Author: Lao Bai, ABCDE Investment Partner, Amber Group Research Consultant Source: Twitter, @Wuhuoqiu
Given the recent popularity of BTC ecology, I’ve recently looked at several primary market projects related to BTC ecology. I’ll start by discussing the technical stack and trends that are currently filled with conflicts and debates.
I. History
To understand BRC20, Ordinal, and other things, you need to have a general understanding of their technical history. I’ll explain it in the simplest way possible. The original intention of Satoshi Nakamoto’s invention of Bitcoin was to create a peer-to-peer cash system. Later, he suggested on the forum that Bitcoin could be used for more things as it grew and became more powerful, such as escrow transactions, bonded contracts, third-party arbitration, etc. However, it was later discovered that BTC’s performance was poor and its price fluctuated greatly, so it was unable to function as a peer-to-peer cash system. Bitcoin then gradually moved towards the “electronic gold” route we see today, and Satoshi Nakamoto’s original intentions and ideas laid the groundwork for the subsequent scaling disputes and the BCH and BSV forks. There is an OP_Return script operation code in Bitcoin that can hold 80 bytes of miscellaneous content, so someone came up with the idea of Colored Coins in 2012, using Op_Return to mark something, allowing Bitcoin to go from homogeneous to non-homogeneous. However, it couldn’t be done due to BTC’s performance issues.
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Later, MasterCoin (later OmniLayer, where BTC-based USDT is issued) was created in 2013, and CounterBlockingrty was created in 2014. They also did some things with Op_Return, but the outcome was foreseeable and all of them failed (even USDT is no longer based on BTC). In 2014, one of the co-authors of Colored Coins suggested an upgrade to BTC to MasterCoin, but was ignored by Vitalik Buterin (V God), and in a fit of anger, he created ETH himself.
Later, countless disputes emerged due to the scaling problem. The most famous ones are undoubtedly BCH and BSV, both of which follow the big block route. BCH gradually became larger, from 1M to 8M, then 32M, etc., while BSV is more extreme, starting with several hundred megabytes or even a gigabyte. On the other hand, BTC calmly and steadily used the Segwit segregated witness technology, which separated signature verification from transactions. The original total data of 1M is now 1M of transaction data + 3M of witness data, which is a “small expansion” in disguise. Note that segregated witness is very important! Because Ordinal, BRC20, and other things all stem from this.
II. Problems and Current Situation
In addition to direct block expansion, BTC’s own technology stack has many ways, but it is far from as popular as ETH. After all, supporting smart contracts and not supporting them are not on the same level of technical complexity and feasibility. However, there is indeed a problem, that is, what to do with BTC’s security when there is no block reward after a hundred years (it will be very small after more than ten years)? Do you have to switch to POS issuance? How to stimulate enough on-chain TX is a problem.
The current exploration direction can be summarized as follows
1. Pure sidechain – Liquid Network , which is a consortium chain created by Blockstream, is about 10 times the performance of BTC, mainly for large-scale Bitcoin transfers and transaction settlement for institutions.
2. State channels – Lightning Network , which needs no explanation, and is probably the most well-known technology stack for BTC at present. It is designed for fast payment of small or even micro payments. Walmart, McDonald’s and other companies support it, but the data over the past few years is not that great. There are only about 50,000 BTC locked in it, with about 70,000 channels.
3. Pseudo-sidechain – RSK and Stacks , RSK is EVM-compatible and uses a mechanism of joint mining with Bitcoin to generate blocks. Stacks is non-EVM compatible and has its own Clarity language, using a POX transmission proof to generate blocks. Neither of them really inherits BTC’s security or hash power, they just look a bit like it, and are completely different from ETH L2.
4. Client-side verification – RGB and Taro , which is a relatively new paradigm that binds off-chain assets issuance to on-chain UTXO, but transaction verification and data storage are on the client side. When you verify, you only need to verify the UTXO related to your off-chain assets with the client software, without checking the entire network to reach consensus like traditional blockchains. It’s new, but the development is relatively slow, and it was overtaken by Ordinal.
5. Ordinal (including NFT, BRC20, etc.) – This is actually stuffing things into the 3M witness data in the Segwit data (which used to be 80 bytes with OP_Return). Now that we have Segwit, we can put 3M in there. Originally, Segwit had a limit on the amount of data that could be put into the witness data for a single transaction, but the upgrade to Taproot at the end of 2021 relaxed the requirement and completely removed the limit. So you can see BTC NFT and BRC20 with small 3M images.
