The Path of Blockchain Applications Behind Inscriptions

The Invention of Bitcoin and Its Inherent Flaws

The invention of Bitcoin originated from Satoshi Nakamoto’s “Bitcoin: A Peer-to-Peer Electronic Cash System.” This paper introduced how this peer-to-peer blockchain system was established. The title also implies Nakamoto’s initial plan: to use Bitcoin as an electronic cash system solution, primarily for payments.

Compared to the currently popular public chains like Ethereum, Solana (Layer 1), and Op Mainet, Arbtrium (Layer 2), Bitcoin is not Turing-complete. Turing completeness is a concept in computer science. If a system is Turing-complete, it can perform any computation task that can be expressed by an algorithm or effective program. In other words, a Turing-complete system can solve any computable problem, given enough time and storage space. Although Bitcoin has simple smart contract functionality, it only supports limited transaction types and operations, such as transfers, multi-signature, etc. In contrast, Turing-complete blockchains like Ethereum allow developers to write smart contracts and decentralized applications (DApps), which can perform any complex computation tasks.

In fact, despite its initial intention for payments, the actual Transaction Per Second (TPS) of Bitcoin is extremely low. Bitcoin blocks are generated about every 10 minutes, and each block size is limited to 1MB. The size of Bitcoin transactions can vary, but the average size is about 250 bytes. Thus, a Bitcoin block can contain a maximum of approximately 4,000 transactions, with an average TPS of about 6.67. This limitation hinders the practical adoption of Bitcoin.

Technical Upgrades

Two effective upgrades are changing this situation: Segregated Witness (SegWit) and the Taproot update. In Bitcoin transactions, the information of each transaction is mainly divided into two parts: the base transaction data and the witness data. The former is about the transaction itself, while the latter is used to verify the user’s identity. Witness data occupies a lot of storage space but is of little use to the user. More information means lower efficiency in Bitcoin network transfers and higher costs for transaction packaging. Later, the SegWit technology separated the witness data from the main transaction data and stored it separately. This optimization of storage space usage improves transaction efficiency and reduces costs. With the original 1MB block size unchanged, SegWit allows each block to contain more transactions. The segregated witness data (various signature scripts) can occupy an additional 3MB space, laying the foundation for the Taproot update.

The Taproot update is a Bitcoin upgrade proposal introduced by Bitcoin Core contributor Gregory Maxwell in 2018. Its technical details are quite complex. Simply put, the Taproot update brings three major benefits to Bitcoin: (1) It makes complex transactions, like multi-signature and time-lock transactions, appear like ordinary Bitcoin transactions, enhancing Bitcoin’s privacy. (2) It reduces transaction fees. (3) It consolidates multiple transactions into one block, saving space occupied by transaction data in the block.

The Emergence of Inscription

Following these two updates, developer Casey Rodarmor invented the Ordinals protocol in December 2022. This protocol assigns unique serial numbers to each Satoshi and tracks them in transactions. Anyone can attach additional data to the UTXO’s Taproot script via Ordinals, including text, images, videos, etc. Initially, many participants uploaded images, sparking the first wave of the “BTC NFT” frenzy, which led to widespread discussions. Some viewed this as dumping “garbage information” on the BTC chain, while others saw it as a “blossoming iron tree,” giving Bitcoin a new purpose. These images and videos need to be “engraved” in a transaction script. After uploading, a tool known as an indexer tracks and identifies these “engraving” activities. At that time, the term “inscription” was not widely understood.

In March of the following year, an anonymous Twitter user named Domo announced on X that they had created a fungible token standard based on the Ordinals protocol, named BRC-20. Users could issue corresponding Tokens by writing standardized text in transactions. Developers then created “engraving” tools to simplify the process, allowing users to deploy, mint, and transfer BRC-20 Tokens by just entering a name and quantity. However, this remained a niche activity. Most BRC-20 transactions were based on OTC, but the situation began to change as Tokens like Ordi and Sats were listed on major exchanges, generating significant wealth effects. This shift in Web3 participants’ attitudes led to a surge of speculators into the inscription market, and developers actively deployed the “XRC-20” standard on various public chains. Some older projects revitalized their businesses by leveraging inscriptions. Major exchanges started listing these tokens, allowing ordinary participants to get involved.

