Revolutionizing Bitcoin: An In-Depth Analysis of the Atomics Protocol

Introduction: March 9th, 2024 marked the one-year anniversary of the experimental asset protocol BRC-20. In just a year, we’ve seen the birth of the Ordinals protocol, the release of BRC-20, and the rise of new protocols, breathing life into the previously barren BTC ecosystem.

Technically, BTC’s asset issuance schemes fall into two camps: UTXO-bound and non-UTXO-bound. The key difference lies in how token data relates to UTXOs on the Bitcoin chain.According to this distinction, BRC-20 belongs to the non-UTXO-bound assets, while ARC-20, which is governed by the Atomicals protocol, pioneered the UTXO-bound assets.

This article delves into the Atomicals protocol’s history, present, and future, focusing on its innovative ideas, technological advancements, and ecosystem development. Readers will gain insight into why we consider the Atomicals protocol a game-changer in the BTC ecosystem.

Image source: https://twitter.com/okxweb3/status/1765967704282816873

Main article:The birth of the Atomicals protocol was quite dramatic, the founder Arthur wanted to develop a DID project on top of the Ordinals protocol when it was first released, but during the development process, he found that the Ordinals protocol had a lot of limitations that were not conducive to supporting some of the features he wanted to implement.

So, on May 29, 2023, Arthur tweeted the first tweet about the idea of the Atomicals protocol, which went live on September 17, 2023, after several months of development.

Later, the Atomicals protocol spawned four major concepts such as Dmint, Bitwork, ARC-20, RNS, and in the future, AVM and Split Solutions. In the following article, we will launch the principle explanation for these typical product innovations to help you understand the innovation of Atomicals more quickly.

Image source: https://twitter.com/atomicalsxyz/status/1761738325176553535

Bitwork: Non-exclusive PoW

The Atomics protocol adds PoW to the token minting process. This link is called Bitwork. The principle is similar to Bitcoin mining.It is set up for current limit and anti-witch.

Let’s first look at the principle of Bitcoin mining: Miners continuously provide different input values ​​​​to a given algorithm locally, trying to make the output value comply with the requirements of the Bitcoin protocol. A miner may get lucky and get a result that meets the conditions. At this time, the corresponding output value and input value are written into the block as a “voting certificate” and used as a bargaining chip to obtain mining rewards. Next, as long as the new block is recognized by the vast majority of nodes in the network, miners can obtain BTC rewards.

(Simple schematic of bitcoin mining)

In the scheme of the Atomicals protocol, you need to perform a similar process to get input and output parameters that meet the constraints to be eligible to mint tokens. Also similar to Bitcoin, Atomicals can dynamically regulate the difficulty of mining, for example, the protocol can specify in advance:

Miners seeking rewards must find a set of parameters. When these parameters are input into a designated algorithm, the output must meet the following conditions: the first four digits are all 6, and the fifth digit is greater than 10 (in hexadecimal). These conditions are relatively lenient. However, the Atomicals protocol can periodically change these conditions. For example, it might require that the first five digits of the output are all 6, tightening the conditions and increasing the mining difficulty for miners.

(Bitwork condition example diagram)

Bitwork and Bitcoin mining are fundamentally different: Bitcoin mining is exclusive, while Bitwork mining is non-exclusive. For example, after blocks numbered 99 and 100 appear in the Bitcoin network, different mining pools compete for the right to record block 101. Ultimately, only the block 101 provided by one mining pool will be recognized by the Bitcoin network, while blocks submitted by other mining pools will be “invalidated.” This exclusivity is inherent in Bitcoin mining.

It is obvious that the harsh exclusivity competition is not conducive to the survival of individual miners. Many small miners will eventually contribute their mining machines to large mining pools, which will use them as a collective entity to aggregate a large amount of computing power and compete with other mining pools. Undoubtedly, this will lead to a tendency of high centralization of computing power within the Bitcoin network, a point that is even explicitly mentioned in the Ethereum white paper.

In contrast to Bitcoin mining, ARC-20 mining under the Bitwork protocol is non-exclusive, i.e., there is no strict competition between different miners, and as long as the current asset minting volume of Atomicals does not exceed the well-specified total amount, the mining results (token minting declarations) given by the miners through the Bitwork mechanism will eventually be included in the protocol’s history.

Let’s imagine the following scenario: suppose an ARC-20 asset that follows the Bitwork protocol starts to be issued, allowing users to mine in the form of casting, someone gives a lower gas, but there are a lot of people involved in asset casting, the gas fee immediately skyrockets, and the casting request that gave a low gas before will be stuck all the time and can’t go up the chain. But as long as this ARC-20 asset is not played out, then when the gas fee comes down, this mint request will still be recognized and trigger the casting behavior.

