How poetically perfect that 2021 was the year the world discovered that 21 million bitcoins held the key to the world’s future economic system. This was the year the public finally woke up.
Bitcoin has entered the cultural zeitgeist of the world like never before in the past year. This was a landmark year that taught us many lessons. In particular, there are four lessons about Bitcoin and cryptocurrency from 2021 that haven’t received enough attention:
Lesson One: Fiat inflation is inevitable
Last year we all heard the sound of the money printer going “brr”. That sound was also the sound of confidence in our monetary system being fed into a shredder.
Bitcoin was designed as an alternative to a trust-based monetary system. In 2021, it finally became clear to everyone that inflation was here, and Bitcoin’s use case as a trusted store of value went from speculative to urgent.
Last year, people around the world woke up and started embracing bitcoin as a hedge against rampant inflation. Everyone from Gen Z members to world-famous athletes to major city mayors sought Bitcoin as a hedge against inflation. Companies have invested heavily in Bitcoin, they bet a lot. A big example is MicroStrategy, which has bought $5.7 billion worth of Bitcoin so far.
Bitcoin may not be fully mainstream just yet, but in 2021 it certainly was its primary use case.
Lesson two: Bitcoin is permaware, crypto is software
2021 was also the year that highlighted how unique Bitcoin is compared to the rest of the token economy. Since the early days of tokens, almost all have been “altcoins” – tokens ostensibly trying to compete with bitcoin by tweaking or adding features.
This focus on features is typical of tech products. Last year it became clear that Ethereum, smart contract platforms and DApps are tech products, while Bitcoin is something else entirely.
Tech products – software – must constantly change, upgrade and update to keep up with the competition. Bitcoin is not typical software. Rather, it’s something new: Permaware. Permaware is a set of immutable rules written in code. It’s built for reliability and consistency, not features.
It is strange to realize that an entire crypto industry has been built around copying and competing with Bitcoin, and yet nothing has resulted in Bitcoin’s core function being copied: 13 years later, Bitcoin remains as unique as the day it was launched.
Lesson three: smart contract platforms have weak moats
The mental model many investors use when thinking about blockchain is that of social networks. Facebook and Twitter, although easy to copy, have become extremely valuable because their network effects keep users captive.
Towards the end of 2020, the crypto world assumed that Ethereum had achieved an unsurpassed ecosystem network effect due to developer attention, DApp interoperability, and “Money Legos”. But within just a year, that narrative was turned on its head. Chains like Solana, BSC, and Polygon have outperformed the Ethereum network in terms of total transaction activity and daily users.
In other words, we learned last year that unlike social networks, blockchains have weak network effects. Why the difference? Unlike Web 2.0, Web 3.0 users control their value through their private keys, making users and value extremely portable.
At the same time, since everything is open source, it is almost trivial to copy technology. It turns out that Ethereum’s network effect was not in the chain, but in the Ethereum Virtual Machine (EVM) – the developer language, frameworks and wallets. This has been copied across many blockchains.
Unless smart contract chains have strong network effects and are in constant competition with each other to lower transaction fees, it’s hard to see how they (through their tokens) will increase in value over the long term.
Lesson 4: We can build anything on Bitcoin
This year we learned that inflation isn’t just a boogieman story and we really need Bitcoin. We have learned that despite more than a decade of attempts, nothing has succeeded in replicating Bitcoin’s core feature: its ingrained ruleset. And we learned that there is a real desire for DeFi, but that doesn’t necessarily mean that smart contract platform tokens can have sustainable value.
This poses a problem – smart contract platforms are almost all proof-of-stake systems. If their tokens cannot capture value, then these chains are not secure. What does this mean for DeFi and Web 3.0?
Thankfully, thanks to a final lesson from 2021, all is not lost: anything can be built and secured with Bitcoin.
I’m proud to say that I’ve been a major contributor to Sovryn, the open-source project that leverages Bitcoin-based technologies like Rootstock, the Lightning Network, and Taproot, and attempts to illustrate this final lesson.
Over the past year, we’ve managed to bring EVM compatibility to Bitcoin, replicating DeFi products like trading, lending, and revenue generation, and doing it on a Bitcoin sidechain leveraging merged mining. In recent months, Sovryn has started to see significant adoption and has already settled nearly $2 billion in trades.
In other words, we now know that Bitcoin’s ability to adopt any useful technology isn’t just a meme — it’s a reality.
2021 was a turning point. Bitcoin was ready for us when it finally became clear that we all need it. And it became clear that there is no substitute for Bitcoin.
We can build an economic system built on the reliability of 21 million Bitcoin. Poetic or not, all of this happens when we reach a global tipping point after 2021. We are at a point where the world is realizing the shortcomings of the fiat system.
This is a guest post by Edan Yago. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.