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New trends in the BTC ecosystem: Lightning Network, Ordinal, Atomical, and bitVM
I. Introduction to BTC Ecology
BTC’s place in the cryptocurrency ecosystem is not only historical, it’s also crucial. As the first and most well-known cryptocurrency, BTC not only ushered in a new era of digital currencies, but also laid the foundation for the widespread adoption of DeFi and blockchain technology. Its decentralized nature, limited supply (capped at 21 million BTC), and ability to serve as a store of value and investment means have given it a prominent place in the cryptocurrency market.
The focus on BTC ecosystem stems from its innovativeness, its challenges to the traditional financial system, and its potential economic impact. Over time, BTC has become not only part of asset diversification, but also an important topic of global financial discourse. However, after several bull and bear cycles, people gradually realized that the non-Turing-complete nature of the BTC itself has a great impact on the further expansion of the BTC ecology. **
Turing completeness refers to the ability of a system to emulate any Turing machine, usually associated with a system capable of executing arbitrary computational instructions, including loops and branches. BTC’s scripting language is relatively simple and is primarily designed to handle transactions and control conditions in the transfer process, such as multisig or timing locking, rather than performing complex computational tasks. This design is to maintain the security and stability of the network. In contrast, blockchain platforms like ETH Fang offer a Turing-complete environment that allows complex smart contracts to run on it.
When discussing BTC, it is important to recognize its limitations, especially the ability to execute complex programs and smart contracts. Therefore, in order to discuss the development of BTC ecology, we need to first summarize and summarize “what problems need to be solved by BTC ecology”.
In general, there are three aspects: first, how to improve network efficiency and reduce transaction fees without affecting the security of the BTC network, second, how to solve the issuance of native assets on the BTC network without burdening the BTC network, and third, how to solve the problem of carrying more smart contracts and complex applications on the BTC network without Turing. **
Here are some directions to explore:
Enhance BTC scripting capabilities: While the BTC scripting language is relatively simple, developers are always exploring how to add more functionality within the existing framework. This includes the development of more complex transaction types and conditions, such as improved multisig mechanisms and complex locking conditions.
Sidechain technology: Sidechains are independent blockchains that are separate from the BTC main chain but connected to it. This allows for more complex features to be implemented on the sidechain, including Turing-complete smart contracts, without compromising the security and stability of the BTC main chain.
In this article, we will compare some of the hottest projects in the BTC ecosystem, and draw some general conclusions from several key aspects such as community consensus, technical difficulty, and future application scenarios, including:
(i) Community consensus is critical to the success of these projects. BTC community has historically valued the security and decentralization of the network, and any significant change requires broad consensus. The likes of bitVM and RGB projects are designed to extend the functionality of BTC, but it is important to ensure that the core attributes are not compromised, which can lead to heated discussions in the community.
(2) Technical difficulty is another important factor. These projects are trying to introduce new features through Layer 2 solutions or other technical means without disrupting the stability of the BTC main chain, which is undoubtedly a technical challenge.
(3) From the perspective of future application scenarios, these projects have great potential. By providing advanced programming capabilities, RGB projects have the potential to greatly expand the scope of BTC applications by enabling smart contracts and asset issuance, thus making it more than just a store of value. However, the implementation of these use cases will depend on the successful implementation of the technology and the widespread acceptance of the community.
(4) As far as the current stage is concerned, the focus of BTC ecological breakthrough is still in the stage of “solving asset issuance”, so we expect that there will be a period of active MEME coins, due to the huge wealth creation effect, attract more users and developers to enter the ecological field, find the project landing and network value, and realize the real ecological closed loop.
Second, about segwit and taproot
Before introducing the many protocols and projects of the BTC ecosystem, it is necessary to have a brief understanding of segwit and taproot.
Since the birth of the BTC, with its simple and elegant technology, exquisite economic incentive design, has become the belief of a large number of decentralizationists, in the process, after repeated arguments and iterations by the community, its network has undergone a number of important upgrades, including BIP 34 introduced a version number in the block, laying the foundation for future protocol upgrades, BIP 66 enhances the security of the network, by requiring the digital signatures in BTC transactions to follow a determined format, BIP 65 (OP_ Among the many upgrades, the most important for the expansion of the BTC ecosystem is undoubtedly SegWit (Segregated Witness) and Taproot, which aim to improve the scalability and efficiency of the BTC network, and also lay a solid foundation for later technological innovations including related protocols such as Ordinal.
