Narrative Innovation: A Brief Analysis of Recent Bitcoin Ecological Experiments
The situation of BRC-20 and Ordinals NFTs is like two different worlds compared to the development of Bitcoin Layer 2— the former resembles the "crypto circle," while the latter resembles the "chain circle," with quite a difference in atmosphere.Author: 0xCousin, IOBC Capital
The Sustainability Narrative of Bitcoin
In the industry, Bitcoin has always been viewed as "digital gold," while Ethereum is seen as the "world computer." The optimistic judgment regarding the long-term price increase of Bitcoin mainly stems from "fixed supply," "store of value," and "periodic halving."
Under this rule, the foreseeable future for Bitcoin is: block rewards will eventually decrease to zero, and on-chain transaction fees will become the only security budget for the Bitcoin blockchain. Block rewards (i.e., Coinbase rewards) are halved every four years and will ultimately reduce to zero, which is an unchangeable future fact. By then, the on-chain transaction fees for Bitcoin will be the only source of income that miners can currently conceive.
However, under the current narrative of Bitcoin as digital gold, on-chain transactions are not very frequent. This means that there is not much room for imagination regarding the security budget that Bitcoin will provide to miners in the future. In contrast, the Ethereum ecosystem is vigorously promoting narratives such as NFTs, Layer 2, and DeFi. This clearly does not align with the interests of the Bitcoin ecosystem.
Thus, there have been early explorations around Bitcoin ecosystem applications in the industry, such as the Lightning Network, Liquid Network, and Stacks. However, some limitations of Bitcoin itself have restricted the expansion of its ecosystem.
Key Turning Point: The Taproot Upgrade with 3 BIPs
Taproot is an upgrade to the Bitcoin network that was activated on November 14, 2021, with the approval of miners across the network. Taproot is hailed as the most important and anticipated technological upgrade for Bitcoin since SegWit. The goal of Taproot is to change the way Bitcoin scripts operate to enhance privacy, scalability, and security.
Specifically, the Taproot upgrade includes 3 BIPs:
BIP340 (Schnorr Signatures): Schnorr signatures facilitate a faster and more secure way to verify transactions on the Bitcoin network. It allows for the use of multiple keys in complex Bitcoin transactions and generates a unique signature. This means that multi-signatures involved in transactions can be aggregated into a single Schnorr signature, known as signature aggregation.
BIP341 (Taproot): Building on the SegWit upgrade, Taproot uses the Merkelized Alternative Script Tree (MAST) to expand the amount of transaction data on the Bitcoin blockchain. Without the Taproot upgrade, complex multi-signature transactions such as time lock releases and multi-signatures would require multiple inputs and signatures to verify, adding a significant amount of data to the blockchain and slowing down transaction speeds.
After the Taproot upgrade, because MAST is integrated, a single MAST transaction can represent multiple scripts, significantly reducing the number of scripts and verifications required. Moreover, MAST only needs to submit the execution conditions of the transaction to the blockchain, rather than the complete details, which greatly reduces the amount of data that needs to be stored on the network. Taproot not only provides greater scalability and higher efficiency for the Bitcoin blockchain but also offers greater privacy for Bitcoin users.
- BIP342 (Tapscript): Tapscript is an upgrade to the scripting language of Bitcoin. It is a collection of Opcodes used to specify how transaction instructions are executed. With more available space in blocks, it is expected to provide greater flexibility for new functionalities and potentially help the Bitcoin network support and create smart contracts in the future.
In summary, the Taproot upgrade helps Bitcoin pave the way for deploying smart contracts, providing a better foundation for the development of Bitcoin NFTs, Bitcoin Layer 2, and DeFi within the Layer 2 ecosystem.
Bitcoin NFT and BRC20
Currently, there is no Bitcoin Non-fungible Token Standard that has been approved as a BIP, nor is there a BRC-20 fungible Token Standard that has been approved as a BIP. (This is quite different from Ethereum's ERC20 and ERC721, as Ethereum's Token Standard proposals are in the EIP (Ethereum Improvement Proposal) and are in a Final state.)