3. Debate and Future
The debate caused by Ordinal is huge, not only among ETH and BTC supporters, but also within the BTC community. On the one hand, Ordinal did stimulate on-chain transactions, once increasing the proportion of transaction fees from 2% to 74%, making Bitcoin expensive and congested, which made miners happy. On the other hand, many Bitcoin supporters feel that the Bitcoin network is filled with small images or useless “inscription garbage”, which is not what BTC should look like. So the focus of the debate is actually very simple – how should this 3M data space be used? What is the most meaningful thing to put in it? Currently and in the future, there are several ways to do this, but from a technical point of view, they all have their logical flaws (speculative value aside).
1. NFT – BTC NFTs are all about pure on-chain data. Many NFTs on ETH only store a link to Arweave or IPFS on-chain. But when you think about it, is that small image really that important on the ETH or BTC chain? At least for the past two years, no one really cared about it in ETH. Is putting the small image in this 3M witness isolation space really more valuable than putting it on AR or IPFS? It’s a bit far-fetched.
2. BRC20/ORC20/SRC20/BRCXXX – BRC20 is very restrictive and inconvenient, so people have developed ORC20, which is more powerful and flexible. There is also BRCXXX waiting in the wings… However, the more functional the XRC is, the more it looks like ERC. Then why bother? Even if BTC is tweaked, it is not possible to be more user-friendly than ETH and other smart contract-based public chains, which are more functional.
3. DA – This is what Celestia Rollkit is doing. DA can be thrown into that 3M space technically. The problem is that no matter the speed or capacity, your DA does not have any advantages. ETH will soon be upgraded to Cancun, where there will be one block every 12 seconds, and 1M data can be attached (when Danksharding is fully released in two years, 16M can be attached). 5M per minute and 50M per 10 minutes. BTC is 10 minutes for one block of 3M, and also has to compete for space with BRC, which is small and expensive.
Anyway, you will find that no matter what you put in it, ETH can do better. As mentioned earlier, the difference in smart contract support is a dimension. No matter how you tweak this 3M space, the ceiling is ETH. If you insist that BTC is more OG or safer than ETH, it is not impossible, but do you really need to increase the security level from ETH to BTC? Besides, whether ETH or BTC is safer after ETH switches to POS is also debatable…
Finally, let’s talk about some of the new BTC applications that have been seen in the primary and secondary markets.
1. Timestamp server – This is being done by Babylon in the Cosmos ecosystem. They are using BTC as a timestamp server to help POS chains prevent long-range attacks. This helps to “borrow” the security of Bitcoin to serve some POS chains, but it only strengthens, not completely replaces, the POS’s own validation and consensus mechanisms.
2. DA – This was mentioned earlier and will not be repeated here.
3. EVM compatibility/equivalence – RSK is also EVM compatible, but hasn’t done much with it. Currently, there are some new projects in the primary market exploring this direction. Some of them use a similar approach to ETH to pledge BTC to become a node and do EVM equivalence, while others fork the OP and use some form of BVM to implement “BTC-based Optimistic Rollup”.
4. Zk+BTC – This is being done by ZeroSync in a Public Good style. They use ZK-STARK to generate ZK proofs for the Bitcoin network and instantly verify the latest state of the blockchain. This avoids the need to spend several hours or even days synchronizing all BTC historical data. Currently, they can provide proof of block headers and transaction data, and signature information proof is still under development.
Overall, the BTC ecosystem is a particularly complex one. On the one hand, once some new things come out, they can indeed be hyped up, after all, it is the blockchain pioneer. On the other hand, many things cannot withstand technical scrutiny and the test of time. It’s a bit like the earliest Ford cars. Nowadays, others have turbocharging, hybrid, and pure electric technologies, while you can only expand the cylinder and increase the displacement. It’s really hard to catch up.
However, after decades, the security issues and computing power of BTC are real concerns, and it is necessary to find a direction quickly to utilize the 3M witness space to stimulate the generation of TX on the chain. The most ideal is something that is native to BTC, not found in other ecosystems, or something that is best suited for BTC to do, but logically it seems that ETH can do it, and do it better.
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