Author: Kernel Ventures Stanley
Reviewed by: Mandy, Kernel Ventures, Joshua, Kernel Ventures
TLDR：
This article takes an in-depth look at the development trends in the Bitcoin inscription space and the characteristics of each protocol.
Analyze the protocols on the Bitcoin chain such as Ordinals, BRC20, Atomical, RGB, Pipe and other Pow chains such as Dogechain and Litecoin, as well as Ethereum chain Ethscriptions and Evm.ink, and Solana chain SPL20 protocol, and compare them in terms of rates, divisibility, scalability, and users, especially highlighting the low rate and high scalability of the RGB protocol.
Market and product deduction for the inscription ecosystem, the completion of the infrastructure on the wallet side, the launch of the Bitcoin chain AMM DEX, and more functions such as lending and derivatives may appear in the future. UniSat's open API interface can generate a lot of tool projects.
Overall, this article discusses the dynamics of the Bitcoin inscription field in detail, looks forward to the development of inscriptions under ecological empowerment, and provides readers with a comprehensive understanding and outlook.
Inscription market background
market background
Since the emergence of the Bitcoin Ordinals protocol in January 2023, BRC20, Ordinals assets, etc. have set off a wave on the Bitcoin chain. Some people call it "the world of retail investors" because of the Fair Launch model of BRC20 and other inscriptions, all the chips are minted by retail investors themselves, without institutions, project parties, or rat warehouses. Among them, the casting cost of Ordi is about 1 US dollar per piece. After listing on the Gate Exchange, it rose to 20,000 US dollars per piece. The exaggerated increase has made the BRC20 protocol continue to rise in popularity, attracting many Ordinals players to flock to BRC20, and also caused the Gas on the Bitcoin chain to continue to rise. At the peak, the minimum confirmation Gas even reached 400 s/vb, breaking the highest Gas in three years.
This article will start with this and discuss the inscription ecology of various chains and protocols, and look forward to the development trend of inscriptions under ecological empowerment.
Data Overview
The three-year Bitcoin block fee rate chart shows intuitively that the fee rate soared in May-June and November of this year, which also reflects the enthusiasm of users for the Inscription Protocol. Not only the BRC20 protocol, but also various protocols developed based on the Bitcoin network were issued during this stage, bringing a wave of "Bitcoin Summer".
Bitcoin fee rates in the past three years, image source: Mempool.space
Judging from the casting data of Inscriptions, the casting quantity tends to be stable and remains at a high level.
Ordinals inscription casting quantity, image source: Dune @dgtl_asserts
Track Analysis
This article will classify each chain and analyze the inscription protocol on each chain.
Bitcoin Chain
Ordinals / BRC20 Protocol
On January 21, 2023, Bitcoin developer Casey Rodarmor launched the Ordinals protocol, which can engrave metadata on the Bitcoin chain and assign it an inscription number. In March of the same year, Twitter user @domodata released the BRC20 protocol, which evolved the minting of tokens into a string on the chain. On November 7, Binance launched the BRC20 leader $ORDI, which pushed $ORDI up sharply, with a single-day increase of nearly 100%.
As the first protocol of the inscription ecosystem, Ordinals also has many problems:
BRC20 only supports four-letter tokens, which is quite limited
The minting name will be attacked by the sophont, and the minting transaction is easy to be front-run
Ordinals protocol will cause great redundant data to the Bitcoin network
For example: After the casting of BRC20 is completed, the token can be sent through the transfer inscription, and the original casting inscription becomes an invalid inscription, which causes a great deal of data occupation. This is also the reason why some early Bitcoin geeks do not want to support Ordinals.
Atomical Protocol
Atomical Protocol's ARC20 uses one satoshi to represent the deployed token, and removes the four-character limit, making the gameplay more diverse. Unique project: Realm, each registered Realm is a prefix text, and finally has the pricing power of all suffixes. In terms of basic functions, the realm can be used as a transfer payment address (payment name); in terms of extended usage, there are many usage scenarios such as building communities/DAOs, identity authentication, social profiles, etc., which are also completely in line with our development concept of DID.
