers, 'MacnBTC', was accused of harvesting 'millions in profits' from the token launch,"

This incident underscores the complexities and potential pitfalls of introducing new technologies and tokens within the Bitcoin ecosystem. Despite these hurdles, the drive to innovate remains strong. Projects like Spiderchain and Bitcoin Virtual Machine (BVM) continue to push the boundaries, aiming to fulfill Bitcoin's promise as a more versatile and widely adopted platform.

Yet, not all voices within the Bitcoin community call for such expansive growth. Some developers, like those behind BitVM, prioritize scaling Bitcoin's transaction speed over the adoption of smart contracts and EVM-like tokens.

"Super Testnet," a developer from BitVM expressed:

"I don’t want to see everything from the Ethereum ecosystem because most of it is Ponzi schemes,"

Beyond currency: Bitcoin as a platform for innovation

The Bitcoin ecosystem is at a crossroads, with Layer-2 developments entering a new era of innovation beyond its traditional role as a currency. The emergence of Ordinals inscriptions and the expansion into DeFi underscore Bitcoin's potential to host a myriad of applications. "Bitcoin is the perfect consumer brand," argues "punk3700," the founder of Bitcoin Virtual Machine (BVM), highlighting the enthusiasm for new use cases on the Bitcoin network. This sentiment is echoed across the development community, with initiatives aimed at exploring GameFi, SocialFi, art, and even artificial intelligence applications on Bitcoin.

Alex Miller, CEO of Hiro, which supports Bitcoin layer-2 project Stacks, emphasizes the visionary aspect of making Bitcoin programmable. 

"Satoshi himself wrote back in like 2010, 2011, that he foresaw additional layers [and] additional chains will get built on top of this, to provide all of that kind of programmability," 

Miller reflects, pointing to the foresight of Bitcoin's creator, Satoshi Nakamoto. This vision for Bitcoin as a platform capable of supporting a wide range of innovations is gradually becoming a reality, with developers pushing the boundaries of what's possible on this foundational blockchain.