Entering 2024, the price of leading inscription tokens began to fall, and speculators dispersed. People started to ponder the implications of inscriptions for the Bitcoin ecosystem and the industry at large, as well as the future direction of inscriptions. This article will provide answers to these questions, drawing on expert opinions, data, and industry models.

For more information on the Taproot update, please refer to What is the Taproot Upgrade?

The Evolution of Inscriptions: A Historical Perspective

In a previous article, we briefly introduced the technical development background of inscriptions. However, before the emergence of inscription standards like BRC-20, there were numerous asset issuance schemes on Bitcoin.

One of the earliest methods was known as “Colored Coin.” Coloring refers to the addition of specific information to Bitcoin’s UTXO (Unspent Transaction Outputs), distinguishing them from other Bitcoin UTXOs, thus introducing heterogeneity to the otherwise homogenous Bitcoin. Similar to inscriptions, these required specific software to be recognized. At the end of 2013, Flavien Charlon proposed the Open Assets Protocol, which used Bitcoin’s public-private key cryptography. This protocol allowed the issuance of “Colored Coin” type assets to be managed by multi-signature schemes.

In 2014, ChromaWay proposed the EPOBC (enhanced, padded, order-based coloring) protocol. This protocol included two types of operations: genesis and transfer. Genesis was used for asset issuance, and transfer for asset transfer. The type of asset could not be explicitly coded; each Genesis transaction issued a new asset with a predefined total amount. EPOBC assets had to be transferred via the transfer operation. If EPOBC assets were used in a non-transfer transaction, the assets would be lost. This information was stored in the nSequence field of Bitcoin transactions. This storage did not add extra memory, but since there was no asset ID for identification, each EPOBC asset transaction had to be traced back to the Genesis transaction to determine its category and legitimacy.

Beyond these methods, Mastercoin, officially launched in 2013, provided its approach. This method was less dependent on Bitcoin and chose to maintain its state off-chain, storing minimal information on-chain. Mastercoin treated Bitcoin as a decentralized logging system, publishing asset changes through arbitrary Bitcoin transactions. The validity of transactions was verified by continuously scanning Bitcoin blocks and maintaining an off-chain asset database, which mapped addresses to assets, reusing Bitcoin’s address system.

Mastercoin could be considered one of the earliest ICO (Initial Coin Offering) projects, akin to an IPO. However, it later turned out to be more of a scam and eventually disappeared. Nevertheless, the subsequent ICO craze saw many projects issuing their tokens in a crowdfunding-like manner, until the emergence of Ethereum. This Turing-complete blockchain made it easier to establish dApps and issue assets. In the following years, a new ICO craze erupted on Ethereum, giving rise to related assets and tracks like DeFi and NFTs.

Therefore, before the advent of inscriptions, the exploration of asset issuance on the Bitcoin chain never ceased. However, after the emergence of Turing-complete platforms, the focus shifted towards platforms like Ethereum and Solana, considering aspects like cost. Blockchain’s property of asset issuance was downplayed, with more attention given to TPS, security, and other infrastructure features, gradually turning blockchain into a foundation for application development. Asset issuance became one of the basic applications of blockchain.

After the Rise

of inscriptions, developers deployed related inscription protocols on various chains, such as SPL-20 (Solana inscription protocol), Drc-20 (Dogecoin inscription), and Asc-20 (Avalanche inscription). These protocols are mostly imitations of BRC-20 on different public chains. Although they have the necessary infrastructure, compared to the mainstream method of asset issuance – using smart contract standards of various chains – inscription protocols have not seen significant development. For instance, on Solana, the mainstream asset standard is SPL rather than the inscription standard SPL-20. The reasons are understandable. First, the deployment of inscriptions is uncontrolled, meaning anyone can mint inscription assets if they know the content of the inscription. This presents an insurmountable barrier for projects hoping to raise funds through Tokens or those wanting to map original Tokens to inscriptions, as choosing to issue assets via inscriptions equates to losing control over them. Additionally, the infrastructure for inscriptions is not yet fully developed. Opting for inscriptions means altering existing development systems and updating products, which could further deteriorate the user experience for products that are still developing their user base.

