Many crypto enthusiasts are on the hunt for the next “100x gem.” While it’s possible to find one, most people lose funds long before they do. Maybe if they opened their eyes and saw the behemoth right in front of them, they’d still have skin in the game.

In 2024, well over a decade after its initial launch, Bitcoin is still untouched in terms of its influence and market position in the cryptocurrency space. Since 2016, other infrastructures like Ethereum and Solana have gained momentum in recent times through the introduction of smart contracts, NFTs, and more. However, the Bitcoin ecosystem has followed suit wherever it could thanks to additions such as the lightning network, runes, and ordinals.

In a recent in-depth interview with Markus Bopp, the CEO of Tap Protocol, I explored the nuances, benefits, and challenges of these latest developments to unravel what the future truly holds for the BTC ecosystem. Let’s get to it.

Understanding native bitcoin assets

In simple terms, native bitcoin assets refer to applications and digital assets built directly on the so-called Layer 1 network of Bitcoin. As such, these don’t include third party networks such as Wormhole, where only wrapped BTC are used.

These assets are inherently tied to Bitcoin's infrastructure, benefiting from its decentralization and immutability. Examples include using Bitcoin's Script language to create simple smart contracts or leveraging existing transaction types to develop new asset classes.

In contrast, building alongside Bitcoin involves creating Layer 2 solutions, sidechains, or even forking Bitcoin's codebase to develop new, independent blockchains (which for example has previously happened with Bitcoin Cash, BSV, and Bitcoin Gold).

Layer 2 solutions can provide more flexibility and functionalities, such as complex smart contracts and faster transaction times. However, they also come with unique challenges, particularly regarding security and asset traceability.

“In terms of assets, the origin matters. Doesn’t matter if it’s for collectibles or NFTs. For assets that originate on an L2, tracing their origin can be challenging if the L2 ceases to exist. While you could argue that bridging these assets back to Bitcoin could solve the problem, you'd still need to recover the L2 protocol that created these assets. With multiple L2s, the likelihood of losing track of their origins becomes pretty high,” according to Bopp.

The benefits of building on the Bitcoin blockchain

Bitcoin's blockchain has historically been a hotbed of innovation. By building on Bitcoin, developers can create entirely new asset classes that are virtually unparalleled in security and exposure.

After all, the biggest benefit of the Bitcoin network is its enormous size and security –its extensive decentralization ensures that assets remain virtually unhackable (e.g. through double spending attacks), making it an ideal platform for long-term projects.

“This approach opens up tons of opportunities for consumers and miners. Many of them are finding new ways to take advantage of these options,” stated Bopp.

The drawbacks

Despite its advantages, building on Bitcoin does come with quite a few challenges. Many essential tools and products are yet to be developed, which can slow adoption and limit possibilities compared to more established platforms like Ethereum.

Bitcoin's relatively simple scripting language lacks the capabilities of more advanced smart contract platforms. This can make developing complex dApps directly on Bitcoin more difficult.

Moreover, unlike Ethereum, which generates a new block every 10-20 seconds, Bitcoin's slower block time of roughly 10 minutes can be a major drawback for time-sensitive use cases. While this ensures greater security, it may not be a dealbreaker for some developers.

However, the Bopp said there is a flip side. “This might not be a real negative, as it allows new ecosystems to develop and new discoveries to be made.”

The case for native Bitcoin assets

Native Bitcoin assets offer superior security and traceability compared to those built on sidechains or L2 solutions. This makes them more reliable for long-term value storage and regulatory compliance.

Developers can leverage its established security, decentralization, and regulatory standing by building directly on Bitcoin. This reduces risks and enhances the credibility of the assets created.

“Bitcoin lacks native smart contract support. I can’t argue that. And yes, it has slower block finality. But building on Bitcoin as a platform remains advantageous. Building on the native chain is important since many L1-based products should inherit the regulatory characteristics already applied to Bitcoin,” according to Bopp.

Given Bitcoin's established status and ongoing development, assets built on its blockchain are more likely to withstand the test of time, offering a safer investment for the future.

The Growing Popularity of Bitcoin L2 Solutions

Layer 2 solutions are gaining traction for their ability to address Bitcoin's scalability and speed issues. Technologies like the Lightning Network enable faster transactions and lower fees, making Bitcoin more practical for everyday use.

But with Tap Protocol, it’s unnecessary. Tap’s solution enables smart contract development directly on the Bitcoin ecosystem without needing a Layer 2 built on top of it.

“Tap Protocol created smart contract capability to take something DeFi users love and make it possible on the Bitcoin chain,” said Bopp.

Bitcoin Is Still the Future of Finance and Innovation

Bitcoin remains a foundational pillar in the evolving landscape of blockchain technology and digital finance. Its network offers unparalleled security and traceability for assets built directly on its blockchain.

Tap Protocol’s developers have found the answer to one of the ecosystem’s biggest challenges with their product: enabling the use of smart contracts directly on Bitcoin’s blockchain. No sidechain or L2 is needed.

The emerging tech and teams working on these solutions underscore Bitcoin's flexibility and ongoing potential to adapt and grow. As native Bitcoin assets and alternative blockchain solutions continue to develop, Bitcoin's established regulatory framework and foundational strengths ensure its continued relevance and prominence in the financial industry.