At block height 840,000, Bitcoin will experience its fourth halving, with the block reward dropping from 6.25 BTC to 3.125 BTC. This is a major event that has attracted the attention of the entire crypto industry. Within the Bitcoin ecosystem, almost everyone is paying attention to the Runes protocol, which will be launched at block height 840,000.
How will the Runes protocol change the ecosystem of Bitcoin’s layer 1 protocols? What impact will it have on BRC-20, Atomicals, and other protocols? As an observer and player, on the eve of the halving and the launch of Runes, I’d like to sort out some of my recent thoughts on the market.
Core Viewpoint
1/ The Bitcoin layer 1 token protocol will form a three-way competition among BRC-20, Atomicals, and Runes.
2/ Runes will attract Western investors to pay attention to the "altcoin on Bitcoin" track, bringing more users and liquidity to the entire Bitcoin ecosystem.
3/ The industry will move from "issuing new assets" to the next stage, and DeFi is the greatest common divisor.
01 BRC-20
The BRC-20 in 2023 once became synonymous with the "Bitcoin ecosystem." From the perspective of Bitcoin, BRC-20 is a large-scale Growth hacker for the Bitcoin ecosystem. With its simple participation method and huge wealth effect, it has attracted many people to have their first Bitcoin self-hosted wallet in their lives and purchase their first BTC as gas for consumption. Although the technical implementation of BRC-20 is not perfect and even criticized, it defines the original standard for "issuing altcoins on Bitcoin" (First is first) and has led two rounds of BRC-20 craze in the past 12 months. The two head assets $ordi $sats have been listed on first-tier exchanges, and their market value has exceeded 1 billion US dollars for a long time.
BRC-20 is like a minimum viable product (MVP), and has inspired many other protocols, including Runes, in terms of chip distribution and mechanism setting. The asset explosion and network gambling problems brought about by BRC-20 have directly stimulated the industry's attention to Bitcoin expansion and L2 solutions.
After taking the first step of "asset issuance", the BRC-20 ecosystem needs to have richer applications and gameplay. At the end of March, BRC-20 underwent a major upgrade, allowing developers to deploy five-character tickers, supporting project parties to "self-issue" and destroy, and laying the seeds for DeFi. It can be seen that @Unisat_Wallet, as one of the most influential players in the BRC-20 ecosystem, has also had a more tacit and in-depth cooperation with the protocol author @domodata.
After two rounds of enthusiasm, the primary issuance of BRC-20 has calmed down a lot. And many people have found that a bunch of BRC-20s in their wallets that have returned to zero, like NFTs, cannot be sold at all. In the past month, we have also seen that some BRC-20 projects are working on migrating asset mapping to Runes. It can be predicted that after Runes is officially launched, the primary issuance of BRC-20 will be severely drained.
Based on this background, I think the focus of BRC-20 in the next stage will be on the implementation of the DeFi three-piece set in the ecosystem: for example, when will Unisat’s own BRC-20 Swap be fully launched?
Will there be reliable stablecoins? When will lending projects such as @ShellFinance_ that support Ordinals and BRC-20 asset pledge be launched?
BRC-20 has passed the 0-1 stage and needs to move to the next level.
02 Atomicals
This is a critical period for the Atomicals protocol. On-chain liquidity has been depleted, and there has been a lot of FUD during this period. Fortunately, before Runes went online, it had received support from the OKX Web3 wallet/marketplace and the Binance Web3 wallet/marketplace, and had a complete infrastructure, which created space for the development of the protocol. However, Binance’s original support was to be launched in February, but it was not actually launched until early April. The situation has changed drastically in two months.
Even though it’s a low point now, I still believe that Atomicals should have a place in the Bitcoin ecosystem.
1/ ARC-20 is based on colored coins and UTXO, and is compatible with the Bitcoin native network to the greatest extent. It is a very beneficial exploration for DeFi on the BTC layer. This is the origin of its "atomicity".
2/ Atomicals has stood out from the competition among many layer-one protocols and has received infrastructure support from leading platforms such as OKX and Binance. It is no longer a baby in swaddling clothes.
3/ Recognition of the two core visions of the Atomicals protocol (Bitwork and AVM), and admiration for the founders.
4/ The price of $atom fell from a high of 16+ to a low of 3.5. An 80% drop is a very good correction in a bull market, and there will be opportunities in the future.
Regarding Atomicals, the following focuses are:
1/ AVM: The significance of AVM is to implement smart contracts directly on the Bitcoin layer, support deposit, stake and lend of ARC-20 tokens, and realize basic DeFi capabilities. Of course, after all, the Bitcoin L1 network has many limitations, and AVM also has limitations and challenges. But the implementation of AVM itself is a breakthrough from 0 to 1 in the 15-year history of Bitcoin.
