PSE Trading|A new paradigm for asset issuance—the next wave of Bitcoin metadata protocols has arrived

This year, the asset issuance protocols on the Bitcoin chain have become the focus of everyone’s discussion. These protocols are all metadata protocols, which define an asset by recording some information in a Bitcoin transaction. The difference lies in the location of the recording, the way of recording, etc. These differences determine the differences in the protocols.

1. What is a metadata protocol?

Blockchain is a linked list structure with hash pointers, which is essentially a database whose state is maintained by distributed nodes. Satoshi Nakamoto decided to create Bitcoin by recording transaction data encrypted by elliptic curve functions and hash functions on the blockchain. The key point here is that as long as you can think of a way to record somewhere which address transferred an amount of which asset to which address, and you can simply verify that the source of the asset is legitimate, the asset has not been spent, the transaction signature is legitimate, etc., then create A digital asset is possible.

In the early days of Bitcoin, someone thought that this information could be recorded in the op_return output, so that the security of Bitcoin could be inherited and new assets could be issued directly on the Bitcoin chain without the need for a new chain. This is the Colored Coin Protocol, the first metadata protocol in history. But unfortunately, the idea of ​​the colored coin protocol was too advanced at the time, and people were still doubtful about the value of Bitcoin. The more convincing way at the time was to build another blockchain and find a new “ledger” to record the transfer of assets.

2. BRC-20: New paradigm of witness field

In February 2023, the emergence of the Ordinals protocol once again opened up people’s imagination of the Bitcoin ecosystem. The Ordinals protocol gives each Satoshi a number in the order in which it is mined, and records arbitrary data in the Segregated Witness field of a Bitcoin transaction, calling it an inscription, and defines the first UTXO output of this transaction. The owner of a Cong has the ownership of this inscription.

Since you can put any data in the witness field, you can naturally put text data recording transaction information into the witness field. This is the BRC-20 series of protocols. They put text data including the protocol version number, operation type, name of the issued asset, and transfer amount into the witness field of a Bitcoin transaction input, thereby defining the deployment of a BRC-20 asset. , inscription and transfer.

The BRC-20 protocol has aroused enthusiastic responses, and its main assets include $Ordi, $Sats, etc. $Ordi is the first token of the BRC-20 protocol. It was deployed on March 8 this year. It was fully minted within two days of deployment, with a total supply of 21 million. Its market value reached US$630 million in May, and its current market value is about US$410 million. The popularity of $Ordi has led to the continuous deployment of various BRC-20 assets, the most representative of which is $Sats, which was deployed on March 9 with a total of 2,100 trillion, and it was not fully engraved until September 24. The market value of $Sats once surpassed $Ordi, and its current market value is about $270 million.

After BRC-20, a series of asset issuance protocols based on Ordinals began to appear, but they are not essentially different. They all put metadata into the witness field. Its biggest advantages are free deployment, public inscription, simplicity and ease of understanding, and high transparency. All information is disclosed on the chain, and everyone can check what they are transacting on the chain. Such characteristics have created a popular atmosphere for BRC-20, and “gamblers” have entered the market one after another, deploying or engraving assets that they believe will increase many times.

But on the other hand, the BRC-20 series asset issuance protocol makes Bitcoin transaction fees very expensive. This is naturally good news for large miners, but for small nodes that maintain the status of Bitcoin, the BRC-20 series protocol has The footprint on the chain is serious, and a large amount of UTXO with an amount of 546 satoshis will be generated, which makes their operating costs also rise.

3. Runestone: retro op_return reappears

Casey Rodarmor, the founder of the Ordinals protocol, tweeted on September 26, 2023, proposing the idea of ​​a new metadata asset issuance protocol Runes (later renamed Runstone). Casey said that the original intention of the Ordinals protocol was to create a beautiful “art gallery” in Bitcoin, but the madness of BRC-20 is endangering Bitcoin, and no one can stop “gamblers” from participating in gambling, so he raised hopes The idea of ​​establishing a cleaner metadata asset issuance protocol so that “gamblers” can continue to “gamble” without creating a large number of UTXOs and increasing the burden on nodes.

Runstone is a replica of the ancient colored coin protocol, which records the metadata of the defined asset into the op_return output of a Bitcoin transaction. op_return is a special Bitcoin script opcode. Any instructions after op_return will not be executed, so the UTXO containing op_return is considered never to be spent, and thus can also be eliminated from the UTXO set to reduce node maintenance costs. Therefore, any information can be recorded in the op_return output (this output does not need to contain Bitcoin), and the footprint on the chain is relatively clean, and the burden on the nodes is relatively small.

