Bitcoin Native Economics - The Patterns Behind the Bull Market

Original Article Title: Bitcoin Native Economics, Understanding the Patterns Behind This Bull Market | Bitcoin Native Narrative ⑦

What is Bitcoin Native Economics?

Bitcoin’s limited supply of 21 million units makes it a scarce resource similar to precious metals like gold, possessing the characteristic of value storage. On the other hand, the scalability of the Bitcoin network is limited; each block can only process a limited number of transactions. When the volume of transactions exceeds the available space, it leads to slow transaction times and high fees, making it very difficult to build applications on the Bitcoin network.

With the launch of the Lightning Network in 2018, the cost of building applications on the Bitcoin network started to decrease gradually. The introduction of protocols such as Ordinals in 2023 made it easy to create NFTs on the Bitcoin blockchain… Thus, Bitcoin began to transcend its single narrative of “value storage” and is set to welcome an increasingly active ecosystem and a new economic operating system.

In short, the core of Bitcoin Native Economics is centered around the narrative of native elements such as Blocks and Satoshis, transitioning from “Code is Law” to “Block as Ledger” methodology, emphasizing the role of blockchain as a fundamental ledger, aligning more with Bitcoin’s minimalist philosophy.

Currently, nearly all protocols, standards, infrastructure, applications, and projects revolve around the 6 native elements of Bitcoin.

1. Sats (Satoshi)

Satoshi (abbreviated as Sat) is the smallest unit of Bitcoin, with one Bitcoin containing 100 million Satoshis.

Applications: Ordinals and Rare Sats

Ordinals is a protocol based on Sats for creating digital artifact assets, proposed by Casey Rodarmor. Under this protocol, a single Satoshi can be inscribed with any content, creating unique Bitcoin-native digital artifacts, i.e., NFTs. This means a single Bitcoin could create up to 100,000,000 NFTs. These NFTs are traceable and transferrable, operating directly on the Bitcoin blockchain without relying on layer-2 solutions. This method offers higher security compared to most NFTs stored on external servers. The Ordinals protocol has significantly increased the income of Bitcoin miners and the on-chain fee revenue, enhancing support for the BRC-20 asset class and the entire Bitcoin ecosystem.

Currently, NodeMonkes and Runestone are the two hottest NFT projects on the Ordinals protocol, ranking fourth and sixth in total on-chain NFT market value as of March 20.

Rare Sats. Not all Satoshis are created equal; some are rarer than others, creating a market for Rare Sats. For example, the first Satoshi mined after a Bitcoin halving event is considered rarer than others in the same block, categorized as an Epic Sat. The Rodarmor Rarity Index classifies Satoshis as Common, Uncommon, Rare, Epic, Legendary, Mythic. Rare and uncommon Satoshis are highly sought after and are becoming increasingly popular as collectibles.

Specialized Rare Sats platform: https://sating.io/

In-depth analysis: #Can Bitcoin Ordinals surpass Ethereum NFTs? | Bit Native Narrative ③

2. UTXO (Unspent Transaction Output, Unspent Transaction Output)

UTXO is the fundamental unit of Bitcoin transactions. The transfer of value in Bitcoin is achieved through the transfer of UTXOs, and each UTXO is an indivisible whole that cannot be split into smaller units. The balance of a Bitcoin account is not stored in a central database like traditional accounts but is calculated by scanning the blockchain and aggregating all UTXOs belonging to the user.

This can be imagined as spending specific coins from a wallet, rather than from a generic pool of funds. For example, suppose 1 BTC is a coin, and you want to spend 0.5 BTC to buy something from person A. In this case, you need to give A a coin valued at 1 BTC, and then A returns you a coin valued at 0.5 BTC. You cannot directly cut 0.5 BTC out of 1 BTC to give to A.

UTXOs have multiple advantages: Each UTXO can be traced back to its source, allowing for transparent auditing and tracking of all transactions on the Bitcoin blockchain; UTXO transactions do not directly reveal the user’s total balance, providing privacy benefits; and make it difficult to forge transactions or spend bitcoins that have not been received.

