all in all:
This article takes an in-depth look at the development trends of Bitcoin inscriptions and the characteristics of various protocols.
Analyze protocols on the Bitcoin chain, such as Ordinals, BRC20, Atomical, RGB, Pipe, and compare them with other PoW chains (such as Dogechain and Litecoin), Ethereum chains Ethscriptions and Evm.ink, and Solana chain's SPL20 protocol. The comparison includes aspects such as fees, divisibility, scalability, and user considerations, with a special emphasis on the low fees and high scalability of the RGB protocol.
Examining the market and product forecasts for the Inscription ecosystem, highlighting the integrity of the wallet-side infrastructure, the launch of the Bitcoin Chain AMM DEX, and the potential for additional features in the future, such as lending and derivatives. Unisat’s open API interface opens the door to numerous tool projects.
In summary, this article comprehensively explores the dynamics of the Bitcoin inscription field, provides insights into the future development of ecosystem-enabled inscriptions, and provides readers with a thorough understanding and outlook.
1. Inscription Market Background
1.1 Market Overview
Since the launch of the Bitcoin Ordinals protocol in January 2023, a wave of enthusiasm has swept the Bitcoin chain, and protocols such as BRC20 and Ordinals assets (commonly referred to as "Ordinals") have swept the entire Bitcoin chain. It is hailed as the "world of retail investors". This is thanks to the Fair Launch model of inscriptions such as BRC20, in which chips are minted entirely by individual retail investors without institutions, project teams, or insider trading. The minting cost of Ordi is about $1 per inscription, but after listing on the Gate.io exchange, the price soared to $20,000 per inscription. The astonishing increase in value has driven the continued popularity of the BRC20 protocol, attracted many Ordinals players, and caused the Gas fee on the Bitcoin chain to continue to soar. At its peak, the minimum confirmation Gas even reached 400 s/vb, exceeding the highest level of Gas in the past three years.
Taking this as a starting point, this article will explore the inscription ecology on each chain in depth, explore the current status of each protocol, and predict the development trend of inscriptions under ecological empowerment.
1.2 Data Overview
The 3-year Bitcoin block fee rate chart vividly illustrates the sharp spike in fees during May-June and November of this year. This surge reflects the user enthusiasm for the Inscription protocol, not just the BRC20 protocol. During this period, various protocols developed on the Bitcoin network were introduced, triggering a wave known as the "Bitcoin Summer".
Bitcoin exchange rate over the past three years, image source: Mempool.space
Judging from the casting data of the inscriptions, the casting volume has stabilized and continues to maintain a high level.
Ordinals inscription casting quantity, image source: Dune @dgtl_asserts
2. Longitudinal analysis
This article will classify the various chains and analyze the inscript protocols on each chain.
2.1 Bitcoin Chain
Ordinals / BRC20
On January 21, 2023, Bitcoin developer Casey Rodarmor launched the Ordinals protocol, which allows metadata to be engraved on the Bitcoin chain and assigned a script number. In March of the same year, Twitter user @domodata released the BRC20 protocol, which evolved token minting into an on-chain string. On November 7, Binance launched the BRC20 flagship token $ORDI, triggering a sharp surge, with a daily increase of nearly 100%.
As the first protocol in the Inscription ecosystem, Ordinals encountered several problems:
BRC20 only supports four-letter tokens, which is very limiting.
Casting names are vulnerable to Sybil attacks, making casting deals susceptible to front-running.
The Ordinals protocol results in a large amount of redundant data on the Bitcoin network.
For example, after the BRC20 token is minted, once the token transaction is sent, the original inscription will become invalid. This will cause a lot of data to be occupied, which is why some early Bitcoin enthusiasts are reluctant to support Ordinals.
Atomical
Atomical Protocol's ARC20 uses one satoshi to represent the deployed token and removes the four-character limit, allowing for more diverse gameplay. A unique project within the framework is "Realm", where each registered entity is a prefix text and ultimately has pricing power over all suffixes. In terms of basic functionality, Realm can be used as a transfer and collection address (payment name), and it also has a variety of use cases, such as building communities/DAOs, identity verification, social profiles, and seamless integration with the DID development we envision.
