“ This article introduces the advantages of the above agreement from the perspective of legitimacy and potential.”
As the hype around BTC ETFs skyrocketed, the ecosystem of BTC derivative protocols was also developing rapidly.
A protocol can only become a truly potential alpha if it has both the enthusiasm for hype and the legitimacy in the community.
In the crypto world, money is never scarce, the real competition is the competition for legitimacy. This is crucial to finding alpha.
The BTC community is an extremely conservative community that believes in decentralization. In the eyes of BTC wizards, whoever is more halal and more in line with the community culture will be more likely to succeed in this agreement. After all, the buying power and appeal of BTC OG are amazing.
Therefore, we start with the solutions of the above protocols to understand the legitimacy and advantages of different protocols.
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First, remember what the BTC wizards taught:
The BTC network itself cannot be modified or upgraded, which would complicate the system and affect the security of all BTC.
The BTC block cannot be expanded, which makes BTC centralized. r/>
Not your keys, not your coins. You should hold your own BTC and cannot hand it over to a third party.
Before understanding these protocols, let’s first answer a question: Why is the BTC ecosystem suddenly being value-discovered?
Here we need to talk about two important technical updates:
⬆ The first was the 2017 Segregated Witness upgrade, which expanded BTC’s block size from 1 MB to 4 MB, but the expanded portion could only be used to store signatures.
⬆ Until the Taproot upgrade at the end of 2021, advanced scripts can be written in Segregated Witness for the first time, and complex data can be written on BTC.
BTC has made great progress in programmability and scalability. Some protocols containing complex logic have begun to appear. The BTC ecosystem has finally begun the next milestone, which is the main opportunity for the ecological explosion in 2023.
![](https://public.bnbstatic.com/image/pgc/202311/8ce9d03ca22d0b30892765ca5763cbbb.png)
1「Ordinals & BRC20」
The emergence of the ordinals protocol has completely ignited the BTC ecosystem, and its rapid development has also promoted the adoption of Taproot. People can encode NFT data and write it into the space expanded by the isolated witness (4 MB per block).
The NFT image itself is also permanently engraved in the BTC block, which is more decentralized than ETH NFT. It does not rely on any third party to view and transfer (essentially UTXO) the NFT.
Ordinals uses the most basic functions of BTC, and the transfer of NFTs is completely handled by the BTC network, which is very consistent with the philosophy of the BTC fundamentalist community. This quickly ignited the enthusiasm of the community and was quickly adopted. However, due to the limitations of its artworks, its development potential is also very limited.
Soon, new developers improved Ordinals and imitated ERC20 to write the complete functions of the token into the BTC output script, thus BRC20 was born.
However, the BRC20 output script only stores data and cannot actually run token functions such as transfer and minting. Therefore, we must use a third-party sorter to record the ledger off the BTC chain and engrave new status data into the script.
Therefore, the third-party sorter becomes the weak point of the system. BRC20 transfers are not executed on the BTC main chain and must be split into two-step BTC transactions (i.e., first aggregated in the sorter and then transferred). The extra complexity causes it to generate a large number of junk transactions.
Therefore, it is not as accepted by the entire BTC community as Ordinals, and has been full of controversy since its birth. However, due to the wide applicability and better liquidity of the token, it is sought after by speculators.
Due to the lack of legitimacy and support from the BTC core community, BRC20 and its improved protocols no longer have any major innovations or gameplay.
In order to continue to gain legitimacy, some developers have started the development of decentralized sorters such as #Trac, which seems to be a good direction, but I think it is still limited by the overall framework and difficult to break through.
2、「Atomical & ARC20」
@atomicalsxyz is another derivative protocol that implements Token by engraving data on UTXO.
Unlike Ordinals, which was originally designed for NFT, it rethinks from the bottom up how to issue tokens on BTC in a centralized, tamper-proof, and fair manner.
Atomicals uses the smallest unit of Bitcoin, sat, as the basic "atom". Each sat's UTXO is used to represent the Token itself, 1 token = 1 sat.
When verifying an Atomicals transaction, you only need to query the UTXO of the corresponding sat on the BTC chain. The atomicity of ARC20 Token is consistent with the atomicity of BTC itself, and the calculation of ARC20 transfer is completely processed by the BTC basic network.
Therefore, compared with BRC20, ARC20 transactions have greatly reduced the demand for third-party sequencers, greatly improving the decentralization of the entire system. This is closer to the culture of the BTC community.
