Infinitas丨Co-produced by AC Capital
Chief Writer: Xuan Rui | 0xDragon888
Edited & reviewed by: Echo | echoindahouse
Instructor: Hong Shuning
This article will combine the new normal brought by Ordinals to the BTC ecosystem, look at the current challenges of BTC expansion from the perspective of asset issuance, and finally predict that RGB & Taproot Assets with asset issuance + application scenarios have the potential to lead the next narrative.
1. Ordinals Ecosystem is booming: opening up new possibilities for Bitcoin asset issuance
2. Ordinals bring a new normal: competition for block space and UTXO expansion
3. The evolution and challenges of BTC expansion from the perspective of asset issuance
4. The expansion plan with asset issuance + application scenarios has great growth potential
Ordinals is on fire: opening up new possibilities for Bitcoin asset issuance
As digital gold or currency, the Bitcoin community has become conservative since the hard fork in 2017, and there has been no new narrative in recent years. The Ordinals protocol in early 2023 turned the gears of Bitcoin's destiny, and then the Ordinals ecosystem users exploded. For the first time in six years, Bitcoin's on-chain transaction fees exceeded Ethereum's. The narrative imagination of the crypto industry has returned to the Bitcoin blockchain.
Source：https://cryptofees.info/
Before the Ordinals protocol was born, BTC had several major technical upgrades. In 2017, the SegWit (Segregated Witness) upgrade was activated, expanding the block space to 4 MB and increasing transaction throughput. Then developers launched the Lightning Network, and Bitcoin Layer2 entered the public eye. The Taproot upgrade in 2021 brought a more secure, efficient, and private Bitcoin, bringing programmability to Bitcoin.
Improvements on the technical side did not solve the real pain points until the emergence of Ordinals, which completely opened the door to the BTC ecosystem. In December 2022, Casey launched the Ordinals protocol, an extension protocol for the Bitcoin network that allows data to be engraved on Bitcoin Satoshis. The Ordinals protocol implements extended functionality by assigning a unique number to each Satoshi and adding comments.
Inspired by the Ordinals protocol, Domo created the Bitcoin experimental Token standard BRC-20 on March 8, 2023, using the ordinals and Inscriptions of JSON data to deploy token contracts, mint coins, and transfer tokens. Satoshis are used to store and manage various information about tokens.
There have always been ways to mint and issue assets before Bitcoin, such as colored coins in 2012 and Counterparty in 2014, but none of them addressed user pain points. The way BRC20 uses the Fair launch+ protocol to control assets has stimulated real user demand, and the explosive growth of BRC-20 has also opened up new possibilities for asset issuance on Bitcoin.
So far, more than 41 million inscriptions have been generated in the Ordinals ecosystem. These digital inscriptions are engraved on the world's oldest and most secure distributed ledger, including images, text, audio and even applications. Among them, text inscriptions (BRC-20) account for the largest proportion. The Ordinals ecosystem has derived multiple innovative branch protocols such as BRC-20, ATOM, PIPE and RUNES. The popularity of Ordinals has brought new traffic to the BTC ecosystem, and also laid a new foreshadowing for the BTC ecosystem.
Source：https://dune.com/dgtl_assets/bitcoin-ordinals-analysis
Ordinals bring a new normal on the chain: competition for block space and UTXO expansion
The popularity of Ordinals is also reflected in the high transaction fees for users. Text inscriptions take up little data, and BRC-20 users are willing to pay high transaction fees. Miners fill block space with a record number of transactions. Too many BRC-20 transactions will occupy transaction bandwidth, resulting in longer transaction block entry time and higher fees.
In 2022, miners earned a total of 5,374 BTC from transaction fees. Since the minting of Ordinals, a total of 2,886 BTC has been consumed in transaction fees. The emergence of Ordinals has made miners' income no longer dependent on Bitcoin rewards, ensuring that Bitcoin miners reduce their dependence on pure block rewards. The significant increase in the proportion of transaction fees has also brought a second curve to miners' income.
Source：https://studio.glassnode.com/workbench/btc-transaction-count-momentum
After the number of Ordinals ecosystem inscriptions grew dramatically, the wider Bitcoin community engaged in a heated debate about its impact on Bitcoin, with opponents arguing that Ordinals transactions would only increase the Bitcoin network's Mempool backlog, raise transaction fees, and ultimately hinder peer-to-peer transactions at the expense of financial transactions.
