Research on the Bitcoin Ecosystem Inscriptions

Introduction

The Bitcoin ecosystem has witnessed rapid development and significant value growth from the early buzz of inscriptions to the recent surge, drawing market attention. During market fluctuations, the performance of the BRC-20 sector has become a focal point for investors, and the rise of Bitcoin inscription tokens has triggered a substantial wealth effect. Despite some skepticism over the surge in inscription numbers, it’s undeniable that the market’s enthusiasm has also spurred a revival in the Bitcoin community and innovation in the Bitcoin ecosystem.

Market Background

Advancements in Key Technologies

The introduction of Segregated Witness (SegWit) in 2017 was a significant event for the Bitcoin protocol, aimed at addressing Bitcoin’s scalability challenges and specific vulnerabilities. Its primary goal was to solve transaction malleability issues and increase Bitcoin block sizes to accommodate more transactions. SegWit introduced the concept of block weight, breaking the traditional block size limit and allowing a block to contain up to approximately 2,700 transactions, a notable increase from the previous limit of 1,650.

With the Taproot upgrade at the end of 2021, the Bitcoin ecosystem began to support more complex scripts and data types. This gave BTC programmability and scalability, laying the foundation for the massive explosion of the Bitcoin ecosystem in 2023. The Taproot upgrade mainly included changes in transaction verification methods and the introduction of Schnorr signatures. The introduction of Schnorr signatures offered improved privacy protection, especially in multi-signature wallets, by compiling all private keys together, making multi-signature transactions indistinguishable from others. Additionally, Schnorr signatures support batch verification, making transactions across the network cheaper and faster.

Prospects for ETF Approval

Amid the robust growth of Bitcoin’s native ecosystem, the external environment has also undergone dramatic changes, with the proposal of a Bitcoin spot ETF laying the groundwork for Bitcoin’s regulatory compliance. On June 29, 2021, Cathie Wood’s ARK Invest submitted a Bitcoin ETF application, which, after several delays, was rejected by the SEC in April 2022. ARK faced another rejection in early 2023 and submitted its third application for a Bitcoin spot ETF in May. On June 15, 2023, insiders revealed that BlackRock, the largest asset manager, was about to submit a Bitcoin ETF application. Soon after, Fidelity, the third-largest asset manager, joined the ETF application race. The news of Franklin Templeton submitting an ETF application on September 12 further ignited market enthusiasm, leading Bitcoin to complete its final bottom construction.

Evolution of Inscriptions

As shown by Dune Analytics, as of November 23, 2023, Ordinals has reached a cumulative transaction count of 43.27 million, with total transaction fees amounting to approximately 3,875.7 BTC.

Source: https://dune.com/cryptokoryo/brc20

Protocol Overview

Within the Ordinals protocol ecosystem, various tokens, notably BRC20, have created a significant wealth effect, fueling FOMO (Fear of Missing Out) in the market. Over time, more protocols have emerged, including Atomicals, Taproot Assets, Runes, and BRC420. This trend indicates that the Bitcoin ecosystem is moving towards greater diversification. What trends will emerge from the hot developments in the Bitcoin ecosystem? The following is an overview of key protocols.

Ordinals and BRC20

Source: unisat.io

In January 2023, Bitcoin developer Casey Rodarmor released the Ordinals protocol, a Bitcoin-based asset issuance protocol primarily composed of the Ordinals numeral theory and the Inscription process. Casey enabled content to be carried on UTXO in the following way: He assigned unique identifiers to Bitcoin’s smallest unit, the 2.1 trillion satoshis, forming the basis of the Ordinals numeral theory. Inscription is a process of associating content with UTXO. The asset issuance process of the Ordinals protocol is akin to writing information into witness data and recording Token information in JSON format, in the style of BRC20.

On March 8, 2023, an anonymous developer named Domo introduced BRC-20 based on the Ordinals protocol. BRC-20 is a Bitcoin ecosystem token issuance protocol similar to ERC-20. It defines a specific format of JSON data and inscribes it on the BTC chain through Ordinals. Deployers of BRC-20 can decide on the token’s total quantity and name, following a first-come-first-serve principle. $ORDI is the first BRC-20 token deployed by Domo. However, BRC-20 relies on third-party indexing to record ledgers off the BTC chain, adding extra workload to the system and creating a weak point.

Atomical and ARC20

Source: https://docs.atomicals.xyz/

Atomical is a protocol built on the Bitcoin network, aiming to facilitate the creation, transfer, and upgrade of various digital items on the Bitcoin network. This includes native digital NFTs, gaming NFTs, digital identities, domain names, and social networks. Additionally, the protocol supports the creation of interchangeable tokens, enabling the issuance and trading of tokens on the Bitcoin network.

