Originally, this post should talk about the trends in derivatives, NFT and NFTFI. However, given that the BTC ecosystem has been so popular recently and I have recently looked at several primary market projects in the BTC ecosystem, I will first talk about BTC’s current technology stack and trends that are full of entanglements and debates.
I. History
To understand BRC20, Ordinal and other things, you need to have a general understanding of their technical historical background. I will briefly introduce them in the most colloquial way.
When Satoshi Nakamoto first invented Bitcoin, his original intention was to create a peer-to-peer cash system. Later, he said in a forum that as Bitcoin became more powerful and stronger, it could carry more things, such as escrow transactions, bonded contracts, third-party arbitration and the like.
But later everyone found that BTC had poor performance and large price fluctuations, and peer-to-peer cash was impossible, so it gradually moved towards today's "electronic gold" route. Satoshi Nakamoto's original intention and vision also laid the foundation for the subsequent expansion dispute and the BCH, BSV fork events.
There is an OP_Return script operation code in Bitcoin, which can hold 80 bytes of random stuff. So in 2012, someone came up with the idea of colored coins, using Op_Return to mark some things so that Bitcoin can be changed from homogeneous to non-homogeneous, but later it could not be done due to BTC performance issues.
Then in 2013, MasterCoin (later OmniLayer, where USDT based on BTC was issued) and in 2014, CounterParty also used this Op_Return to cause trouble.
The ending is predictable, they are all useless (no one uses BTC for USDT now). V God, one of the co-authors of colored coins in 2014, was ignored when he proposed BTC upgrade to MasterCoin, so he created ETH himself in anger.
Later, numerous disputes arose over the issue of capacity expansion. The most famous ones are undoubtedly BCH and BSV, both of which take the route of large blocks. BCH will gradually increase in size, from 1M to 8M, and then to 32M, while BSV is more extreme, starting with hundreds of MB or even one GB.
BTC is not very enthusiastic. It uses the Segwit technology to separate signature verification and transactions. The original 1M total data is now 1M transaction data + 3M witness data, which is a disguised "small expansion". Note that the segregated witness is very important! Because the subsequent Ordinal, BRC20 and other things are derived from it.
2. Problems and Current Situation
In addition to direct block expansion, BTC's own technology stack also has many ways, but it is far less popular than ETH. After all, supporting smart contracts and not supporting them are no longer on the same dimension of technical complexity and feasibility. However, there is a problem that does exist, that is, after a hundred years, there will be no block rewards (very few after 10 years), what about the security of BTC? Is it possible to switch to POS issuance? How to stimulate enough TX on the chain is a problem.
The current exploration directions are as follows:
1. Pure side chain - Liquid Network, this is a consortium chain developed by BlockSteam, which has a performance of about 10 times that of BTC. It is mainly aimed at large-value Bitcoin transfers and transaction settlements of institutions.
2. State Channel - Lightning Network. No need to explain, everyone in the circle knows it. It is also the most popular technology stack of BTC. It is designed for small or even micro payments for fast payments. Walmart, McDonald's and the like have support, but the data has been average over the years. There are only about 5,000 BTC locked in it and about 70,000 channels.
3. Disguised sidechains - RSK and Stacks. RSK is EVM-compatible and uses the mechanism of joint mining with Bitcoin to generate blocks. Stacks is non-EVM-compatible and has developed its own Clarity language and uses a POX transfer proof to generate blocks. Neither of them really inherits the security or hash power of BTC. They just look a bit similar and are completely different from ETH L2.
4. Client Verification - RGB and Taro are relatively new paradigms. They bind the issuance of off-chain assets to the UTXO on the chain, but the transaction verification and data are stored on the client. When you verify, you only need to use the client software to verify the UTXO related to your off-chain assets. There is no need to check the entire network to reach a consensus like traditional blockchains. It is new, but the development is relatively slow, and Ordinal has taken the lead.
5. Ordinal (including NFT, BRC20, etc.) - This is actually stuffing something into the 3M witness data of Segwit. Previously, OP_Return could only stuff 80 bytes, but now with Segwit we can stuff 3M. Originally, Segwit limited the amount of data that could be stuffed into the witness data for a single transaction, but the Taproot upgrade at the end of 21 relaxed the requirements and completely removed the restrictions, so you see 3M small pictures of BTC NFT, BRC20, etc.