2/ Split: Due to the limitations of the Bitcoin network, the on-chain split of $atom (cannot send less than 546 coins) has always been a problem. However, the split plan has now been determined and has entered the testing phase. It will be launched together with AVM, which will allow atom to have more liquidity and a larger holders group on the chain as a protocol Beta token.
3/ Ecosystem: In addition to obtaining more sufficient liquidity through listing on larger exchanges, another challenge for Atomicals is how to attract more powerful project parties to join, so that more high-quality assets can be issued and circulated on the protocol, providing a diverse asset base for AVM.
03 Runes
If compared with BRC-20, Runes is an improved + enhanced version.
Where is the improvement?
1/ Technology: Runes, like Atomicals, is based on the UTXO model, which avoids burdening the BTC network like BRC-20 and reduces the time and money costs for users to transfer assets.
2/ Mechanism: A more flexible issuance mechanism has been added based on BRC-20, such as project reservation (Premine), unlimited quantity for a limited time, etc.
Where is the enhancement?
1/ Marketing: Atomicals has been developing intensively for 7 months from February to September last year, while Runes has been pre-promoting for 7 months from the end of September last year to now. Just like a dam has formed a small ecosystem after 7 months of water storage; when the dam opens the gates to release water, its potential energy will bring ecological nourishment to the downstream.
2/ Infrastructure: Due to the 7-month preheating and its "orthodoxy", Runes received support from a large number of wallets and trading platforms in the ecosystem on the first day of its launch. In contrast, the Atomicals protocol has only gradually received support from major players such as Unisat, OKX Web3, and Binance Web3 7 months after its launch in September.
3/ Appeal: @rodarmor has such great appeal in the Ordinals ecosystem that Runestone, RSIC and many other NFT project owners have emerged to make the ecosystem hot.
I have been following the progress of Runes since Casey published the article last September, and I have also made some preparations for it (such as full node + ord index) for fear of missing it. I have always believed that Atomicals has more technological innovations and stronger technical consensus. As a fan and supporter of Atomicals, the popularity of Runes has made me rethink the competition and differences between protocols. Although I think Runes’ innovation is limited, it has indeed become the number one protocol in the market consensus. Just like Ethereum is not the first public chain to support smart contracts, and even the technology may not be the best, but its prosperous developer ecosystem makes it the number one public chain for smart contracts.
On the asset issuance side, there are three factions in the Runes ecosystem:
1/ Pre-runes, represented by RSIC and Runestone, have a market value of more than 500M, and are already priced in, making it difficult to have excess returns.
2/ 100% fair launch like BRC-20, no reserve for the project party
3/ The project owner reserves a portion and opens a portion to the community for mint
There will be projects that can succeed in all three groups. However, Runes has received unprecedented attention from the industry, and the information gap in the past few weeks has almost disappeared. The rest depends on execution and gas volume, and it is certain that the volume on the chain will be particularly high. It may be difficult to create a myth of 10,000 times when no one cares about it like Ordi did last year, but there should still be many opportunities for dozens to hundreds of times.
Regarding Runes, my next focus is:
1/ Everyone says that Ordinals NFT has mostly Western players, and BRC-20 is dominated by Eastern forces, and they do not take over from each other. As a new force that inherits the ecological resources of Ordinals, Runes will attract Western players to participate in playing "altcoins on BTC" and connect and integrate Chinese and Western players together. With the influx of more users and liquidity, some attention will also spill over to the BRC-20 and Atomicals protocol ecosystems.
2/ Let’s make a bold assumption. Will there be a certain group of Western people who will participate in more Runes tokens to be listed on Coinbase first? For projects like Runestone, the airdrop targets completely exclude BRC-20 addresses.
3/ In addition to asset issuance, does Runes have some unrevealed innovations? Can the Light Pools mentioned in Casey’s tweet be implemented to push Runes from asset issuance to the DeFi stage?
From the low-key launch of BRC-20 on March 8, 2023, to the emergence of Atomicals on September 21, 2023, to the shining release of Runes on April 20, 2024, these are the 13 months that the Bitcoin ecosystem has been budding.
At this moment, we are standing on the eve of the fourth halving, paying attention to the evolution of the BTC ecosystem from simple asset issuance to the next step such as DeFi, and witnessing the historical direction of Bitcoin in the war.
As shown in the first picture above, the market value of the entire BTC ecosystem is only a few billion US dollars, and there is still a lot of room for growth. We're still early!
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