The concept of Runestone has aroused heated discussions, but unfortunately Runestone has not been implemented until today. However, Benny, the founder of TRAC, soon launched a similar asset issuance protocol - Pipe Protocol, which is also a metadata asset issuance protocol that stores data in the op_return output. The Pipe protocol inherits Casey’s desire to create an asset issuance protocol with a clean footprint on the chain. It also inherits the core concept of the BRC-20 protocol, which is free deployment and public inscription. This is not in Runestone’s plan. Obviously Casey believes that free deployment and public inscription are the main culprits that cause congestion in the Bitcoin blockchain. Therefore, in Casey’s vision, Runstone will be an asset dominated by airdrops by the project side. Issuance agreement, but the market obviously prefers the method of free deployment and public inscription.

The first token of the Pipe protocol, $Pipe, was deployed on September 28, with a total supply of 21 million and a current market value of approximately US$30 million. Although $Pipe is publicly engraved, it is one of the few project-owned tokens among the many tokens currently. The TRAC team stated that $Pipe will be governed by $Tap, and $Tap is the first token of the TAP protocol, another BRC-20-like asset issuance protocol developed by the TRAC team, and $Tap will be governed by $Trac. is a BRC-20 token.

The biggest shortcoming of protocols such as Runestone and Pipe is the limited storage space of op_return. This limitation does not have a big impact on homogeneous assets, but it has obvious constraints on non-fungible assets.

4. Taproot Asset Protocol: Achieving substantial capacity expansion with on-chain commitments

There have always been attempts to issue assets on the Bitcoin chain. For some very idealistic cypherpunks, they do not believe in issuing speculative assets on the Bitcoin chain for “gamblers” and miners to enjoy. necessary. They strive to prevent the asset issuance protocol from affecting the normal use of the Bitcoin network. In order to do this, they spend more time developing more complex technologies.

The Bitcoin Lightning Network development team Lightning Labs began developing a Lightning Network stablecoin protocol called Taro in April 2022. It was renamed Taproot Asset in May 2023. Later, on October 19, 2023, Taproot Asset officially launched its first main currency protocol. Net version. Lightning Labs’ vision is to combine the Lightning Network with the issuance of stable currency assets to enable global foreign exchange transactions and replace the fiat-dominated retail transaction payment system in some areas.

The Taproot Asset protocol is also a metadata asset issuance protocol, but Taproot Asset neither stores data in the witness field of the transaction input nor in the op_return output. In fact, Taproot Asset does not store data directly on the chain, but commits the data into a script path of P2TR type UTXO. Therefore, judging from the results, a Taproot Aesst deployment and transaction will leave almost no footprints on the chain, because in the eyes of observers, it is just an ordinary Bitcoin transaction transferring money to the Taproot address.

So is this safe? The answer is yes, because every time a Taproot Asset is transferred, a Merk proof of metadata needs to be submitted. If there are double spends or unexpected changes, the final root hash value will also be It is different from what is expected and is rejected.

Due to technical complexity, there are currently not many assets issued through the Taproot Asset protocol. Among them, the most popular one is the Nostr Assets Protocol, which is a Bitcoin ecological project that combines the Nostr protocol, the Taproot Asset protocol and the Lightning Network. There are two types of initial tokens, $Trick and $Treat, with 210 million each. Currently, only 20% are released through airdrops, and the rest are currently retained by the Nostr Assets team. $Trick and $Treat are assets issued through the Taproot Asset protocol. The Nostr Assets team said that in the future, it will develop a public inscription method so that people can freely deploy and inscribe Taproot Asset protocol tokens on the project platform.

However, Taproot Asset is not a perfect solution. It is technically too complex, which is not conducive to user understanding and trust, and may have unpredictable vulnerabilities. Moreover, the verification cost of Taproot Asset has increased exponentially, which is not a small cost for both users and third-party institutions. The most important thing is that Taproot Asset does not store metadata on the chain, so users need to save the metadata locally or have a universe similar to a third-party organization store the data.