Ordinals: Igniting the Bitcoin NFT Narrative
The Ordinals protocol was launched by Bitcoin developer Casey Rodarmor on January 2, 2023.
Ordinals is not the first protocol to attempt to create NFTs on Bitcoin. Prior to this, the Omni protocol used the OP_RETURN instruction in Bitcoin transactions to store metadata and record transaction data, while Ordinals introduced NFTs to Bitcoin by adding Inscription Content in Taproot scripts.
You can Inscribe various types of NFTs on Ordinalwallet.com or Unisat.io, but currently, the Bitcoin Network Fee is too high. Inscribing some domain names and BRC20 is manageable at around 10 USD, but the cost of Inscribing files (images, videos, etc.) is very high.
As shown in the image, on Ordinalswallet.com, I spent about 264 USD to Inscribe Ordinals to Bitcoin for a 178kb image, primarily because the Bitcoin Network Fee exceeded 900,000 sats, while the fee for Inscription itself was only 546 sats (approximately 0.15 USD).
Since Inscription Content is stored in Taproot Script-path spend scripts, it is referred to as entirely on-chain. Among them, Taproot scripts impose very few restrictions on the content of Inscription and can also gain additional witness discounts, making the storage of Inscription content relatively economical.
A significant advantage of Bitcoin NFTs compared to Ethereum NFTs is that Bitcoin NFTs are completely permanently stored on the Bitcoin chain, while Ethereum NFTs only store their metadata on the Ethereum blockchain, with the actual content mostly stored on third-party storage chains.
For example, the NFT Gh0stlyGh0st #2510 can be queried through Etherscan, and it is actually stored on IPFS.
In contrast, the NFT Pixel Pepes #1480 points to a Bitcoin Transaction HashID. It can be queried through Mempool.space or other Bitcoin Explorers, and it is a HashID in block height 782671.
The Ordinals protocol is a system for numbering satoshis (sats), assigning a serial number to each sat, and tracking them in transactions. The significance of Ordinals for Bitcoin is profound. Simply put, before the emergence of the Ordinals protocol, people only focused on "the total supply of Bitcoin is 21 million"; with the Ordinals protocol, the focus gradually shifts to "the total supply of Bitcoin is 21 trillion sats." Moreover, users can attach additional data (images, videos, text, etc.) to the Bitcoin blockchain through Ordinals, making each sat unique.
Even if users do not add extra data to Ordinals, the protocol proposes several different rarity classifications based on the position of the sat in the blockchain: common (any sat except the first sat of the block), uncommon (the first sat of each block), rare (the first sat of each difficulty adjustment period), epic (the first sat after each halving), legendary (the first sat of each cycle), and mythic (the first sat of the genesis block).
Thus, even without adding extra data to Ordinals, the numbering of sats itself has already conferred different statuses on each type of sat.
For instance, the ordinal representation of the first sat of the genesis block, Mythic, is shown in the image below:
In addition to the different Ordinals (numbers) of sats, content (such as text, images, videos, etc.) can also be inscribed on sats to create more diverse Bitcoin NFTs. Inscription is completed by sending the sat to be inscribed into a transaction, which will display the content of the Inscription on-chain, further turning this sat into an immutable digital artifact (NFT) that can be tracked, transferred, stored, bought, sold, lost, and rediscovered.
Currently, many Ordinals NFTs on the market are actually mimicking the development path of Ethereum NFTs, such as Ordinal Punks, Bitcoin Punks, etc. The initial wild growth has led to many NFTs on the Bitcoin chain that seem a bit "incomprehensible" now.
The image above is the Bitcoin NFT launched by Yuga Labs------Twelvefold.
The entry of leading industry institutions like Yuga Labs and Magic Eden has made the narrative of Bitcoin NFTs start to gain recognition. The trading volume of Ordinals NFTs has begun to increase.