However, ARC20 and $ATOM are still in their very early stages and need to wait for the improvement of wallets and markets.
Realm casting quantity, image source: Dune @sankin
Pipe Protocol
Casey, founder of Ordinals, has proposed a special inscription implementation method for issuing FT, namely Rune, which can directly write token data in the UTXO script, which includes the token ID, output and quantity. The implementation of Rune is very similar to ARC20, and the token transfer is directly handed over to the BTC main network for processing. The difference is that Rune writes the token quantity in the script data.
The idea of Rune was just a concept. The founder of#Tracwrote the first usable protocol based on it and issued PIPE. Due to Casey's high popularity, PIPE took over the hype enthusiasm continued 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.
RGB Protocol
Lightning Network capacity, Image source: Mempool.space
As the Ordinals protocol elevates the ecosystem of the Bitcoin network, more and more developers and project owners are paying attention to the Lightning Network because of its extremely low transaction fees and 40 million TPS.
RGB is a smart contract system based on BTC and Lightning Network. It is the 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.
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 want to re-issue USDT in large quantities on BTC RGB.
In terms of products, the mainstream wallet currently uses Bitmask, which supports Bitcoin and Lightning Network recharges, supports assets in RGB-20 and RGB-21 formats, and is also the wallet with the most users on the market. Bitlight Labs is also currently developing the RGB network. The goal of this project is to build a wallet system by itself, write smart contracts by itself, and do DEX. The project has currently acquired BitSwap (bitswap-bifi.github.io) and is preparing to connect it to the RGB network.
The biggest advantage of the RGB protocol is its low handling fee and high scalability. Once upon a time, the development of smart contracts on the Bitcoin network was difficult and no one was interested. However, as the Ordinals protocol has raised the popularity of the Bitcoin network ecosystem, more and more developers will try the smart contracts on the RGB network. The smart contracts are written in Rust and are not compatible with Ethereum, so the learning cost is high and the technical level needs to be evaluated later.
For more information on the technical aspects of the RGB protocol, Kernel Ventures has already made a detailed introduction in previous articles. The link to the article is: https://tokeninsight.com/zh/research/market-analysis/a-brief-overview-on-rgb-can-rgb-replicate-the-ordinals-hype
Other POW chains
When Ordinals on the Bitcoin chain became popular, other Pow chains were migrated to some leading Pow public chains because they have the same origin and are also based on the UTXO transfer and spending model. This article takes Dogechain and Litecoin, which have higher market acceptance and development completeness, as examples for analysis.
Dogechain
The Drc-20 protocol is an Ordinals-based protocol on the Dogecoin chain. Its functions are similar to those of the Bitcoin chain, but it is popular due to its low transfer fees and strong meme properties.
Litecoin
The same is true for the LTC20 protocol, which is a protocol based on Ordinals on the Litecoin chain. The protocol has been retweeted and followed by Litecoin officials and founder Charlie Lee, and can be said to be "born from a famous family". The trading market Unilit and Litescribe; the development of the wallet Litescribe is also relatively complete, and the first token $Lite has been launched on the Gate exchange.
However, there was no index before the protocol. After the index was launched, an additional issuance bug occurred, which has been fixed and deserves attention. It can also be seen intuitively from the figure that after the launch of the LTC20 protocol, the Gas fee on the Litecoin chain skyrocketed.
Image source: Twitter Charlie Lee @SatoshiLite
Litecoin fee rate in the past year, image source: Litecoinspace
Ethereum Chain
Ethscriptions
So far, the transaction volume of Ethscriptions trading platform Etch has reached 10,500 ETH. The first token Eths has a floor price of 4,300 US dollars. The cost of the new issuance on June 18 was less than 1U. Those who have not left the market from the beginning to the end have made more than 6,000 times the profit.
Eths transaction data, image source: ETCH Market
A new Ethereum expansion solution proposed by Tom Lehman on August 8. Using Ordinals-like inscription technology and Calldata extension, it can achieve the cheapness of Ethereum mainnet Gas Fee and the high-dimensionality of ecological applications. This is Ethscriptions.
