Digital Gold’s New Journey: Exploring Bitcoin’s Diverse Ecosystem and Protocol Innovation

Foreword

The concept of Bitcoin was originally proposed by Satoshi Nakamoto on November 1, 2008, and on January 3, 2009 Bitcoin was officially born. After decades of industry development, Bitcoin has been in the value of the storage and digital gold on the road to sprint, its market value from the past 10,000 bitcoins for a pizza rose to the present day $ 664.22 B. But from the current development of the BTC ecosystem point of view this is just a small attempt to see, in addition to the value of the BTC itself, for the future, we still need to more patiently explore, this article will be for the BTC’s other applications ecosystem to make analysis.

BTC Overview

In 2009, a cryptographer named Satoshi Nakamoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, which described an electronic money system realized through peer-to-peer technology, which enables online payments to be initiated and paid directly from one party to another without going through any financial institutions in between. Subsequently Bitcoin has gradually spread globally and received a lot of attention. It has at least three attributes: technical, sociological and financial.

• Technical Properties:

From the perspective of Bitcoin’s techno-logical perspective, Bitcoin’s network protocol is a decentralized, peer-to-peer transmission protocol, which can be briefly understood to mean that it is a vast public bookkeeping system that is not manipulated by any third party and is not subject to tampering, and that it relies on blockchain technology to record all transactions in a network-wide database as a way of ensuring that duplicate or fraudulent payments do not occur;

• Sociological Properties:

Compared to today’s Internet, the blockchain itself uses distributed ledger technology to record digital transactions shared through the network with decentralized, tamper-proof, and immutable features, so that the thought of information liberalization brought about by its Internet attributes is also affecting everyone. As for Bitcoin, a completely decentralized electronic currency, which does not rely on any single authority to issue it and is able to achieve value transfer without going through the banking system during cross-border and cross-currency transfers, its information liberalization and cross-border of payments give it more sociological attributes;

• Financial Properties:

From a financial point of view, Bitcoin can be treated as an investment in digital gold or a global standardized digital asset. Compared with gold, it has a constant total amount, is easy to carry, has low transaction costs, and has a young audience, which makes more and more investors and traditional investment institutions believe in its investment value. Because it relies on the Internet for global circulation, it can be used as an efficient and low-cost circulation payment tool and circulation means in certain specific scenarios (such as cross-border payment and virtual economy transmission medium). For example, in January 2015 in the New York Stock Exchange, Nasdaq for the first time involved in the field of bitcoin, as well as the recent gray fund, BlackRock (BlackRock) and so on have begun to layout bitcoin-related ETFs.

Throughout the current development of the entire blockchain, Bitcoin’s prosperity is compared with Ether, its ecological projects can be said to be few, the lightning network launched in 2019 presents a new development trend, in addition to the launch of the Stacks in 21 years, as well as the Taproot Assets main network released by Lightning Labs not long ago, the realization of Turing-complete Bitcoin contracts BitVM and so on have become a few highlights in the Bitcoin ecosystem.

The New Landscape of Bitcoin’s Ecosystem

BitVM：

Image source: BitVM white paper

Recently Robin Linus, the head of the ZeroSync project, published a whitepaper titled: “BitVM: Compute Anything On Bitcoin,” which sparked a lot of buzz about BitVM, which stands for “Bitcoin Virtual Machine. BitVM stands for “Bitcoin Virtual Machine. It proposes a Turing-complete solution for Bitcoin contracts that can be implemented without changing the consensus of the Bitcoin network, enabling any computable function to be verified on Bitcoin, and allowing developers to run complex contracts on Bitcoin without having to change the basic rules of Bitcoin.

However, we are familiar with Bitcoin’s programmability is very limited, blockchain has a classic impossible triangle problem: decentralization, security, scalability, while Bitcoin is designed to take into account only decentralization and security, to a certain extent, discarded scalability. Bitcoin is designed to be both decentralized and secure, and to a certain extent it eschews scalability, as it offers only three forms of input scripts: Pay to Publish Key, Pay to Publish Key Hash, and Pay to Script Hash.

