Author: @YBBCapital Researcher Ac-Core
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Objective
2023 is an important year for the BTC ecosystem to reach a new peak, and against the backdrop of huge challenges facing both digital assets and traditional markets, towards the end of the year, BTC related ecosystems have ushered in a revival after slumber. Although the explosion of inscriptions has made some people remain opposed, it is undeniable that the market enthusiasm has also brought the return of the “builder culture” to the BTC, and this development momentum has promoted the BTC wave of innovation, and the most out-of-the-circle is to pull the market’s enthusiasm for inscriptions to other public chains. This article will discuss the current development direction of the BTC ecosystem, and only provides an overview of the current ecosystem BTC, and does not contain any investment advice.
BTC Market Hotspot Protocol
In Q1 2023 BTC asset issuance agreements have experienced rapid development, and the market has shown a booming scene after a year to Q4. Especially in the Ordinals protocol ecosystem, a variety of tokens represented by BRC20 have triggered an obvious wealth effect and stimulated the FOMO sentiment of the market, even if it is only a JSON script file added to the BTC blockchain, but it has still been convinced by the market. Over time, more compelling protocols have emerged, including Ordinals, Atomicals, Taproot Assets, Runes, and PIPE. This trend is a clear indication that the BTC ecosystem is moving towards greater diversification and innovation, with a wide range of asset issuance agreements offering a wider range of options and opportunities for growth.
Ordinals Protocol (BRC-20)
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Source: Hiro
In January 2023, BTC developer Casey Rodarmor released the Ordinals Protocol, a BTC-based asset offering protocol with two core components: Ordinals Ordinal Number Theory and Inion Inscription. Casey, the author of the Ordinals protocol, carries the content on the UTXO by means of an inscription, and the ordinal number is the smallest unit of BTC — 2,100 trillion Satoshi are assigned unique identifiers. Inscription, on the other hand, is the process of associating content with unspent transaction output (UTXO). The asset issuance process of the Ordinals protocol is like writing the information into the witness data, and the token information is written in JSON format in the form of BRC20.
BRC-20 Token
BRC-20 is an experimental token standard created by Domo on March 8, 2023, BTC core concept is to leverage JSON data from Ordinal Inions. Through the BRC-20 standard, users can easily implement key functions such as the creation of Token contracts (Deploy), the minting of Tokens (Mint), and the transfer of Tokens. Statistics as of December 18, 2023 show that the total market capitalization of the BRC-20 track has reached $640 million, highlighting the importance of this token standard in the BTC ecosystem, opening up new possibilities for the development of digital assets.
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BRC-20 trading volume data source: GeniiData
BRC-100
BRC-100 is a BTC DeFi protocol built based on Ordinals, in addition to its own token attributes, BRC-100 is also an application protocol, and developers can also design DeFi and other application products based on the BRC-100 protocol. According to developer MikaelBTC, BRC-100 introduces protocol inheritance, application nesting, state machine model, and decentralized governance, bringing computing power to BTC blockchains, making it possible to build BTC native decentralized applications such as AMM DEXs and lending.
Ordinals NFT
Software engineer Casey Rodarmor has launched the Ordinals NFT protocol on the BTC blockchain, which is officially live. Users can now create and own their own NFTs on the smallest unit of BTC, the Satoshi (Sat), using a random but logical ordering system that makes each Satoshi unique. According to reports, Ordinals NFT is mainly different from ETH Fang NFT in the following three points:
● Relevant data is stored in the BTC network, and does not rely on external storage such as FIL and AWS S3;
● Permissionless: Transactions can be done in a decentralized manner through PSBT without the need for “authorization”;
● The cost of its minting is directly proportional to the trading volume.
BRC-420
According to RCSV’s official Gitbook, BRC-420 focuses on modularizing on-chain inscriptions, including two key parts: metaverse standards and royalty standards, defining an open and flexible format for assets in the metaverse and setting specific on-chain protocols for the creator economy, respectively. Unlike other Ordinals protocols, which are all single inscriptions, the BRC-420 protocol employs a recursive combination of multiple inscriptions.
