This year, there have been several Bitcoin breakthroughs that will likely redefine its future. In January 2023, Ordinals debuted as digital assets inscribed on satoshis, essentially turning them into NFTs. In March, an anonymous developer introduced the BRC-20 protocol, a token class modeled after Ethereum’s ERC-20 tokens. And in May, a new Bitcoin-based decentralized exchange (DEX) called Trustless Market launched after a group of developers released smart contracts on the Bitcoin blockchain.

For the longest time, most in the Web3 space treated Bitcoin as the top cryptocurrency, but without the ability to support smart contracts, they built their Web3 solutions on other blockchains such as Ethereum and many others. Now that Bitcoin has emphatically entered the smart contract scene with this recent lineup of features, many are wondering if the world’s most valuable crypto token will soon take Ethereum’s lead as the top blockchain for building Web3 solutions. 

Smart Contracts and Their Importance in Growing Web3

​​Smart contracts were first proposed in the early 1990s by Nick Szabo, who coined the term and used it to refer to "a set of promises, specified in digital form, including protocols within which the parties perform on these promises. In the context of blockchain technology, a smart contract refers to a piece of code that is usually stored and executed automatically and in a deterministic way on the blockchain to make it trustless and secure. In other words, it’s an automated program that you can build on top of a blockchain to make trackable and immutable transactions. 

Before Ethereum’s launch in 2014, the pioneering blockchains of the time, including Bitcoin, did not support smart contracts, at least on a viable, scalable level. While there are projects that attempt to bring smart contracts to Bitcoin, such as Colored Coins, Counterparty, and a few others, Vitalik Buterin’s creation of Ethereum would be the first major implementation of the smart contract concept.

Ethereum’s Lead in Smart Contracts

Ethereum was partly created as Vitalik’s response to the limitations inherent in Bitcoin, having previously worked on the latter during its early days. As the first blockchain that supports smart contracts as its core feature, Ethereum was able to lead the charge in the growth of Web3, with developers creating several use cases for blockchain, such as tokenization, DeFi, NFTs, and more. The success of Ethereum, which began in the crypto token craze of 2017 and the subsequent rise in prominence of DeFi and NFTs in the years after, has solidified its lead as the blockchain of choice for developers. It has also emboldened other developers to create their own implementations of smart contract-capable blockchains, such as Solana, Cardano, and more. 

The success of Ethereum in popularizing smart contracts is largely driven by the automation and programmability of the Solidity language that it uses. Smart contracts on Ethereum (and several other blockchains after) are programmed to have capabilities of receiving, storing and sending funds and even calling other smart contracts. As a result, they can replicate or even replace the traditional financial institutions that perform a variety of financial functions, such as trading, lending, and earning. More importantly, no one can alter that smart contract when it's live – it will always run as programmed.

Close to a decade after Ethereum’s launch, it is facing a new contender to its smart contract throne: Bitcoin. 

Bitcoin Responds: Taproot Upgrade, Getting into NFTs and DeFi 

There is a common misconception about Bitcoin, specifically that it is viewed as a blockchain that does not have smart contracts. However, smart contracts do exist on the Bitcoin network, albeit in a more rudimentary and inefficient manner, at least until recently. 

The launch of Ordinals, BRC20, and Bitcoin-based DEXes all trace their roots to the latest update on the Bitcoin blockchain: the Taproot upgrade, which was activated in November 2021. While the main priority for launching Taproot was to increase the efficiency, speed, and privacy of Bitcoin, this update was also able to introduce an easier and cheaper way to build smart contracts on top of the top crypto token’s blockchain.

After the Taproot upgrade, Bitcoin opened its path to deploy smart contracts and potentially expand its use cases to cover the trending NFT and DeFi markets in the future. Various projects nowadays are building on top of Bitcoin and trying to attain this goal by introducing sidechains, drivechains, or Layer-2 solutions, or even new Layer-1 protocols. Building on Bitcoin as a base layer for DeFi, payments, and NFTs will likely put Bitcoin to even greater levels of visibility and adoption, as shown by projects such as Stacks, Rootstock, Rollkit, and more.

Bitcoin vs Ethereum: Smart Contracts

While the possibilities opened up by smart contract support on Bitcoin can be endless, there is an uphill battle ahead for developers who want Bitcoin to usurp Ethereum’s lead in the smart contract game. 

In the table below, we provide a quick overview of the difference between the Bitcoin and Ethereum blockchains with respect to smart contracts.

When comparing smart contracts on Ethereum and Bitcoin, there are notable differences in terms of functionality and capabilities. Ethereum's smart contracts is powered by Turing-complete languages, like Solidity.  On the other hand, Bitcoin’s programming language, called Script, is not Turing-complete. So, Bitcoin's smart contracts are more rudimentary and limited, suitable for simpler applications like multisig transactions and time-locked transactions, such as atomic swaps. More examples can be found here. 

Simply put, the apps on Ethereum are like your typical smartphone app in terms of sophistication, unsurprising given the network’s years-long headstart in smart contracts, while the apps on the Bitcoin network, at least pre-Taproot, are like calculators you use on cashiers. It remains to be seen what other types of apps can be created on Bitcoin post-Taproot, but if the early examples are any indication, Bitcoin’s prospects are promising. 

Conclusion

Using Bitcoin as a base layer for Web3 applications is an emerging research frontier, and it holds significant excitement as new research results continue to unfold. As we have seen, Bitcoin’s programmability trade-off is not a bad thing, and its smart contract functionality can be expanded on Layer-2 networks or separate blockchains connected to the Bitcoin network.  We look forward to sharing further insights about this exciting area in our upcoming posts. Stay tuned for more in-depth discussions and updates.

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