• Pay to Publish Key: This contract is used to send bitcoins to a bitcoin address;
• Pay to Publish Key Hash: This contract is used to send Bitcoins to a Bitcoin address;
• Pay to Script Hash: a form of multi-signature application.

Bitcoin’s very limited programming capabilities are also due to the fact that it only supports simple logic and limited opcodes on Script scripts, thus making it impossible to develop complex smart contracts on the Bitcoin network, and also due to the fact that the Turing incompleteness of Bitcoin’s Scripts does not allow for the execution of arbitrary computations or loops to ensure security in a significant way. Unlike performing computations directly on Bitcoin, BitVM only validates computations (similar to many extensions that do not disrupt the native Bitcoin system) and, as stated in the whitepaper, does so primarily through OP-Rollup, Proof of Fraud, and Taproot Leaf and Bitcoin Script.

Image source: BitVM white paper

Bitcoin was designed with a number of limitations for complex computations and smart contracts, and BitVM does this extension with its unique solution, which consists of the following main roles:

• Provers and Verifiers: The former creates proofs using information entered into a system, and the latter verifies the computation of the proof without knowing the exact content of the information, thus ensuring that the computation is accurate;
• Off-chain computation and on-chain proofs: without changing the Bitcoin consensus BitVM will undoubtedly need to move a lot of computation and scaling off-chain to increase flexibility. With the controversial on-chain proofs, a fraudulent proof of data validity similar to that employed by Optimistic Rollup is used to ensure security. The special feature of BitVM is that it implements various types of program instructions similar to binary circuits through Taproot address matrix or Taptree, which are combined with each other to complete contract execution [1].

Image source: BitVM white paper

But the controversy is:

BitVM writes a “simple generation” in a Script script at the Taproot address and executes it as a UTXO (explained below) spend condition instruction. Script is a basic script supported by the Bitcoin network itself, and while it is a type of Output, the smart contract BitVM refers to is simply a custom “script” that uses Output and then parses it in a centralized form. Although it is also a type of Output, the smart contracts mentioned by BitVM are only parsed in a centralized manner after using Output’s custom “script”, the difference being that one is parsed by the next block in the Bitcoin network, and the other is parsed by whoever defines the block, so in order to achieve the normal operation of the smart contracts, BitVM can only utilize Output instead of Script. It is worth thinking about whether there is a centralized way of operation here.

Lightning Network Taproot Assets

Taproot Assets：

October 18, 2023 Lightning Labs has released the Alpha version of the UTXO-based Taproot Assets mainnet, and with the completion of the mainnet version, the Bitcoin Lightning Network will become an upstanding multi-chain asset network primarily for institutional and asset issuance, allowing for the creation of instant, low-fee, and high-capacity transactional application protocols over the Lightning Network.

Against the backdrop of El Salvador making Bitcoin legal tender in 2021, the Lightning community has experienced explosive growth, with users around the world enjoying instant settlement, low fees, and peer-to-peer Bitcoin transactions without financial intermediaries. Lightning Labs is constantly moving away from providing services for users to add stablecoins to their applications using the Bitcoin infrastructure. In addition, developers are experimenting with programmatic coupon payments using real-world assets such as gold, U.S. Treasuries, and corporate bonds. And there are two key elements present in Taproot Assets i.e. Lightning Network and Taproot.

Source: Lightning Labs website

Lightning Network:

Currently, the bitcoin transaction speed cap in the bitcoin system is set at 2,500 transactions that can be processed every 10 minutes per confirmation. This number was determined through discussions between the Bitcoin community and the developers, and the speed cap was set to protect the decentralization and security of the Bitcoin system, thereby sacrificing scalability to a certain extent.

The Lightning Network, first proposed by Joseph Poon and Thaddeus Dryja in February 2015 and released in March 2018, is a Layer2 extension to Bitcoin. It allows interested participants to create smart contracts off the Bitcoin chain (off-chain) and primarily addresses Bitcoin’s scalability and high fees by allowing transactions to be made with little to no fees.