Atomicals Protocol (ARC-20)
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Source: Atomicals Guidebook
Atomicals, also known as the Atomic Protocol, cover a variety of asset types, including the fungible token ARC20 standard, NFTs, Realm, and Collection Containers. As a UTXO-based blockchain asset issuance protocol, Atomicals offers two minting methods, namely decentralized minting and direct minting. The decentralized minting method introduced Bitwork Mining, which is a minting method based on the PoW (Proof-of-Work) model. The agreement will BTC the smallest unit of the Assets, Satoshi, as the minimum unit of the Issued Assets, with a current ATOM of 546 Minimum Splittable Units and a minimum of 546 ATOM for sale or transfer.
The Atomicals protocol differs from Ordinals in that it does not rely on third-party sequencers and can be used to create, transfer, and upgrade a variety of digital items, including native NFTs, games, digital identities, domain names, and social networks. In addition, the protocol supports the creation of fungible tokens with the token name ATOM (unlike Cosmos’ ATOM, only the name is the same).
Recently, founder Arthur shared his thoughts on Meta-Protocols in an interview on December 13. He argues that meta-protocols are a completely new approach that allows developers to create their own data structures and rules without being limited to using strict structures that already exist. Protocols that represent meta-protocols, such as Atomicals Protocol, are emerging, providing developers with the opportunity to create entirely new structures using smart contracts. This trend is enabling creators to focus more on Atomicals Virtual Machines (AVMs). The launch of the virtual machine enables developers to build smart contract programs on BTC networks, giving them unprecedented ways to create experiences. This means that creators can focus more on implementing smart contracts in the BTC ecosystem and driving the process of digital innovation.
Atomicals Asset Class:
ARC20: is a token format standard similar to BRC20 on Ordinals;
● Realm: A new concept proposed by Atomicals, which aims to disrupt traditional domain names, will be used as a prefix;
Collection Containers: This is a data type used to define NFT Collections, primarily for storing readable NFTs and associated metadata. According to the data on December 20, the total market value of TOOTHY, which is currently in the first place in terms of market capitalization, is 46.12 BTC, and the 7-day trading volume is 25.74 BTC.
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Source: Atomical Market
ARC-20 AVM
On December 13, Arthur, founder of Atomicals, said in an interview that meta-protocols are a new way for developers to create their own data structures and rules, without being constrained by existing strict structures. Metaprotocols such as Atomicals Protocol are popping up, enabling developers to create entirely new structures using smart contracts. This allows creators to focus on the Atomicals Virtual Machine (AVM), which enables developers to build smart contract programs on BTC networks.
Runes Protocol (Runes)
Runes was proposed by Casey Rodarmor, the creator of the Ordinals protocol, and was designed to solve the efficiency problems that existed with the BRC-20. Unlike the complexity of some protocols, Runes has a clean and elegant design. By using OP_RETURN in transactions, Runes causes tokens to be allocated to a specific UTXO, with an output index, number of tokens, and token ID.
Runes Protocol is a Fungible Token protocol based on the BTC UTXO model, which is managed and transferred through simple tuples (ID, OUTPUT, AMOUNT) and OP_RETURN operations. Its main feature is the simplicity of the protocol, which can support some operations without additional off-chain data or native tokens, and optimizes the use of on-chain data.
The Runes protocol was proposed due to Casey, the developer of the Ordinals protocol, who was dissatisfied with BRC20’s use of the Ordinals protocol to create a large number of UTXOs, so he proposed a fungible token protocol based on the BTC UTXO model. For now, Runes Protocol is still an idea for Casey and does not yet have a full client and development tools, although it is controversial in some areas.
