During the recent market volatility, the performance of the BRC-20 sector has attracted the most attention from investors, and Bitcoin Inscription Tokens have continued to generate wealth-creating effects. So, how did BTC Inscription Tokens develop? Who is more competitive in the Inscription Protocol? What far-reaching impact will the development of Bitcoin Inscriptions have on the Bitcoin ecosystem? This article will sort out these issues.

How BTC Inscription Tokens Developed

In December 2022, Casey launched the Ordinals protocol, which officially opened the prologue to the development of the Bitcoin ecosystem. The Ordinals protocol assigns a unique serial number to each Satoshi and tracks them in transactions. Anyone can attach additional data through Ordinals, including text, pictures, videos, etc., which is determined by the permissionless nature of Bitcoin.

On March 8, 2023, an anonymous developer named @domodata launched BRC-20 based on the Ordinals protocol, and the hype of Bitcoin ecosystem Meme tokens entered the fast lane. It can be simply understood that BRC-20 is a copycat coin issuance protocol based on Ordinals (that is, based on Bitcoin). After the release of Ordinals, another anonymous developer launched the Atomicals Protocol in September. In addition, since Casey has always disliked BRC-20 and believed that it brought too many junk inscriptions. Shortly after the release of Atomicals, on September 26, Casey created a Bitcoin-based homogeneous token protocol Runes. Like Atomiclas, Runes' important improvement over BRC-20 is based on UTXO. Casey believes that creating a good homogeneous token protocol for Bitcoin may bring considerable transaction fee income, more developers and users to Bitcoin.

In addition, since the launch of BRC-20, BRC-20 transactions have accounted for the majority of the Ordinals protocol. Subsequently, a community developer named Beny launched the BRC-20 proxy tool LooksOrdinal (without tokens), the BRC-20 improved version Tap Protocol positioned at OrdFi, and the improved version Pipe of Runes.

Who is more competitive in the hotly debated inscription protocol?

In addition to the Inscription Token that has been developed this year, developers have actually been building the Bitcoin ecosystem for a long time. In the crypto world, the real competition for funds is the competition for legitimacy, the competition for who is more decentralized, and the competition for who is more in line with the community culture. Let's look at who is more competitive from a technical perspective.

Ordinals & BRC 20: The emergence of the ordinals protocol has completely ignited the BTC ecosystem, and its rapid development has also promoted the adoption of Taproot. The implementation of Ordinals uses the most basic functions of BTC, and the transfer of NFTs is also completely handled by the BTC network, so it is very consistent with the concept of the BTC fundamentalist community. The transfer of BRC 20 is not executed on the BTC main chain, and must be split into two steps of BTC transaction execution (that is, first collect in the sorter and then transfer). The additional complexity has caused it to generate a large number of junk transactions. Therefore, it is not as accepted by the entire BTC community as Ordinals, and it has been full of objections since its birth.

Atomicals Protocol is another derivative protocol that implements tokens by engraving data on UTXO. Unlike Ordinals, which was originally designed for NFTs, it rethinks from the bottom up how to issue tokens on BTC in a centralized, tamper-proof, and fair manner. Atomicals uses sat, the smallest unit of Bitcoin, as the basic "atom". Each sat's UTXO is used to represent the token itself, 1 token = 1 sat. When verifying an Atomicals transaction, you only need to query the UTXO corresponding to sat on the BTC chain. Compared with BRC 20, ARC 20 transactions greatly reduce the demand for third-party sorters, greatly improving the decentralization of the entire system.

Rune & Pipe: The design of Rune may also be influenced by ARC 20, choosing to write token data directly in the UTXO script, which includes the token ID, output, and quantity. The implementation of Rune is very similar to ARC 20, and the token transfer is directly handed over to the BTC mainnet for processing. The difference is that Rune writes the token quantity in the script data, which makes it more accurate than ARC 20.

Taproot Assets (Taro): The popularity of BRC 20 prompted Lightning Labs to release Taproot Assets, which is also a protocol for issuing tokens on BTC. Unlike Brc 20, Taproot Assets only writes the token information in the UTXO output script of the BTC mainnet, and does not store the transfer, mint and other function codes of this token.

RGB: 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.

What impact does the hype of inscriptions have on Bitcoin?

For Bitcoin, the hype of inscriptions may profoundly change the development of Bitcoin. In the early days of Bitcoin development, Bitcoin used mining rewards to incentivize miners to maintain Bitcoin network security; in addition, with the development of Ethereum technology, more and more developers turned to Ethereum, and the development of Bitcoin ecosystem has been slow. However, with the continuous emergence of new inscription protocols, all this has begun to change.

According to Intotheblock, Bitcoin’s new adoption rate is currently at a yearly high of 67.62%. This metric shows the percentage of newly created active addresses, in this case indicating a surge in new market participants.

Observation from Glassnode data: Inscriptions have been an absolute net gain for Bitcoin since the beginning of 2023. Miners’ fee income is currently 25%, and transactions with fees around 50 sat/vByte dominate, indicating that users are clearly willing to pay a premium, all of which contributes to the Bitcoin security budget.

In addition, it is worth noting that the hype of Bitcoin Inscription Tokens seems to be replacing the previous Meme Tokens on the Ethereum chain. With the emergence of the wealth-creating effect, retail investors began to flock in to buy small amounts of BTC to participate. From the chart, we can see that small and medium-sized investors who hold less than one BTC have become the main force in Bitcoin purchases.

Summarize

In the short term, the hype of Inscription Tokens has boosted the prosperity of the Bitcoin ecosystem, making online transactions more active, and significantly increasing the handling fees of miners. The concerns about the loss of a large number of miners due to the reduction of Bitcoin rewards have been resolved, and the Bitcoin network security budget has been significantly increased. In addition, with the continuous influx of new Bitcoin protocols, many developers have begun to enter the Bitcoin ecosystem, and Bitcoin is expected to prosper further.

Bitcoin inscriptions are not without drawbacks. Currently, many Bitcoin inscription tokens have no practical value, and the hype attribute is relatively serious. Spam transactions clog the Bitcoin network, which in turn causes dissatisfaction among many Bitcoin fundamentalists. However, in the long run, as more Bitcoin functions are unlocked, new technologies such as expansion and Layer2 can solve the network congestion problem. It is not impossible to migrate some mature technologies that have been practiced in Ethereum. A new round of competition between Bitcoin and Ethereum may be beginning.

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【Disclaimer】The market is risky, so be cautious when investing. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Investing based on this information is at your own risk.