The core idea of the Lightning Network is very simple: it allows all participants to deposit funds into a common wallet address (smart contract) off-chain, and then instantly send the funds to another participant on the same contract when the payment is completed, with only the final result of the transaction confirmed on-chain. The Lightning Network is a major upgrade to the Bitcoin protocol, but it also introduces a new problem of liquidity for the recipients of funds among the participants.

Photo credit: CSDN@mutourend

Taproot

The core reason for the innovation in Bitcoin is attributed to the Segregated Witness (SegWit) upgrade in 2017 and the Taproot upgrade in 2021, where SegWit helped to expand Bitcoin’s throughput by introducing a block field to hold “proof data,” i.e., signatures and public keys for Bitcoin transactions, but potential vulnerabilities forced the developers to put a limit on the size of that data, while the Taproot upgrade addresses these security concerns by addressing the two main noticeable changes: the MAST+Schnorr signatures that allow for the removal of the old SegWit limit [5].

The core feature point of Taproot Assets:

1. Issuing Stablecoins: Paypal, the world’s number one payment application, issued its own US dollar stablecoin, PYUSD, after it became a very popular payment gateway, essentially expanding from being a payment gateway to being a vehicle for value transmission itself. Taproot Assets has the same goal, which is to leverage Bitcoin’s own value to provide stablecoins to its users in a borderless financial world, such that it can be used to create a new stablecoin, taUSD, and to transfer BTC and taUSD into the Lightning Network channel using a single Bitcoin transaction to perform DeFi operation, and also this is the core of Taproot Assets’ operation on the Lightning Network;

2. Multiple Universe Mode: Universes are repositories that hold all the information needed to initialize the Taproot Asset wallet and synchronize the state of a particular Taproot Asset. So even if the issuer’s server crashes, the legitimacy and validity of the asset can be verified through multiple Universes servers without over-reliance on third-party data stored off-chain;

3. Asset issuance and redemption API: similar to corporate bonds, proof of these destruction transactions can be uploaded to the chain, allowing each user to trade all types of assets on Bitcoin as easily as investing in stocks and bonds in the real world, thus mapping to the issuance of real-world assets, and thus unfolding the imagination of the RWA track. Minting multiple sets of assets at different times maintains fungibility, and the asset destruction API facilitates redemption by asset issuers;

4. asynchronous reception capabilities: provide developers with tools to add Uniform Resource Identifiers (URIs) to addresses on the chain;

5. scalability: new feature build-loadtest command to allow developers to stress test the software, perhaps Lightning is not the ultimate expansion program for Bitcoin, but the direct integration with the Lightning Network to complete fast transactions in a borderless financial world to provide users with stablecoin support has a very broad imagination.

RGB Protocol

RGB is the LNP/BP Standards Association (Lightning Network Protocol / Bitcoin Protocol), a non-profit organization that oversees the development of the various layers of Bitcoin, covering the Bitcoin Protocol, the Lightning Network Protocol, and smart contracts such as the RGB. The RGB protocols are suitable for use in a scalable and The RGB protocol is for scalable and private Bitcoin and Lightning Network smart contract systems, and is intended to be introduced into the Bitcoin ecosystem by running complex smart contracts on UTXO. The official description is: A scalable and private smart contract protocol suite for Bitcoin and the Lightning Network that can be used to issue and transfer assets and rights more generally. The protocol is a client-side verification and smart contract system based on the concept of client-side verification and one-time sealing introduced by Peter Todd in 2016 and running under the second layer or chain of Bitcoin. Understanding the RGB protocol requires an understanding of the following four key elements:

Single-use-seals:

Simply put, as the term suggests, a layer of single-use seals is added to an object to protect it from double payments by making it only open and closed, thus ensuring that the content is only used once. In contrast to an ethereum account, Bitcoin’s network only has wallet addresses, where the Unspent Transaction Output (UTXO) serves as a seal.