However, as a non-Turing complete protocol, Bitcoin’s asset issuance protocols have started to diversify, with the emergence of protocols like RGB, Taproot Assets, and Runes. As of the date of this article’s publication, Bitcoin’s asset protocols continue to innovate.

Hot Asset Issuance Protocols on Bitcoin

Several popular asset issuance protocols have emerged on Bitcoin. We will explain the technical principles and technology behind some of these typical protocols.

Ordinals Protocol

Each Bitcoin can be divided into 100,000,000 units called satoshis (or sats). Hence, the total of 21 million Bitcoins equals 2,100,000,000,000,000 satoshis. Casey Rodarmor introduced the Ordinals Protocol in January 2023. This protocol assigns a unique number to each satoshi, sequentially ranging from 0 to 2,100,000,000,000,000, based on the order they were mined. These satoshis can be linked to various types of data, such as text, images, videos, etc. Each satoshi can be tracked and transferred, making each one a unique carrier based on the data it holds, thus defining its uniqueness.

In the above text, we mentioned the Taproot upgrade. One impact of Taproot is the ability to store arbitrary data (up to 4M) in Taproot scripts. Additionally, thanks to the segregated witness upgrade, which primarily uses 1M of main data, the transaction fee is reduced to only a quarter, making it feasible to fully onboard NFTs onto the blockchain with reduced costs.

Due to the numbering of satoshis by the Ordinals Protocol, special events such as halving and difficulty adjustments have given rise to the concept of “rare satoshis.” In the document, satoshis are categorized into six different levels, as shown in the figure below.

The Current Status of The Ordinals Protocol

The Ordinals Protocol gained widespread application in 2023, with a surge in enthusiasm due to the “Inscription Wealth Effect” in November, leading to a sharp increase in transaction fees. As of the evening of January 9th, a total of 53.96 million inscriptions had been engraved, generating fees amounting to $255.92 million.

Number and Fees of Ordinals Inscriptions (source: Dune)

More well-known entities like Ordinals Punks and Bitcoin Punks are established based on the Ordinals Protocol.

Bitcoin Punks Market Interface (source: Unisat.io)

BRC-20

On March 8, 2023, an anonymous developer named Domo launched BRC-20, a protocol based on Ordinals. Similar to ERC-20, this protocol is designed for asset issuance within the Bitcoin ecosystem. Specifically, the BRC-20 protocol requires users to fill out various parts in a standardized JSON format according to the protocol’s specifications. The relevant standards include:

• 「p」: Protocol type. This is a mandatory keyword, defining that operations are based on the BRC-20 protocol. It helps other systems identify and process BRC-20 events.
• 「op」: Event type. Another mandatory keyword, defining the type of event, whether it’s a Deploy, Mint, or Transfer. For example, if 「op」 is set to 「transfer」, it means the event type is a transfer.
• 「tick」: BRC-20 Token identifier. This is a mandatory keyword, defining the name of the BRC-20 Token, consisting of 4 letters. For instance, if 「tick」 is set to 「ordi」, it indicates that the BRC-20 Token being transferred is $ordi.
• 「amt」: The amount of BRC-20 Tokens being transferred. A mandatory keyword, defining the number of BRC-20 Tokens to be transferred.
• 「max」: Maximum supply. A mandatory keyword, defining the maximum supply of the BRC-20 Token.
• 「lim」: The maximum number of BRC-20 Tokens that a single inscription can hold. This is an optional keyword, defining how many BRC-20 Tokens a user can get from minting a single inscription. For example, if set to 1000, minting a single inscription can yield a maximum of 1000 BRC-20 Tokens.

