On June 10, Cipher, the author of the RGB++ protocol and founder of CELL Studio, Lin, the co-founder of DotSwap, Tim Xie, the co-founder of Shell Finance, and NIGO, the CMO of TBC (Turingbitchain), visited the Twitter Space of UTXO Stack to discuss whether the UTXO model can give birth to a new model for the Bitcoin ecosystem.
In the previous text, the guests shared the differences and advantages of the UTXO model and the account model in terms of design philosophy, efficiency, etc., as well as how to implement smart contract capabilities based on the UTXO model. This text will cover topics such as challenges in developing projects based on the UTXO model, L2 solutions, security, and ecological models.
3. What is the biggest challenge you encounter when developing projects based on the UTXO model?
Cipher: We have talked about the advantages of the UTXO model before, such as simplicity, concurrency, and easier debugging, but in fact its disadvantages are also obvious. For example, its global state can be more troublesome.
The global state update of the Ethereum account model is actually done by miners. When adding transactions to blocks, the global state update is calculated. However, the global state of the UTXO model can only be updated by the person who sends the transaction outside the chain and then committed. This encounters a problem. If a UTXO saves the so-called global state, it seems that only one person can update it in the same block. If two people update it at the same time, there will be a conflict.
In our actual development work, a lot of work will be generated on this. That is, we need an off-chain Aggregator to aggregate the access of many people to the global state into a single result, and then upload it to the chain. The blockchain only handles the migration of the final state. This is equivalent to the idea of combining the account model with the UTXO model. This is actually what we think is the biggest technical challenge, which increases a lot of development workload. Compared with the account model, in addition to the conventional on-chain smart contracts and off-chain access interfaces, you also need to make an off-chain aggregation operation and calculation interface. Off-chain calculations and off-chain aggregations will bring a lot of workload.
Of course, we also have a solution. We try to introduce miners into L2. They may not necessarily be called miners, but it is more appropriate to call them L2 nodes. They also undertake the work of Aggregator. Of course, this also requires some development.
We have a sister project called Khalani. They have an idea. They use a formal language to build another VM on the RISC-V VM. This VM processes the formal language just mentioned. So what can this formal language do? When you write a UTXO-oriented smart contract, it will automatically generate an Aggregator and a Generator off-chain at the same time. In this way, you can write code once and generate multiple processors. This idea is actually very cool. Of course, they have not yet completed the development. The technical difficulty is quite high.
Tim Xie: If I use a metaphor, I think Ethereum is actually a highly segmented assembly line factory. It is relatively easy to do anything you want to do, whether it is development or knowledge acquisition. The ecosystem is also very rich, and there are infrastructure, middleware support and solutions. When you return to the Bitcoin ecosystem, it is like returning from an industrial society to an agricultural society. Just like before Ford developed the assembly line, if you produce cars, you may have to build wheels and tools to make wheels. For example, when we were doing Shell Finance, we needed an oracle and needed to use DLC, but there was no DLC available on the market, so we could only do it ourselves and work with others to develop it. This is like MakerDAO on Ethereum needs an oracle when making stablecoins, but there is no Chainlink on the market, so they can only do Chainlink themselves.
Therefore, from my point of view, the biggest difficulty in Bitcoin ecosystem development lies in ecosystem support, and the difficulty of developing based on UTXO is much greater than that of developing based on EVM. Of course, this is also a stage that must be experienced. Early participants in an ecosystem have to bear more pressure and solve more problems than latecomers.
4. What L2 solutions based on the UTXO model are currently on the market, and how do they solve Bitcoin’s scalability problem?
Lin: If we strictly follow the criteria I mentioned before, then there is none, because none of their transactions are issued on L1. In other words, on top of the first layer of Bitcoin, we can also have some superimposed layers, which implement some new rules. These new rules are only effective on the superimposed layers, not on the first layer, but at the same time, these superimposed layers enjoy the benefits of the first layer, such as the UTXO anti-double-spending mechanism. This is actually my personal opinion, so I currently do not regard those so-called Bitcoin L2 projects as the second layer.