The protocol uses Bitcoin’s smallest unit, Satoshi, as the base unit for tokens. Each Satoshi UTXO represents an independent token, meaning one token equals one Satoshi. By binding UTXOs to tokens, the Atomical protocol successfully avoids the complexity of Ordinals’ off-chain indexing and enhances the decentralization of the entire system.

However, Atomical currently faces some challenges, one significant issue being the introduction of Proof of Work (POW) in the minting process of ARC20 Tokens. Minters need to run a full Bitcoin node to participate in the minting. Although this ensures fairness and decentralization in minting, the high technical barrier limits participation for most people. Additionally, imperfections in the underlying technology can lead to users losing ARC20 Tokens during Bitcoin transactions.

Runes and Pipe

Runes, proposed by Casey Rodarmor, the founder of the Ordinals protocol, aims to address the efficiency issues of BRC-20. Unlike some protocols with complex designs, Runes emphasizes simplicity and convenience. In transactions, Runes prompts the allocation of Tokens to specific UTXOs with output indexes, token counts, and token IDs, without the need for additional off-chain data or native tokens, thus optimizing on-chain data usage.

Initially, the concept of Runes was just an idea. The founder of Trac built the first usable protocol based on it and issued the PIPE token. Due to Casey’s high profile, PIPE inherited the hype from BRC20. Although Runes is more orthodox compared to BRC20, gaining recognition in the BTC community still presents challenges.

Bitmap and BRC420

Bitmap is the first metaverse project in the Bitcoin ecosystem, established on the foundations of ordinal theory and bitmap theory. Ordinal theory numbers the smallest unit of Bitcoin, the “Satoshi,” highlighting its scarcity and utility for carrying data. Bitmap theory, on the other hand, maps each transaction input in a Bitcoin block to a plot of land, forming streets or regions, with the specific size of each plot determined by the varying sizes of transaction inputs.

In Bitmap.land, land is divided and patterns are drawn on a map, similar to the logic of purchasing land on these two platforms. Users inscribe data onto Satoshis to obtain ownership of specific Bitcoin blocks, akin to minting coins for free.

The BRC-420 protocol is an asset protocol based on Bitmap, which creates a variety of assets ranging from small characters and pets to complete game scripts and virtual machines by combining multiple inscriptions into one complex asset. As it is open-source on the blockchain, these assets can be executed or verified on any client.

Overall, the BRC-420 protocol and associated Bitmap projects are driving innovation and vitality within the Bitcoin ecosystem. By creating complex, modular digital assets, BRC-420 is providing new interactive experiences for creators, developers, and users.

Taproot Assets and Nostr Assets

Taproot Assets, developed by the renowned Lightning Labs, is a protocol designed to create and trade various digital assets on the Bitcoin network, integrating with the Lightning Network. The Taproot Assets update expands the Lightning Network from a simple peer-to-peer payment channel to a point-to-multipoint mode, facilitating the distribution and circulation of assets. Unique to this protocol is the registration of Token information in the UTXO output scripts on the Bitcoin mainnet, with transfer functions executed within Lightning channels. A key difference from BRC20 and ARC20 is that Taproot Assets are minted and distributed by an owner, rather than through a fair distribution process.

NostrAssets is an open-source protocol that introduces Taproot assets and Satoshi into the Nostr ecosystem. Users can send and receive assets using the public and private keys of the Nostr protocol layer. Asset settlement and security are dependent on the Lightning Network, while the Nostr asset protocol itself does not issue assets, merely introducing them into Nostr through the protocol.

Notable features of NostrAssets include the seamless integration of Taproot assets and Bitcoin into the Nostr ecosystem, providing developers with tools to create innovative products, enhancing the value of the Bitcoin and Lightning Network ecosystems, and offering a seamless experience from chatting to trading.

This summary covers various Bitcoin-related protocols, including the RGB protocol and BRC100. Following the surge in popularity of BRC20, this trend has also spread to other public chains, including Doge with dogim, Polygon with pols, and Solana with sols.

Conclusion

In conclusion, from the early-year craze for minting to the resurgence of inscriptions, the rapid development of this sector demonstrates the immense vitality and potential of the Bitcoin ecosystem. The future is expected to bring more creative projects and protocols, further enriching the ecosystems of Bitcoin and other public chains. However, the minting track is still in an exploratory phase, awaiting further development and refinement.