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24 February 2024
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Is Ethereum Providing Better Bitcoin Scaling Solutions Than Bitcoin Itself?

Bitcoin does a whole list of things that are right for the digital asset industry. ; The largest crypto has one of the most secure blockchains, a dependable insurance rate, and a complete decentralization structure.

In the midst of all of its proverbial advantages, the main issue of Bitcoin remains its ability to handle a higher number of transactions; in short, its scalability. The inability of the network to facilitate more transfer has caused network saturation, which in turn spikes up the transaction fee during high on-chain activity.

Now, in the last few years, a number of off-chain solutions have been proposed to solve this conundrum. Bitcoin’s Lightning Network and Blockstream’s Liquid have often led development, but over the past 12 months, Ethereum’s DeFi has also been a popular platform.

In a recent blog post of Arcane Research, the aforementioned off-chain solutions were reviewed to understand their present status.

Blockstream’s Liquid Network and the Lightning Network

Data from Arcane Research suggested that the Bitcoin sidechain Liquid, which processed faster transactions with the help of L-BTC has performed admirably since January 2020.

According to the chart above, L-BTC in circulation during the month of January was close to 600 but since then, the sidechain has witnessed high adoption as the number of L-BTC has spiked up to 2476 in July 2020.

Lightning Network hasn’t been behind as well, but it is important to note that Bitcoin’s LN chain has received a lot of criticism over the past few months. Since its launch in 2018, it has been touted as the mainstream solution to solve BTC’s scaling problems but the narrative continues to be “underdevelopment”, in spite of launching back in January 2018.

The above chart exhibits that over time, Bitcoin’s LN adoption rate is not exactly impressive but according to BitMEX Research, it is difficult to measure its exact adoption. The report suggested that 28% of LN channels are private as of January 2020, so BTC locked in those channels are not added up.

Ethereum’s WBTC; Tokenized Bitcoins taking the cake?

Now, In spite of receiving mainstream adoption only in January 2020, tokenized Bitcoins on Ethereum is rapidly becoming a sought-out solution for scaling Bitcoin.

It is a completely separate off-chain platform where tokenizing BTC as an ERC-20 token enables functionality and makes it compatible with the Ethereum DeFi ecosystem.

Wrapped Bitcoin of WBTC is the largest BTC token on Ethereum and it currently holds 11136 BTC into its protocol. It completely blows Liquid and LN’s adoption out of the water in terms of growth.

Now, the major trade-off is the fact that tokenized BTC on Ethereum has a layer of centralization surrounding its development, and it is also more complex than using Bitcoin on its parent blockchain.


In terms of growth, tokenized Bitcoins on Ethereum are head and shoulders above Bitcoin sidechains and it is becoming rapidly evident that users are preferring Ethereum over Bitcoin’s blockchain but considering the likes of WBTC is completely centralized, Bitcoin sidechains may still have an advantage in the future, only if they can pump up their numbers and establish themselves as a legitimate solution.

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