However, ARC20 and $ATOM are still in very early stages and require further development, including wallet and marketplace improvements.
Atomical minting quantity, image source: Dune @sankin
Rune
Casey, the founder of Ordinals, proposed a specific inscription implementation called Rune, which is designed to issue FT (homogeneous tokens). This method allows token data to be inserted directly into the UTXO script, including the ID, output, and amount of the token. The implementation of Rune is very similar to ARC20, handing token transfers directly to the BTC mainnet. The difference is that Rune includes the number of tokens in the script data.
While the concept of Rune is still in the conceptual stage, the founders of#Tracdeveloped the first functional protocol based on this idea, issuing PIPE tokens. With Casey's high profile, PIPE quickly gained momentum, taking advantage of the speculative enthusiasm inherited by BRC20. Compared with BRC20, Rune has relatively stronger legitimacy, but it is still challenging to gain recognition from the BTC community.
RGB
Lightning Network capacity, Image source: Mempool.space
As the Ordinals protocol improves the ecosystem of the Bitcoin network, more and more developers and projects are turning their attention to the Lightning Network due to its extremely low transaction fees and 40 million TPS (transactions per second).
RGB is a smart contract system based on BTC and Lightning Network, representing a more ultimate expansion solution. However, due to its complexity, progress has been slow. RGB converts the state of a smart contract into a concise proof and engraves that proof into the BTC UTXO output script. Users can verify that UTXO to check the state of the smart contract. When the smart contract state is updated, a new UTXO is created to store the proof of this state change.
All smart contract data is completely on the BTC chain, operated by a dedicated RGB node, which records the complete data of the smart contract and handles the computational workload of the transaction. Users verify the deterministic changes in the contract status by scanning the entire UTXO on the BTC chain.
RGB can be regarded as Layer 2 of BTC. This design uses the security of BTC to guarantee smart contracts. However, as the number of smart contracts increases, the demand for UTXO encapsulation data will inevitably lead to a large amount of redundancy in the BTC blockchain.
RGB has been in development since 2018, with no speculative content. Tether Limited, the issuing company of Tether, is an important supporter of RGB, aiming to issue a large amount of USDT on BTC RGB.
From the product point of view, the mainstream wallet currently used is Bitmask, which supports Bitcoin and Lightning Network recharges, and also supports RGB-20 and RGB-21 assets. Bitlight Labs is also developing the RGB network, planning to build its own wallet system and write smart contracts for DEX (decentralized exchange). The project has acquired BitSwap (bitswap-bifi.github.io) and is preparing to integrate it into the RGB network.
RGB's biggest strengths are its low transaction fees and extremely high scalability. There was a time when smart contract development on the Bitcoin network was difficult and received little attention. However, as the Ordinals protocol increases the popularity of the ecosystem, more and more developers are trying smart contracts on the RGB network. These smart contracts are written in Rust, which is not compatible with Ethereum, resulting in a high learning curve and requiring further evaluation in terms of technology.
For more information on the technical aspects of the RGB protocol, see Kernel Ventures’ previous article, “Can RGB replicate the Ordinals hype?”
2.2 Other POW chains
During the heyday of Bitcoin on-chain inscriptions, Ordinals have migrated to some of the leading PoW public chains, as other PoW chains are homologous and also based on the UTXO spending model. In this article, we will analyze the examples of Dogechain and Litecoin, which have high market acceptance and development completeness.
Dog leash:
The Drc-20 protocol on the Dogecoin chain is based on ordinals and functions similarly to the Bitcoin chain. However, it has gained popularity due to its low transaction fees and strong meme appeal.
Litecoin:
Similarly, the Ltc-20 protocol on the Litecoin chain is also based on Ordinals. The protocol has been forwarded and paid attention to by the Litecoin official team and its founder Charlie Lee. It can be said to have a "noble lineage". The trading markets Unilit and Litescribe and the wallet Litescribe all show a high level of development integrity. The first token $Lite has been listed on the Gate exchange.