In a word, Bitwork only looks at the remaining mintable amount of the asset, not the order of the minting request, and under the Bitcoin mining protocol, the miner who submits the block late will in all likelihood be eliminated by the other miners.

Undoubtedly, Atomicals lowers the participation threshold of miners/asset mounters. The traditional PoW public chain is constrained by the huge mining difficulty, and the right to mine blocks is basically monopolized by a few major mining pools, so there is only a very low probability that individual miners can successfully mine, while Bitwork’s improvements greatly weakened the position of the centralized mining pools, which is more conducive to participation by individual miners, and the assets are distributed in a more fair way. The asset distribution is more fair.

Considering that PoW itself is a fairer asset distribution scheme than PoS and ID0, the Atomicals protocol further increases the fairness of asset distribution by injecting the value of physical resources and the presence of random luck (mining is the process of striking it lucky). This further contributes to the development of the “Fair Launch” concept.

ARC-20: more like a colored coin than an inscription

In fact, many people misunderstand the concept of ARC-20, which is included in the Atomicals protocol, thinking that it is also an inscription protocol. But in fact, ARC-20 is closer to coloring coins, it will be the smallest unit of bitcoin sat as the basic “atoms”, each bitcoin UTXO corresponds to the number of sats, on behalf of the amount of its bound ARC-20 assets, 1 sat = 1 Token.

Here we take a kind of ARC-20 called “TEST” as a case study to explain its operation principle.

First, the TEST token issuer has to determine which block of Bitcoin is to be used as the TEST’s “genesis block”, and record the initialization information in one of the Bitcoin UTXO transaction scripts in the genesis block, which includes token symbols, total supply, and so on, and this process is actually equivalent to coloring, coloring the sats in the existing Bitcoin UTXO into a form bound to the ARC-20 assets. Sats in the Bitcoin UTXO, coloring them into a form tied to ARC-20, and how much of this Bitcoin UTXO has a sats balance is equivalent to how much of the ARC-20 asset is available.

The TEST token issuer above, can use the function of Taproot locking script to set some restrictions, only those who meet the restrictions can transfer a part of the sats from the bitcoin sats controlled by the above locking script.Earlier, we mentioned that these sats are stained, and if you take a part of the sats locked by the issuer, it is equivalent to acquiring the equivalent amount of TEST tokens.

Once the asset minter successfully acquires TEST tokens, they can directly transfer these ARC-20 tokens to others. This process is almost identical to normal transfers on the Bitcoin blockchain. It involves splitting the available Bitcoin UTXO and transferring one or several portions to others. Each of these split Bitcoin UTXOs corresponds to a certain amount of satoshis, which in turn corresponds to a certain amount of ARC-20 tokens.

Due to this characteristic, transferring ARC-20 tokens doesn’t require embedding mnemonic information related to the Transfer instruction, as in the case of BRC-20. This saves on transaction costs and reduces the additional data size generated on the BTC network.

In summary, ARC-20 assets primarily involve three operations: deployment, minting, and transfer.

• When deploying ARC-20, the asset issuer needs to set the token name, total amount, difficulty setting, genesis block and other information, and configure the corresponding Taproot lock script.
• When minting ARC-20, the user writes the Claim information (data to be submitted for minting tokens) into the aforementioned UTXO locking script, and then takes out the corresponding ARC-20 assets (dyed sats).
• When transferring the ARC-20 later, the user does not need to deposit any more data into BTC, but only needs to transfer the aforementioned UXTO to someone else, and the recipient can confirm that it is associated with the ARC-20 asset by tracing the bitcoin UTXO back to its source.

Similar to the RGB protocol’s main focus on “one-time sealing”, the security of ARC-20 transactions is fully guaranteed by the BTC mainnet, and anyone tracking the history of transactions and calculating the current balance of ARC-20 assets doesn’t need to additionally read data from the off-chain storage module, but only needs to check those related to the ARC-20 UTXO. stain-related Bitcoin UTXO can be, which is the biggest difference between it and the BRC-20 protocol, which tends to have a strong dependence on the under-chain indexer and under-chain storage layer.

