The world's largest lender, the Industrial and Commercial Bank of China (ICBC), recently released an analysis on the evolution and diversity of digital currencies, likening Bitcoin to gold and Ethereum to "digital oil."

The report emphasizes the human capacity for imaginative belief, which historian Yuval Noah Harari says drives the growth in digital currency types and applications.

VanEck's head of digital assets research, Matthew Sigel, remarked:

“Chinese SOE banks keep writing love letters to Bitcoin and Ethereum.”

ICBC's report details the distinct development paths of various digital currencies, each addressing different needs within the financial system.

The ICBC report highlights how market demand has driven innovation in digital currencies, from Bitcoin (BTC) to Ethereum (ETH) and central bank digital currencies (CBDCs).

Bitcoin is compared to gold for its scarcity, maintained through a mathematical consensus mechanism. Despite Bitcoin's declining monetary attributes, it is solidifying its status as an asset. Ethereum, providing "technical power for the digital future," is seen as "digital oil," essential for powering applications in the web3 ecosystem. Unlike Bitcoin, Ethereum incorporates Turing completeness through its programming language, Solidity, and its virtual machine, EVM, allowing for complex smart contracts and applications. Ethereum is pivotal for DeFi and NFTs but faces challenges like security vulnerabilities, scalability issues, and high energy consumption. Solutions like Ethereum 2.0's Proof of Stake (POS) and sharding technology, as well as Layer 2 solutions, aim to address these issues.

The report also underscores the role of stablecoins in linking digital currencies with the real world. Stablecoins, pegged to traditional assets, provide stability in the volatile crypto market, facilitating transactions and offering a reliable store of value.

Furthermore, CBDCs represent a modern monetary innovation, potentially improving payment system efficiency, reducing transaction costs, and enhancing monetary policy effectiveness. They can streamline cross-border transactions and offer greater financial inclusion but require careful consideration of privacy, security, and regulation.

The report concludes that while the development visions for digital currencies vary, they all aim to enhance financial inclusion, security, and payment efficiency. As digital currencies evolve, sustainability, security, and efficiency must remain focal points for developers and policymakers.