However, there were problems with the protocol before the index was introduced. After the index went live, a bug occurred that caused an increase in issuance, but it has now been fixed and is worth paying attention to. It is clear from the figure that after the launch of the LTC20 protocol, the gas fee on the Litecoin chain has risen sharply.
Image credit: Twitter @SatoshiLite
Litecoin exchange rate over the past year, image source: Litecoinspace
2.3 Ethereum Chain
Ethscriptions
As of now, Etch, the trading platform on the Ethscriptions protocol, has achieved a trading volume of 10,500 ETH. The base price of the first token Eths is $4,300. For those who stayed in from the beginning, the initial investment cost on June 18 was less than 1U. Those who persisted have now received a return of more than 6,000 times their initial investment.
Eths transaction data, image source: ETCH Market
Tom Lehman proposed a novel Ethereum scaling solution on August 8. The solution uses technology similar to Ordinals, using Calldata extensions, aiming to achieve cost-effectiveness of Ethereum mainnet gas fees and enhance the dimension of ecosystem applications.
The core of Eths is the Ethscriptions Virtual Machine (ESC VM), which can be compared to the Ethereum Virtual Machine (EVM). The "dumb contract" in the ESC virtual machine allows Eths to break away from the inscription limitations of NFT hype and enter the field of functionality and practicality. Eths has officially entered the competition in the field of base layer and L2 solutions.
Dumb Contracts operating logic, Image source: Ethscriptions ESIP-4 proposal
“Eths represents an alternative approach to Ethereum’s Layer 2. Unlike typical Layer 2 solutions, which are independent chains and may have backdoors, Eths conducts transactions on the Ethereum mainnet and gas fees are as cheap as gas fees on Layer 2. It supports a variety of activities such as swaps, DeFi, and GameFi on the Eths platform. The key is that it runs on the mainnet, making it more secure and more decentralized than Layer 2”, excerpted from the Eths community.
However, articulating this new layer 2 narrative is challenging. First, token splits are still in the development stage, and current tokens are still non-fungible tokens (NFTs) and cannot be split into fungible tokens (FTs).
As of the latest news, FacetSwap (https://facetswap.com/) has introduced a split function. But it is worth noting that the mainstream trading market currently does not support split inscriptions. Users can wait for future adjustments. Currently, split inscriptions can be used for activities such as exchange and increasing liquidity on Factswap. All operations are parsed through a virtual address (non-existent address) 0x000...Face7. Users can embed messages in IDM and send the hexadecimal data of the message to the address ending with Face7 for approval, transfer and other operations. Since it is still in its early stages, its development trajectory will be observed in the future.
2.4 Other EVM chains
Evm.ink
Evm.ink has migrated the protocol standard of Ethscriptions to other EVM-compatible chains, enabling these chains to also mint inscriptions and build indexes for other EVM chains. Recently popular projects such as POLS and AVAL use Evm.ink (essentially the standard of Ethscriptions) for index recognition.
POLS casting data, image source: Dune @satsx
AVAL casting data, image source: Dune@helium_1990
The total supply of inscriptions for both POLS and AVAL is 21 million. POLS has over 80,000 holders, while AVAL has over 23,000 holders. The minting progress for both is about 2-3 days. This shows that the community is very interested in low-cost layer 2 (L2) inscriptions because they offer a high return on investment. Due to the low cost, users from the long tail of the BTC and ETH chains participated, leading to overflow. This trend is not limited to these two chains. Other chains such as Heco and Fantom have also experienced a surge in Gas fees, all of which are related to inscriptions.
Number of daily transactions on the EVM chain. Image source: Kernel Ventures
2.5 Solana
SPL20
Solana inscription started at 4am on November 17th and was completed by 8am, with a total of 21,000 inscriptions. Unlike other networks, the main body of the inscription is the NFT, and the index content is the actual inscription. NFTs can be created through any platform, and the index determines whether it is included based on the hash of the image or file. The second point is embedded text; only inscriptions with matching hash values and embedded text are considered valid. Images are off-chain data, and text is on-chain data. Currently, the main proxy platform uses IPFS, while others use AR.
