Is Ethereum a Viable Alternative to Bitcoin as a Payment Network?
The vast majority of digital currency and Bitcoin enthusiasts perceive Ethereum as a sophisticated smart contract protocol designed and structured to support unique decentralized applications. However, Social Minds founder and Reality Keys developer Edmund Edgar sees Ethereum as a viable alternative to bitcoin as a payment network, primarily due to its simple method of facilitating transactions.
Processing payments on the Bitcoin network can be challenging for new users. For instance, new users struggle to understand the concept of inputs and outputs within a transaction, and how transaction fees are proportional to the size of transactions. In other words, if a transaction has many inputs and thus is larger in size, it needs a higher transaction fee to be confirmed by miners and prevent from being stuck in the mempool, an area within the Bitcoin network wherein pending transactions await for miners to pick up.
Wallet platforms such as Blockchain, Coinbase, and Samourai Wallet try to eliminate this complexity with a minimalistic user interface. Instead of having users deal with different sizes of transactions and number of inputs, wallets often suggest optimal fees to be included with the transaction.
However, even with reliable bitcoin wallets like Blockchain, large transactions are often stuck within the mempool. This is because the wallet platforms fail to include a fee which considers the transaction size in several aspects. The easiest way to avoid delays when transacting large payments is to utilize guidelines such as 21 Inc’s Bitcoinfees, which gives confirmation time prediction based on the transaction size and fee. According to Bitcoinfees, the optimal fee is 220 satoshis/byte, whereby transactions should not be delayed.
Bitcoin transactions can become more complicated than how it was explained above and sometimes, transactions can get stuck in the mempool for over 48 hours before finally being confirmed. Because of this complexity of bitcoin transactions, Edgar believes Ethereum is a viable alternative to bitcoin, especially when facilitating payments between two parties.
Unlike bitcoin transactions that vary in size depending on the previous inputs and history of payments, Ethereum transactions are equal in size. Ethereum accounts are similar to conventional financial accounts in the sense that it does not matter how many transactions an Ethereum account processed in the past.
A debate that has been around since the launch in July of 2015 is that transactions will be as expensive and arduous when the Ethereum network reaches the popularity of bitcoin. If it begins to handle a similar sized user base of bitcoin, Ethereum will suffer from the same scalability issues and will result in network congestion.
Edgar argues that Ethereum fees will be substantially lower than that of bitcoin because it has better scalability strategies and governance procedure.
“The good news is that Ethereum is in a much better position to scale to handle substantial numbers of payments than Bitcoin. Bitcoin’s block size has been stuck at 1MB for years. Most bitcoin people say they support an increase in capacity, but Ethereum’s grows naturally through an automatic adjustment,” said Edgar.
He further noted that off-chain scaling is easier for Ethereum due to its unrestricted scripting language. Because Ethereum was designed to settle smart contracts within an efficient ecosystem, it prioritizes functionality and flexibility. Raiden, Ethereum’s answer to Bitcoin’s Lightning Network, is almost ready whereas bitcoin transactions upgrades are prerequisites for Lightning to be enabled on the network.
“Because it already has an unrestricted scripting language and the ability to store and read information in the state database, off-chain systems can be simple, elegant and include functionality that is simply not possible in Bitcoin, at least without many more iterations of ‘please add this soft fork’,” added Edgar.
However, as Edgar notes, this comes at a cost for privacy, whereby Bitcoin’s UTXO model provides better privacy than the account-based model. Nevertheless, since developers can write their own contract logic, privacy advancements from elsewhere can be integrated into Ethereum:
“Rather than needing to define your currency based on its privacy technology, you’ll be able to wrap existing coins and tokens in contracts that provide privacy.”
But, bitcoin experts such as Coinbase Director of Engineering and Litecoin creator Charlie Lee state that networks like Ethereum that prioritize flexibility and functionality compromise with security. Ethereum did struggle in dealing with both internal bugs and external attacks in late 2016.
“I never get why people think Bitcoin can be secure, decentralized, cheap, and fast at the same time and have no tradeoffs at all.”
The answer to the scalability debate between Ethereum and bitcoin will not be resolved until Ethereum reaches the level of bitcoin regarding users, market cap, volume, and applications. Still, an increasing number of users are looking at Ethereum in different ways like Edgar, who is considering it as a payment network. This use case of Ethereum could be galvanized with the ongoing rift within the Bitcoin community, unless some sort of solution is reached for the block size debate.