SegWit, first introduced in 2017, mainly solves the problem of transaction plasticity by separating the transaction signature information (witness data) from the transaction data, increasing the effective capacity of the block, thereby improving the processing capacity of the network and reducing transaction fees. In addition, SegWit provides a better foundation for BTC layer 2 solutions, such as the Lightning Network, making micropayments more viable.
Taproot, activated in 2021, is another major upgrade to the BTC protocol. It improves privacy and security by introducing Schnorr signatures, while optimizing the efficiency and flexibility of smart contracts. Taproot enhances user privacy by enabling all transactions, whether simple payments or complex smart contracts, to look the same on the outside. In addition, this upgrade reduces the cost of multi-signature transactions by simplifying the data requirements for such transactions, making complex contracts more viable on BTC networks.
Overall, the SegWit and Taproot upgrades have improved the performance, scalability, and functionality of the BTC network, laying a solid foundation for the future growth of BTC.
Third, the fiery BTC ecology
When we count the income of miners BTC the whole network, it can be clearly found that in May 2023, miners’ income will reach the level of seven or eighty percent of the bull market income, which reflects the trend of increasing trading activities on the BTC chain, and in this process, the income model of miners has been greatly affected. BTC miners’ main sources of income come from two sources: the newly BTC block reward and transaction fees. Although the rate at which new BTC is generated is fixed, transaction fees change as the volume of transactions on the network increases. The essential reason for this change is that the introduction of the Ordinal protocol has increased the number of transactions on the BTC network, especially if digital artwork and other NFTs become a popular asset class on the BTC, resulting in an increase in transaction fees, which indirectly increases the total income of miners.
Miner’s daily income
In this article, we will focus on the Lightning Network, ordinal, BRC20, Atomic and ARC20, bitVM, and other BTC ecosystems.
Sidechain or Layer2 solutions represented by the Lightning Network
For a long time, sidechains and Layer 2 solutions have been the focus of the BTC ecosystem, and they are also key technological innovations for the scalability and efficiency of BTC networks, including Lightning Network, Rootstock (RSK), Stacks, Liquid, MintLayer, RGB, etc., among which, the Lightning Network, as the king of legitimacy, was born out of the “payment channel” conceived by Satoshi Nakamoto From 2016 to the outbreak of the Ordinal ecosystem, it attracted more than half of the developers and participants in the BTC ecosystem, and around 2020, the Lightning Network became well-known to the entire crypto community with the help of Nostr.
A sidechain is an independent blockchain that runs in parallel with the main BTC chain and interacts with the main chain through a specific anchoring mechanism. This design allows users to move assets from the BTC main chain to the sidechain, which can provide faster transaction confirmations, lower fees, and even support for more complex smart contracts and applications. Since sidechains handle a large number of transactions on the main chain, they help reduce the burden on the main chain and improve the performance of the entire network.
Layer 2 solutions, such as the well-known Lightning Network, are protocol layers built on top of BTC main chains. These solutions enable fast and efficient transaction processing by creating off-chain transaction channels that only require interaction with the BTC main chain when the channel is opened or closed, and are especially effective in supporting small, high-frequency transactions, greatly expanding the application possibilities of BTC in areas such as everyday payments and microtransactions.
However, for a long time, the Lightning Network was only used for micropayments and did not support the issuance of other assets. In October 2023, Lightning Labs released the Taproot Assets protocol on mainnet, enabling the issuance of stablecoins and other assets on the BTC and lightning networks. As Ryan Gentry, Director of Development, mentions, Taproot Assets will provide developers with “the tools they need to make BTC a multi-asset network, but maintain the core value of BTC in a scalable way.”
With a Taproot-centric design, Taproot Assets delivers assets on the BTC and Lightning Networks in a more private and scalable way. Assets issued on Taproot Assets can be deposited into Lightning Network channels, where nodes can provide atomic conversions from BTC to Taproot Assets. This allows Taproot Assets to interoperate with the broader Lightning Network, benefiting from its reach and enhancing its network effects.
