The Evolving Landscape of Bitcoin Ecosystem | TKX Weekly

TKX CAPITAL
6 min readDec 6, 2023

by @Guaaronnnn; @uuwagyuu
editor @uuwagyuu
sponsor TKX CAPITAL

The world of Bitcoin is buzzing with new things, thanks to the rise of BRC-20 tokens and Ordinals. These new ideas are changing how Bitcoin works, adding fresh features that go beyond just sending and receiving money. It’s an exciting time, as Bitcoin starts to do things we usually see on other blockchain platforms. As we explore these new developments, it’s clear they’re more than just tech upgrades — they’re opening a whole new chapter for Bitcoin.

The Roots of Bitcoin’s Technological Evolution

Bitcoin’s recent ecosystem advancements originated from two pivotal updates. The 2017 Segregated Witness (SegWit) upgrade expanded block data capacity, allowing more space for transaction signatures. However, the transformative change came with the 2021 Taproot upgrade, introducing the ability to embed complex scripts and data into Bitcoin. This marked a significant leap in Bitcoin’s programmability and scalability, paving the way for the complex protocols and innovations now flourishing in 2023.

Tapscript

Taproot upgrade allows a new form of transaction called Tapscript. Ordinal Inscriptions are simply Tapscript transaction data that are attached to the first sat outputted in the transaction. Since the Tapscript will never be executed, all the inscriptions are data only without being verified like in a smart contract. That is why inscriptions hight rely on off-chain centralized entities (platforms like Unisat and CEXes) to verify the token holding and ensure safe transactions.

The Current State of Bitcoin Ecosystem

Ordinals & BRC-20

Developed by Casey Rodarmor and launched in January 2023, the Ordinals protocol represents a significant shift in Bitcoin’s utility. It allows the inscription of digital artefacts, including text, images, and videos, onto individual satoshis (sats). This innovation, born from Bitcoin’s Taproot upgrade, enables the creation of NFT-like assets directly on Bitcoin’s blockchain. Ordinals’ distinctiveness lies in its capability to transform Bitcoin from a purely transactional medium to a platform for unique digital expressions.

The BRC-20 protocol, an offshoot of Ordinals, resembles Ethereum’s ERC-20 tokens but on the Bitcoin blockchain. Introduced after the Ordinals protocol gained popularity, BRC-20 allows the issuance and trading of fungible tokens, marking Bitcoin’s venture into a diverse token ecosystem. The first BRC-20 token, ORDI, kickstarted the trend of creating a variety of tokens within this framework, offering a structured approach to token creation and management, akin to Ethereum’s diverse token landscape.

However, BRC-20 is never similar to ERC-20. ERC-20 verify and saves the state data on-chain, so there is no need to rely on off-chain entities to verify the true ownership of a token. On the contrary, BRC-20 is a simple format of data to record transactions like deployment, mint, and transfer. There is no on-chain verification for any transactions. And, the transfer of a BRC-20 token will always be accompanied by the transfer of the underlying sat, which is no different than transferring 0.00000001 BTC on-chain.

Transfer of BRC-20 Token

Opponents believe that BRC-20 transactions will seize the transaction bandwidth, resulting in longer transaction block time and higher fees. But could this problem be solved by other tech stacks?

Atomicals & ARC-20

Atomicals is a novel protocol developed to enrich Bitcoin’s UTXO (Unspent Transaction Output) model. It enables not only the creation and transfer of digital objects but also their intricate management within the Bitcoin blockchain. Atomicals distinguishes itself by maintaining Bitcoin’s decentralized essence and working in harmony with other protocols like Nostr and Ordinals. Its standout features include the creation of unique digital objects called “realms,” the introduction of GPU mineable tokens demonstrating proof of work and the capability for permanent file storage.

Different from Ordinals, Atomical inscriptions save the full history of a token, which means users do not need to rely on a centralized platform with a full node to index and verify the ownership of a token. Instead, users only need to read the data attached to the specific sat to verify if the ownership is legit.

Taproot Assets

Emerging from Bitcoin’s Taproot upgrade, Taproot Assets represents a technological evolution in Bitcoin’s tokenization capabilities. They involve issuing tokens using Bitcoin’s advanced multi-signature and hash time-lock functions and leverage the Lightning Network as a layer 2 solution for efficient asset distribution and trading. This development is notable for its technical soundness and security, offering a sustainable method for token issuance and management on the Bitcoin network, thus expanding Bitcoin’s functionality beyond its original design.

However, the key risk for Taproot Assets is data. Proof for Taproot Assets are stored off-chain, which means if the user loses the data, they will not be able to access their token. As a solution, there are “Universes” acting like a storage facility but still, since the data is not on-chain, we cannot guarantee Bitcoin level of data availability.

Rune & PIPE

The Rune protocol and PIPE emerged as innovative solutions within Bitcoin’s evolving ecosystem. Rune, an alternative to the BRC-20 token standard, utilizes Bitcoin’s UTXO system to track and manage token balances, employing a unique transfer function. It uses OP_RETURN for data storage, differentiating itself from the Ordinals protocol. PIPE, building upon Rune’s concepts, offers improved mechanisms for token issuance and management on Bitcoin, showcasing the blockchain’s growing adaptability to diverse applications.

The difference between Rune and BRC-20 is that Rune does not need to rely on a centralized indexer. At the time of deployment, the full amount of tokens is allocated to one UTXO. Distributing and transferring tokens will only result in balance changes in the UTXO. Therefore, there will be less unnecessary data transfer and users can directly verify token holding with on-chain data.

Rune Rules

Final Thoughts

The evolution of the Bitcoin ecosystem, marked by the emergence of protocols like Ordinals, BRC-20, Atomicals, and others, presents a dual narrative of innovation and speculative opportunity. Beyond BRC-20, the new standards mainly focus on solving two problems: unnecessary UTXO data and the need to rely on centralized indexers. However, we do not see explosive adoptions of those new protocols yet.

The BRC-20 narrative is mainly based on the idea of equality since everyone shares the same cost and there is no VC involved. However, equal cost does not mean all users get to buy the token at the same price. Early whales were able to accumulate most of the issuance at a low cost, lock the liquidity, and start pumping the token price. Traders need to understand that most BRC-20 are similar to meme tokens and it's necessary to monitor the market liquidity and volatility to manage the risks.

Reference

https://twitter.com/blockpunk2077/status/1719321676989771801
https://mp.weixin.qq.com/s?__biz=MzU4NDQ1OTU3MA==&mid=2247485774&idx=1&sn=63ae638a087b8ab5dd14b49417a90a43&chksm=fd983d13caefb405278764e01ba954f7abd03a9d21bc562ad346c954914f3c84c76adc39e595&token=1048337861&lang=zh_CN#rd
https://learnblockchain.cn/article/5843
https://www.theblockbeats.info/news/46449

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