Applications: Runes Protocol and Pipe Protocol

Considering that transactions related to BRC-20 tokens occupy a large proportion of the Ordinals protocol, generating a significant on-chain footprint and occupying space on Bitcoin, Ordinals protocol creator Casey Rodarmor proposed a new UTXO-based protocol called Runes. This protocol generates a smaller on-chain footprint and encourages responsible UTXO management. Runes will go live on the mainnet in late April, coinciding with Bitcoin’s fourth halving.

Pipe Protocol, also known as the first UTXO Rune protocol, aims to introduce digital assets and NFT functionality to the Bitcoin ecosystem while leveraging the security and efficiency of UTXO transactions.

In-depth interpretation: #Runestone airdrop is coming soon, what kind of Alpha will the Runes Protocol intended to replace BRC20 breed? | Bit Native Narrative ①

3. Data

Data is the fundamental information unit of cryptocurrencies like Bitcoin, including transaction data, signature data, metadata, etc., verified and transmitted through cryptographic algorithms, and stored in the blockchain. Data is the value carrier of cryptocurrencies like Bitcoin and the basis of the consensus mechanism.

Application: Digital Matter Theory (DMT)

DMT proposes a framework for creating new digital assets, focusing onData on the Bitcoin block itselfNon-Arbitrary Value derived from .

DMT attempts to get rid of the situation of assigning arbitrary value (Arbitrary Value) to digital tokens. For example, the value of an NFT is often subjective and not based on any clear or objective factors, so it is assigned an arbitrary value.

Under the framework of DMT, the value and supply of new digital assets are based on theInherent properties and data in Bitcoin blocksdetermined by the mode.

The proposal of DMT has opened up a new continent for the blockchain that is equivalent to smart contracts. From smart contracts following Code is Law (code is law) to block elements following Block as Ledger (block is ledger), returning to Bitcoin’s Minimalism allows us to examine from a new perspective what is the native digital substance of Bitcoin, which is unique to the ecological characteristics of Bitcoin and is discovered from block elements rather than arbitrarily created by contracts.

It is worth noting that DMT was originally proposed by some physicists, who believed that digital information can be regarded as a digital substance similar to physical substances (such as wood or metal). It is predicted that the use of digital information in the future may exceed atom. Just like the real world is made up of elements, the periodic table of elements provides a theoretical basis for finding new elements in the real world. Scientists use the periodic table to find new substances (such as semiconductor materials, catalysts, etc.) in a certain area to serve the construction of the real world. The blockchain technology community promotes the acceptance and sustainable development of DMT in the Bit ecosystem.

Also based on DMT is the Non-Arbitrary Token (NAT) issuance mechanism, as well as the first token $NAT under the NAT issuance protocol.

In-depth interpretation: # What is digital matter theory? Can’t tell the difference between NAT and $NAT? DMT ten questions to help you understand | Bit native narrative ②

4. Block

A block is a fundamental component of Bitcoin’s decentralized and distributed ledger system, supporting the network’s integrity and security by ensuring all transactions are verified and recorded in a transparent and immutable manner. Since each block contains a wealth of information, including timestamps, transaction details, and unique identifiers, utilizing block data is becoming a trend in digital asset exploration. This includes creating assets like fungible tokens (FTs) and non-fungible tokens (NFTs) by leveraging various types of data.

Application: Bitmap

Bitmap, proposed by Bitoshi Blockamoto, is a specific concept under the DMT framework that utilizes Bitcoin blocks to create a new type of digital asset.

A block is no longer just a collection of transactions but is considered a “Digital District” in the virtual world. Transactions within the block are viewed as “parcels” in this digital district, with the specific data points and characteristics of each transaction determining the nature of the parcel. Owning a Bitmap is akin to holding a deed to land in the digital world, similar to a real-world property deed, and is one of many digital material types in DMT, existing in the form of an NFT. For analogy, Bitmap can be compared to land in Decentraland, with $NAT being analogous to MANA (refer to our previous article: On $NAT and Digital Material Theory: From “Unity of All Chains” to “Unity of All Universes”).