However, as @blockpunk2077 mentioned, at this stage, “users cannot directly send transactions in the BTC mainnet to self-mint tokens, but have a project party address to issue (or register) all tokens at one time, and then transfer them to the Lightning Network for distribution.” Therefore, Taproot Assets Token is not fairly distributed through free minting, and often requires a centralized project party to conduct an airdrop, and the project party itself can also reserve tokens, which is the case with the newly issued $trick $treat. This centralized nature has attracted some criticism, which is not fully in line with the BTC community’s pursuit of decentralization and disintermediation.
Ordinal, BRC20 and the Pandora’s box it opens
We won’t go into too much detail about the Ordinal and BRC20 protocols here. As an innovative application, Ordinal implements a new method of data storage on BTC blockchain, which assigns a unique serial number to each Satoshi and tracks them in transactions, allowing users to embed non-fungible and complex data in BTC transactions. With inscriptions that allow the use of NFTs on BTC, the natural progression of development shifted to fungible tokens. On March 9, an anonymous Crypto Twitter user named @domo published a post theorizing about a method called BRC-20 that could create a fungible token standard on top of the Ordinals protocol. Essentially, the method is to engrave text on a SAT to create a fungible token. The original design only allowed for three different operations: deployment, minting, and transferring.
We believe that the Ordinal protocol and its derivative BRC20 are very well-designed, solve the big problem of asset issuance in a simple and fast way, and coincide with the design philosophy of the BTC, making it easier to receive widespread attention and support from BTC ecosystem participants. ** And it plays more of a role in the BTC ecology. It takes advantage of the new features of the BTC Taproot upgrade, which makes it possible to store large amounts of data in a single transaction. In this way, the Ordinals protocol can create and transfer digital artworks, collectibles, and more directly on the BTC chain, bringing the concept of NFTs (non-fungible tokens) to the BTC blockchain, which is different from the implementation of NFTs on platforms such as ETH.
The BRC20 standard is derived from the Ordinals protocol and aims to implement a token standard similar to ETH’s ERC20 on BTC blockchain. The goal of BRC20 is to provide a standardized definition and interface for tokens in the BTC ecosystem, allowing developers to create, issue, and manage tokens on BTC blockchains, similar to token operations on ETH Square. This means that in the future, complex token transactions and smart contract operations can also be carried out on BTC chains, although this requires complex programming and data storage technologies. The BRC20 standard is an expansion of the BTC function, showing the continuous maturity and diversification of the BTC ecosystem. However, achieving such a standard requires broad community support and further technical development.
The main reason for the innovation of Ordinals is that before that, BTC were fungible, or interchangeable, and one satoshi on the blockchain could not be distinguished from another. Ordinal changes this by leveraging two updates to the original BTC protocol: Segregated Witness (SegWit) and Taproot. In simple terms, SegWit allows cheaper data to be put into the witness part of the transaction and effectively increases the block size, while Taproot allows advanced scripting in the witness part. Combined, these two updates are essential for inscriptions, as they allow for more arbitrary data storage in the witness portion of any BTC block.
Overall, the emergence of Ordinals and BRC20 not only detonated the BTC market (the source of miners’ income has completely changed, see the chart below), but also pointed the way to some of the subsequent improvements to the protocol. For example BTC the TRAC of the BRC20 standard deployed by Beny, an active developer in the community, and the first 21 million curse inscriptions-CRSD, based on this, the BRC-20 improved version of the Tap Protocol positioned on OrdFi was launched, Tap Protocol is an improvement of the BRC-20 protocol level, and the TAP and -TAP are issued based on the Tap Protocol, and Pipe is launched at the same time protocol, which is an improved version of the protocol of Runes.
Miner income analysis
In September, another anonymous developer in the BTC community launched the Atomicals Protocol after a period of polishing that the Ordinal protocol had some design flaws. From a technical aesthetic point of view, Atomicals is based on BTC’s UTXO for minting and dissemination, which does not bring additional burden to the BTC network, and is more in line with BTC technology, which has won the support of some BTC fundamentalists. On the other hand, because the Ordinal protocol is more “experimental” and a more natural and spontaneous product, its BRC20 protocol is a “derivative product” in another sense that was unexpected by Ordinal’s founder, Casey, so the Ordinal ecosystem is not “planned”. Atomicals, on the other hand, has a clear blueprint for the Atomicals ecosystem after thinking and polishing, coupled with the forward-looking nature of the founders themselves.
