DeFi
Loka Mining CEO on Bitcoin’s DeFi Possibilities
Speaking to crypto.news in an interview, Andy Fajar Hardika, CEO of Loka Mining, discussed the evolution of decentralized finance (defi) on the Bitcoin network.
April 19, 2024, Bitcoin mining rewards were torn half. Mining a block will now only generate 3.125 BTC, compared to 6.25 BTC previously. Although Bitcoin halving happens roughly every four years this year, industry players are really talking about how Bitcoin is halving. reduced rewards will affect the mining economy.
With each halving, mining companies must adapt to a bottom margin environment. Cash-strapped companies typically exit the market or merge with larger companies. Unlike previous halving events that occurred in 2016 and 2020, the 2024 halving event could result in a host of consolidations and defaults.
Enter Runes And Ordinaryconcepts that are revolutionizing the challenge landscape on the Bitcoin network.
Runes, like Ethereum’s ERC-20 standard, introduce fungible tokens to the Bitcoin blockchain, while ordinals bring NFTs directly to the network. As the first cryptocurrency, this goes a long way in expanding the possibilities of what Bitcoin can offer beyond simple transactions.
With Runes and Ordinals, Bitcoin finds new ways to close the gap with Ethereum, which has been widely hailed as the king of challenge. However, nothing is without challenges. Scalability issues and concerns about blockchain bloat loom large, echoing past industry hurdles.
Yet the birth of protocols such as Runes and Ordinals shows that Bitcoin can support more diverse decentralized applications. Minors, in return, can compensate for the effect of the halving on income.
Hardika, who runs a cryptocurrency mining company, shared her views on the subject.
How do you view Bitcoin’s evolving role in the defi space, given its recent advancements such as the Runes protocol and its impact on miner revenue and transaction fees?
Bitcoin lacks programmability but has the strongest Lindy effect and has proven to become the de facto store of value. I personally believe that these characteristics make Bitcoin the “mother chain”, attracting new protocols that flourish on Bitcoin’s L2 or sidechain.
In your opinion, can Bitcoin position itself as a competitor to Ethereum in decentralized finance, or do you see a different outcome?
I think what we’ll see in the end is not rivalry, but rather collaboration – where channels will be “merged” and abstracted to a point where regular users don’t really care or care. do not need to understand which channel they are currently using.
As Runes push transaction fees to new heights, how do you think Bitcoin can balance miner reward while keeping transactions affordable and accessible? Are high fees hindering Bitcoin adoption for small transactions?
As Bitcoin has evolved from a P2P electronic payment system to a store of value, I believe the high transaction fees on Bitcoin L1 are significant. This serves as a tradeoff for the security budget that the network must maintain. This is where L2s help scale the network and add programmability to Bitcoin. From a user perspective, solutions like Lightning or ICP with their ckBTC reduce Bitcoin transaction fees to just a few cents.
Historically, Bitcoin lags behind Ethereum in defi applications. How likely are innovations like runes and ordinals to help Bitcoin close this gap? What are the benefits or challenges of Bitcoin in this space?
Ordinals are basically fully on-chain NFTs, parallel to ERC721, while Runes are basically fungible tokens on Bitcoin, parallel to ERC-20. These are just the first building blocks of Bitcoin programmability. Although it is now possible to create an L1 primitive dApp, this is still very limited. I think the real use case would be as anchors allowing L2s to provide a full-fledged challenge application on Bitcoin. A significant benefit would be if we could unlock the massive Bitcoin TVL that is currently in their holders’ wallets.
Some critics say protocols like Runes and Ordinals could cause blockchain bloat and slow transaction times. What do you think of these drawbacks and how do they compare to Ethereum’s scalability challenges?
History has a tendency to repeat itself. A few years ago we had CryptoKitties, the first gamified NFT on the Ethereum network, consuming 13% of all transactions on the Ethereum network. This sparked the discussion about network scalability and ultimately triggered many upgrades and the rise of L2s on Ethereum.
Do you expect a similar trend?
I think we see parallels between runes and ordinals, which now take up significant block space and contribute significantly to the network security budget. As an indirect result, there are now over 50 Bitcoin layers or sidechains that attempt to solve Bitcoin scalability. And of course, just like startups, most of them will eventually disappear or remain dormant – but those with strong utility and real use cases will survive.