The core of Eths is the Ethscriptions Virtual Machine (ESC VM), which can be compared to EVM (Ethereum Virtual Machine). The smart contracts in ESC VM, “Dumb Contracts”, have enabled Eths to break away from the limitation of inscriptions as NFT hype, enter the field of functionality and practicality, and officially enter the base layer to compete with L2 solutions.
Dumb Contracts operating logic, Image source: Ethscriptions ESIP-4 proposal
"Eths is another idea for Ethereum's second layer. The second layer is a separate chain and can close the backdoor. Eths is traded on the Ethereum mainnet, and the gas fee is as cheap as the second layer. Swap, Defi, and Gamefi on the mainnet can all be implemented on Eths. The most important thing is that it runs on the mainnet and cannot close the backdoor. It is safer and more decentralized than the second layer," excerpted from the Eths community.
This new L2 narrative is actually not easy to write. First of all, the token splitting is still in progress, and the current inscription is still NFT and cannot be split into FT.
As of the latest news, the FacetSwap official website (https://facetswap.com/) has launched the split function, but after experience, it is found that the current mainstream trading market does not support the split inscriptions, and it can wait for later adaptation. At present, the split inscriptions can be swapped, Add Liquidity, etc. in Factswap. All operations are parsed by a virtual address (non-existent address) 0x000....Face7. Users only need to embed the message in IDM and send the hexadecimal data of the message to the address with the last number Face7, and then they can approve, transfer, etc. Due to the early stage, its development trend needs to be observed later.
Other EVM chains
Evm.ink
Evm.ink migrated the Ethscriptions protocol standard to other EVM chains, allowing other chains to cast inscriptions and build indexes of other EVM chains. Recently popular POLS, AVAL, etc. all use Evm.ink, which is the Ethscriptions standard, for index identification.
POLS casting data, image source: Dune @satsx
AVAL casting data, image source: Dune @helium_1990
The total amount of POLS and AVAL is 21 million each, with 80,000+ POLS addresses and 23,000+ AVAL addresses. The minting process is about 2-3 days. It can be seen that people are currently more interested in low-cost Layer 2 inscriptions. Because of its low cost and high return rate, some long-tail users of BTC and ETH chains will have spillovers. Not only these two chains, but also Heco chain, Fantom chain, etc. have seen a surge in gas fees, all related to inscriptions.
Number of daily transactions on the EVM chain. Image source: Kernel Ventures
Solana Chain
SPL20
Solana inscriptions started at 4 am on November 17th and were minted at 8 am, with a total of 21,000. Unlike other networks, the main body of the inscription is NFT, and the Index Content is the inscription. NFT can be created through any platform, and the index will determine whether it is included through the hash of the image (file). The second point is the built-in text. Only those that match the hash and the built-in text will be recorded as valid inscriptions. Images are off-chain data, and text is on-chain data. Currently, the main proxy platforms use IPFS, and other proxy platforms use AR.
The biggest flaw of Solana tokens is the same as Eths, splitting. If it cannot be split, it is essentially an NFT, and it cannot have the same liquidity and operational convenience as tokens, let alone the vision of Dex Swap in the future.
The founder of the protocol is the founder of TapPunk on the Tap protocol. The team of Liberplex (https://www.libreplex.io/), the largest proxy platform, is very active. Since its launch, the team has made rapid development progress and has completed operations such as hash indexing and inscription attribute (immutability) change functions. They will also live broadcast code writing and answer questions on the official Discord. The trading market Tensor (https://www.tensor.trade/) has also been connected and is currently developing rapidly.
The first inscription $Sols has a casting cost of about $5, and the highest price in the secondary market is 14SOL. As of writing, the floor price is 7.4SOL, equivalent to $428. The daily trading volume exceeds 20,000 SOL, equivalent to about 1.2 million US dollars, and the trading volume and turnover rate are both active.