BRC-20: A New Type of Social Financing Experiment on Bitcoin
However, what truly ignited the market was BRC-20. After all the twists and turns, what attracts people to crypto the most is still "issuing tokens." The key is that the method of issuing BRC-20 tokens is very simple and straightforward, perfectly aligning with the characteristics of crypto------fair issuance, no token reservations, no VC holdings, and the initiators (deployers) have no privileges or distinctions; everyone is equal and can only obtain tokens through minting.
BRC-20 is an "experimental token standard for Bitcoin" created by Twitter user @domodata on March 8, 2023. It utilizes JSON data's Ordinal inscriptions to create (deploy) token contracts, mint (mint) tokens, and transfer (transfer tokens).
The issuance of tokens based on BRC-20 mainly includes three functions: Deploy, Mint, and Transfer:
- Use the Deploy function to create a BRC20
The Deploy content is as follows:
Creators can freely set the Tick as a four-letter identifier, regardless of case; they can also set the total supply and minimum mint limit parameters.
Of course, you can also directly use the inscribe product function on Unisat.io. Unisat has already productized the issuance of tokens based on the BRC20 standard. As shown in the image:
During the Deploy process, the creator only needs to pay a small fee.
- Use the Mint function to mint a certain quantity of BRC20
The Mint content is as follows:
You can also use the Mint function on Unisat.io's Inscribe, as shown in the image
Of course, before minting, it is best to check The Full List of BRC20 to select those BRC20 tokens that have not yet been 100% minted but are close to being minted out.
- Use the Transfer function to transfer a certain quantity of BRC20
The Transfer content is as follows:
The Transfer function is essentially a common token transfer function, which is the on-chain transfer of BRC20 tokens. The validity of the Transfer also follows the rule of "the quantity must not exceed the available balance."
Subscribing and selling BRC20 tokens on the Marketplace essentially calls the Transfer function.
ORDI: The First BRC20 Token
ORDI is the first BRC20 token, with a total supply of 21 million, and a mint limit of 1000 at a time.
After ORDI was deployed on March 8, 2023, at 12:00, all 21 million ORDI tokens were 100% minted in less than 18 hours.
As of now, ORDI has over 7600 holders, and the current market price exceeds 25 USD. Those who initially minted these ORDI BRC20 tokens and have held them since minting have achieved over 10,000 times returns in just two months. It is this "get-rich-quick effect" that has rapidly ignited the market's investment enthusiasm for BRC20 and Bitcoin NFTs.
The surge in BRC-20 and Ordinals NFT prices has swept through this bear market like a storm, inexplicably plunging the long-silent market into the FOMO of the ICO era. From everyone being able to issue tokens based on Ethereum ERC-20 to everyone being able to issue tokens based on BRC-20, and all it takes is to pay the Bitcoin network fee for minting tokens fairly.
Current Development Status of Bitcoin Layer 2
Compared to the popularity of Bitcoin NFTs and BRC20, the development of Bitcoin Layer 2 has been slow and steady, somewhat lukewarm.
Lightning Network: A Fast Payment Solution in the Form of State Channels
The Lightning Network is an off-chain scaling solution that helps the Bitcoin network achieve fast payments in the form of state channels. It aims to solve Bitcoin's slow transaction times and throughput, first proposed by Joseph Poon and Thaddeus Dryja in 2016.
As of now, the Lightning Network has nearly 18,000 nodes, operating about 78,000 channels, with over 5400 BTC in Lightning Network channels. Compared to WBTC, the development speed of the Lightning Network is not particularly fast.
The most significant drawback of off-chain scaling solutions like the Lightning Network's state channels is the potential for Closed-Channel Fraud and Forced Expiration Malicious Attacks. To address the former risk, the Lightning Network employs a third-party monitoring solution called Watchtower, while for the latter type of attack, since transactions occurring on Lightning Network channels still need to be verified and settled on the Bitcoin network, if many channels close simultaneously, it can lead to congestion on the Bitcoin network.