When deploying, minting, and transferring, users need to fill in the fields according to the standards. Different operations represent different combinations of fields, and users can fill in the fields as needed.

Current Status of BRC-20

The BRC-20 standard, when initially announced, had limited market tools available, and participating in BRC-20 required running a full Bitcoin node, which was challenging for the average person. The subsequent emergence of various inscription tools allowed this simple Token standard to be widely used. As can be seen in the graph below, after the introduction of BRC-20, the number of transactions (inscription activities) at one point accounted for 50% of BTC transactions, even surpassing Ordinals Protocol transactions.

Source: Dune

As of January 9, a total of 76.2k inscriptions had been deployed, with two major deployment peaks occurring in May and November 2023.

Source: Dune

In contrast to the significant fluctuations in inscriptions, the minting of BRC-20 inscriptions has been frequent, with a low period only occurring in October. However, a large number of minting activities occurred on-chain in the following November and December, leading to network congestion and further increases in fees.

Source: Dune

After experiencing several waves of minting and deployment, BRC-20 saw significant transfers and trades in December following its introduction to major exchanges and trading markets.

Source: Dune

The Atomicals Protocol (ARC-20)

The Atomicals Protocol (ARC-20) is a simple and flexible protocol designed specifically for minting, transferring, and updating digital objects on blockchains that use the UTXO (Unspent Transaction Output) model, such as Bitcoin.

The concept of a Digital Object was initially proposed by Robert Kahn in the early 1990s. He and his colleagues defined it as a fundamental entity in a digital system for storage, access, dissemination, and management. In modern practical scenarios, processed and encoded bit sequences can represent a piece of work, part of a work, or other valuable information. These works and information can be considered digital objects. For example, digital objects can take the form of text files, videos, audio tracks, images, code snippets, and even more complex objects composed of multiple elements.

Atomical Digital Objects are the core assets of the Atomicals Protocol, which enables the minting, transferring, and updating of Digital Objects. The official explanation of how an Atomical Digital Object (officially abbreviated as Atomical) is created is as follows: “The Atomicals Protocol uses a two-step Commit-Reveal scheme with Taproot (P2TR) spending scripts, along with the Atomicals Envelope and a minting operation denoted by the letter ‘m’. The transaction output commits to the data or file being exchanged and then includes the data in the spending script to reveal the content, which can be one or more files of any content type (e.g., image, text, or any media).”

Let’s break down the key terms in this explanation:

• Taproot (P2TR) Spending Scripts: Taproot is an upgrade to the Bitcoin protocol that enhances privacy and efficiency. P2TR refers to Pay-to-Taproot, a type of spending script that enables more complex and less space-consuming transactions.
• Commit-Reveal Scheme: This is a two-step process used in cryptographic protocols. Initially, a commitment to a value is made without revealing the value itself. Later, the value is revealed and verified against the initial commitment.
• Atomicals Envelope: This likely refers to a data structure or protocol-specific format used to encapsulate the data associated with a digital object, ensuring integrity and possibly adding metadata.
• Minting Operation (‘m’): This refers to the process of creating new Atomical Digital Objects. The letter ‘m’ symbolizes the minting action in the protocol.
• Transaction Output: In the UTXO model, transaction outputs are the result of a transaction, which can be further spent as inputs in future transactions. In the context of Atomicals, these outputs commit to the digital objects being created or transferred.
• Content Types: This refers to the various types of data that can be encapsulated within an Atomical Digital Object, such as images, texts, or other media.

Considering the information provided, let’s redefine the principle behind the Atomicals protocol for minting Atomical: The Atomicals protocol employs an atomic swap scheme for minting Atomical, incorporating a Commit-Reveal scheme in the transaction output stage. This approach ensures the immutability and privacy of the Atomical minting process. Moreover, it includes a unique identifier during the minting process to enhance the security and traceability of Atomical. As for the transfer mechanism, the transfer of Atomical is similar to a typical Bitcoin transaction.