PIPE PROTOCOL
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Source: Trac Official
The PIPE protocol is an asset distribution protocol developed by developer Benny after being inspired by the Runes protocol designed by Casey and the Ordinals-based BRC-20 standard proposed by Domo. The PIPE protocol cleverly integrates the characteristics of the Runes protocol and these two protocol standards, and has launched three protocols in the BTC ecosystem: Trac Core, Tap, and Pipe (TTP, collectively referred to as Tracs).
The main functions of the PIPE protocol include Deploy, Mint, and Transfer, abbreviated as DMT. These features make it easy to create, distribute, and transfer PIPE protocol assets within BTC networks. In addition to supporting fungible tokens, the PIPE protocol also provides a complete NFT data structure and standard.
Trac Core: BTC oracles and decentralized indexers for inscriptions;
● Tap: It is an extension of the Ordinals protocol rather than a fork, so it is seamlessly compatible with BRC20;
● Pipe: It is a new protocol forked by Ordinals, but the actual process needs to recast liquidity;
● Trac token: deployed in the Ordinals-BRC20 protocol and later used as the governance token of the Tap protocol;
● TAP Tokens: Deployed on the Ordinals-Tap protocol.
Stamps（SRC-20)
On December 6, BTC core developer Luke Dashjr revealed on social media that Inions is exploiting a vulnerability in the BTC core client, Bitcoin Core, to send spam messages to the blockchain. This vulnerability allows users to set an additional data size limit for transactions when forwarding or mining, and the inscription bypasses this limit by disguising its data as program code. Dashjr says it will fix the vulnerability when v27 is released next year. However, he later responded to questions about Ordinals by stating that the inscription itself did not exist and was a hoax.
This remark poured a basin of “cold water” on the Ordinals ecosystem, causing the BRC-20 token price to fluctuate wildly, ORDI the price fell by more than 25% in a single day. Critics of Dashjr argue that BTC network belongs to the community, and developers do not have the right to decide the fate of the Ordinals protocol according to their personal preferences. Even if Dashjr completes the update to the BTC program, as long as the miners do not adopt the updated program, the entire BTC network will not be able to complete the upgrade.
While the controversy over the inscription has not yet been finalized, the turmoil has sparked reflection on Ordinals and the nature of blockchain, as well as drawing attention to another token standard, SRC-20, and the Bitcoin Stamps protocol. The Ordinals protocol is a derivative protocol that uses BTC UTXO as a data storage medium to store arbitrary data through BTC OP_RETURN functions. The protocol results in larger BTC blocks, which brings centralization risks and increases the cost of running the network. The Bitcoin Stamps protocol, created by Mike In Space, is based on the Counterparty (XCP) protocol and is the first NFT token protocol standard on the BTC chain. Stamps encodes image data into Base64 strings and stores them in BTC UTXOs, which are more reliable than Ordinals and cannot be permanently removed from the BTC public ledger.
The controversy has sparked thought about Ordinals and the nature of blockchain, and has raised concerns about the SRC-20 standard and the Bitcoin Stamps protocol. The SRC-20 is similar to the BRC-20, but avoids the controversy that the Ordinals bring. Bitcoin Stamps uses the method of writing image data directly to the BTC UTXO, emphasizing the reliability of the data and the fact that it cannot be removed.
Expansion of Turing Completeness:
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Alan Turing
The graph machine is an abstract computing model proposed by Alan Turing in 1936 to define the concept of computability. Turing completeness is a concept related to computational theory, which refers to whether a computational system can simulate the computational process of any Turing machine, and the emphasis is that if a computational system is Turing-complete, then it has the ability to perform any Turing machine computational process. It is worth noting that BTC blockchain itself does not have Turing completeness, and in the impossible triangle of blockchains, decentralization and security are achieved by completely abandoning scalability. Therefore, this design choice helps to prevent malicious code from running on the BTC network, thus ensuring the security and stability of the network.
