Author: bayemon.eth, ChainCatcher
The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime. ——那个男人
In 2023, as the new coronavirus gradually faded from people's sight, people who finally walked out of the dark clouds found that it was not only the virus that made them breathless, but also the continuously depreciating money in their hands.
Hyperinflation, more money and less food
Over the past three years, policymakers around the world have almost all chosen to hedge against the negative impact of the virus by printing more money. Although people have more money in their hands, the total amount of assets such as houses and cars has not increased in essence. The state of "more money and less food" has basically made all countries touch the ceiling of inflation levels in the past 40 years.
For economies with relatively complete monetary and financial policies, such as the United States, it is not easy to ease inflation in the current economic situation, not to mention developing economies that are burdened with high external debts and have even triggered a debt crisis. Vicious inflation has caused many people in fragile monetary system economies to begin to exchange their fiat currencies for "relatively value-preserving" US dollars, seeking "safe haven" opportunities in the quagmire of economic downturn. However, due to high bank fees and the rapid depreciation of fiat currencies, ordinary foreign exchange exchange is obviously not efficient in "safe haven". Therefore, people in Nigeria, Zimbabwe and other places have turned their attention to Bitcoin, the "digital gold" that is easier to exchange for US dollars, has lower fees, and has a relatively stable price.
Safe-haven assets? Risky assets!
In fact, the "relative stability" of Bitcoin prices is also entirely due to the contrast with its peers. Compared with the rapid depreciation of the fiat currency exchange rate, the market downturn is obviously better in "preserving value". However, once you carefully sort out the performance of Bitcoin as a safe-haven asset, you will find that when facing large-scale international political and economic turmoil, Bitcoin is no longer as "unmoved" as it was in the past. Bitcoin, which has proven its identity in the past US-Iran conflict and Russia-Ukraine conflict, did not rise by nearly 40% after the outbreak of the Palestinian-Israeli conflict this year, as in the previous two times, but fell slightly. From the data, the correlation coefficient between Bitcoin prices and US stocks, the US dollar and even the current price of gold is also on an upward trend overall, which means that in the long-stupid cryptocurrency market, Bitcoin, once known as "digital gold", cannot remain immune to the turbulence of the situation.
At the same time, Bitcoin is not having a good time in the crypto community. Speculators who came for hedging found that Bitcoin had lost its ability to hedge against bear markets and had almost become a risky asset and called for "refunds". Bitcoin's innate conditions, such as Turing completeness and consensus effect, which were once regarded as "God's hand", seem to have gradually become a barrier to restrict its functional iteration - most of the "Satoshi believers" in the Bitcoin community hold on to the white paper 15 years ago and refuse to innovate. There are almost no smart contracts deployed on the ecological chain. Bitcoin itself has nothing but value storage, and developers are gradually flowing to Ethereum, which can provide "emotional value". According to developer data compiled by Electric Capital, there are only 1,291 monthly active developers in the Bitcoin ecosystem, while Ethereum is nearly six times as many, with 1,889 full-time developers alone.
In the long run, as long as Ethereum and other public chain ecosystems continue to innovate at the current rate, Bitcoin may no longer be able to occupy a stable market value share one day in the future.
The unbelieving minority: Ordinals and BRC-20
Although the Bitcoin community's belief in Satoshi Nakamoto's original vision seems insurmountable, there are always one or two "rebellious" friends in the community who decide to "take risks". In January this year, Casey Rodarmor launched the Ordinals protocol, which allows builders to record data called inscriptions on the smallest unit of Bitcoin, satoshi, so as to embed art collections similar to NFTs in the blockchain. In the 10 months since its launch, the total number of inscriptions on the Bitcoin chain has reached 36.514 million. There is no doubt that Ordinals plays the role of ERC-721 in the Bitcoin ecosystem, so some people in the community began to ask "how far in the future" the ERC-20 equivalent on the Bitcoin chain will be.
Two months later, a mysterious engineer named domo released BRC-20, announcing to the community that the Bitcoin ecosystem can also achieve free coin issuance. In essence, BRC-20 is still based on the Ordinals protocol. By deploying JSON files to the network to customize the basic conditions of tokens such as token supply and issuance limits, tokens minted based on the BRC-20 standard can be freely transferred between wallets. Although the above text compares BRC-20 and Ordinals with the ERC standard on the Ethereum chain. But the most important difference is that the small pictures and tokens created based on Ordinals on the Bitcoin network are directly engraved on a single satoshi, and due to the characteristics of Bitcoin itself, they are directly "classic chants and spread". So far, the discussion on the expansion of the Bitcoin ecosystem has been pushed to the top again, and the BRC-20 transaction volume has reached nearly 400,000 in nearly a month. However, behind the rapidly rising transaction volume, the total transaction fee of 255BTC on the day cannot be ignored.
Unlike inscriptions that can never be deleted or tampered with, people’s enthusiasm and memories about BRC-20 were almost completely released after a month, and the community gradually began to question “Ordinals and BRC-20 are so good, could it be that Satoshi Nakamoto didn’t think of it?” As Haotian described in his long tweet, many participants questioned that “BRC-20 violates the mainstream narrative of decentralization, expansion, and low cost” - Bitcoin itself cannot identify whether the inscription is valid, and the judgment power must be handed over to the centralized platform; a large number of BRC-20 transactions caused the Bitcoin network to be directly blocked, and it was almost impossible to produce blocks normally...