Now, let’s compare Atomicals, Ordinals, and ERC-721:

Source: Atomicals Guidebook

ARC-20

In addition to Atomical, the Atomicals protocol also supports the minting of Tokens, for which the team has proposed a new standard called ARC-20. This standard uses Satoshis (the smallest unit of Bitcoin, with one BTC divisible into 100 million Satoshis) to represent each Token. In other words, each ARC-20 Token is backed by 1 Satoshi, ensuring its value will never fall below 1 sat.

ARC-20 Tokens can be split and combined like regular BTC. They can be minted by anyone through decentralized minting or direct minting methods and can be transferred to any type of BTC address. Minters can use the init-dft command for decentralized initialization, setting parameters such as the starting block height for minting, the total allowed number of minting operations, minting conditions, etc. They can also directly create a single output with the total supply, making each sat represent one unit of the Token. For example, a minter can create a single output with 1 full BTC to mint a Token with a total supply of 100 million units.

According to data from Atomical Market, the most popular ARC-20 Token, ATOM, has a total trading volume of 894.6 BTC and 2378 holders.

Source: https://atomicalmarket.com/market/token/atom

Rune Protocol

On September 26, 2023, Casey Rodarmor, the initiator of the Ordinals Protocol, launched a new protocol named Rune, aimed at addressing various shortcomings of the BRC-20. In a blog post, Rodarmor highlighted the deficiencies of existing asset issuance protocols:

• BRC-20: Not based on UTXO and fairly complex, as it requires using ordinal theory for certain operations.
• RGB: Extremely complex, reliant on off-chain data, and has been under development for a long time without adoption.
• Counterparty: Has native tokens necessary for certain operations, but is not based on UTXO.
• Omni Layer: Features native tokens required for some operations, but is not based on UTXO.
• Taproot Assets: Somewhat complex and dependent on off-chain data.

Rodarmor named his solution Rune, with the token name “符文” (Fu Wen). In the initial blog post, two standard operations of the Rune protocol, transfer and issuance, were defined.

Transfer of Runes: OP_RETURN

The first data output in the protocol message is decoded into a sequence of integers, interpreted as a sequence of (ID, OUTPUT, AMOUNT) tuples. If the number of integers decoded is not a multiple of three, the protocol message is invalid. The ID refers to the Token ID to be transferred, OUTPUT is the output index to be allocated to (i.e., which output to assign to), and AMOUNT is the quantity of Runes to be allocated. After processing all tuples, any unallocated Runes Tokens are assigned to the first non-OP_RETURN output, and the rest can be burnt by assigning them to the OP_RETURN output containing the protocol message.

Issuance of Runes

This is based on UTXO for tracking homogenous tokens. If there is a second data push in the protocol message, it indicates an issuance transaction. This second push is decoded into two integers, SYMBOL and DECIMALS. If there are additional remaining integers, the protocol message is invalid. SYMBOL is a basic 26-character readable symbol, similar to the symbols used in Ordinals names, with the only valid characters being A to Z. DECIMALS indicates the number of decimal places to use when displaying the issued Runes. If the SYMBOL has not been assigned yet, the Runes Token will be assigned an ID value (starting from 1). If the SYMBOL has already been assigned or is BITCOIN, BTC, or XBT, no new rune will be created.

Overall, the Rune protocol does not link balance records to wallet addresses; instead, it places the records within the UTXO itself. New Runes Tokens start from the issuance transaction, specifying supply, symbol, and decimal places, and allocating this supply to specific UTXOs. A UTXO can contain any number of Runes tokens, regardless of its size. UTXOs are solely used for tracking balances. Then, the transfer function uses this UTXO, splitting it into multiple new UTXOs of arbitrary sizes, containing different quantities of Runes, and records are sent to others. Compared to BRC-20, Runes reduces a layer of server consensus, making it simpler while not depending on off-chain data and lacking native tokens, making it highly suitable for Bitcoin’s native UTXO model.