UTXO itself can be combined in BTC transactions, which makes ARC20 tokens more programmable. For example, since BTC is essentially composed of utxo, the swap between BTC and ARC20 can theoretically be achieved by simply swapping the input and output of UTXO.
Another key improvement of Atomicals is that POW is purchased during the ARC20 minting process. The minter must use the CPU to exhaustively calculate the hash value that matches a specific prefix character before "new issuance". This is a more decentralized and fair distribution method.
The design of Atomicals binding UTXO cleverly avoids the complexity faced by BRC20. It is more decentralized, more BTC-native, and most importantly, more in line with the culture of the BTC community.
ARC20 and $ATOM are still in their very early stages and need to wait for the improvement of wallets and markets, but they have already taken a high position in terms of their legitimacy.
At the possibility level, there is also an opportunity to achieve true BTC native DeFi.
It has not yet experienced large-scale hype and still has great potential.
3、「Rune & Pipe」
Interestingly, although BRC20 was born out of Ordinals, it has been criticized by its founder Casey as a "heresy."
However, under the general trend of hype, Casey also proposed a method of implementing inscriptions specifically for issuing FT, namely Rune.
In fact, the design of Rune may also be influenced by ARC20, choosing to write token data directly in the UTXO script, which includes the token ID, output, and quantity.
Obviously, the implementation of Rune is very similar to ARC20, which directly hands over the token transfer to the BTC mainnet. The difference is that Rune writes the token amount in the script data, which makes it more accurate than ARC20.
But at the same time, the complexity becomes higher, and it is difficult to directly utilize the composability of BTC UTXO like ARC20.
The idea of Rune was just an idea, and the founder of#Tracwrote the first usable protocol based on it and issued $pipe. Due to Casey's high profile, $pipe inherited the hype enthusiasm from BRC20 and quickly completed the first wave of hype.
Rune has stronger legitimacy than BRC20, but it is still difficult to be accepted by the BTC community.
4. Lightning Network
Lightning Network is the king of legitimacy in the BTC community. Since 2016, for a long time, more than half of the developers in the BTC ecosystem have been engaged in the development of Lightning Network.
The basis of the Lightning Network is the "payment channel", a concept first proposed by Satoshi Nakamoto (legitimacy MAX). The two parties to the transaction lock BTC through multiple signatures, and both parties maintain an off-chain ledger to record the transaction.
Payment channels connected to each other form a network, and two parties that are not directly connected can also jump to the channel to complete the transaction. The Lightning Network has indeed expanded the performance of BTC transfers, giving users a better experience.
The final BTC settlement can only be carried out on the BTC mainnet, and all coins are still stored in the public and private key system.
The Lightning Network is designed based on cryptography. It does not require upgrading the BTC network or expanding the BTC block size. It does not add redundancy to the network and strictly adheres to the core of "your keys your coins". At the same time, the number of nodes in the network itself is close to 15,000.
Therefore, although it is necessary to rely on a large number of third-party nodes for off-chain calculations such as pathfinding, routing, and balancing channel status, the legitimacy of the Lightning Network is still very high.
However, the use cases of the Lightning Network are very limited. It can only be used for BTC payments, cannot issue tokens, and has no smart contract functions, making it almost insulated from hype.
Although the Lightning Network experienced a wave of growth around 2020 and became well-known to the entire crypto community with the help of Nostr, it has not yet been accepted by the public outside the BTC community. After the popularity of Ordinals, its usage has also dropped significantly.
Halal, but the use cases are too few to support BTC funds and difficult to be used for speculation.
5、「Taproot Assets (Taro)」
In fact, the Lightning Network has been trying to expand its use cases. The popularity of BRC20 has prompted Lightning Labs to release Taproot Assets, which is also a protocol for issuing tokens on BTC.
Unlike Brc20 and others, Taproot Assets only writes the token information in the UTXO output script of the BTC mainnet, and does not store the transfer, mint and other function codes of this token.
Taproot Assets only regards the BTC mainnet as a registry of tokens and does not rely entirely on the BTC mainnet for operation, so these assets must be deposited in the Lightning Network before they can be traded.
Therefore, the tokens of Taproot Assets must rely on a third-party storage indexer. Without the storage indexer, these tokens will be lost forever.
Therefore, users either have to run a BTC full node and Taproot Assets client themselves, or rely entirely on a centralized server to trade Taproot Assets Tokens. This may be the most centralized solution in the current BTC Token protocol.