I have not seen many L2 projects based on the UTXO model in a broad sense. I am mainly studying how to use ZK (zero-knowledge proof) to build trust bridges and give full play to the advantages of UTXO. Most of the cross-chain bridges on the market are decentralized, transferring assets from one blockchain to another. In my opinion, neither strictly nor broadly can they be considered L2. (Note: Here is a recommended reading of "Why RGB++ assets can achieve bridgeless cross-chain")
5. Some people are worried that the introduction of some complex protocols may bring challenges to the security and consensus mechanism of Bitcoin. What do you think?
NIGO: Ordinals and BRC-20 have indeed caused a lot of controversy, and these disputes can be divided into two camps. Supporters believe that as long as you pay the handling fee, you have the right to use the block space in any way, regardless of the content of the transaction. They believe that BRC-20 and NFT have brought new culture and narrative to Bitcoin, which is conducive to improving the practical application value of Bitcoin. The Core development team is actually quite opposed to this. They believe that the Bitcoin main chain should remain simple, and BTC should be used as digital gold. They do not want it to have any applications, so they believe that BRC-20 and NFT are worthless junk transactions, and too many junk transactions will also occupy transaction bandwidth, resulting in longer transaction block entry time and higher handling fees. So in essence, it is still a difference in concepts.
I personally think that Bitcoin UTXO plus the underlying model of the Merkle tree are naturally suitable for high-concurrency, high-performance transactions. If the Core development team of the main chain does not support it, then we will come to the second layer or even the side chain to implement it. I am more in favor of "you play you pay", as long as you pay you can play, I believe everyone here is a supporter.
Lin: I think you can think about it. Some people say that introducing some complex protocols may bring challenges to the security and consensus mechanism of Bitcoin. What exactly is this challenge? We can't just believe it when others say it will bring challenges, right? And if this challenge happens, as individuals and supporters of Bitcoin, what kind of decentralized way should we use to protect our Bitcoin assets from being affected? These questions are actually worth thinking about. It actually goes back to the essence of decentralization. Since we are talking about decentralization, it is definitely not the views of some people, but to reach a consensus on this matter. So what is the mechanism for us to reach consensus here? This is quite interesting, and I don't want to give my own opinion directly.
I would also like to raise a question: if someone says that certain protocols or applications have an impact on the security of Bitcoin, OK, then whether we support or oppose such a view, how can we express it and protect our Bitcoin assets? How do we protect it? These are worth thinking about.
Tim Xie: I have been looking at whether the total network computing power and miners' income of Bitcoin can cover their expenses. The block reward of Bitcoin will be halved approximately every four years, and it will be less and less in the future. Miners are only concerned about profit. After the block reward becomes less, how can miners maintain the security of the network? They must get a return for their investment in computing power. So it is obvious that if the Bitcoin system is to continue to operate, its development path must be that there are more and more transactions on the chain, the ecology is more and more prosperous, and the mining fees become sufficiently generous.
Ordinals and BRC-20 do not fork Bitcoin, nor do they affect Bitcoin's consensus and security. They rely on Indexer to expand capacity, which is just a UTXO on the Bitcoin main chain, but it is more troublesome. In my opinion, they do not damage the core value of the entire Bitcoin network - the network itself, nor do they implant any viruses.
On the contrary, new protocols such as Ordinals and BRC-20 have brought new possibilities to Bitcoin, brought in a group of new users, and allowed some users to remain in the Bitcoin ecosystem. At the same time, they have also increased the transaction fee income of miners, contributing to the continued operation of the Bitcoin system.
6. Can the uniqueness of UTXO give birth to a new ecological model? Which projects are worth paying attention to?
Cipher: The Bitcoin ecosystem became popular after the inscription, and then everyone started talking about the Bitcoin Renaissance. Now the entire ecosystem has entered a stage where it is ready to go. I think a big opportunity here is that the Ethereum ecosystem has encountered a bottleneck.