BitVM
On October 9th, Robin Linus, the lead of the ZeroSync project BTC, published a white paper titled “BitVM: Compute Anything On Bitcoin”, which sparked thoughts on improving the programmability of BTC. It proposes a BTC contract solution that can achieve Turing completeness without changing the consensus of the BTC network, so that any computable function can be verified on the BTC, allowing developers to run complex contracts on BTC without changing BTC basic rules.
BitVM is a new Optimistic Rollup + Fraudproof + Taproot Leaf + Bitcoin computing paradigm. It is an abbreviation for “BTC Virtual Machine Bitcoin Virtual Machine”. Allows developers to simulate program behavior without imposing any load or changes to the actual BTC network. BitVM uses its unique approach to this extension, which mainly includes the following roles:
Provers and verifiers: The former will use the information entered by a system to create a proof, and the latter will verify the calculation result of the proof, but cannot know the specific content of the information, so as to ensure the accuracy of the calculation result;
● Off-chain computation and on-chain proof: Without changing the BTC consensus, BitVM will undoubtedly need to move a large amount of computation and scaling off-chain to improve flexibility.
Rgb
RGB is the LNP/BP Standards Association (Lightning Network Protocol / Bitcoin Protocol: BTC Protocol / Lightning Network Protocol), a non-profit organization that oversees the development of all layers of the BTC, covering BTC protocols, the Lightning Network protocol, and smart contracts such as RGB. The RGB protocol is suitable for scalable and privacy-preserving BTC and LN smart contract systems, with the aim of introducing complex smart contracts into the BTC ecosystem by running complex smart contracts on UTXOs. The official note is: a scalable and confidential suite of smart contract protocols for BTC and the Lightning Network, which can be used to issue and transfer assets and rights more generally.
Layer 2 Extension Scheme:
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Source: Bitcoin Layer 2: Your Complete Guide
Stacks
Stacks is a BTC Layer 2 that uses smart contracts and aims to link itself to BTC chain through its unique “Proof of Transfer” consensus mechanism, Proof of Transfer (PoX), which is highly decentralized and scalable without adding additional environmental impact. Originally named Blockstack, Stacks is an open-source, BTC layer-2 blockchain that brings smart contracts and decentralized applications to the BTC, and the groundwork began back in 2013. Stacks’ technical architecture includes a core layer and subnets, between which developers and users can choose between, with the difference being that mainnets are highly decentralized but have low throughput, while subnets are less decentralized but have higher throughput. Stacks’ Nakamoto upgrade will improve network performance across the board and introduce an important product, SBTC.
● Stacks has updated the version called Nakamoto, which allows Stacks to not only settle BTC transactions, but also upgrade to 100% BTC reorganization resistance, and increase the speed of the stack, so that the block time is estimated to be 5 seconds;
● SBTC introduced decentralized and native anchoring methods to increase the total value locked (TVL) and the number of users on the Stacks network, through the issuance of SBTC-based stablecoins.
Lightning Network
The Lightning Network is a Layer 2 scaling solution for BTC networks that aims to solve the scalability and transaction speed problems of BTC networks. It is a smart contract-based payment protocol that allows participants to make fast, low-cost micropayments without having to record every transaction on the BTC blockchain.
In the Lightning Network, participants can open a multi-signature payment channel, which enables near-instant payments by making transactions directly within the channel and avoids the need to make each transaction on the BTC main chain. The actual settlement with the BTC main chain will only occur when the channel is opened and closed. This allows the Lightning Network to dramatically increase the processing power of the BTC network, reduce transaction fees, and speed up transaction confirmations.