As a result, the way Taproot Assets is issued has also changed.
Users cannot directly send transactions in the BTC mainnet to mint tokens by themselves. Instead, a project party address issues (or registers) all tokens at one time, and then the project party transfers them to the Lightning Network for distribution.
Therefore, Taproot Assets Tokens are not distributed fairly through free minting, and often require a centralized project party to conduct airdrops. The project party itself can also reserve tokens, such as the recently issued $trick $treat.
From the perspective of decentralization, Taproot Assets is far inferior to the Rune, ARC20, and even BRC20 introduced above, but because it was released by Lightning Labs, the "king of orthodoxy", it does not add any burden to the BTC network, so the community at least does not oppose it.
Yes, orthodoxy is such an elusive thing. If the "Pope" who holds the power of speech says you are halal, then you are halal.
However, it should be noted that the change in the distribution method and the emergence of project parties have led to an important shift in the logic of speculation, which has placed more emphasis on the project party's structure and has invisibly increased the cost of speculation.
6、「RGB」
RGB is a smart contract system based on BTC and Lightning Network. It is a relatively ultimate way to expand capacity, but its progress is slow due to its complexity.
RGB converts the state of a smart contract into a short proof and engraves the proof into the output script of BTC UTXO.
Users can check the status of the smart contract by verifying this UTXO. When the smart contract status is updated, a new UTXO is created to store the proof of the status change.
All data of smart contracts are completely under the BTC chain and run by dedicated RGB nodes. The RGB nodes themselves record the complete data of smart contracts and process the computational workload of transactions. Users can verify the certainty of contract status changes by scanning the UTXO of the entire BTC chain.
Each smart contract of RGB has its own state history and data. In other words, RGB itself does not have the concept of chain, and the states of different smart contracts do not cross, which is different from the shared state of ETH's smart contracts.
To interact with multiple RGB contracts, it is necessary to use the Lightning Network, such as the swap function of multiple RGB tokens.
RGB can be regarded as the L2 of BTC. The benefit of this design is that it uses the security of BTC to guarantee smart contracts. However, as the number of smart contracts increases, the demand for UTXO encapsulation data will also increase, which will inevitably cause a lot of redundancy to the BTC blockchain.
From 2018 to now, RGB is still in the development stage and there is nothing to hype. Tether, the issuer of USDT, is an important promoter of RGB. They have always said that they will re-issue USDT in large quantities on BTC RGB.
Although RGB must rely on third-party nodes to run smart contracts, the UTXO record of each status update also makes it the safest and most BTC-native smart contract implementation method at present, and its legitimacy is still very strong.
7、「RSK & RIF」
RSK can be regarded as the L2 of BTC, which is essentially a smart contract chain with EVM structure.
RSK does not write anything into the BTC network at all, so its operation and security do not depend on the BTC network.
RSK simply uses hash locks to transfer the mainnet BTC to its own chain for use as network gas.
At the same time, RSK uses the same POW consensus algorithm as BTC, so BTC miners can also mine on RSK at the same time and earn transaction fees $RBTC.
It can be seen that the relationship between RSK and BTC is almost negligible, and there is little connection between the ecosystems. $RIF has little business relationship with RSK itself. Its rise fully demonstrates the hype enthusiasm of the BTC ecosystem and the scarcity of hype targets.
8、「Stacks & SBTC & STX」
Stacks can be seen as a smart contract sidechain for BTC.
Unlike RSK, Stacks has its own block reward system, and both gas and block rewards are $STX.
Stacks will generate multiple "micro blocks" in the 10-minute interval between BTC block generation. When BTC generates a block, the hashes of these blocks will be written into the BTC transaction script at one time.
At the same time, to become a Stacks node, miners need to stake BTC on the main network to qualify, and the rewards are sent to miners in $STX, while the staked BTC is distributed to $STX stakers. This is equivalent to burning BTC in exchange for $STX tokens. For BTC maximalists, let alone accepting it, they are simply "furious."
Although its legitimacy has been questioned, it must be said that $STX has done a very good job in hitting the right narrative, has the best liquidity, and its rise is also very impressive.
At the same time, Stacks has recently launched the SBTC network. This is actually to lock BTC on the main network through the threshold signature of $STX pledgers, thereby generating 1:1 SBTC assets on the Stacks chain for DeFi.