Core comparison
Core Protocol Comparison
Comparison of mainstream inscription protocols, Image source: Kernel Ventures
This chart compares several major inscription protocols in terms of fee rate, divisibility, scalability, and number of users. It can be seen intuitively from the chart that the RGB protocol has the best fee rate, and the 0 fee rate based on the Lightning Network makes transactions almost cost-free.
In terms of divisibility, the recent Solana and EVM protocols cannot be split and are awaiting further development.
In terms of scalability, the smart contract function of the RGB protocol brings it great scalability. Solana’s scalability is still to be explored, but the team and the Solana Foundation have expressed support. I personally believe that the scalability will not be too bad.
In terms of users, the EVM chain has more users due to its natural low-gas property, which reduces the trial and error cost for users. BRC20 is the first inscribed token and ranks first in legitimacy, so there are also many users.
Protocol Token Data Comparison
Comparison of protocol tokens. Image source: Kernel Ventures
From the analysis of the mainstream tokens of each protocol, it can be seen that the current market value of mainstream tokens is around 600 million US dollars, and other small-cap currencies are not included. And Ordi accounts for 80% of the total market value, so there is huge room for development for other protocols, and protocols such as RGB are still being improved and no tokens have been issued.
Judging from the number of coin holders, Pols and Ordi dominate, the number of coin holders of other protocols is relatively small, and the Eths & Solana inscriptions have not been split, so we will wait for the situation after later developments before conducting a coin holding analysis.
Innovation and risk analysis
Currently, the biggest use of inscriptions is Fair Launch, which allows users to have fair opportunities to participate in projects. However, the development of the inscription track cannot stagnate only at fair launch.
The recent development of the inscription track has shown significant vitality and innovation. The growth of this track is mainly due to the key technological advancements of Bitcoin such as SegWit, Bech32 encoding, Taproot upgrades and Schnorr signatures. These technologies not only improve Bitcoin The network’s transaction efficiency and scalability also increase its programmability.
For example, if the smart contract in the RGB protocol is built on Bitcoin's Lightning Network, not only will the TPS be extremely high (40 million), but it will also be backed by Bitcoin, the largest blockchain ecosystem.
In terms of risks, you need to pay attention to some Launchpads, such as Rug's Ordstater a while ago. Due to the success of MUBI and TURT, many Launchpads have emerged on the market. Some platforms directly Rug Pull after IDO. Please read the white paper carefully before participating in the project, study the background, and do not follow the KOL blindly to rush into the project.
Future development of the inscription ecosystem
Market Deduction
Galaxy Research and Mining predicts that by 2025, the market value of the Ordinals market will reach 5 billion US dollars. At that time, the number of inscriptions was only 260,000, and now the number of inscriptions has reached 33 million, an increase of 126 times in just half a year. In addition, the market value of $Ordi has reached 400 million US dollars, and the market value of $Sats has reached 300 million US dollars. It can be seen that the prediction of the entire inscription market is still greatly underestimated.
Product development
Currently, BRC20 trading activities are mainly concentrated in OKX and UniSat. This year, OKX's main Web3 wallet has a good experience in BRC20 asset trading, and the complete infrastructure on the wallet side has further smoothed and shortened the entry path for "aunt speculators", allowing them to smoothly enter this new market. With the emergence of other types of protocols, different protocols have emerged with different trading markets and their own trading wallets, such as Atomicals, Dogechain, Litecoin, etc. However, the wallets currently on the market are all modified versions of UniSat, which are modified on the basis of UniSat's open source. We compare Bitcoin (POW) with Ethereum, and we can compare various protocols to various chains. The essential difference is only in the Chain ID. Therefore, the future product may be UniSat access to different protocols, and you can switch between different protocols when necessary, just operate it directly in the wallet, similar to the switching chain of the Little Fox Wallet.