According to information revealed by the founder on December 16 during the Taipei Blockchain Week, the official launch of the Rune protocol might be expected by the end of April 2024.

BTNS Protocol

Broadcast Token Naming System (BTNS) is an asset issuance protocol created by J-Dog, one of the early holders and development members of BTC. The fundamental concept is to attach a broadcast signal to each BTC chain transmission, using blockchain records as data basis and ledger indexing as a means, to enable BTC to issue its native chain assets, such as token NFTs.

Source: https://btns.wtf/

Supported Features:

• Token Creation: Tokens, including AML and KYC-compliant tokens, are created through LISTS.
• Issuance: Publishing and updating token information (supply, description, locking, etc.).
• Listing: Creating lists to be used with various BTNS operational commands.
• Minting: Creating or minting tokens.
• Transfer: Moving token balances between addresses.

Functionally, it closely resembles the ERC-20 Token. The roadmap displayed on the official website indicates future capabilities such as airdrops, batch transactions, and token burn operations.

Source: https://btns.wtf/

Current Status of BTNS

Given that the creator is a well-known BTC developer with many years of experience, BTNS had a very comprehensive infrastructure from its inception, including wallets, indexers, and browsers. As of January 10th, as per the browser data, the BTNS system has had over 1700 issuances, with 1443 tokens, generating approximately 47.9k mints, averaging 33 mints per token. This suggests a relatively small user base.

Source: https://btns.xchain.io/

Summary

In addition to BTNS, Bitcoin supports several other asset issuance protocols like BRC-420, BRC-100, Pipe Protocol, and SRC-20. Most of these utilize the UTXO architecture, broadcasting, and Satoshi for asset issuance. As we can see, the protocols developed later tend to have more comprehensive functionalities and broader applicability, and some are even very similar to the ERC-20 Token, enhancing Bitcoin’s block space, memory usage, and operational fee consumption. However, considering the development status, Ordinals Protocol and BRC-20 still lead in asset issuance on Bitcoin, benefiting from their first-mover advantage.

Stakeholders in Inscription-Based Benefits

In the previous section, we analyzed several typical asset issuance protocols. These solutions adopt slightly different underlying technologies and have varying impacts on stakeholders on the Bitcoin chain. Therefore, we will analyze them one by one.

Bitcoin Chain

First, storing large amounts of data on the blockchain can make it very cumbersome, slowing down transaction speeds and also increasing storage costs. This is why the community widely discussed the action of independent developer Udi Wertheimer, who used the Ordinals protocol to inscribe a 4MB (maximum block co-construction) NFT on the Bitcoin chain. This NFT inscription set a record for the largest block and transaction in Bitcoin history.

Blockstream CEO Adam Back, Bitcoin Core developer LukeDashjr, and others believe that the Taproot Wizards’ move has caused the Bitcoin blockchain to rapidly expand in size. It could lead to anomalies in some facilities and even indicate an attack on Bitcoin rather than innovation.

Bitcoin Miners

Typically, miners’ income comes from block rewards and transaction fees. In many asset issuance protocols, users pay miners’ fees based on the content size of the inscription in addition to the basic Gas Fee. For Bitcoin miners, while block rewards are normally issued, an increase in transaction fee income means an increase in mining revenue. With the next halving of BTC (expected in April 2024), miners’ block rewards will further decrease, and transaction fees are expected to become the core source of income for miners. The transaction fees generated by asset issuance and transactions like inscriptions far exceed those of common network transfers.

Web3 Developers

For Web3 developers, most EVM-based systems use an account+balance asset form, whereas Bitcoin adopts a UTXO architecture, making it more difficult to migrate existing product development systems to the Bitcoin ecosystem. Also, Bitcoin’s low TPS prevents it from being the main transactional layer 1. However, the emergence of Layer 2 solutions like Stacks makes deploying applications on Bitcoin feasible.