Here we give a brief introduction to the Atomicals protocol.
The Atomicals protocol is a simple and flexible protocol for minting, transferring, and updating digital objects (i.e., digital objects, traditionally referred to as NFTs) for unspent transaction output (UTXO) blockchains such as BTC, Atomic considers NFTs to be a highly technical term that cannot express the multiple uses available, choosing instead to use the term “digital objects” to elicit all the potential uses of the protocol, which is more familiar to the average person and more developer-friendly).
Atomic (or Atom) is a way of organizing the creation, transmission, and updating of digital objects – it is essentially a digital chain of ownership defined by a few simple rules. The protocol is open-source and free for anyone to use. All libraries, frameworks, and services are released under MIT and GPLv3 to ensure that no one has control over these tools and protocols.
The main advantage of Atomic over other BTC ecosystem protocols is that it does not require the use of a centralized service or a middleman as a trusted indexer. It doesn’t require any changes to the BTC, nor does it require a sidechain or any secondary layer. It is designed to work in coordination with other protocols that have emerged (e.g. Nostr, Ordinals, etc.). Each protocol has its own different benefits, and Atomicals Digital Objects increases the range of options available to users, creators, and developers.
According to @bro.tree, “The Atomicals protocol is the first protocol to mine token inscriptions through a POW process, allowing anyone to mine tokens/realm/NFTs with their own CPUs, which is the most fascinating feature of the protocol.” ”
In terms of future ecological scenarios and landing, Atomic mainly considers three asset classes and their derivative scenarios, namely ARC20 (i.e., fungible tokens), non-fungible digital objects (i.e., NFT), and realm (digital identity), and related landing scenarios include: digital collectibles, media and art, digital identity, Authentication & Token Gated Content, Web Hosting & File Storage (BTC Native File System), Peer-to-Peer Swap & Atomic Swap (Swap Natively Supported), Digital Namespace Allocation (DAO Building & Domain Name Revolution), Virtual Land & Title Registration, Dynamic Objects and Statuses for Games (Gamefi), Social Media Profiles, Posts, and Communities (Verifiable SBT, Socialfi), etc.
In general, compared with the Ordinal protocol, ARC20 and $ATOM are still very early and still need to wait for the improvement of the wallet and market, but because their technical design and mining settings are more in line with the BTC, their legitimacy is relatively more high, which is precious to the BTC community. At the level of possibility, there is also the opportunity to achieve true BTC-native DeFi. In terms of ecological development, there have been several small outbreaks in the community (see figure below), but it has not experienced large-scale hype and still has great potential.
Atomic casting situation
In addition, it is worth mentioning that all tokens under the Atomic protocol use native satoshi units to represent each token, which can be split and combined like ordinary BTC. 1 coin corresponds to 1 satoshi, and an atom is 1000 coins, corresponding to 1000 satoshi BTC, which requires a period of adaptation for ecological beginners, in case the atom is burned as an ordinary BTC fee during the transfer process, it will be destroyed.
bitVM - The Holy Grail of the BTC Ecosystem?
In the BTC ecosystem, the bitVM, Ordinal, and atomicals protocols each represent different directions of technological innovation and expansion. The goal of bitVM is to provide BTC networks with more advanced programming capabilities and smart contract capabilities, thereby broadening its application range and increasing its functionality. This approach attempts to introduce more programmability and flexibility while maintaining BTC core properties such as security and decentralization.
In simple terms, bitVM is a computing model that allows developers to run complex contracts on BTC without changing its ground rules. Since the concept of bitVM was proposed and the white paper was released in October 2023, it has attracted wide attention and expectation from the BTC community, BTC community developer Super Testnet has boldly declared that “this may be the most exciting discovery in the history of BTC scripting”. In an abstract sense, bitVM works similarly to the Lightning Network and is considered by a section of the community to be BTC future of payments, as it also uses off-chain mechanisms to scale BTC transactions.
As mentioned above, BTC is the digital gold standard for cryptocurrencies, but what sets it apart from other public chain ecosystems is its ability to handle complex, Turing-complete smart contracts. At BTC the same time, it is worth mentioning that Robin also created ZeroSync, which is an exciting direction to introduce zero-knowledge proofs into the BTC ecosystem, focusing on the BTC implementation of Stark Proofs.
