Amidst the Ordinals and BRC-20 Hype: An Overview of the Four Major Directions in Bitcoin Scalability Development

The advent of Ordinals NFTs and BRC-20 tokens has once again pushed the topic of Bitcoin’s scalability into the limelight. This article examines Bitcoin’s scalability development from four perspectives: levels of scalability, decentralization, ledger security, and implementation difficulty. We also analyze the growth trends of each direction.

The emergence of Ordinals NFTs and BRC-20 tokens has thrust Bitcoin’s scalability back into the forefront. Currently, Bitcoin’s ecosystem has two primary camps: conservatives, who believe Bitcoin should retain its pure monetary nature, only serving as a store of value without any other scalability forms; and progressives, who argue that Bitcoin needs to expand to host more native applications and drive its growth in a scalable and sustainable manner.

There seems to be no consensus between the two camps. So, is there a solution that can satisfy both the conservative and progressive perspectives while allowing Bitcoin holders to make choices based on their needs? Below, we delve into the four major directions for Bitcoin’s scalability development, analyzing the growth trends for each.

Non-upgradeable Scaling:

Non-upgradeable scaling refers to not changing the existing Bitcoin technical system, but rather leveraging its current features to achieve certain types of expansion. Representative technologies include RGB and Bitcoin Script. RGB is an extensible, encrypted smart contract system that runs directly on the Lightning Network. However, all data it generates is off-chain, which means the ledger’s security isn’t reliant on the main Bitcoin network’s security.

Ordinals uses the Bitcoin Script to append additional data, assigning a unique serial number to each of Bitcoin’s smallest units, Satoshis (Sats). This method only offers minor improvements to Bitcoin’s scalability. At present, there’s a market hype around Bitcoin NFTs and BRC-20 tokens, but their long-term value remains to be seen.

Disregarding the third-party functionalities attributed to Sats, from the perspective of the Bitcoin mainnet, the data accompanying various scripts are perceived as meaningless gibberish, wasting Bitcoin block space and causing transaction congestion. This has led to strong dissatisfaction among some Bitcoin community members.

Overall, non-upgradeable scaling solutions are decentralized and don’t require a consensus from the entire Bitcoin community. However, RGB can’t leverage the consensus security of the main Bitcoin network, and scalability improvements achieved via scripts in Bitcoin transactions are quite limited.

Sidechain

The second approach is the sidechain, which constructs a separate chain and links it to the Bitcoin mainnet using specific cross-chain technologies. This once-popular and relatively straightforward method for Bitcoin scaling was primarily favored because sidechain projects could issue their own tokens. As these tokens appreciated in value, they garnered interest from both the community and the market. However, primary stakeholders of this method faced challenges when scaling Bitcoin.

1.Projects like Liquid (by BlockStream), Stacks, and Rootstock map BTC to their sidechains via bi-directional cross-chain bridges. While they share this common feature, there are subtle differences.

2.Liquid operates more like a Bitcoin consortium chain formed by large institutions, requiring a multi-signature protocol from these institutions for the mapping and transfer of BTC between the sidechain and the mainnet.

3.Stacks utilizes Bitcoin sidechain technology to issue new tokens. Its PoX protocol allows miners to pledge BTC by staking STX. Yet, how this protocol accomplishes decentralized distribution remains under scrutiny.

4.Rootstock employs merged-mining sidechain technology, with BTC cross-chain transfers controlled by multi-signatures from multiple institutions (BTC to rBTC).

However, not everyone can access the sidechain nodes, and ledger consensus depends on certain centralized institutions. This centralization is likely why, despite numerous attempts, sidechain scaling solutions haven’t achieved large-scale adoption.

Upgrade-based Scaling

Upgrade-based scaling involves updating the technical architecture or system of the Bitcoin network. A notable example is the BIP-300/301 proposed by the LayerTwo Labs team. Their scaling concept, called Drivechain, essentially uses Rollup for expansion. Currently, LayerTwo Labs’ approach involves creating a hard fork of a PoW mainchain with BIP-300/301. When the Bitcoin community reaches a consensus and accepts this mainchain, the Bitcoin mainnet will be upgraded to BIP-300/301. Overall, the LayerTwo Labs solution can ensure Bitcoin’s decentralization and address scalability. However, such an upgrade requires a consensus from the Bitcoin community, which, given the current community atmosphere, is challenging to achieve.

One-way Transfer

Two-way transfers in Bitcoin are a common method in cross-chain and sidechain scenarios. The one-way scaling solution for Bitcoin was proposed by the Hacash community and the Hacash.com team. This method irreversibly transfers Bitcoin to a theoretically more decentralized and technically mature new chain and then adopts a multi-layered approach for scalability. Hacash’s first layer enables the one-way transfer of Bitcoin, moving BTC from the Bitcoin chain to the Hacash chain. During this process, the user’s private key remains unchanged, allowing them to use Bitcoin on the Hacash chain directly with the same private key, without transferring control to any other entity. Based on the Hacash chain, there are Layer 1 and Layer 2 payment networks, and the Hacash.com team also introduced a Layer 3 multi-chain scalability infrastructure. Bitcoin can be used for instant payments on Layer 2 and for application scalability on Layer 3. Layer 2 essentially uses state channels for immediate payments, while Layer 3 utilizes multi-rollup and customizable scalability methods with multi-rollup. Overall, the Hacash chain, which accepts BTC one-way transfers, still employs a pure PoW consensus mechanism, allowing anyone to run a full node. Atop this, the second and third layers address scalability issues. Anyone can opt to transfer their BTC to the Hacash mainnet, with each Bitcoin holder determining their scalability needs, making implementation relatively easier than other solutions.

Summary

There are four main methods to expand the Bitcoin ecosystem: non-upgrade scaling, sidechains, upgradeable scaling, and one-way transfers. Non-upgrade scaling cannot achieve both robust scalability and ledger security at the same time. Sidechains present centralization issues, upgradeable scaling is difficult to implement, and while one-way transfers seem relatively good across the four evaluation dimensions, they have not garnered widespread attention in the market.

Over the past decade, Bitcoin was created with the aim of decentralizing currency, with its primary function being proven as a store of value. Theoretically, no expansion is needed to achieve this aim. How to scale Bitcoin while maintaining its value storage capability, and even ensuring its sustainable development after all 21 million coins have been mined, will undoubtedly be the primary direction for Bitcoin’s future development.

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