Inscriptions have ignited the market’s confidence in the Bitcoin ecosystem, attracting foundational users. Many newcomers to the ecosystem, accustomed to the complete EVM ecosystem, have increasingly high demands for Bitcoin ecosystem infrastructure and basic applications. The existing Bitcoin ecosystem only has Layer 2, virtual machines, inscription trading markets, wallets, etc., as its infrastructure. Compared to Ethereum, there is still a large potential market space. Bitcoin’s unique technical architecture may also bring innovations.

Project Teams

Many project teams have revitalized their projects through the inscription craze. Some of the hot projects include:

• Bounce Brand: Bounce Finance is an Auction-as-a-Service (AaaS) protocol, that provides one-stop token issuance services for projects. The platform supports multiple blockchain networks, allowing users to create and participate in various types of auctions, including token and NFT auctions, physical collectibles auctions, advertising space auctions, etc. Recently, Bounce launched auctions for several Bitcoin ecosystem projects. Initially, their valuations were quite low, but subsequent auctions used tokens from earlier projects as “shovels,” resulting in good performance for these projects. Because its native token, AUCTION, is also a “golden shovel” in the auctions, its price has risen.
• Magic Eden: Magic Eden is an NFT marketplace primarily for the Solana blockchain. It has significant influence in the Solana ecosystem, offering a user-friendly interface for artists, collectors, and NFT enthusiasts to easily buy, sell, and explore NFTs. Its features include low transaction fees, high-speed transactions, and a diverse range of NFT collections, making it one of the most popular NFT marketplaces in the Solana ecosystem. In March this year, with the rise of Ordinals NFTs, Magic Eden announced its expansion into the Bitcoin ecosystem, an important step in its multi-chain vision, further strengthening its position in the multi-chain NFT market.

Other similar projects include the Bitcoin Layer 2 network MAPO and the DeFi infrastructure Bakery Swap on the BSC blockchain. Many of these projects directly support Bitcoin, continuously promoting the prosperity of the Bitcoin ecosystem.

Investors / Speculators

In the early days of the Bitcoin inscription, many inscriptions lacked actual value capture, and because the inscription was on-chain and publicly transparent, anyone could participate in the inscription. Initially, without capital attention, it was more about speculators’ hype. However, as infrastructure develops, many funds can directly enter the market in the form of equity or Tokens, further promoting market prosperity.

Other Public Chains

For other public chains, inscriptions do not directly bring significant innovation, as each chain already has its foundational standards. Hence, the main beneficiary of this technology is the Bitcoin ecosystem. As the most valued and industry-faith blockchain representative, Bitcoin’s appeal to developers and builders is undoubtedly huge. As a bull market approaches, the new wealth effect on Bitcoin might further siphon development resources from other public chains.

Impact of Inscription

Firstly, as a non-Turing-complete system, the Bitcoin ecosystem indeed lacks a fundamental technology for issuing assets. As mentioned in the previous text, before Inscription, there were multiple attempted solutions, each gaining some popularity upon proposal. Inscription was no exception, widely discussed in November-December of 2023. Unlike previous solutions such as Colored Coins, this round of the Inscription protocol coexisted with a variety of protocols, with concurrent development in underlying technology and infrastructure.

Following the release of Inscription, wallets and trading markets like Unisat were launched, and established applications like Magic Eden integrated Inscription services. This represented more convenient access and a more user-friendly experience. Exchanges like Gate and OKX also began offering Inscription Token services, further enhancing market recognition and endorsing this asset type. Thus, although many regard Inscription as “rehashing old ideas,” the current market environment and user awareness differ significantly from the past.

While the emergence of Inscription is understandable, the community’s attitude is not unified. Supporters largely believe it benefits the Bitcoin ecosystem. Opponents, led by Bitcoin Core developer Luke Dashjr, view Inscription as akin to chain-based spam, causing network congestion. This concern is not unfounded since Inscription fundamentally involves engraving data on the Bitcoin chain, inevitably occupying some block space.