Source: https://twitter.com/blockpunk2077/status/1725513817982136617

all we need is a lightweight indexer (or wallet client) to help us identify which ARC-20 assets on the Bitcoin chain trigger the minting and transfers. Of course, the one-coin, one-satoshi design has a flaw, as the main Bitcoin network has a restriction to prevent “dust attacks”, whereby at least 546 Sats have to be transferred at once in a single transfer, which means that every time you transfer a dyed Bitcoin Sat, you have to transfer at least 546, which may be unacceptable to most people. is probably unacceptable to most people. Also, since each ARC-20 token is bound to a Sats, the minimum split precision of the ARC-20 asset balance is 1, and it cannot be subdivided to a smaller level. At the same time, we notice that many people are still confused about the difference between ARC-20 indexers and BRC-20 indexers, so we focus on explaining it here

• The ARC-20 indexer is simpler and lighter than the BRC-20 indexer. We can think of the BRC-20 as a paper check and the ARC-20 as a hard coin.The BRC-20 standard allows the user to fill this check with any number of BRC-20 assets, which is why the BRC-20 protocol uses 3 different indexing transactions to ensure the accuracy and security of the BRC-20 assets; while the ARC-20, no matter How to trade, it is like transferring ready-made coins directly, it will be much easier for us to calculate the balance of ARC-20 assets than the balance of BRC-20 assets, and the workload of ARC-20 indexer will be much less than that of BRC-20 indexer.
• The ARC-20 transaction index is more convenient than the BRC-20 transaction index in terms of asset consolidation. We can simply understand that: BRC-20’s asset merger is to replace 3 checks with $1000 value with a new one written with $3000 value, but the original 3 checks are theoretically to be destroyed, but because they have been recorded to the chain, they can’t be directly erased, which results in data contamination; many times withdrawing coins from the exchange will always encounter some inexplicable inscriptions.
• The ARC-20 asset merger, is the 3 coins packaged as a transaction to send out, many times from the exchange to withdraw coins will always encounter some inexplicable inscription, but the ARC-20 transaction index will not contaminate the data of the sats, because he is not the same in the workflow.

Dmint: A new way to issue NFT

In the Atomicals protocol, NFT collections are called “containers” (Containers), which are distributed in a decentralized way called “Dmint”. The specific process of NFT issuance following the Dmint protocol is divided into four steps: preparing NFT data, configuring containers, verifying NFT projects, and casting NFTs.

For the NFT project side, the work focus can be concentrated on the preparation work before NFT issuance, which needs to summarize all the NFT data, configure Dmint data and so on. Meanwhile, the NFT issuer following the Dmint protocol will aggregate all NFT data to build a Merkle Tree, the Merkle root of this tree will be published on the chain, and the complete NFT metadata are kept under the chain.

When the NFT maker selects the NFT to be minted, he will be informed of the metadata under the chain, and then he will present the Merkle Proof to the outside world, proving that the NFT data he has been informed of is indeed associated with the Merkle Tree initially constructed by the issuer, that is to say, it exists in the NFT dataset declared by the issuer of the NFT to the outside world.

In the process of minting NFTs, the Atomicals protocol provides advanced options for the founding team of the project, such as setting up mint payment rules, and allowing NFT mints to mint some limited edition NFTs, which not only need to be minted by means of the aforementioned Bitwork, but also have to be validated by paying some tokens to a specified address.

Source: https://docs.atomicals.xyz/collection-containers/dmint-guide

After incorporating Bitwork, Dmint introduced a decentralized minting mechanism for NFTs on the Bitcoin chain, whereby all mints are required to continuously participate in the NFT minting process in the form of lottery tickets by “mining”. At this point, all mints need to continuously participate in the NFT minting process through “mining” in the form of lottery tickets, and it is difficult for script scientists to initiate flooding transactions through automated code. With the combination of the Bitwork and Dmint protocols, there is ground for Fair Launch within the Bitcoin ecosystem for both homogenized and non-homogenized tokens. With Dmint, the Atomicals protocol strengthens the security and uniqueness of NFTs, providing flexible management options that enable project owners to freely control their NFT collections on the Bitcoin blockchain. This not only opens up customization options for creators to meet diverse creative needs, but also provides a convenient on-chain operational solution for minting, transferring and updating digital assets, greatly enhancing the flexibility of both static and dynamic digital assets. In addition, the Bitwork mining mechanism introduced by Dmint provides equal one-time casting opportunities for all, fundamentally eliminating the possibility of scripted automated casting and the market competition associated with gas fees.RNS: Infinite Expansion of Domain NamesThis article previously mentioned that Arthur initially wanted to do the DID project on Ordinals ecosystem, and that project was RNS. - Realm Name System, also known as Realm.Realm names start with a plus sign + and have at least one alphabetic character, such as +alice and +agent007 , which are valid DID identifiers. Realm is more scalable and flexible than traditional domain names and ENS, while retaining decentralization. Today’s domain name services or DID programs are very limited in that the domain names provided are mostly used to refer to a single object (i.e., website/wallet address, etc.), and users are unable to extend them at a deeper level. For example, Alice owns the Alice.com domain name, which can only be used to link to different websites or personal information by adding different prefixes such as blog.Alice.com, and cannot be extended downward to more scenarios such as Alice.com.blog.text. Here we compare Alice.com/blog/text and Alice.com.blog.text in more depth. For example, Alice.com/blog/text1 and Alice.com/blog/text2 , singularly refer to opening the first/second page of a blog diary in Alice’s room; and Alice.com.blog.text1 and Alice.com.blog.text2, which can be corresponded to two ways of understanding: 1. Opening two two different blog notes in different rooms 2. open two different pages of the blog diary in Alice’s room. We can find that the traditional “/“ pattern limits the operation space very narrowly at the beginning, while the subdomain pattern used by Realm domains has no such limitation.