To sum it up in one sentence, i.e., under BitVM, the computation will be performed off-chain, on-chain validation, similar to the op rollup mechanism on ETH.
Similarly, BitVM involves two main players: provers and validators. The prover is the party that initiates the computation or claim, essentially saying, “This is a program, and this is what I assert it will perform or generate.” Validators, on the other hand, are responsible for verifying the claim. This dual-role system allows for a level of checks and balances, ensuring that calculations are accurate and trustworthy.
The ingenuity of BitVM lies in its handling of computing workloads. Unlike traditional blockchain operations, where a large amount of computational burden is placed on-chain, most of BitVM’s complex calculations are performed off-chain. This drastically reduces the amount of data that needs to be stored directly on the BTC blockchain, increasing efficiency and reducing costs. This off-chain approach also offers greater speed and flexibility, as developers or users can run complex programs or simulations without worrying about the blockchain being overwhelmed.
However, BitVM does employ on-chain verification when needed, especially in the event of a dispute. If a validator questions the legitimacy of the prover’s claim, the system will refer to the immutable decentralized ledger of the BTC blockchain to resolve the issue. This is achieved through what is known as “fraud proof”.
If the prover’s claims are proven to be false, the validator can submit a concise fraud proof to the blockchain, exposing the dishonesty. This not only resolves disputes, but also maintains the overall integrity of the system. By integrating off-chain computing and on-chain verification, BitVM achieves a balance of computational efficiency and robust security, known as the Optimistic rollup. The basic idea is to assume that all trades are correct (“optimistic”) unless proven otherwise. Only in the event of a dispute will the relevant data and computations be published and verified on the main blockchain. This significantly reduces the amount of data that must be stored on-chain, freeing up space and reducing transaction fees.
In BitVM, optimistic rollups are especially useful. Most computational work takes place off-chain, reducing the amount of data that needs to be stored on BTC blockchain. When a transaction is initiated, BitVM can use Optimistic Rollups to bundle multiple off-chain transactions into a single on-chain transaction, further reducing the blockchain footprint.
In addition, in the event of a dispute, BitVM’s use of fraud proofs dovetails well with Optimistic Rollups’ inherent “challenge-response” system. If the prover makes a false claim, the verifier can quickly expose the dishonesty by providing concise evidence of fraud. This evidence of fraud will then be reviewed within the framework of the Optimistic Rollup, and if verified, the dishonest party will be penalized.
The difference is that while both BitVM and ETH’s EVM (ETH Workshop Virtual Machine) offer smart contract functionality, they differ in their approach and functionality. ETH Fang’s EVM is more versatile in supporting multi-party contracts and provides a wider range of computational tasks on the blockchain, but this can lead to higher costs and a chaotic blockchain. BitVM, on the other hand, focuses primarily on two-party contracts and performs most of the computational work off-chain. This minimizes the footprint on BTC blockchain and reduces transaction costs. However, BitVM’s current design limits its applicability in complex, multi-party environments, which is where ETH EVM excels.
Not everyone believes that BitVM deserves attention, and it has also caused some people to worry, as Dan of the paradigm research institute said, the protocol is only available to two parties, so it cannot be used for rollups or other multi-party applications, and there is nothing too new in itself, such as programmer Greg Maxwell proposed a better protocol a long time ago (“ZK contingent pays”, ZK contingent). payments) to solve the same problem. But I have to admit that if bitVM works, BitVM could have a broad impact on building on top of BTC. Another criticism is that even if computation is done “off-chain”, on-chain verification can still incur significant overhead. And the BitVM proposal says it won’t add a lot of transaction volume to the network and won’t cause gas fees to spike — as it did when Ordinals’ popularity skyrocketed.
Overall, bitVM is actually still in the concept stage, and as Linus explains, “The purpose of the whitepaper is to describe the idea in simple terms and to spark community interest, but it’s not yet a complete solution.” ”
Summary
Compared with other public chain ecosystems, BTC as the most consensus and oldest decentralized practice, the community is very insistent on BTC orthodoxy and fundamentalism, and to horizontally compare different BTC ecological explorations, it is necessary to consider the opinions of the community to a greater extent, and insist on not causing damage to the BTC network.