However, originally, Satoshi Nakamoto did not specify that block usage should be exclusive to non-inscription or other non-conventional transactions. Thus, each “voice” in the community is adhering to its own belief in Bitcoin. Nevertheless, Luke Dashjr suggested optimizing Bitcoin technology to avoid network congestion caused by Inscription, but this was met with opposition and the proposal was eventually closed.

From an ecological perspective, the Inscription craze has exposed more people to the BTC ecosystem, significantly bolstering the user base for the future BTC ecosystem. The emergence of Inscription assets has brought considerable liquidity to the BTC ecosystem, driven by the demand for Inscription infrastructure, as evidenced by various Inscription trading markets and “gold-digger” tools.

Many developers, recognizing the influence of the Bitcoin ecosystem, have chosen to join it, especially Layer2. After the Inscription craze, a series of new Bitcoin Layer2 solutions, such as BitVM, began to flourish. Games like Bitcoin Cats, leveraging the Bitcoin hype to issue assets, also started to emerge. This indicates that it is possible to replicate and transplant the Ethereum ecosystem model onto Bitcoin.

Future Trends

From a technological perspective, Bitcoin inscriptions hold certain technical advantages. Taking NFTs as an example, in the traditional ERC-721 standard, NFTs are not stored directly on the blockchain. As shown in the figure below, the NFTs in the Bored Ape Yacht Club (BAYC) series store images on a decentralized storage platform and then write the storage link in the metadata.

Source: 8807 - Bored Ape Yacht Club | OpenSea

This method reduces the amount of data on the blockchain but does not achieve the goal of permanent preservation. If the decentralized storage platform shuts down, the NFTs would essentially cease to exist. Moreover, some NFT teams also change the metadata to alter the appearance and attributes of the NFTs. In inscriptions, however, images can be directly “engraved” into transactions, ensuring their existence as long as the Bitcoin blockchain operates normally.

Cryptographic analyst Captain Z in his article “The Essence of Inscription Tokens is SFT” proposed a view that inscriptions can be applied in fields like financial notes as SFTs (Semi-Fungible Tokens). SFTs, semi-fungible tokens, are a new type of token that stands alongside FT (Fungible Tokens) and NFTs (Non-Fungible Tokens) as a third type of general digital asset. Being ‘semi’ fungible means they are somewhere between FT and NFTs, combining aspects of divisibility and uniqueness. This concept is similar to BRC-20, where each inscription token represents a certain number of base tokens, but each inscription is unique, akin to NFTs.

The BTC chain lacks smart contract functionality, so the issuance of any assets requires scripts like OP_RETURN or TAPROOT. There are two methods to issue SFTs. BRC-20 adopts the second approach:

1. Add a certain “uniqueness” to the base of FT tokens

2. Add a certain “fungibility” to the base of NFT tokens

In summary, the technology of inscriptions is not futile but rather brings new play to Bitcoin. Although most current inscriptions are meaningless meme tokens, the technology itself will continue to evolve.

Conclusion

At 4 AM on January 11th, the U.S. Securities and Exchange Commission (SEC) simultaneously approved 11 spot Bitcoin ETFs. Now, traditional funds and professional investors can purchase BTC through ETFs. BTC will become a common asset form known to investors in the U.S. and globally. The Bitcoin ecosystem will receive increasing attention. Before the advent of inscriptions in Bitcoin, the mainstream asset issuance was through Token contracts in the EVM system. Now, builders have one more option, and this solution brings different technical characteristics compared to traditional ERC-20/ERC-721. Looking back at Ethereum’s NFT journey, many people have transformed from misunderstanding and not recognizing NFTs to becoming NFT holders.

The relevant ecosystems have been continuously established and expanded into various fields such as gaming and DeFi. Currently, inscriptions’ development is very similar to the early stages of NFTs. The wealth effect has drawn most people’s attention to this track. However, due to insufficient infrastructure and the inability to capture value during the initial bubble period, it appears more like a “Ponzi scheme.” But with the participation of capital, developers, and investors, inscriptions are believed to gradually get on the right track and become one of the core technologies in the Bitcoin ecosystem.