Benefiting from the Taproot upgrade released on November 14, 2021, the Bitcoin network can now handle this issue more effectively. The Taproot upgrade simplifies transaction processing by batching multiple signatures and transactions together, making it easier and faster to verify transactions on the Bitcoin network, which can help scale the Bitcoin network.
Before the implementation of Taproot, transaction verification on the Bitcoin network was slow because each digital signature needed to be verified against the public key, increasing the time required for complex multi-signature transactions that required multiple inputs and signatures. Taproot supports signature aggregation, meaning multiple signatures can be batched together for verification.
Rootstock (RSK): A Layer 2 Solution in the Form of Side Chains
Rootstock (RSK) is a scaling solution for Bitcoin. RSK is a side chain connected to Bitcoin through a two-way bridge.
Rootstock has an RSK Virtual Machine (RVM). This is an EVM-based RVM that allows Ethereum smart contracts to be executed on Rootstock. This means RSK developers can code using Solidity, and users can add the RSK mainnet to Metamask, allowing them to interact with DApps in the RSK ecosystem using the Metamask wallet.
The RSK platform does not have its own native gas token; it uses smartBTC (RBTC). RBTC is issued at a 1:1 ratio by locking BTC in a vault, ensuring the value of RBTC in the RSK network.
Several applications have already emerged within the RSK ecosystem. For example, in DeFi, there are protocols like Sovryn, RSK Swap, and Tropykus, and in stablecoins, there are Dollar on Chain, BRX, and RSK DAI.
Stacks: The Best Developed Bitcoin Layer 2 Ecosystem
Stacks is an open-source network for decentralized applications and smart contracts based on Bitcoin, also considered a Layer 2 for Bitcoin. It brings smart contract functionality to Bitcoin without modifying Bitcoin itself, allowing smart contracts and decentralized applications to use Bitcoin as an asset and settle transactions on the Bitcoin blockchain without trust.
Bitcoin serves as the base settlement layer, while Stacks extends smart contracts and programmability, and then adds a layer of scalability and efficiency through Hiro's Subnet.
Stacks has a separate ledger to store data outside of Bitcoin Layer 1, allowing developers to build any application based on Stacks.
Stacks uses a programming language called Clarity and Clarity VM, which has the capability to read the state of the Bitcoin network. Due to Stacks' PoX mechanism, each Stacks block is connected to a Bitcoin block, and the Bitcoin block header hash can be queried using the get-burn-block-info function.
It is noteworthy that the next phase of Stacks will launch the Nakamoto version, which will achieve higher performance and diversity through Subnets.
The basic architecture of Stacks at that time will be as shown in the image below:
A single Subnet can support smart contracts in different programming languages and execution environments. Subnet 1 supports Clarity and Clarity VM, bringing security benefits; Subnet 2 supports Solidity and EVM, offering ease of integration and development benefits… In summary, the next phase of Stacks may bring even more exciting changes.
Currently, the Stacks ecosystem already has some applications. For example:
Hiro Wallet: A mobile wallet developed based on Stacks that supports the storage and management of Bitcoin and Stacks tokens, as well as access and interaction with dApps, providing users with a complete Stacks ecosystem experience.
Alex: A trading and lending protocol focusing on Bitcoin as the settlement layer and Stacks as the smart contract layer.
Ballot.gg: The Ballot is a decentralized voting application for DAO, NFT, DeFi, and Web3 projects, primarily used to help projects in the Stacks community manage their protocol decisions using tokens.
…
Stacks is currently the Bitcoin Layer 2 with the ecosystem development most similar to Ethereum Layer 2. The ecosystem has a thriving array of DApps covering DeFi, DAO, BTC Naming Service, and a complete NFT ecosystem.
Conclusion
The situation of BRC-20 and Ordinals NFTs compared to the development of Bitcoin Layer 2 seems like two different worlds------the former resembles the "coin circle," while the latter resembles the "chain circle," with significant differences in atmosphere.
In the world of crypto, we must let go of our arrogance and prejudice towards new things and maintain a spirit of learning.
