Bitcoin’s sustainability narrative
The industry has always regarded Bitcoin as "digital gold" and Ethereum as the "world computer". People's optimistic judgment on the long-term rise of Bitcoin prices mainly comes from "constant total amount", "value storage", and "cyclical production reduction".
Under this rule, the foreseeable future of Bitcoin is: the block reward is reduced to zero, and the on-chain transaction fee will become the only security budget of the Bitcoin blockchain. The block reward (i.e., Coinbase reward) is halved every four years and will eventually be reduced to zero. This is an established fact of the future that cannot be changed. At that time, the on-chain transaction fee of Bitcoin will be the only source of income that miners can currently think of.
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 in the security budget that Bitcoin will give to miners in the future. In contrast, the Ethereum ecosystem is vigorously promoting narratives such as NFT, Layer2, and DeFi. This is obviously not in line with the interests of the Bitcoin ecosystem.
Therefore, the industry has long been exploring the application of Bitcoin ecosystem, such as Lighting Network, Liquid Network, Stacks, etc. However, some limitations of Bitcoin itself restrict the expansion of its ecosystem.
Key turning point: Taproot upgrade including 3 BIPs
Taproot is an upgrade to the Bitcoin network. On November 14, 2021, Taproot was activated on the Bitcoin network with the approval of miners across the entire network. Taproot is hailed as the most important and most anticipated Bitcoin technology upgrade since Segregated Witness. The goal of Taproot is to change the way Bitcoin scripts operate to improve privacy, scalability, and security.
Specifically, the Taproot upgrade includes 3 BIPs:
1. BIP340 (Schnorr Signatures): Schnorr signatures facilitate a faster and more secure way to verify transactions on the Bitcoin network. It is able to use multiple keys in complex Bitcoin transactions and generate a unique signature. This means that the signatures of multiple parties involved in the transaction can be aggregated into one Schnorr signature, i.e. signature aggregation.
2. BIP341 (Taproot): Based on the SegWit upgrade, Taproot uses 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 Timelock Release and Multi-signature require multiple inputs and signatures to verify, which will add a lot of data to the blockchain and slow down the transaction speed. After the Taproot upgrade, because MAST is integrated, a single MAST transaction can represent multiple scripts, so a lot of scripts and verifications can be reduced. 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 required to be stored on the network. Taproot not only provides greater scalability and efficiency for the Bitcoin blockchain, but also provides greater privacy for Bitcoin users.
3. BIP342 (Tapscript): Tapscript is a coding language upgrade for Bitcoin scripts. It is a collection of Opcodes that specify how transaction instructions are executed. With more available space in the block, it is expected to provide greater flexibility for new features and may help the Bitcoin network support and create smart contracts in the future.
In summary, the Taproot upgrade helps Bitcoin open the path to deploying smart contracts. This upgrade provides a better foundation for the development of Bitcoin NFT, Bitcoin layer2, and DeFi within the Layer2 ecosystem.
Bitcoin NFT and BRC20
In fact, there is no Bitcoin Non-fungible Token Standard on BIP, nor is there a BRC-20 fungible Token Standard on BIP. (This is actually very different from Ethereum's ERC20 and ERC721. Ethereum's Token Standard proposal is in the EIP (Ethereum Improvement Proposal) and is in the Final state.)
Ordinals: The Narrative That Detonated Bitcoin NFT
The Ordinal protocol was launched on January 2, 2023 by Bitcoin developer Casey Rodarmor.
Ordinals is not the first protocol to try to create NFTs on Bitcoin. Before 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 to Taproot scripts.
You can Inscribe various types of NFTs on Ordinalwallet.com or Unisat.io, but the Bitcoin Network Fee is too high now. It currently costs about 10u to Inscribe some domain names and BRC20. The cost of Inscribe Files (pictures, videos, etc.) is very high.
As shown above, on Ordinalswallet.com, I spent about 264U to Inscribe Ordinals to Bitcoin for a 178kb image. Of course, this is mainly because the Bitcoin Network Fee exceeds 900,000 sats, and the cost of sats In Inscription is actually only 546 sats (about 0.15U).
Since the Inscription Content is stored in Taproot Script-path spend scripts, it is called entirely on-chain. Among them, Taproot scripts have few restrictions on the content of Inscription, and can also obtain additional witness discounts, making the storage of Inscription content relatively economical.
Bitcoin NFT has a significant advantage over Ethereum NFT: Bitcoin NFT is completely and permanently stored on the Bitcoin chain, while Ethereum NFT only stores its metadata on the Ethereum blockchain. The real content is actually Most are stored in third-party storage chains.
For example, the NFT Gh0stlyGh0st#2510can be queried through Etherscan, and it is actually stored on IPFS.
The location of the NFT Pixel Pepes#1480points to a Bitcoin Transaction HashID. You can find it through Mempool.space or other Bitcoin Explorers. It is a HashID in block height 782671.