In-depth interpretation: # Can Bitcoin blocks be turned into “land”? How to play the “non-arbitrary” Metaverse Bitmap? | Bit Native Narrative ⑤

5. Bit

A bit is the smallest unit of data that computers can process and store, represented by a single binary value, typically 0 or 1. It is a core element of digital technologies such as blockchain. The name Bitcoin is derived from the term “bit”. Analyzing the conceptual map of Bitcoin’s native six elements, BIT is considered the underlying element alongside Sats, UTXO, Block, DATA, and POW, serving as the foundational dimension for the other five elements. BIT was introduced by Claude Shannon in his 1948 paper “A Mathematical Theory of Communication”, as the smallest unit of information. It was incorporated into data formulas, laying the foundation for information theory with its three main laws.

The advent of bits led to the development of public-key cryptography, computers, networks, Moore’s Law, and the now thriving information industry, Bitcoin, and blockchain.

Application: $DMT-BIT Has the Potential to Become the Largest MEME Coin in the Bitcoin EcosystemApplication: $DMT-BIT Has the Potential to Become the Largest MEME Coin in the Bitcoin Ecosystem

$DMT-BIT is a non-arbitrary asset issued based on the DMT and NAT protocols, with its quantity derived from the number 11 element BITS in the block element table. The numerical value of the BITS field determines the computational effort and mining cost for PoW mining machines, making $DMT-BIT a tokenization of the block element Bits field. The value of $DMT-BIT and the cost of POW mining are expected to be entangled at the quantum level.

In-depth interpretation: #Bitcoin: All the mysteries start from BIT | Bit native narrative ⑥

6. PoW (Proof of Work)

PoW is the consensus mechanism first introduced and widely adopted by Bitcoin. It involves solving complex mathematical problems with computational power to earn new digital currency rewards. Both smartphones and computers can participate in PoW, making it accessible with a relatively low entry barrier and high popularity.

Application: Atomicals Protocol

The Atomicals Protocol, built on the Bitcoin network, facilitates the creation, transfer, and enhancement of digital assets such as native digital NFTs, gaming NFTs, digital identities, and domains. A key aspect of this protocol is the introduction of the ARC-20 token, an interchangeable token standard. The Atomicals Protocol’s ARC-20 token standard enables decentralized minting, allowing the community to participate in the token creation process through the PoW mechanism to calculate and obtain the minting rights for ARC-20 tokens.

Deep Dive: # See the sun behind the clouds and see how Atomics Protocol can revive Bitcoin? | Bit Native Narrative ④

Why Focus on the Bitcoin Ecosystem?

According to a Bitget analysis report in December 2023, the Bitcoin ecosystem’s continued expansion and demand upgrade could potentially break its price past previous peaks. In this context, Bitcoin could reach a valuation of $100,000 during a bull market.

Data published by Cryptoslam.io on March 20 shows that NFT sales over the past 7 days reached $327,969,100, a 7.56% decrease from the previous 7 days. Among the analyzed 21 different blockchain NFT sales, Bitcoin ranked first with sales amounting to $130.91 million, marking a 25.97% increase. Ethereum ranked second with sales of $97.24 million, experiencing a 30.30% decrease. The unclassified BRC-20 as part of the Ordinals became the highest-grossing NFT series of the week, with sales reaching $70,073,053, followed closely by the Nodemonkes series with $15,542,910 in sales, up 4.65%.

The vigorous growth signs of the Bitcoin ecosystem are clear, driven by the continuous innovation and evolution in the issuance of Bitcoin native assets. The proposal of a “Bitcoin native economy” aims to clarify the issuance patterns of Bitcoin native assets, which is crucial for future investments.

#2023 Bitcoin Report: Deja Vu Returns

Disclaimer:

1. This article is translated from Crypto Kitchen, originally titled “Bitcoin Native Economics: Understanding the Pattern Behind This Bull Market | Bitcoin Native Narrative ⑦,” with copyright belonging to the original authors [NavigatorLabs, Crypto Kitchen, Rebbeca]. If there are any objections to this repost, please contact the Gate Learn team, and the team will address the issue according to the relevant procedures as quickly as possible.

2. Disclaimer: The views and opinions expressed in this article are those of the authors and do not constitute any investment advice.

3. Translations of the article into other languages by the Gate Learn team must not be copied, disseminated, or plagiarized without mentioning Gate.io.