Preface
From the inscription craze at the beginning of the year to the current outbreak, the rapid development of the Bitcoin ecosystem and the growth of its value have attracted the attention of the market. During the market volatility, the performance of the BRC-20 sector has become the focus of investors, and the rise of Bitcoin inscription tokens has triggered a huge wealth effect. Although the surge in the number of inscriptions has been questioned by some people, it is undeniable that the enthusiasm of the market has also driven the recovery of the Bitcoin community and promoted the innovation of the Bitcoin ecosystem.
Market Background
Advances in key technologies
The launch of Segregated Witness in 2017 was a major event for the Bitcoin protocol, which upgraded Bitcoin to address scaling challenges and specific vulnerabilities. Its main goal was to solve the problem of transaction scalability and expand the Bitcoin block size to facilitate more transactions. Segregated Witness introduced the concept of block weight, breaking through the traditional block size limit, allowing the block to accommodate a maximum of approximately 2,700 transactions, a significant increase from the previous 1,650 transactions.
With the Taproot upgrade at the end of 2021, the Bitcoin ecosystem began to support more complex scripts and data types, making BTC programmable and scalable, which laid the foundation for the explosion of the Bitcoin ecosystem in 2023. The Taproot upgrade mainly includes changing the transaction confirmation method and introducing Schnorr signatures. The introduction of Schnorr signatures provides better privacy protection, especially in multi-signature wallets, which allows all private keys to be compiled together, making multi-signature transactions look the same as other transactions. In addition, Schnorr signatures support batch confirmation, making transactions across the entire network cheaper and faster.
ETFs are expected to be approved
While the native ecology of Bitcoin is booming, the external environment has also undergone earth-shaking changes. The proposal of Bitcoin spot ETF has laid the foundation for the compliance of Bitcoin. As early as June 29, 2021, ARK Invest, owned by Cathie Wood, submitted an application for Bitcoin ETF. The application was postponed several times and was finally rejected by the SEC in April 22. ARK was rejected again in early 23 and filed a third application for Bitcoin spot ETF in May. On June 15, 2023, according to people familiar with the matter, BlackRock, the largest asset management company, is about to submit an application for Bitcoin ETF. Subsequently, Fidelity, which ranks third in asset management scale, also joined the ranks of ETF applications. On September 12, the news that Franklin Templeton submitted an ETF application further stimulated the enthusiasm of the market, and Bitcoin also completed the last bottom construction.
Development of inscriptions
Source: Homemade pictures
Source: Homemade pictures
According to Dune data, as of November 23, 2023, the cumulative number of Ordinals transactions reached 43.27 million times, and the cumulative transaction fees were approximately 3,875.7 BTC.
Source: https://dune.com/cryptokoryo/brc20
Protocol Inventory
In the Ordinals protocol ecosystem, various tokens represented by BRC20 have brought significant wealth effects and driven the FOMO sentiment in the market. As time goes by, more protocols have come on the scene, including Atomicals, Taproot Assets, Runes, and BRC420. This trend shows that the Bitcoin ecosystem is moving towards a more diversified direction. What will be the trend of the hot developments emerging in the Bitcoin ecosystem? The following will take stock of the key protocols.
Ordinals and BRC20
Source: unisat.io
In January 2023, Bitcoin developer Casey Rodarmor released the Ordinals protocol, a Bitcoin-based asset issuance protocol consisting of two core components: Ordinals ordinal theory and Inscription.
Casey carries the content on UTXO in the following way:
The smallest unit of Bitcoin, 2,100 trillion satoshis, are assigned unique identifiers, which constitute the ordinal theory of the Ordinals protocol.
Inscription is the process of associating content with UTXO. The asset issuance process of the Ordinals protocol is similar to writing information into witness data and recording token information in JSON format using BRC20.
On March 8, 2023, anonymous developer Domo launched BRC-20 based on the Ordinals protocol, which is a Bitcoin ecosystem token issuance protocol similar to ERC-20. BRC-20 defines a specific format of JSON data and is engraved on the BTC chain through Ordinals. BRC-20 deployers can decide the total amount and name of the token on a first-come, first-served basis. $ORDI is the first BRC-20 token deployed by Domo. However, BRC-20 needs to rely on third-party indexes to record the ledger off the BTC chain, which adds additional workload to the system and becomes a weak point of the system.
Atomical and ARC20
Source: https://docs.atomicals.xyz/
Atomicals is a protocol built on the Bitcoin network, which aims to enable the creation, transfer and upgrade of various digital items on the Bitcoin network, including native digital NFTs, game NFTs, digital identities, domain names and social networks. At the same time, the protocol also supports the creation of exchangeable tokens, allowing the issuance and trading of tokens on the Bitcoin network.