5. The BRC-20 wave was photographed. What are the advantages and disadvantages of Runestone & Taproot Asset?

BRC-20 series and Runestone series

1. The biggest advantage of the Runestone series protocols compared to the BRC-20 series is also the biggest disadvantage of the BRC-20 series - heavy on-chain footprint. BRC-20 will generate a large number of abandoned UTXOs. This is because the BRC-20 protocol adopts an account model when maintaining the ledger. It needs to maintain how many assets each “account” has, so the holder needs to inscribe “ Transfer” to specify the amount that needs to be transferred to the target address. The Runestone series protocols use a UTXO model similar to Bitcoin when maintaining the ledger, that is, when transferring, mark the amount transferred to the target address and the amount given in change to yourself. This design has two benefits. First, it greatly reduces the footprint on the chain and reduces the pollution of the asset issuance protocol to the Bitcoin chain. Second, for off-chain indexers, the cost of maintaining the ledger is lower and the operation is simpler.

2. The Runstone series protocols are more conducive to large-scale airdrop issuance. This is not necessarily what “gamblers” want to see, but it may be what institutional investors want to see. But this is not absolute. For example, the Pipe protocol also supports the form of public engraving that “gamblers” like.

3. The BRC-20 series has larger storage space. The BRC-20 series based on the Ordinals protocol stores data in the witness field of the transaction input, and this information can enjoy the Segment Witness discount, so in theory, as long as the data put into the witness field is large enough, you can create a nearly 4MB size Transactions (the largest Ordinals NFT is 3.94MB in size, with one transaction occupying almost the entire block). By introducing recursive inscription technology, larger non-fungible assets can also be created. The Runestone series will face the op_return80KB size limit, which will greatly restrict the issuance of non-fungible assets through them. Even when issuing homogeneous assets, too large a transaction cannot be issued at one time.

Taproot Asset Protocol and the first two series

The complex design of Taproot Asset is to reduce the on-chain footprint and be compatible with the Lightning Network, but it carries a completely different mission. But as an open source protocol, it will be hyped by “gamblers” as long as it can. Therefore, here we only compare the Taproot Asset protocol with the first two series from this aspect.

1. Same as the previous two series, Taproot Asset also needs to introduce third-party trust. The first two series need to trust the off-chain index, and Taproot Asset needs to trust the universe that stores and verifies metadata. But there is a difference. The data structure of Taproot Asset is designed to ensure the simplicity and reliability of Universe verification. However, considering that the complexity of Taproot Asset makes it difficult for users to understand and trust, there is still uncertainty in the verification cost of Universe. . Moreover, a lot of investment has been made in the off-chain index construction of the BRC-20 series. Therefore, it can be speculated that in the short term, Taproot Asset Universe will have higher overall costs due to slow construction and slow user acceptance. But in the long run, the comprehensive cost of Taproot Asset Universe may be lower than the BRC-20 series.

2. During development, Lightning Labs paved the way for Taproot Asset to connect to the Lightning Network in terms of technical details. This is the biggest advantage of the Taproot Asset protocol compared to the previous two series. Taproot Asset can be traded in the Lightning Network, which further reduces Taproot Asset’s on-chain footprint, does not push up Bitcoin network rates, and allows traders to avoid high transaction fees. On the one hand, the current BRC-20 series makes the Bitcoin network fees expensive. On the other hand, when users trade BRC-20 series assets, they may have to bear more than 10 US dollars in transaction fees for a single transaction due to the fragmentation of UTXO in their wallets.
   

3. Similar to the Runstone series, the Taproot Asset protocol is more conducive to large-scale airdrop issuance. But it is not absolute. For example, Nostr Asset Protocol has promised to support public engraving.

4. However, the Taproot Asset protocol is not as good as the previous two series and the Ordinals protocol in its ability to issue non-fungible assets. As Musk recognized, the first two series and the Ordinals protocol both write data to the blockchain, and every pixel of each picture is written to the blockchain. The non-fungible assets issued through Taproot Asset are only promised to be on the chain, and the specific data is saved locally or in the universe. If the data is lost for any reason, the hash value promised on the chain will have no meaning.

6. Summary

The main difference between different metadata protocols is the different recording locations of data in the blockchain, different recording methods, and different ledger maintenance methods. These differences determine the characteristics of the different protocols. Protocols that record data in witness fields, such as the BRC-20 series protocols, have sufficient data space but have a heavy on-chain footprint, and their account models will generate a large number of discarded UTXOs, burdening nodes. Protocols that record data in op_return, such as Runstone or Pipe protocols, improve this aspect. The Taproot Asset protocol, which promises data on the chain, has the cleanest on-chain footprint, but its technology is complex and not conducive to user understanding and trust.

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