The Ordinals protocol is a system for numbering Sat (Sat), giving each Sat a serial number and tracking them in transactions. Ordinals is very important to Bitcoin. The simplest way to understand it is that before the Ordinals protocol, people only paid attention to "the total amount of Bitcoin is 21 million"; with the Ordinals protocol, people's focus will gradually change to "the total amount of Bitcoin is 2100 trillion Satoshis". And users can attach additional data (images, videos, text, etc.) to the Bitcoin blockchain through Ordinals, making each Satoshi unique.
Even if users do not add additional data to Ordinals, Ordinals proposes the following different rarity levels based on the position of the satoshi in the blockchain: common (any satoshi except the first satoshi in a block), uncommon (the first satoshi in each block), rare (the first satoshi in each difficulty adjustment period), epic (the first satoshi after each halving), legendary (the first satoshi in each period), and mythic (the first satoshi in the genesis block).
So, even without adding additional data to Ordinals, the numbering of Satoshis itself gives each type of Satoshi a different status.
For example, the ordinal number of the first Satoshi Mythic in the Genesis block is as follows:
In addition to the different Ordinals (numbers) of Sat, you can also inscribe content (such as text, images, videos, etc.) on Sat to create more diversified Bitcoin NFTs. Inscription is done by sending the Sat to be inscribed to a transaction, which will display the content of the Inscription on the chain, which further makes the Sat an immutable digital artifact (NFT) that can be tracked, transferred, stored, bought, sold, lost and rediscovered.
Many Ordinals NFTs on the market now are actually imitating the development path of Ethereum NFTs, such as Ordinal Punks, Bitcoin Punks, etc. The barbaric development in the early stage led to the emergence of many NFTs on the Bitcoin chain that currently seem a bit "incomprehensible".
The picture above is Twelvefold, the Bitcoin NFT launched by Yuga Labs.
The entry of leading institutions in the industry such as Yuga Labs and Magic Eden has made the narrative of Bitcoin NFT known to the public. The trading volume of Ordinals NFT has begun to increase.
BRC-20: A new social financing experiment on Bitcoin
However, it is BRC-20 that really set off the market. After all, the most attractive thing about Crypto is "issuing coins". The key is that the way BRC-20 issues coins is very simple and crude, which is very consistent with the characteristics of Crypto - fair issuance, no token reservation, no VC holdings, no privileges or differences for initiators (deployers), everyone is equal, and can only be obtained through Mint.
BRC-20 is just a "Bitcoin Experimental Token Standard" created by Twitter user domodata on March 8, 2023. It uses Ordinal inscriptions of JSON data to create (Deploy) Toekn contracts, mint (Mint) tokens, and transfer (Transfer Tokens.
Token issuance based on BRC-20 mainly includes three functions: Deploy, Mint, and Transfer:
1. Use the Deploy function to create a BRC20
The Deploy content is as follows:
The creator can freely set Tick to a 4-letter identifier, regardless of size; at the same time, set the total amount and minimum mint limit parameters.
Of course, you can also use the inscribe product function of Unisat.io directly. Unisat has already productized the issuance of tokens based on the BRC20 standard. As shown below:
Deploy process creators only need to pay a small fee.
2. Use the Mint function to mint a certain amount of BRC20
Mint content is as follows:
The Mint function can also be used in Unisat.io's Inscribe, as shown below
Of course, before minting, it is best to check The Full List of BRC20 first, and select those BRC20 tokens that have not been 100% minted, but are about to be minted.
3. Use the Transfer function to transfer a certain amount of BRC20
The content of Transfer is as follows:
The Transfer function is actually a common token transfer function, which is the on-chain transfer of BRC20 Token. The validity of the Transfer must also comply with the rule of "the amount does 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 limited number of 1,000 each time.
After ORDI was deployed at 12:00 on March 8, 2023, 21 million ORDI Tokens were 100% minted in less than 18 hours.
As of now, ORDI has more than 7,600 holders, and the current market price is over 25U. Those who minted these ORDI BRC20 Tokens initially, if they have held them from mint to now, have earned more than 10,000 times the return in just two months. It is this "get rich quick effect" that quickly ignited the market's enthusiasm for investment in BRC20 and Bitcoin NFT.
The rise of BRC-20 and Ordinals NFT swept through this bear market like a storm, and the long-dormant market inexplicably fell into the Fomo of the ICO era. From everyone being able to issue coins based on Ethereum ERC-20 to everyone being able to issue coins based on BRC-20, and only needing to pay the Bitcoin network fee cost of Mint Token to get Token fairly.
The current status of Bitcoin Layer2 development
Compared with the popularity of Bitcoin NFT and BRC20, the development of Bitcoin Layer2 is slow and long-lasting, and a bit lukewarm.