Solana inscriptions and Eths have a significant limitation - they cannot be divided. Without the ability to split, they are essentially equivalent to NFTs, lacking the liquidity and operational convenience comparable to tokens, not to mention the vision of future Dex Swap.
The founder of the protocol is also the founder of TapPunk on the Tap protocol. The team behind the largest proxy platform Liberplex (https://www.libreplex.io/) is very proactive. Since the launch, the team has made rapid progress in development, completing operations such as hash indexing, changing inscription properties (immutability), etc. They also host live coding sessions and Q&A sessions on the official Discord. The trading market Tensor (https://www.tensor.trade/) has also been successfully integrated and is developing rapidly.
The first inscription "$Sols" had a minting cost of about $5. The highest price in the secondary market was 14 SOL, and the reserve price was 7.4 SOL, equivalent to $428. The daily trading volume exceeded 20,000 SOL, equivalent to about $1.2 million in US dollars, and the turnover rate was active.
3. Core comparison
3.1 Core Protocol Comparison
Comparison of mainstream inscription protocols, Image source: Kernel Ventures
This chart compares several major inscription protocols based on four dimensions: fees, divisibility, scalability, and user base.
Fees: RGB Protocol stands out with the best fees, leveraging the Lightning Network to enable nearly zero-cost transactions.
Divisibility: Both Solana and the recent EVM protocol lack divisibility capabilities, and future developments in this area are worth looking forward to.
Scalability: The smart contract capabilities of the RGB protocol provide significant scalability. Solana’s scalability is still under discussion, but the team and the Solana Foundation have expressed support, indicating that it may not lack scalability.
User base: The EVM chain naturally has a lower gas cost, which attracts a larger user base due to the lower trial and error cost for users. BRC20, as the first inscription token, ranks first among orthodox and has accumulated a huge user base.
3.2 Protocol Token Data Comparison
Comparison of protocol tokens. Image source: Kernel Ventures
Analyzing the mainstream tokens of various protocols, it is clear that the current market capitalization of these tokens is about $600 million, excluding small-cap currencies. In addition, Ordi accounts for 80% of the total market capitalization, which shows that there are huge development opportunities for other protocols. It is worth noting that protocols such as RGB are still in the process of being perfected and have not yet issued tokens.
In terms of the number of holders, Pols and Ordi dominate, while other protocols have fewer holders. Eths and Solana inscriptions have not yet split, so a comprehensive analysis of the holder distribution awaits further development.
3.3 Innovation and risk analysis
Currently, the main use of inscriptions is Fair Launch, which allows users to get fair opportunities to participate in projects. However, the development of the inscription space is not limited to fair launch.
Recent developments in the inscription space have shown significant dynamism and innovation. The industry’s growth is largely due to key technological advances in Bitcoin, such as SegWit, Bech32 encoding, Taproot upgrades, and Schnorr signatures. These technologies not only improve the transaction efficiency and scalability of the Bitcoin network, but also its programmability.
For example, in the RGB protocol, smart contracts built on the Bitcoin Lightning Network not only demonstrate extremely high transaction volumes per second (40 million), but also benefit from being part of the largest blockchain ecosystem, Bitcoin.
Regarding risks, it is recommended to proceed with caution, especially for some Launchpads. For example, the recent case of Rug project Ordstater, with the success of MUBI and TURT, has led to a surge in Launchpads. Some platforms may directly perform Rug Pull after the initial DEX offering (IDO). Before participating in any project, it is crucial to read the white paper carefully and study the background to avoid blindly following KOLs due to FOMO.
4. Future potential of the inscription ecosystem
4.1 Market Potential
Galaxy Research and Mining predicted that the Ordinals market would be worth $5 billion by 2025, when the number of inscriptions was estimated to be only 260,000. Currently, there are 33 million inscriptions, a 126-fold increase in just six months. $Ordi has reached a market value of $400 million, and $Sats has reached a market value of $300 million. This shows that the forecast for the entire inscription market has been greatly underestimated.