Comparison of wallets of various protocols, Image source: Kernel Ventures
Track simulation
As funds continue to pour into the inscription market, users are no longer satisfied with the hype of memes and are beginning to turn their attention to inscription-based applications. UniSat also brings innovation to BRC20. Through BRC20-Swap, users can easily exchange BRC20 tokens like AMM DEX. As the first product to improve the liquidity of the Ordinals ecosystem, it is expected to unleash the potential of the Bitcoin DeFi ecosystem. More functions such as lending and derivatives may appear in the future. Recently, UniSat has also opened an API interface, which is very friendly to small developers. Many functions can be called, such as automatic batch scanning, monitoring inscriptions and automatic mint, which can generate a lot of tool projects.
The transaction fee of the Bitcoin network is relatively expensive. For some second-layer Bitcoin platforms such as Stacks and RIF, although the transaction fee is reduced, there is no user base and the infrastructure is not complete enough. Therefore, Bitcoin's EVM is a good narrative.
For example, BEVM is a Bitcoin ecosystem Layer2 based on the Ethereum network. The Native Token on the chain is also BTC. Users can use the official cross-chain bridge to transfer Bitcoin from the main network to BEVM. BEVM's EVM compatibility makes the threshold for building applications on the EVM chain extremely low, and Defi, Swap, etc. can be migrated from other chains.
However, there are still many issues that Bitcoin's EVM needs to consider, such as whether cross-chain assets can guarantee decentralization and non-issuance, the node sequence consensus problem of the EVM chain, and how to synchronize Txns to the Bitcoin network (or decentralized storage). Because the threshold of Ethereum's second layer is low, the security will also be reduced. This should be the primary issue that everyone who is currently paying attention to Bitcoin EVM should consider.
Image source: BEVM Bridge
Summarize
This article deeply studies the development trend of Bitcoin inscriptions and the characteristics of each protocol. By analyzing the protocols on the Bitcoin chain such as Ordinals (BRC20), Atomical, RGB, Pipe and other Pow chains, as well as Ethereum chain Ethscriptions and Evm.ink, Solana chain SPL20 protocol, and comparing their differences in rates, divisibility, scalability and users, it is concluded that divisibility is still a bottleneck, and RGB is more comprehensive and promising among other Bitcoin chain protocols.
In terms of the inscription market background, starting with the Ordinals protocol, BRC20 and other inscription protocols have set off a wave of development, which is jokingly called "the world of retail investors". By analyzing the Bitcoin block fee chart and the number of Ordinals inscriptions minted, we can get a glimpse of the development trend of the inscription ecosystem.
In terms of track analysis, the core elements of mainstream inscription protocols, such as rates, divisibility, scalability, and number of users, were compared to show their similarities and differences. Finally, through the comparison of protocol token data and core protocol comparison, a comprehensive analysis of the market value and user distribution of each mainstream protocol was conducted. In the summary, innovation points and risk analysis were mentioned, emphasizing the vitality and innovation in the inscription field.
Looking ahead, the inscription field is expected to continue to witness continuous technological innovation and promote the practical application of more complex functions. The booming market is expected to maintain steady growth and provide more opportunities for investors and participants. At the same time, more creative projects and protocols are expected to emerge to further enrich the inscription ecosystem of Bitcoin and other public chains. Miners' income may also increase as the inscription field provides them with new income opportunities.
Kernel Ventures is a crypto venture capital fund driven by the research and development community, with more than 70 early-stage investments, focusing on infrastructure, middleware, dApps, especially ZK, Rollup, DEX, modular blockchains, and verticals that will carry billions of future crypto users, such as account abstraction, data availability, scalability, etc. Over the past seven years, we have been committed to supporting the development of core development communities and university blockchain associations around the world.
References:
Bitcoin block-fee-rates (3 year)：https://mempool.space/zh/graphs/mining/block-fee-rates#3y
ESIP-4: The Ethscriptions Virtual Machine：https://docs.ethscriptions.com/esips/esip-4-the-ethscriptions-virtual-machine
A comprehensive scan of the inscriptions industry：https://www.theblockbeats.info/news/47753?search=1
Litecoin block-fee-rates (1 year)：https://litecoinspace.org/zh/graphs/mining/block-fee-rates#1y