The Realm Domain Protocol, which allows any user to issue subdomains (SubRealm) under any Realm domain, to manage the domain ecosystem through a tiered/hierarchical approach to tokenization. The specific rules are as follows:

Any Realm or SubRealm can issue SubRealm

All SubRealm can inherit the same features and publish their SubRealm based on the SubRealm

All people are registrants of the Realm they own, there is no centralized domain name authority

Theoretically, there is no limit to the number of times a SubRealm can be extended, which makes the Realm domain name system and its imagination huge. For example, we can take the top-level Realm domain name as a posting community, the first-level SubRealm can be various types of posts, and the subsequent second-level SubRealm is the reply under the corresponding post …… In this way, the Realm domain name system may bring about a revolution in domain name application which will empower the domain name applications and bring higher scalability.

Source：https://twitter.com/atomicalsxyz/status/1761744365448274371

AVM: a potential dark horse

Since its emergence, the Atomicals protocol has had ambitions beyond asset issuance. After about half a year of development, the number of assets compliant with the Atomicals protocol has been increasing, which extends a new problem - how to provide richer usage scenarios for the assets to enhance their liquidity and expand them more in terms of functionality.

It is well known that Bitcoin does not support Turing-complete programming languages, making it difficult to build complex DAPPs on top of it.Arthur, inspired by the idea of BitVM and concerns about the development of the Atomicals protocol, came up with the idea of AVM, which is highly anticipated by the market even though the specific details of AVM have yet to be announced.

According to Arthur, AVM is mainly designed to support the implementation of complex logic in the Bitcoin network, such as solving the problem that ARC-20 “one coin, one satoshi” cannot be split. In addition, the current Bitcoin scaling solutions on the market have various problems, and we expect the release of AVM to bring more vitality to the BTC ecosystem.

According to Arthur, in an optimistic scenario, the first beta version of AVM will be released before Bitcoin halves in size, and we will explain it in further detail at that time.

Atomicals Protocol Ecosystem Summary: Opportunity is Coming

Both the BRC-20 and Atomicals ecosystems have experienced periods of hype followed by a cooling-off period. However, we’ve noticed significant differences between asset issuance on Bitcoin compared to Ethereum. These ecosystems represent more of a distinction between decentralization and centralization.

Assets on Bitcoin have popularized the concept of a “Fair Launch.” The Atomicals protocol, through methods like Bitwork, Dmint, and a lack of pre-mining or allocation, has increased market trust in project assets while reducing direct manipulation by project teams. In some respects, this dynamic represents a love-hate relationship between centralization and decentralization.

Centralized projects tend to be more efficient and responsive in their early development stages. If managed properly, they can easily succeed. On the other hand, decentralized projects, driven by a desire for fairness and decentralization, rely more on community-driven initiatives for project advancement and marketing. While they may face significant resistance in their early stages, they often leave centralized projects behind once they overcome these initial challenges.

The same holds true for the Atomicals ecosystem. Despite the relatively quiet state of the BTC asset market, the development of the Atomicals protocol is still in its early stages. Many projects continue to actively join the Atomicals ecosystem, driven by the community’s strong confidence in it.

This confidence stems from both the “Fair Launch” trend sparked by protocols like Ordinals and BRC-20 and the promising vision brought about by this wild and decentralized experimentation.

We believe that with the release of AVM, the Atomicals protocol will be able to achieve programmability on the Bitcoin Layer1, developing more applications based on AVM and scripting a new chapter for the entire Bitcoin ecosystem.

Disclaimer:

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