So before understanding disposable seals one needs to understand what is UTXO, it is a ledger model that generates inputs (Input) and outputs (Output) in every transaction, where the output of a transfer transaction is the recipient’s bitcoin address and the transfer amount, and these outputs are stored in the UTXO collection for recording unspent transaction outputs while an input points to the output of a previous block, and thus these transactions can be traced back, so here the output of a bitcoin transaction can be used as a disposable seal.

According to the official RGB documentation, a UTXO can be thought of as a seal: when it is created, the seal is locked; when it is spent, the seal is opened. According to Bitcoin’s consensus rules, an output can only be spent once. Thus, if we take it as a seal, the incentives to ensure that Bitcoin’s consensus rules are enforced will similarly ensure that such a seal can only be opened once [2];

Source: RGB Docs Chinese Official

Client-side validation and deterministic bitcoin promises:

Client-side validation is a paradigm proposed by Peter Todd in 2016, in Bitcoin’s PoW consensus, where state validation does not need to be performed globally by all parties involved in the decentralized protocol but rather by aspects of a particular transformation, but instead translates, for example through the use of cryptographic hash functions, into a short, deterministic bitcoin promise that requires some sort of “Proof-of-Publication” and has the three main characteristics of Proof-of-Receipt, Proof-of-Non-Publication, and Proof-of-Membership. In summary, OpenTimeStamps can be thought of as the first protocol in the field, and RGB as the second, with other protocols that can capitalize on and use these themes and form a family of client-validated protocols for these protocols [3].

RGB utilizes the Bitcoin blockchain to prevent the double-spend problem (double-spending) by committing RGB state transitions to spend the UTXO that is currently holding the right to be transferred in a given Bitcoin transaction. In this way, multiple state transitions can be committed to a single bitcoin transaction and each state transition can only be committed to a bitcoin transaction once (otherwise the double-spend problem would occur);

Source: RGB Docs Chinese Official

Lightning Network Compatibility:

When a state transition is committed to a Bitcoin transaction in the RGB website, such a transaction does not need to be settled immediately on the blockchain, as it can become part of a Lightning Network payment channel, and then gain security from it, while borrowing the Lightning Network’s payment channel to bring a lot of digital assets into circulation for RGB;

Source: RGB Docs Chinese Official

RGB v0.10 update:

According to Waterdrip Capital’s interpretation, its upgraded changes are mainly in its flexibility and security upgrades, and are listed in the following summary:

Source: Waterdrop Capital

The concept of RGB was put forward as early as 2016, but after several years of development history has still not been widely noticed and applied, the main reason for this may be the relatively limited functionality of the early version and the developer’s high learning threshold led to the arrival of RGB v0.1, the future of RGB can bring us more imaginative space is worth looking forward to.

Bitcoin’s Sidechains： Stacks, Liquid, RSK, Drivechain

In 2016, Blockstream proposed pegged sidechains as a possible way to extend Bitcoin, which often refers to trust-minimizing blockchains that allow payments to be made from foreign cryptoassets (native to another blockchain), and the most meaningful benefits that can be achieved through sidechains are user asset issuance, stateful smart contracts that support the DeFi solution, promises of chain extensions, faster settlement termination, and greater privacy.

Stacks:

Source: Stacks Chinese Official

How it basically works:

Introducing Stacks first, although it does not directly call itself a sidechain, it is still debated whether it can be subsumed into a sidechain, aiming to achieve a high degree of decentralization by linking itself to the Bitcoin chain through its unique “proof-of-transfer” consensus mechanism Proof of Transfer (PoX) and scalability without adding additional environmental impact.

Stacks is an open-source, two-tier blockchain for Bitcoin that brings smart contracts and decentralized applications to Bitcoin. Originally called Blockstack, the groundwork for Stacks began in 2013. Stacks’ technical architecture consists of a core tier and a subnetwork, with developers and users choosing between the two, with the difference being that the mainnet is highly decentralized but has low throughput, while the subnetwork is highly decentralized but has low throughput, and the subnetwork has low throughput. throughput is low, while subnets are less decentralized but have higher throughput.

