The Lightning Network launches the Taproot Assets mainnet, is Bitcoin ushering in the true BRC20 era?

Author: Haotian

Last night, Lightning Labs released the alpha version of Taproot Assets on the mainnet, which means that stablecoins and other assets can now be built on the Bitcoin network. These assets are entirely controlled by the programmable features of Bitcoin Script, fully decentralized, and ultimately applied through the Lightning Network. At first glance, it seems that Bitcoin has truly entered a BRC20 era?

So, what is the technical implementation logic of Taproot Assets? How does it differ from BRC20 on Ordinals? Will it bring another wave of new BRC20 token issuance frenzy? Next, let's try to objectively interpret this with questions in mind.

Technical Implementation Logic

In my previous article explaining BitVM, I introduced the limited but achievable programming capabilities of Bitcoin, which involve writing "simple code" in the Script of a Taproot address and treating it as a condition for UTXO spending.

In the asset issuance scenario of Taproot Assets, this simple operation code can be designated for rules such as total token issuance, issuance time, and issuance targets, and can connect to a set of multi-signature addresses to jointly trigger this operation code. Suppose user A generates a multi-signature address B and plans to issue 10,000 USDT to address C using address B; then address A can be considered the project owner of the USDT asset on Bitcoin, while address C is the first batch of USDT holders.

The successful issuance of the token requires a signature from address A to trigger it. After that, if address C wants to spread the asset to other addresses using transfer logic, it also needs to be triggered by a signature from address A. You might ask, if address C wants to distribute tokens to thousands of addresses, it can't just queue up waiting for address A's signature, right? Good question; the key lies here. Address C, as the receiving address for the asset, is typically issued on the Lightning Network, allowing efficient, low-cost, and high-frequency interactions between the two addresses that have established a bi-directional channel.

Originally, the Lightning Network only supported peer-to-peer scenarios, but the new Taproot Asset implements a point-to-multiple function, supporting the forwarding of a payment to multiple receiving addresses within a single transaction channel, with the script able to transfer assets to multiple addresses based on conditions. This allows the tokens issued to address C to be distributed to a large number of addresses via the Lightning Network, ultimately achieving decentralized ownership of the assets. This closed-loop technical implementation logic for issuing tokens on the Bitcoin network has been established.

Moreover, address C can utilize Lightning Network relay nodes to execute bookkeeping according to rules, and similar addresses can manage and distribute their assets through different relay nodes (for example, the owner can hand over their USDT tokens to 10 relay nodes for distribution, with each distributor acting as a CEX hot wallet address, which then manages secondary distribution and bookkeeping).

In this way, within this logic, the joint action of the owner, issuance condition addresses, receiving condition addresses, multi-signature trigger control, efficient and trustworthy distribution networks, and other necessary components gives rise to a decentralized asset issuance, management, and distribution bookkeeping system.

"True" vs "False" BRC20?

The Brc20 logic that appeared on Ordinals involves embedding a JSON data packet in the Script, defining asset circulation rules by writing parameters like Mint and Transfer in the packet, with the final interpretation rights determined by the third-party Ordinals protocol. Throughout this process, the Bitcoin network passively serves as a data memorandum, not participating in verification calculations, nor determining asset ownership disputes. There may even be bugs in handling transfer logic, with users becoming the main force behind asset minting and transferring, lacking project backing, empowerment, and liquidity.

In contrast, the discovery of multi-assets on Taproot Assets appears to be more advanced. There is a project owner, and the issuance and destruction of assets can be determined by the operation codes True or False in the Script. The subsequent circulation of assets is supported by the Lightning Network, which has credible technical grounding, and the Lightning Network itself is a high-frequency circulation application scenario. It cannot be said to be absolute, but compared to Ordinals, the multi-asset network supported by Taproot Assets seems to align more with the "new" token standard that geeks envision. (Note: This discussion only differentiates technical logic; speculative logic, scarcity, and profit-making effects in the market are not within the scope of this topic.)

New BRC20 Token Issuance Frenzy?

Perhaps at this moment, many people are starting to imagine that since true BRC20 tokens have arrived, theoretically, the previous prosperity on Ordinals could be replicated? Theoretically possible, but I personally believe that the systemic engineering of Taproot Assets is quite strong, and solidifying a complete project is not so easy due to its multi-signature system, issuance and transfer logic, especially the point-to-multiple ledger management and operation on the Lightning Network, which involves considerable costs and thresholds. Unlike Ordinals, where issuing a token only requires a single transaction, replicating the BRC20 boom is relatively challenging. On the contrary, the Lightning Network is inherently suitable for high-frequency consumption scenarios, so the best tokens to issue with Taproot Assets would be stablecoins like USDT and USDC.

Clearly, the Lightning Network team has also emphasized the notion of stablecoins. As for other project parties wanting to abandon the more advanced Ethereum EVM smart contracts and instead focus on deploying other tokens on Bitcoin, that is also possible, as long as the project parties are willing to do so and the market is willing to accept it; anything is possible. Following the inherent conditions of the Lightning Network payment scenario, I can only envision a vision where payment tokens are suitable for this, while those POS staking tokens should probably avoid such approaches, as they seem odd. (If applicable, various plays like DEX, lending, derivatives, etc., can also be realized, depending on whether anyone is willing to implement them at high costs.)

That's all.

To be honest, I prefer to describe Taproot Assets as the multi-asset era of Bitcoin. Comparing it to BRC20 is merely for convenience in understanding and highlighting its innovation. Whether the upcoming market will use Taproot Assets to initiate a new narrative remains to be seen, although it possesses such qualities and conditions. However, regardless of whether this Taproot Assets market is speculative or not, two anticipated visions are already quite clear:

1) Stablecoins like USDT will re-explore the Bitcoin network and become mainstream currencies within the Lightning Network application scenarios. Whether they can reclaim the position of the dominant stablecoin from TRON is worth looking forward to;

2) The proliferation of supporting wallet applications for the Lightning Network and offline consumption payment channels will see a new wave of growth, marking a turning point for the Lightning Network. Whether this will have an incentivizing effect on potential Nostr-related social platforms remains to be observed.

Note: The accompanying image shows the current global distribution of Lightning Network channels.