The method of introducing BTC assets through threshold signatures does not require a third-party bridge. Compared with the previous method of using a third party to use a hash lock "not your keys not your coins", it is more decentralized and more halal.
The launch of SBTC and the upgrade of the Stacks chain, although its legitimacy is not high, these plans also seem to be leading $STX to a healthy hype.
9、「Rollkit by Celestia」
$TIA will be launched tonight. @CelestiaOrg, as a promoter of modular blockchain, has also issued a Rollup based on the BTC network called Rollkit, which also writes L2 data into the data under Taproot.
Of course, this seems more like a demonstration of possibilities and is unlikely to be actually used at this point.
10「BitVM」
BitVM is currently the most BTC-native, most promising, and most technically hardcore smart contract expansion solution.
Without modifying the BTC network, optimistic rollups can be used to run a VM virtual machine that supports general computing to implement BTC smart contracts.
The BTC network is being used to run fraud proofs for optimistic rollups.
A simple logic gate is implemented using the most basic hash lock and BTC script opcodes OP_BOOLAND and OP_NOT.
By combining BTC’s logic gates, a circuit that can operate is formed, through which fraud proofs are processed on the BTC chain.
The smart contract runs off the BTC chain, and only the fraud proof of optimistic rollups runs on BTC.
If there is a problem with optimistic rollups, the validator can initiate a fraud challenge in the BTC network, and the penalty will be directly implemented through BTC transfers. This ensures the overall security of the rollup and is "verifiable" for the BTC mainnet.
Starting from the logic gates, you can see that this implementation method is very hardcore. It has the beauty of using redstone circuits to make computers in the game "Minecraft".
It perfectly hits the psyche of BTC’s die-hard developers and community, and can be said to be the king of legitimacy at the BTC smart contract level.
Although BitVM is still in the theoretical stage, it has attracted the attention of BRC20 and Ordinals speculators and BTC community developers. Many people have joined its development. It is estimated that the first version may be launched within a year. It is foreseeable that speculation will also occur simultaneously. BitVM is currently my most important focus.
Comments
To summarize the above BTC derivative protocols, BRC20, ARC20, Rune, and Taproot Assets are token issuance protocols:
ARC20 is the most decentralized and closest to native BTC DeFi, and has great potential, but currently the hype is not as high as others;
Taproot Assets is also very strong with the support of Lightning Labs, but due to the change in distribution method, the hype thinking will change and pay more attention to the pattern of the project party;
BRC20 and Rune were proposed by the same person and currently rely more on the development of the Trac team to achieve decentralization and ecological growth.
For BTC extension protocols such as RGB, Lightning, Stacks, BitVM, and RSK:
Lightning is the undisputed king of legitimacy, but the hype can only be based on the aforementioned Taproot Assets;
Although RGB seems to be highly “halal”, it has been delayed in release, difficult to hype, and no one cares;
Strictly speaking, RSK and Stacks are not native BTC protocols. They have become good targets for BTC leverage just because they occupy the narrative and have good liquidity. The launch of SBTC will not really bring any ecosystem.
BitVM has attracted a lot of attention from both speculators and the BTC community. It is currently the protocol with the most potential to realize the BTC ecosystem, but it requires waiting. There are also opportunities for speculation, and it may be the biggest alpha.
The above protocols are sorted based on "halal", which are:
Lightning > RGB > BitVM > Atomicals > Rune > TaprootAssets > BRC20 > RSK > Stacks
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at last
In a cycle of interest rate hikes of up to 5% for government bonds, ETH converted to POS is not having an easy time as an interest-bearing asset, while BTC, which is supported by the original value of POW, is obviously more popular, and the ETH/BTC exchange rate continues to fall.
The status of ETH's smart contract platform has not been shaken, and we are still mainly using ETH smart contracts to implement complex applications such as DeFi and Gamefi.
But at the same time, BTC's derivative protocols (and even smart contract protocols) are catching up.
Although these protocols seem primitive, old, cumbersome and difficult to use, they are still historic development opportunities. BTC’s technology has accumulated enough to go further, and the community is gradually opening up and accepting derivative innovations.
Backed by a huge developer base, funding and attention, the potential may be far higher than any other field.
Will there be a future where the use of BTC smart contracts will surpass ETH smart contracts?
#BTC #ordinals #atomicals $BTC
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✏️Disclaimer: This article is for reference only, DYOR
Source: Twitter blockpunk2077
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