The protocol uses the smallest unit of Bitcoin, Satoshi, as the basic unit of Token. Each Satoshi UTXO represents an independent Token, that is, 1 Token equals 1 Satoshi. By binding UTXO to Token, the Atomicals protocol successfully avoids the complexity of Ordinals off-chain indexing and improves the decentralization of the entire system.
However, Atomicals still faces some problems. One of the most notable problems is the introduction of Proof of Work (POW) in the casting process of ARC20 Token. The minter needs to run a full node of the Bitcoin network to participate in the casting. Although this ensures the fairness and decentralization of the casting, it also limits the participation of most people due to the high technical threshold. In addition, the imperfection of the underlying technology makes it easy for users to lose ARC20 Token when transferring Bitcoin.
Runes and Pipe
Runes was proposed by Casey Rodarmor, the founder of the Ordinals protocol, to solve the efficiency problems of BRC-20. Unlike the complexity of some protocols, Runes is designed to be simple and convenient. In transactions, Runes prompts to assign tokens to specific UTXOs with output indexes, token counts, and token IDs without the need for additional off-chain data or native tokens, thereby optimizing the use of on-chain data.
The concept of Runes was just a concept at first. The founder of Trac built the first usable protocol based on it and issued the PIPE token. Due to Casey's high popularity, PIPE has inherited the hype enthusiasm of BRC20. Although Runes is more orthodox than BRC20, it still faces certain challenges to gain recognition in the BTC community.
Bitmap and BRC420
Source: https://ordinalswallet.com/collection/bitmap
Bitmap is the first metaverse project in the Bitcoin ecosystem, and its foundation is built on ordinal theory and bitmap theory. Ordinal theory numbers the smallest unit of Bitcoin, Satoshi, emphasizing the scarcity of Satoshi, which can be used to carry data. Bitmap theory maps each transaction input in the Bitcoin block into a plot of land, forming a block or area. The specific size of the plot is determined by the size difference of different transaction inputs.
In Bitmap.land, the method of dividing land and drawing patterns on the map is adopted, which is similar to the logic of land purchase on these two platforms. Users write data into Satoshi through inscriptions to obtain ownership of specific Bitcoin blocks, which is similar to free coin minting.
The BRC-420 protocol is a Bitmap-based asset protocol that creates a variety of assets from small characters and pets to complete game scripts and virtual machines by combining multiple inscriptions into a complex asset. Due to its open source on-chain, these assets can be run or verified on any client.
Overall, the BRC-420 protocol and the related Bitmap project are stimulating innovation and vitality in the Bitcoin ecosystem. By creating complex, modular digital assets, BRC-420 is providing new interactive experiences for creators, developers, and users.
Taproot Assets and Nostr Assets
Source: https://doc.nostrassets.com/
Taproot Assets is a protocol launched by the well-known Lightning Labs, which aims to create and trade various digital assets on the Bitcoin network and integrate with the Lightning Network. The update of Taproot Assets expands the Lightning Network from a simple point-to-point payment channel to a point-to-multipoint mode, realizing the distribution and circulation of assets. The uniqueness of this protocol is that token information is recorded in the UTXO output script of the Bitcoin mainnet in the form of registration, while functions such as transfers are implemented in the Lightning channel. The biggest difference from BRC20 and ARC20 is that Taproot Assets are issued by one owner in advance and then distributed, rather than distributed fairly.
NostrAssets is an open source protocol that introduces Taproot assets and satoshis into the Nostr ecosystem. Users can use the public and private keys of the Nostr protocol layer to send and receive assets. The settlement and security of assets rely on the Lightning Network, and the Nostr Asset Protocol itself does not issue assets, but only introduces assets to Nostr through the protocol.
NostrAssets features include seamless integration of Taproot assets and Bitcoin into the Nostr ecosystem, providing developers with tools to create innovative products, enriching the value of the Bitcoin and Lightning Network ecosystems, and enabling a seamless experience from chat to transaction.
The above is a brief introduction to Bitcoin-related protocols. In addition, there are RGB protocols, BRC100, etc. With the popularity of BRC20, the inscription craze has also been transmitted to other public chains, such as dogim on Doge, pols on Polygon, sols on Solana, etc.
Summarize
From the inscription craze at the beginning of the year to the current resurgence of the inscription track, the rapid development of the inscription track has demonstrated the huge vitality and potential of the Bitcoin ecosystem. In the future, more creative projects and protocols will emerge to further enrich the ecology of Bitcoin and other public chains. However, the inscription track is still in the exploratory stage and needs further development and improvement.
Author: Snow
Translator: Piper
Article review: KOWEI, Piccolo, Elisa, Ashley He, Joyce
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