The Lightning Network uses a method similar to that used in the network to pass payments from one node to another through multiple payment channels, thus forming a payment network that covers the entire network. This design allows participants to make cross-node and cross-channel payments through the link, thus achieving a high degree of interconnection. Its core features include:
● Issuance of stablecoins: To provide users with stablecoins in the borderless financial world with the help of BTC’s own value, such as using it to create a new stablecoin taUSD, and using a single Bitcoin transaction to transfer BTC and taUSD to the Lightning Network channel for DeFi operations;
● Multiple Universe Mode: Universes are repositories that hold all the information needed for the Taproot Asset wallet to initialize and synchronize a specific Taproot Asset state;
● Asset Issuance and Redemption API: Users can trade various assets on the BTC as easily as investing in stocks and bonds in the real world, which is mapped to the issuance of real-world assets;
● Asynchronous receiving function: Provide developers with a tool to add a Uniform Resource Identifier (URI) to an on-chain address;
Extensibility: A new feature build-loadtest command to allow developers to stress test the software.
Mvc
On December 8 BTC Jason Kwok, COO of MVC, announced the roadmap of MVC in the first quarter of next year and said that it will complete the development of BTC cross-chain bridge. Based on the UTXO and PoW models, MVC achieves breakthrough high-performance, low-cost, and powerful decentralization features. With the help of Layer 1 DID and smart contract technology, it provides BTC virtual machine MVC, with the goal of becoming the top blockchain that leads 8 billion users into the Web3 era.
MVC has updated its roadmap in the first quarter of next year with 9 major sections: building a trustless asset bridge, releasing two BTC-compatible wallets, launching a new block explorer, built-in support for Ordinals and BRC-20, Metacontract integrated development environment, MetaID BTC version, MVC/BTC compatible with DEX Orders.Exchange, launching the first phase of Proof of Buiding, and launching MVC node V0.2.
BEVM
BEVM is a fully decentralized BTC Layer 2 project that enables BTC decentralized cross-chain to BTC Layer 2 through Musig2 aggregate multisig technology and BTC light nodes. By being compatible with EVM to expand BTC smart contract scenarios, BTC can get rid of the limitations of non-Turing-complete and non-supporting smart contracts of BTC blockchain, and can build decentralized applications with BTC as the native gas.
Based on the Schnorr signature and Mast contract brought by the Taproot upgrade, BEVM realizes decentralized BTC cross-chain with 1000+ BTC light nodes. In its network BTC it can freely circulate between L1 and L2 without trust, and at the same time, it can use BTC as the gas, and is compatible with EVM, which quickly receives BTC community support, maximizes the participation of developers and users, and quickly realizes the commercial closed loop of BTC L2.
Since BEVM is an EVM-compatible Layer 2, all kinds of decentralized applications that can be deployed on ETH EVM can also be deployed on BEVM, the only difference is that BTC Layer 2 uses BTC as Gas. Each transaction on BTC Layer 2 will be packaged into BTC Layer 1 in the form of a sequencer at a 10:1 ratio to achieve the security of BTC Layer 2 shared BTC Layer 1. In the long run, BEVM’s BTC Layer 2 solution will enhance the scalability of BTC, reduce fees, and foster a more secure and decentralized financial ecosystem, which is of great significance for the long-term development of BTC.
Sidechain Expansion Scheme:
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Source: DCX Learn: What is a Sidechain
RSK
RSK is the first EVM-compatible sidechain on the BTC network, a stateful smart contract platform guaranteed by BTC miners. Miners are rewarded through merged-mining, allowing them to actively participate in the smart contract revolution. RSK’s goal is to enable smart contracts, instant payments, and greater scalability to enhance value and utility for the BTC ecosystem. A notable feature of the RSK smart contract is the use of a BTC mining mechanism to maintain its network and security. This means that the RSK smart contract blockchain has a higher degree of security and decentralization than ETH, while avoiding some of the scalability and performance issues in the ETH network.
RIF is a network based on RSK smart contracts, which provides a series of infrastructure services (DeFi, storage, domain name services, payment solutions) to solve many problems faced by layer 2 networks, such as technical complexity, insufficient user experience, insufficient security, and lack of a unified standard ecosystem.