Image credit: Stacks white paper

The Stacks core layer interacts with the Bitcoin layer based on the PoX mechanism.PoX is a PoS-like Staking system, a variant of Proof of Burning (PoB), which gives Stacks miners the right to mine blocks by “burning” a portion of their tokens (native assets or other cryptocurrencies). By “burning”, Stacks miners can mine more blocks and earn BTC rewards by helping to secure the network. They interact as follows:

Transferring proofs in Stacks requires miners to send bitcoins to other Stacks network participants (on the Bitcoin network, not at the burn address), and since Stacks can read the Bitcoin network state, it can validate these bitcoin transactions, after which the Stacks protocol randomly selects the winning miner for the block and rewards them with Stacks’ local token, STX and rewarded with Stacks’ local token, STX.

There is also no need to modify the underlying layer of the Stacks protocol when it interacts with Bitcoin, as Stacks transactions are bundled together and Bitcoin simply acts as the final settlement layer for Stacks, which are then sent to Bitcoin for verification and validation. The history of the Stacks blocks will always be recorded on the Bitcoin blockchain.

Image credit: Stacks white paper

Clarity Smart Contracts:

Stacks creates smart contracts using a coding language called “Clarity” [4], which was designed specifically for Stacks to optimize for predictability and security, while Clarity is intentionally designed to be Turing-incomplete, thus avoiding “Turing complexity”. Its smart contract code is publicly available and accessible on-chain, allowing developers to test the code before running any smart contracts, meaning developers can build decentralized applications that benefit from Bitcoin’s security and stability while adding new features and functionality. What can we innovate at Stacks with the addition of Clarity and what are the advantages and disadvantages?

What can be done:

1. build decentralized apps on Bitcoin and migrate DeFi boards;

2. can create native assets on Stacks.

Advantages:

1. Security: integrates the strong security attributes of Bitcoin, with strong security and anti-attack performance;

2. Interactivity: Layer 1 smart contracts can communicate with other blockchains;

3. Scalability: The PoX consensus mechanism utilizes Bitcoin to achieve faster transaction determination and higher scalability.

Disadvantages:

1. Its unique design architecture has certain learning costs and thresholds for developers, whether it can attract more developers from the Ether ecosystem and the MOVE ecosystem before it explodes its potential is also particularly important. Whether it can attract more developers from the Ether ecosystem and MOVE ecosystem before it explodes its potential is also particularly important;

2. Whether the regulatory uncertainty brought by STX mining and Stacking will affect the development and operation of the second-layer network is also worth thinking about. It is also worth thinking about whether its STX mining and Stacking will affect the development and operation of the second-layer network.

Liquid：

Source: LBTC official

The conversation comes to Liquid, which is not only a bitcoin sidechain, but also an exchange settlement network that connects cryptocurrency exchanges and institutions around the world, with core features such as fast settlement, strong privacy, digital asset issuance, and anchoring to bitcoin for faster bitcoin trading and digital asset issuance, allowing members to tokenize fiat currencies, securities, and even other cryptocurrencies. currencies to tokenize.

Liquid is identical to RSK in that both rely on federated multi-signatures to lock Bitcoin issued in the sidechain as the sidechain’s native currency, but the actual design of the pegs is still quite different. Both sidechains currently have 15 functioning authorities, with Liquid requiring 11 signatures to issue bitcoins and RSK requiring 8. Liquid seems to prioritize security over usability, while RSK prioritizes usability over security.

Overall Liquid is a sidechain platform designed to provide shared liquidity to exchanges, which focuses on protocol simplicity, security and privacy.

RSK:

Photo credit: Mtpelerin official

RSK is also a sidechain whose native token is RBTC, designed to be a cornerstone of financial inclusion with a focus on Decentralized Finance (DeFi).RSK is a stateful smart contract platform guaranteed by Bitcoin miners that enhances the value of the Bitcoin ecosystem by expanding the use of the Bitcoin currency. Decentralized applications can be written using the Solidity compiler and the Web3 standard library, enabling ethereum compatibility. In addition, it can extend Bitcoin payments with more on-chain space and off-chain transactions provided by the RIF Lumino payment channel network.