3. Controversy and the Future
Ordinal has caused a lot of controversy, not only among ETH and BTC supporters, but also within BTC. On the one hand, Ordinal did stimulate on-chain TX, and once increased the proportion of handling fee income from 2% to 74%. Bitcoin is expensive and congested, so miners should not be too happy. On the other hand, many Bitcoin supporters feel that the Bitcoin network is filled with small pictures or useless "inscription garbage", which is not what BTC should be like.
So the focus of the debate is actually very simple - how should this 3M data space be used? What makes the most sense to put in it?
There are several ways currently and in the future, but from a technical point of view, they all have logical flaws (the hype is another matter)
1. NFT - BTC The main feature of NFT is a pure chain. Many NFT chains on ETH only store a link to Arweave or IPFS. But if you think about it, is it really that important whether the small picture is on the ETH or BTC chain? At least ETH has been hyping NFT for the past two years, and no one really cares about it. Is the small picture in this 3M isolated witness space really more valuable than on AR or IPFS? It's a bit far-fetched
2. BRC20/ORC20/SRC20/BRCXXX - BRC20 has many restrictions and is inconvenient, so everyone came up with ORC20, which is more powerful and flexible, and BRCXXX is waiting in the back... But the more powerful XRC becomes, the more it looks like ERC. So what are you doing? It doesn't support smart contracts anyway. No matter how much BTC is messed up, it can never be more functional than ETH and other smart contract-based public chains.
3. DA - This is what Celestia Rollkit is working on. Technically, the DA layer can be thrown into the 3M. The problem is that your DA does not have an advantage in terms of speed or capacity. ETH will soon upgrade to Cancun, and at that time, one block will be every 12 seconds, with 1M data (after two years, the full version of Danksharding can hold 16M), 5M per minute, and 50M in 10 minutes. BTC has a block of 3M every 10 minutes, and it has to compete with BRC for space, which is small and expensive.
In short, you will find that no matter what you put in, ETH can do it better. As mentioned before, there is a difference between smart contracts and ETH. No matter how you try to use this 3M space, the ceiling is ETH. You can insist that BTC is more OG or safer than ETH, which is not impossible. The question is, do you really need to upgrade the security level from ETH to BTC? Moreover, after ETH switches to POS, it is also a matter of debate whether it is safer than BTC...
Finally, let’s talk about several new applications of BTC that we have seen so far, both in the primary and secondary markets.
1. Timestamp server - This is what Babylon of the Cosmos ecosystem is doing. It uses BTC as a timestamp server to help the POS chain prevent long-range attacks. It can be regarded as "borrowing" the security of Bitcoin to serve some POS chains, but this is just a reinforcement, not a complete replacement of the verification and consensus mechanisms of these POS chains.
2. DA - I have mentioned it above, so I won’t repeat it here.
3. EVM compatibility/equivalence - In fact, RSK is also EVM compatible, but it has not been developed very well. The joint mining mechanism does not seem to be "very advanced" now. At present, some new projects in the primary market are exploring this direction. Some use a similar method to ETH to pledge BTC to become a node to be equivalent to EVM, and some fork OP and then use some form of BVM to realize "Optimisic Rollup based on BTC".
4. Zk+BTC - This is done by ZeroSync, which is more of a Public Good style. ZK proofs are generated for the Bitcoin network through ZK-STARK to instantly verify the latest status of the blockchain, eliminating the need to spend hours or even days synchronizing all BTC history. Currently, proofs of block headers and transaction data can be provided, and proofs of signature information are still under development.
In short, the BTC ecosystem is a particularly entangled ecosystem. On the one hand, once something new comes out, it can be hyped, after all, it is the origin of blockchain. On the other hand, many things cannot withstand the scrutiny of technology and the test of time. It is a bit like the earliest Ford cars. Later, others have turbocharged or even hybrid and pure electric technology. You can only expand the cylinder and increase the displacement at most, but you can't catch up.
However, decades later, BTC's security and computing power are real concerns. We really need to find a direction to make use of the 3M witness space to stimulate the generation of TX on the chain. The most ideal thing is something that is native to BTC and not available in other ecosystems, or that is most suitable for BTC to do. However, logically, it seems that ETH can do it no matter what direction it is, and do it better. It's a dilemma...