Spiderchains
Spacechain is the latest proposal BTC sidechain design, which incorporates mining and requires miners to run both BTC nodes and the sidechain nodes they want to mine. The transaction chain starts with a UTXO, and each transaction creates two outputs. The first output is a tokenized UTXO, indicating that this chain of transactions is associated with a certain spacechain, while the second output is a small denomination UTXO that anyone can spend, albeit with additional inputs and outputs due to its small denomination. Starting with the chain’s second transaction, anyone can spend the second output from the Spacechain transaction chain and use it to commit their own sidechain block headers. At the same time, Spiderchain sits on top of the base layer of the main chain and was created by Botanix Labs in September this year with the aim of porting the ETH Workshop virtual machine to a platform anchored to the BTC network. It is unique in that it does not directly address the role of miners in consensus, nor does it use any form of merge mining. Spiderchain uses multisig and escrow margins to create a Layer 2 proof-of-stake system on top of the BTC and can be deployed without any changes to the BTC.
Softchains
Ruben Somsen proposed a sidechain mechanism called Softchain in January 2021. The concept originated from Somsen’s earlier proposal for “PoW Fraud Proof”, which was originally intended to improve the security of Simple Payment Verification (SPV). In Softchain, mainchain nodes need to download and validate the block header of each Softchain sidechain. When a chain split occurs, the main chain nodes must download the relevant blocks and validate those blocks with the UTXO collection commitment, forming the basis of the two-way anchoring mechanism.
Other Agreements:
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Source: What is a Network Protocol and How Does it Work
Omni (Stablecoin)
JR Willett proposed the Omni Protocol in January 2012, which is a digital currency and communication protocol based on the BTC blockchain, which uses BTC blockchain to implement functions such as smart contracts, user assets, and decentralized peer-to-peer exchanges. In 2014, USDT was first issued on the BTC blockchain based on the Omni Layer protocol. Since then, it has gained a first-mover advantage and won most of the cryptocurrency market in one game, which is Omni-USDT based on the BTC network, the deposit address is the BTC address, and the deposit and withdrawal go BTC the network;
Colored coins
Chia is a more efficient and environmentally friendly cryptocurrency platform provided by Bram Cohen, who is also the founder of the BitTorrent protocol. Chia introduces a new consensus mechanism called Proof of Space and Time (PoST), which is an alternative to the traditional Proofof Work (PoW) consensus mechanism. As early as 2012, the concept of using BTC for asset issuance existed in the recent hot script protocol.
DLCs (Extensible Smart Contracts)
On November 4, according to official information, DLC.Link announced the launch of dlcBTC, an innovative solution designed to securely enable BTC conduct DeFi operations on ETH Square. It is reported that dIcBTC is scheduled to be released in February 2024, and it will give BTC holders seamless participation in DeFi protocols like Curve and AAVE without the need for custodians or third parties.
Ethions (Inscription Protocol for ETH Workshop to Create Transfer Content)
The original Ethions protocol was created in 2016, but Tom Lehman only developed a product for the protocol on June 17 of this year Data) is an inscription protocol for creating and transferring digital content on ETH, which bypasses the use of smart contract storage and execution to implement the application of deterministic protocol rules to ETH call data to calculate the state, and implements trusting each other to determine the outcome of the contract without informing the oracle and trusting the third party.
Multibit (Cross-Chain Bridge)
Designed to bridge between the BTC network and the ETH Square Virtual Machine (EVM) network via a Multibit cross-chain bridge, it is currently used between the ETH, BNB, and BTC networks, with the primary purpose of providing DeFi services to BRC-20’s assets.
Conclusion:
2023 can be described as the year of the BTC ecology, although affected by its own natural lack of Turing completeness, its ecological development can be described as difficult, but with the inscription out of the circle, not only the market’s attention has shifted to the BTC ecology, but also attracted many developers to join. Perhaps we are on the eve of an ecological outbreak, just like the last round of 21 years of public chain disputes, there will also be a “hundred flowers blooming” state of affairs.
The agreement that can stand out in the current situation is also very worthy of our expectation and discussion, and the circulation and transmission of digital gold is still to be continued.
Source: YBBCapital
