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THE BIG 3

The cryptocurrency market is diverse, with each major asset embodying distinct characteristics that appeal to different types of investors and use cases. This thesis explores the investment potential of three prominent cryptocurrencies: Bitcoin, Ethereum, and Solana, each representing different facets of the market—ideology, academic rigor, and product-centric development.

Bitcoin: Ideology


Bitcoin (BTC) stands as the embodiment of a decentralized, deflationary digital currency. Its foundational ideology of decentralization, financial sovereignty, and censorship resistance makes it a hedge against traditional financial systems.

Key Points:

  1. Store of Value: Often referred to as "digital gold," Bitcoin is increasingly seen as a store of value, especially in times of economic uncertainty and inflation.
  2. Limited Supply: With a capped supply of 21 million coins, Bitcoin's scarcity is a critical driver of its value proposition.
  3. Institutional Adoption: Growing interest and adoption by institutional investors and corporations (MicroStrategy) enhance Bitcoin's legitimacy and stability.
  4. Global Acceptance: Bitcoin’s acceptance as legal tender and its integration into financial services underscore its role in the global financial system.

Ethereum: Academic


Ethereum (ETH) represents the academic and technical advancement, providing a robust platform for decentralized applications (dApps) and smart contracts.

Key Points:

  1. Smart Contracts and dApps: Ethereum's ability to support smart contracts and decentralized applications positions it as a backbone for Web3 development.
  2. Developer Community: Ethereum boasts a large and active developer community, continuously innovating and improving the network.
  3. EIP-1559 and Ethereum 2.0: The transition to Ethereum 2.0 (proof-of-stake) and the implementation of EIP-1559 (fee-burning mechanism) aim to enhance scalability, security, and reduce inflationary pressure.
  4. DeFi and NFT Ecosystem: Ethereum is the primary platform for decentralized finance and non-fungible tokens, sectors that have seen explosive growth.

Investment Considerations:

  • Scalability Issues: Challenges related to scalability and high gas fees.
  • Competition: Emerging smart contract platforms
What about L2/L3s? Every single roll-up uses centralised sequencers and upgradeable contracts, with no exceptions. Bridges also tend to have centralised components, for safety measures. If you want low fees and fast speed, there has to be a trade-off to decentralisation. You can't have your cake and eat it too.

Solana: Product


Solana (SOL) is a high-performance blockchain designed for speed and efficiency, making it an attractive platform for scalable and user-friendly applications.

Key Points:

  1. High Throughput: Solana can process thousands of transactions per second (TPS) with low fees, addressing key limitations of older blockchains.
  2. Strong Ecosystem: Solana's ecosystem is rapidly expanding, with significant growth in DeFi projects, NFTs, and Web3 applications.
  3. Backed by Major Investors: Support from prominent investors (a16z, Polychain) and partnerships bolster Solana’s development and market confidence.
  4. Innovative Technology: Solana employs unique technologies like Proof of History (PoH) to enhance scalability and transaction speed.

Investment Considerations:

Probably the fastest global state machine in the world. Critics argue that Solana’s network is more centralized compared to Bitcoin and Ethereum, potentially affecting its decentralization ethos. Some say it's just a beach town in California. Others think it's a digital sandbox to explore building new types of communities with social and financial interactions/incentives. In any case, Solana has ~3k nodes which is only slightly less than the number of Ethereum nodes — but it's also 10,000x cheaper and has at least 100x more capacity... seems like a tradeoff worth considering.

You can't both make the claim that L2s will get more decentralized AND ignore that Solana will also get more decentralized over time. It's a total contradiction.

Conclusion

  • Bitcoin for its ideological and store of value proposition
  • Ethereum for its academic rigor and foundational role in smart contracts
  • Solana for its product-centric approach emphasizing speed and scalability
Balancing investments across these assets can offer a diversified portfolio that captures the ideological, academic, and practical innovations driving the future.