Many problems seem to have blocked all options other than "digital gold" once again. The possibility of Bitcoin ecosystem expansion has changed from an exclamation mark to a question mark, and "Bitcoin cannot be saved by ecosystem" has become a dead end. So, is there really no solution on the Bitcoin chain that can enhance programmability and functionality, introduce a token economy, and not bring excessive burden to the network?
Since issuing coins on the Bitcoin chain does not work, it is better to first look at why previous attempts to optimize transaction processing did not work.
The freedom to issue coins that randomly wanders between being OK and not being OK
Taproot Upgrade & Lightning Network
As early as November 2021, the Bitcoin network underwent an important upgrade called Taproot, which was used to simplify transaction processing through signature merging, achieving speed increases and cost reductions. Unlike Bitcoin's upgrade that ended in a "split" in 2017, Taproot did not cause much controversy in the "conservative" Bitcoin community, which shows that even "Satoshi Nakamoto's loyal followers" acquiesce to the speed and cost changes at the Bitcoin network level.
Taproot combines three Bitcoin improvement proposals, BIP-340 (Schnorr), BIP-341 (Taproot), and BIP-342 (Tapscript), to enhance scripting capabilities. The key to the upgrade is to introduce Schonorr signatures to combine and centralize multiple public keys and package them on the chain. On the one hand, for multi-signature transactions, transactions involving multiple addresses no longer need to verify multiple public keys. In terms of privacy, single-signature and multi-signature transactions are therefore more difficult to distinguish, and it is more difficult to identify the identities of traders on the block. However, in fact, although it can alleviate a certain degree of network congestion crisis, even after the Taproot upgrade, the Bitcoin network still could not avoid congestion and a sharp increase in transaction fees when facing a large number of developers self-issuing BRC-20 transactions in the first half of the year.
If the purpose is simply to simplify transactions and optimize processing, Bitcoin sidechain expansion technologies such as the Lightning Network can also achieve the same effect. However, for the Lightning Network, once the state channel is closed for a short period of time, the transactions on it still need to be fully moved to the Bitcoin network for verification, and a large number of transactions will still cause the network to paralyze.
Therefore, as far as the single existing measure is concerned, it is indeed impossible to solve the deadlock in Bitcoin transaction processing, and "freedom to issue coins" has become an unreachable shore. Could it be that Satoshi Nakamoto 15 years ago predicted the prediction of the reformers?
Taproot Asset: No, wait for me to stack buffs
Although 15 years can make a primary school student grow into a social animal in the real world, it pales in comparison to the long "career" of Bitcoin. Newcomers are always trying to challenge the "unchanging v0.1" set by Satoshi Nakamoto, thinking about how to write the right to issue assets into the DNA spiral of Bitcoin.
On October 19 this year, Lightning Labs, the Lightning Network development team, announced the release of the mainnet Alpha version of a protocol called Taproot Asset. Taproot Assets is driven by Taproot and is used to issue assets on the Bitcoin ecosystem chain. Assets issued through this protocol can complete high-speed and low-cost transactions through the Lightning Network.
Simply put, the basic logic of Taproot Asset focuses on a "buff stacking". On the one hand, the Schnorr signature involved in the Taproot upgrade is used to achieve signature merging; on the other hand, the issued assets can interact in the Lightning Network channel, and the atomic conversion of BTC2TA can be achieved on its nodes. The Lightning Network's time-tested transaction processing also hedges some of the concerns about speed and cost. According to Lightning Labs CEO and co-founder in an interview with The Block, since the release of the Taproot Assets mainnet alpha, the total amount of minted assets has exceeded 18,000. In addition, Taproot Assets developers are also trying to use real-world assets such as gold, U.S. Treasury bonds and corporate bonds to implement functions such as issuing debt instruments.
However, although Taproot Assets has attracted another peak of discussion in the Bitcoin ecosystem after BRC-20 since its launch, from a market perspective, it is not as crazy as when BRC-20 was launched in May. Perhaps one of the reasons is that although the Lightning Network has a certain "mass base", it still seems to be lacking in confidence in the face of Bitcoin's long-term consensus effect and the absolute security of the Bitcoin mainnet. After all, when the Bitcoin mainnet is sufficient, few people choose to understand and use the so-called state channel of the Lightning Network for asset exchange, and therefore failed to successfully replicate the "short-term madness" of the initial launch of BRC-20. However, in the context of excessive inflation, many long-termists believe that Taproot Assets will be the beginning of the narrative of stablecoins in the Bitcoin ecosystem. Whether the issuance of assets based on the TA protocol will eventually fall into the death spiral of the Bitcoin ecosystem may depend on the attractiveness of subsequent protocols to developers and the attitude of "Bitcoin ecosystem natives".
Revitalize the ecosystem: The country is where the people are
Looking at the Bitcoin and Ethereum ecosystems, from Taproot Assets to RaaS, the BTC and ETH communities seem to have gradually reached a consensus - in the absence of a rapid improvement in the economic environment, simplifying user operations from a technical perspective and giving developers more toys to play with may be a more promising route out of the bear market. So far, we can expect the 16th year of the Bitcoin white paper and the new round of narratives after the Ethereum Cancun upgrade to further refine the solution to the bear market.