Lightning Network: A fast payment solution in the form of State Channel
Lighting Network is an off-chain expansion solution that helps the Bitcoin network achieve fast payments in the form of State Channel. It aims to solve the slow transaction time and throughput of Bitcoin and was first proposed by Joseph Poon and Thaddeus Dryja in 2016.
The Lightning Network has developed to date with nearly 18,000 Nodes, running about 78,000 Chnnels, and more than 5,400 BTC in the Lightning Network Channels. Compared with WBTC, the development speed of the Lightning Network is not fast.
The most obvious disadvantage of off-chain expansion solutions for State Channels such as Lightning Network is that they may encounter Closed-Channel Fraud and Forced Expiration Malicious Attacks. To deal with the former type of risks, Lightning Network adopts the third-party monitoring solution of Watchtower. To deal with the latter type of attacks, because transactions that occur on Lightning Network Channels still need to be verified and settled on the Bitcoin network, at the same time There are many Channels that are closed at the same time, which is very likely to cause congestion on the Bitcoin network.
Thanks to the Taproot upgrade released on November 14, 2021, the Bitcoin network is now able to handle this problem more efficiently. The Taproot upgrade simplifies transaction processing. The Taproot upgrade batches multiple signatures and transactions together, making it easier and faster to verify transactions on the Bitcoin network, which can help expand the capacity of 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, which increased the time required for complex multi-signature transactions that required multiple inputs and signatures. Taproot supports signature aggregation, which means that multiple signatures can be batched together and verified.
Rootstock（RSK）：Layer2 solution in the form of side chain
Rootstock (RSK) is the scaling solution for Bitcoin. RSK is a sidechain connected to Bitcoin via 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 that RSK developers can code in Solidity, and users can add the RSK mainnet to Metamask, so they can also use the Metamask wallet to interact with DApps in the RSK ecosystem.
The RSK platform does not have its own native Gas token, but uses smartBTC (RBTC). RBTC is issued at a 1:1 ratio by locking BTC in the Bitcoin Vault to guarantee the value of RBTC on the RSK network.
Many applications have emerged in the RSK ecosystem. For example, in DeFi, there are protocols such as Sovryn, RSK Swap, and Tropykus, and in stablecoins, there are Dollar on Chain, BRX, and RSK DAI.
Stacks: Bitcoin layer2 with the best ecosystem development
Stacks is an open source network for decentralized applications and smart contracts based on Bitcoin, and is also considered Bitcoin's Layer 2. It brings smart contract functionality to Bitcoin without modifying Bitcoin itself, enabling smart contracts and decentralized applications to use Bitcoin as an asset without trust and settle transactions on the Bitcoin blockchain. Bitcoin is the base settlement layer, Stacks extends smart contracts and programmability, and then adds scalability and efficiency layers on top of it through Hiro's Subnet.
Stacks has a separate ledger to store data outside of Bitcoin Layer 1, and developers can build any application based on Stacks. Stacks uses a programming language called Clarity and Clarity VM, which has the ability to read the status 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 worth noting that Stacks will launch the Nakamoto version in the next stage. This version of Stacks will achieve higher performance and diversity through Subnets.
The basic architecture of Stacks will be as follows:
A single Subnet can support smart contracts in different programming languages and execution environments. Subnet 1 supports Clarity and Clarity VM, which brings security benefits; Sunnet 2 supports Solidity and EVM, which brings the benefits of easy integration and development... In short, there may be more changes worth looking forward to in the next stage of Stacks.
Currently, the Stacks ecosystem already has some ecological applications. For example:
1. Hiro Wallet: This is a mobile wallet developed based on Stacks. It supports the storage and management of Bitcoin and Stacks Token, as well as the access and interaction of dApps, and can provide users with a complete Stacks ecosystem experience.
2. Alex: Focuses on crypto asset trading and lending protocols with Bitcoin as the settlement layer and Stacks as the smart contract layer;
3. Ballot.gg: The Ballot is a decentralized voting application for DAO, NFT, DeFi and Web3 projects. It is mainly used to help projects in the Stacks community use tokens to manage the decision-making of their protocols.
……
Stacks is the Bitcoin Layer2 that has the most similar ecosystem to Ethereum Layer2. It has a thriving ecosystem of DApps, including DeFi, DAO, BTC Naming Service, and a complete NFT ecosystem.
Conclusion
The situation of BRC-20 and Ordinals NFT and the development of Bitcoin Layer2 are like two different worlds - the former is like the "currency circle" and the latter is like the "chain circle", and the atmosphere difference is quite large.
In the world of Crypto, we must put aside our arrogance and prejudice towards new things and keep learning.
Reference Documents:
https://github.com/bitcoin/bips/blob/master/bip-0340.mediawiki
https://github.com/bitcoin/bips/blob/master/bip-0341.mediawiki
https://github.com/bitcoin/bips/blob/master/bip-0342.mediawiki