4.2 Product Potential
Currently, BRC20 trading activities are mainly concentrated on OKX and Unisat. The Web3 wallet launched by OKX this year provides a good experience for trading BRC20 assets. The improvement of the infrastructure on the wallet side has further smoothed and shortened the entry path for "retail investors", allowing them to smoothly enter this new market. With the emergence of various protocols, different protocols have launched their own trading markets and wallets, such as Atomicals, Dogechain, Litecoin, etc. However, the wallets currently on the market are modified versions of Unisat, built on the open source foundation of Unisat.
Comparing Bitcoin (POW) and Ethereum, we can compare various protocols to different chains, and the fundamental difference lies in the Chain ID. Therefore, future products may involve Unisat integrating different protocols, allowing users to switch between protocols within the wallet as needed, similar to the chain switching function in wallets such as Metamask.
Comparison of cross-protocol wallets. Image source: Kernel Ventures
4.3 Vertical Potential
As funds continue to pour into the inscription market, users are no longer satisfied with meme-driven hype and are turning their attention to inscription-based applications. Unisat brings innovation to BRC20 by introducing BRC20-Swap, allowing users to easily exchange BRC20 tokens similar to AMM DEX. As the first product in the Ordinals ecosystem to enhance liquidity, Unisat is ready to unlock the potential of the Bitcoin DeFi ecosystem, potentially leading to the development of other features such as lending and derivatives. Recently, Unisat has also opened an API interface to facilitate small developers to call various functions, such as automatic batch order scanning, monitoring inscription automatic coinage, etc. This can generate many utility projects.
While transaction fees on the Bitcoin network are relatively high, Layer2s such as Stacks and RIF lack a user base and sufficient infrastructure despite lower fees. This makes Bitcoin's EVM a compelling story. For example, BEVM is a project based on the Ethereum network that provides Bitcoin ecosystem Layer2, with BTC as the native token on the chain. Users can transfer Bitcoin from the mainnet to BEVM using the official cross-chain bridge. BEVM's EVM compatibility makes it easy to build applications on the EVM chain, and the entry barrier for DeFi, exchanges, etc. to migrate from other chains is low.
However, there are several issues to consider with Bitcoin's EVM. Issues include whether cross-border assets can remain decentralized and immutable, the consensus of EVM chain nodes, and how to synchronize transactions to the Bitcoin network (or decentralized storage). Since the threshold of Ethereum Layer 2 is relatively low, security may be affected, which has become the primary concern of those who are currently interested in Bitcoin EVM.
Image source: BEVM Bridge
5. Conclusion
This article analyzes the Ordinals (BRC20), Atomical, RGB, Pipe and other protocols on the Bitcoin chain, and explores the differences in fees, divisibility, scalability and users compared to other Pow chains, Ethereum’s Ethscriptions and Evm.ink, and Solana’s SPL20 protocol.
In the context of the inscription market, a wave of inscription protocols such as BRC20, starting with the Ordinals protocol, is called the "world of retail investors". This analysis includes an overview of data such as Bitcoin block fees and the number of inscriptions forged with serial numbers, providing insights into the development trends of the inscription ecosystem.
In the analysis of the racetrack, the core elements of the mainstream inscription protocols, such as fees, divisibility, scalability, number of users, etc., are compared to show their similarities and differences. Finally, through the comparison of protocol token data and core protocol comparison, the market value and user distribution of each mainstream protocol are comprehensively analyzed. The conclusion emphasizes innovation points and risk analysis, highlighting the vitality and innovation in the inscription field.
Looking ahead, the inscription field is expected to continue technological innovation and promote the practical application of more complex functions. The strong development of the 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 public chains such as Bitcoin. Since the inscription domain provides new income opportunities for miners, their income may also increase.
Kernel Ventures is a research and investment firm. A community-driven crypto venture capital fund with more than 70 early-stage investments, focusing on infrastructure, middleware, dApps, especially ZK, Rollup, DEX, modular blockchains, and verticals that will attract the next billion crypto users, such as account abstraction, data availability, scalability, etc. Over the past seven years, we have been committed to supporting the development of the global core development community and university blockchain associations.
reference
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