Casey, founder of the Ordinals protocol, said in September that the current homogenous token protocol on the Bitcoin blockchain is 99.9% of scams and memes. However, they don't seem to disappear anytime soon, just like casinos won't "disappear" anytime soon. Build a better asset issuance protocol Runes so that gamblers can continue to gamble without creating a large number of UTXOs to increase the burden on nodes.
Ajian, the founder of BTCStudy, also expressed concerns. He said that from a technical point of view, BRC20 is an outdated technology. The minting and transfer of BRC-20 obviously do not require the association with UTXO, but it limits the number of tokens that can be minted by a single UTXO. They are likely to remain in the UTXO set forever, resulting in the expansion of the UTXO set, increasing the burden on Bitcoin full nodes, and significantly affecting the censorship ability and trustlessness of the Bitcoin network.
Since BRC20 started trading (April 2023), Bitcoin's UTXO set has expanded from 5 GB to 8.16 GB. The Bitcoin development community has been debating whether to use technical means to block inscription transactions. The UTXO expansion caused by inscription transactions is eroding the Bitcoin network.
Source:https://statoshi.info/d/000000009/unspent-transaction-outputOrdinals ecosystem supporters believe that the popularity of Ordinals has brought new traffic and user habits to the Bitcoin ecosystem, and the BTC ecosystem must also adapt to the new normal on the chain brought by Ordinals. The next step in the narrative of the Ordinals ecosystem should focus on solving the UTXO expansion. Ultimately, a better asset issuance method can enable the Bitcoin ecosystem to have more native application ecosystems and promote the sustainable development of the Bitcoin ecosystem.
The evolution and challenges of BTC expansion from the perspective of asset issuance
The BTC ecosystem currently has no shortage of asset issuance protocols, but lacks smart contracts and scalability. Scalability can determine the development possibility and life cycle of BTC expansion in a certain direction. The Bitcoin Layer1 expansion plan is highly complex, and what is more accepted by the community is to build a new Layer2 based on Bitcoin Layer1, which is compatible and does not affect the Bitcoin system, while solving the problem of on-chain congestion.
After completing the isolated witness, the Bitcoin ecosystem is moving towards Layer2 such as the Lightning Network and sidechains. Whether it is the Lightning Network, sidechain or RGB protocol, the development of Bitcoin Layer2 is in full swing. The Liquid consortium chain is not discussed here. From the perspective of better asset issuance, Brc-20, Stacks, Bitvm, Lightning Network, RGB, and Taproot Assets have important challenges in the three dimensions of Turing completeness, decentralization, and scalability:
Sidechain Stacks: The leading sidechain Stacks currently has 19.3 MTVL on the chain. Stacks has many advantages, especially the ability to directly move existing Ethereum applications over. However, sidechain solutions such as Stacks and RSK all face centralization issues. Stacks Nakamoto upgrade is about to be launched in Q4, and sBTC will soon be launched as a smart contract.
BRC20: The leader of the inscription ecosystem, BRC-20 is a Bitcoin script. It has an incomplete Turing completeness, a large user base, and a simple enough protocol, but it takes up too much space on the chain. At the same time, BRC-20 is too centralized in terms of fund security, lacks scalability, and Turing incompleteness limits the further development of BRC-20. Currently, Rune, Arc-20, pipe, BRC-20Swap, etc. are further solving related problems.
Lightning Network: Lightning Network is the largest and most influential Layer 2 in the Bitcoin ecosystem. More and more companies are entering the Lightning Network ecosystem. It makes off-chain payments through specific state channels and makes final settlements on the Bitcoin chain. However, the Lightning Network cannot issue tokens and is only suitable for high-frequency payments. It also has no smart contract functions and poor Turing completeness. The number of users and usage scenarios of the Lightning Network are still relatively small, but protocols developed based on the Lightning Network, such as Taproot Assets and RGB, have more room for imagination.