In the past, Bitcoin was considered to be good only for SoV (store of value), and nothing else. Ethereum is the world computer, and we should build the ideal of a decentralized world on Ethereum. Decentralized media, financial applications, games, etc. are all built on Ethereum. But as Ethereum becomes more and more solidified, the capital market becomes heavier, new entrepreneurs have fewer and fewer opportunities, and the transition from PoW to PoS, people began to doubt whether we should really put all the future Web 3 facilities on Ethereum. At the same time, emerging platforms like Solana are also rising. They don't care about decentralization, and even famous brands say they are more centralized, but they are efficient, fast, and cheap, and they are constantly grabbing the Ethereum market.
At this time, a group of people said that we recognize the earliest Bitcoin, which is more decentralized and streamlined, and we want to rebuild the entire decentralized infrastructure in the Bitcoin ecosystem. This narrative is more interesting and unique, but it is not so closely related to UTXO. In other words, it is actually a difference in value orientation, and UTXO is just because its advantages are gradually highlighted in this narrative.
In addition, the ecological development of Ethereum is also moving towards UTXO. For example, the parallel EVM calculation means that when each transaction is initiated, I will first clearly mark which states I will consume or occupy, so that it is convenient for me to do parallel processing. This is actually the idea of UTXO.
In the fields of DeFi, NFT, and the Metaverse, what innovative projects are worth paying attention to? I am more familiar with the CKB ecosystem, such as Nervape and Unicorn. They are different from the previous PFP NFT projects. They emphasize interaction, gameplay, and changes in internal parameters, more like Loot.
In addition, I am more optimistic about the Lightning Network, which is more suitable for UTXO. The Lightning Network has basically never appeared in the Ethereum world. Payments based on the Lightning Network and various Finance based on the Lightning Network are definitely a big track, and there will be new things coming out. It’s just that the technology is not so mature at present, but it will develop very quickly, so you can look forward to it.
Tim Xie: I think Ethereum is still at the forefront of innovation, but it has encountered problems. The things described in the Ethereum white paper, including prediction markets, transactions, DeFi, oracles, RWA, etc., have basically been completed, so it is actually unknown what it will do in the next stage. When there are no new demands, everyone will fall into collective confusion and need to find a way out on their own.
The current market reaction is two different branch routes. One is what Solana said that we want to do AI and DePIN, and the other is that some users think we need to return to Bitcoin. Now the Bitcoin ecosystem is doing inscriptions and DeFi, and our ideology is actually still moving forward according to the Ethereum paradigm, so the early ecological development is basically the same.
After Bitcoin has gone through this stage, which may be one, two or three years later, will the Bitcoin ecosystem begin to become different from the Ethereum ecosystem? From the current perspective, Bitcoin has the capital and the ability to do such things. However, the problem here is that it is very decentralized, unlike Ethereum, which has a foundation to organize and coordinate uniformly. Of course, this has both advantages and disadvantages. The advantage is that everyone can explore various possibilities without being constrained by others, and there is no need to worry about orthodoxy. Everyone can explore to the best of their ability. My current view is that in the foreseeable two years, we are actually a catching-up role, doing what happened in Ethereum and the proven successful model again on the Bitcoin side. Two years later, when we have caught up, how we should move forward is a very important question.
Lin: My personal opinion is that if we regard Bitcoin as digital gold, then the various assets on Bitcoin can be regarded as gold artworks. Gold artworks do not have to be purchased with gold, but can also be purchased with legal tender or other currencies. Similarly, assets on Bitcoin do not have to be exchanged with Bitcoin.
Now that the Bitcoin ETF has been approved, we need to broaden our horizons. Not everything needs to be traded on the chain, and we should not only focus on the small group of people who know about Bitcoin and own Bitcoin. This is actually wrong because the market is very small. In other words, we need to broaden our horizons, go beyond the circle, and move towards a broader market.
