Bitcoin must be the basis for DeFi to ensure a resilient and secure financial system. If we do not, then we will miss out on the best and most proven blockchain to power the next wave innovation.
For too long, bitcoin has been viewed as merely a static store of value — digital gold. And those days are gone. Bitcoin is about to experience the DeFi revolution, which will improve its security and reliability by inheriting those of the original Bitcoin blockchain. Bitcoin makes sense if we want to create truly decentralized applications that do not require middlemen.
Infrastructure was not available to support the creation of financial applications until relatively recently. DeFi thrived on Ethereum and Solana, but the idea to build a similar eco-system on Bitcoin was seen by many as an unwise gamble. Bitcoin was criticized by many as too rigid. It lacked the smart contracts functionality necessary to support the wide range of technologies and tools needed for DeFi.
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However, this perception is shifting. Segregated witness (SegWit), introduced in 2017, not only reduced some Bitcoin data limits, but also opened the door for layer-2 networks. These networks such as Lightning Networks, Stacks and Rootstock process transactions away from the main blockchain to reduce transaction costs and increase speed while maintaining security. More recently, the market is expanding even more with Casey Rodamor’s development of Ordinals, Runes, Core DAO and B² Network.
DeFi is created within months in part because businesses and developers already follow a similar framework in Ethereum’s DeFi eco-system. Businesses and developers are rushing to build cutting-edge Dapps using Bitcoin, skipping over the experimental phase. Bitcoin’s DeFi ecosystem now includes everything from tokens and NFTs, to lending and loaning markets.
Bitcoin could be used to replicate the traditional financial system without all its risks and inefficiencies. Imagine building a decentralized version of Morgan Stanley on the Bitcoin blockchain — a radical shift that could activate the vast reserves of bitcoin currently sitting passively in wallets. Although degens are sometimes reluctant to bring traditional financial institutions into the cryptocurrency ecosystem, their utility can be of great benefit for aggressive crypto users and investors.
This would provide bitcoin owners with new ways to make money and also tie DeFi into the blockchain, which is secured using real-world hardware. The proof-of work (PoW) consensus mechanism is more stable and centralized than Ethereum’s Proof-of-Stake model, which it adopted back in the year 2022.
Bitcoin DeFi is a sea of opportunities, but there are also challenges. DeFi on Bitcoin is a complicated solution, both in terms of the user interface and experience. The problem is not limited to Bitcoin, but crypto as a whole. Bitcoin DeFi developers need to prioritize accessibility in order to make sure that everyone can benefit from the financial freedom of Bitcoin.
A layer-2 Bitcoin ecosystem is also still at its infancy. The narrative that building DeFi on Bitcoin is pointless — or worse, a threat to its security and stability — is only just beginning to dissipate. The potential for innovation increases as investment in Bitcoin DeFi projects rises. It gives entrepreneurs more room to innovate and build. The new developments such as Stacks’ Nakamoto Upgrade (which aims at increasing transaction throughput, and enhancing finality assurances) will further empower Bitcoin as a DeFi Protocol.
DeFi’s resilience and its success will be determined by the foundational technologies chosen. Bitcoin is the perfect leader in this field, thanks to its unparalleled security, stability, and new layer-2 solutions. By building on Bitcoin, we can ensure that DeFi remains true to its core principles — decentralization, security and transparency — while expanding its reach and impact.
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