RGB: Inspired by the concepts of single-use seal and client-side validation proposed by Peter Todd in 2016, RGB introduced smart contract functions to the Lightning Network. GRB v.010 was released in April 2023. Due to the complexity of the technology, the ecosystem has not yet been implemented. Projects such as Infinitas, Bitlight Labs, Diba, Bitswap, and Pandora Prime Inc have successively opened up the possibility of RGB implementation. Tether's CEO also said that RGB is the best choice for issuing stablecoins on the Bitcoin chain, and Tether is considering the possibility of issuing USDT through RGB.
Taproot Assets: It is also a client-side asset verification protocol. The Taproot Assets v0.3 mainnet alpha version was released in October 2023. The goal is to expand Bitcoin into a scalable multi-asset network. However, the asset issuance of Taproot Assets is a distribution system, which is distributed by the project party rather than actively minted by users. The application scenarios of Taproot Assets are more suitable for asset issuance to project parties and institutions. Currently, the new protocol Nostr Assets Protocol built on Taproot Assets introduces assets into the Nostr social protocol.
BitVM: The white paper will be released in October 2023. BitVM uses a similar idea to Rollups to execute complex programs off-chain and then put key evidence on-chain. It also brings Turing-complete smart contracts to Bitcoin, but BitVM places extremely high demands on computing power and is only theoretically feasible. Scalability and commercial implementation need to be further understood.
The BTC expansion solution of asset issuance + application scenarios has great growth potential
As the infrastructure of the Bitcoin ecosystem is gradually improved, various expansion routes are gradually gaining ground. There are two core issues that need to be solved in the next stage of competition for BTC expansion:
From the perspective of asset issuance: Is the technical route suitable for the application scenario? Is it decentralized? Is it Turing complete? Is it scalable?
From the perspective of asset circulation: Can the progress of the protocol gain adoption and support from infrastructure and users within the industry?
From the perspective of asset issuance, BTC is still far behind Ethereum in terms of asset issuance. First, it lacks well-known projects, and second, its user scale is not as large as Ethereum. However, as the blockchain network with the highest market value at present, BTC Layer2 with asset issuance protocols + application scenarios has great growth potential in the future.
The current Ordinals completely opens up the possibility of asset issuance on Bitcoin, but Ordinals cannot support on-chain computing like Ethereum. How can the BTC ecosystem complete asset settlement like Ethereum? From the technical evolution of BTC asset issuance, client verification paradigms such as RGB & Taproot Assets have the potential to take over Ordinals inscriptions and become a new important narrative ecology.
At the same time, in the future era of Bitcoin multi-asset, the explosion of BTC ecology also requires diversified application scenarios. The premise of diversified application scenarios is to use stablecoins as the basis, and the Lightning Network is the best stablecoin issuance platform, but there are not enough stablecoins deposited. Taproot Assets and RGB have the potential to accelerate development in high-frequency payments, stablecoins, DeFi, NFT and other fields in the future, covering more tracks and users, and expanding the diversified application scenarios of the Lightning Network.
Summarize
The Bitcoin ecosystem is currently experiencing its first round of Ordinals. In addition to asset issuance, the Bitcoin ecosystem also needs sustainable empowerment for more complex and sustainable application scenarios. From the perspective of the evolution of asset issuance technology, client verification paradigms such as RGB & Taproot Assets are driving change, with less on-chain computing and more on-chain verification, giving rise to a more reasonable asset issuance method for the Bitcoin ecosystem.
If you are a developer in the field of RGB & Taproot Assets and believe in the potential of client-side verification paradigm Mass Adoption, please contact AC Capital and Infinitas. If you have different opinions, you are also welcome to leave a message for discussion.
reference
https://github.com/tylev/awesome-bitcoin-layer2
https://github.com/bitcoin/bips
https://www.binance.com/en/research/analysis/a-new-era-for-bitcoin
https://blog.lopp.net/bitcoins-security-model-a-deep-dive/
https://dune.com/dgtl_assets/bitcoin-ordinals-analysis
https://rodarmor.com/blog/runes/
https://mirror.xyz/0x5CCF44ACd0D19a97ad5aF0da492AC0388469DfE9/_k3vtpI7a5cQn5iISH7-riECpyudfI4BTeeeBMwNYDQ
https://twitter.com/AurtrianAjian/status/1686379305520234497