RSK aims to address a wider set of use cases, increase openness and programmability by employing stateful VMs, and compatibility with Ether porting Ether dApps and tools to RSK, while Liquid focuses on being an extremely efficient tool.

Drivechain

Drivechain is a Bitcoin open sidechain protocol that can be customized with different types of sidechains according to different needs. BIP-300/301 proposes the idea of “allowing developers to add features and functionality to the Bitcoin world without actually modifying the Bitcoin core code”. By creating a Bitcoin Sidechain secured by Bitcoin miners, various scalability use cases for Layer 2 can be implemented in the Sidechain while using Bitcoin as the Layer 1 security. It should be noted that BIP-300 “Hashrate Escrows” compresses 3–6 months of transaction data into 32 bytes through “Container UTXOs”, while BIP-301 “Hashrate Escrows” compresses 3–6 months of transaction data into 32 bytes through “Container UTXOs”. 32 bytes, BIP-301 “Blind Merged Mining” (Blind Merged Mining), like RSK, the security of the network is also maintained by means of joint mining.

Through sidechains to create their own application scenarios to meet the needs of the blockchain application, and Drivechain sidechains as a second layer to complete the expansion, so as to avoid the Bitcoin block size limit of 1MB. Currently, there are seven BIP-300-based sidechains in progress that continue to attract more members of the Bitcoin community and enthusiasts, as follows (for a brief description, see [6] for details):

• EVM Sidechain: EthSide
• Digital Assets/Colored Coins/NFT Sidechain: BitAssets
• High Transaction Throughput Sidechain: Thunder Network
• Prediction Market Sidechain: Hivemind
• Privacy Sidechain: zSide
• Distributed DNS Sidechain: BitNames
• Storage Sidechain: Filecoin

Source:LayerTwo Labs Asia Community

Ordinals protocol with BRC-20

UniSat Wallet is a popular Chrome plugin wallet for the Bitcoin ecosystem that helps users for purposes such as storing, minting, and transmitting BRC-20 tokens, and provides Bitcoin ecosystem services such as buying and selling BTC, NFTs, domains, and more.

A brief overview of the origins of BRC-20

As explained above, the UTXO portion of the calculation will result in countless inputs and outputs (balance increases or decreases) for each transaction, because each Bitcoin is made up of the smallest unit: one hundred million satoshis (1 BTC = 10 ^ 8), and each of these sat is uniquely identifiable and indivisible, which is assigned to each bitcoin based on the ordinal number of the sat ( Each of these satoshis is uniquely identified and indivisible, giving each satoshi a specific meaning based on its ordinal in Bitcoin. For example, 50 BTC can be represented in the network as 4,999,999,999 sats.

Source :十四君

Although the Ordinals protocol and the self-proclaimed BRC-20 have characteristics related to over-centralization and the lack of verification mechanisms, it is undeniable that the hot market has brought more attention to the bitcoin ecosystem and the second tier, and to a certain extent has brought the public’s attention back to bitcoin once again.

Summary

Bitcoin was designed at the outset to shed the attributes of scalability as a way to dramatically strengthen the decentralization and security of its own network, and with regard to the associated scaling issues, the absolutely crushing security of Bitcoin as the blockchain’s most successful network has also created a huge amount of imaginative space for many geeky developers.

Therefore, supporters of the bitcoin ecosystem are also roughly divided into two factions: the conservative faction believes that bitcoin must maintain its pure monetary nature, only used as a store of value, is pure digital gold, it does not need other forms of scalability; the radical faction believes that bitcoin needs to expand capacity, so as to embrace more original applications, the transaction properties of bitcoin to the extreme, and is conducive to the longterm development of bitcoin. development. Perhaps we can leave this important question to the future, and time will tell.

Disclaimer：

1. This article is reprinted from [YBB Capital]. All copyrights belong to the original author [YBB Capital Researcher Ac-Core]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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