Discussion on the current technology stack controversy and trends of Bitcoin

Author: laobai, ABCDE investment partner

Originally, this post should have been about trends in derivatives, NFTs, and NFTFIs, but given that the BTC ecosystem has been so hot lately and I’ve recently looked at several primary market projects in the BTC ecosystem, I’ll briefly discuss the technical stack and trends that are currently causing controversy and debate in BTC.

1. History

If you want to understand BRC20, Ordinal, and other things, you need to have a general understanding of their technical history. I’ll briefly introduce 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 on, he himself said on the forum that as Bitcoin became more powerful and grew, it could carry more things, such as escrow transactions, bonded contracts, third-party arbitration, and so on.

But later, everyone discovered that BTC’s performance was too poor and its price fluctuated too much, making it impossible to do peer-to-peer cash transactions. Consequently, it gradually moved toward today’s “electronic gold” route, and Satoshi Nakamoto’s original intentions and ideas were buried in the controversies over scaling and the BCH and BSV forks that followed.

There is an OP_Return script operation code in Bitcoin that can hold 80 bytes of random data, which led someone in 2012 to come up with the idea of colored coins. Using OP_Return to mark some things allows Bitcoin to go from homogenization to heterogenization. But later, because of BTC’s performance issues, it just couldn’t be done.

After that, MasterCoin (later OmniLayer, where USDT based on BTC was issued) emerged in 2013, and CounterBlockingrty emerged in 2014, both of which used this OP_Return to do things. As you can imagine, the endings were not good (no one uses BTC-based USDT anymore), and one of the co-authors of colored coins in 2014, who had suggested a BTC upgrade to MasterCoin but was ignored by Vitalik Buterin, became so angry that he created ETH himself.

After that, countless controversies arose over scaling issues, the most famous of which are undoubtedly BCH and BSV, both of which took the big-block route. BCH was supposed to slowly grow larger, from 1M to 8M, then 32M and so on, while BSV was more extreme, starting off at several hundred megabytes or even one gigabyte.

On the BTC side, it didn’t get angry or excited, but used Segwit segregated witness technology to separate signature verification and transactions. The original 1M total data is now 1M transaction data + 3M witness data, which is a “small-scale expansion” in a way. Note that segregated witness is essential! Because later on, Ordinal, BRC20, and other things originated from it.

II. Issues and Current Status

In addition to direct block expansion, BTC’s own technology stack has many ways, but it is far less popular than ETH. After all, supporting smart contracts and not supporting them are not on the same level of technical complexity and feasibility, but there is indeed a problem. After a hundred years, when there is no block reward left (it will be very few after more than ten years), what should be done to ensure the security of BTC? Should we turn to POS for new issuance? It is a problem to stimulate enough on-chain TX.

The current exploration directions are generally as follows:

  1. Pure sidechain-Liquid Network. This is a consortium chain created by BlockSteam, which is about 10 times the performance of BTC. It mainly targets large Bitcoin transfers and transaction settlements for institutions.
  2. State channel-Lightning Network. It is well known among insiders and can be regarded as the most popular technology stack of BTC currently. It is designed for fast payments, even small and micro payments. Walmart, McDonald’s and other brands support it, but the data for several years is really not good. There are about 5,000 BTC locked in it, and about 70,000 channels.
  3. Implicit 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, which uses a POX transmission proof to generate blocks. Neither of them really inherits the security or hash power of BTC, they just look a bit like it, and have nothing to do with ETH L2.
  4. Client verification-RGB and Taro. It is a relatively new paradigm, which binds off-chain assets issuance with on-chain UTXO. However, transaction verification and data storage are on the client, and when you verify, you only need to verify the UTXO related to your off-chain assets with client software, without checking the entire network like traditional blockchain to achieve consensus. It’s new, but its development is relatively slow, and it has been overtaken by Ordinal.
  5. Ordinal (including NFT, BRC20, etc.)-This is actually stuffing something into the 3M witness data in Segwit. Previously, OP_Return could only hold 80 bytes, but now we can put 3M in Segwit. Originally, Segwit limited the amount of data that could be put in witness data for a single transaction, but the Taproot upgrade at the end of 2021 relaxed the requirements and completely removed the restriction. So you can see BTC NFT, BRC20 and other small pictures of 3M.

3. Debate and the Future

The debate surrounding Ordinal is intense, not only between supporters of ETH and BTC but also within the BTC community. On the one hand, Ordinal has indeed stimulated on-chain transactions, at one point increasing fee revenue 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 simple – how should this 3M data space be used? What is the most meaningful thing to put in it? There are currently and in the future several ways to do this, but from a technical point of view, all of them have logical flaws (although they may have speculative significance).

1. NFT – The main feature of BTC NFT is pure on-chain, while many NFTs on ETH only store a link pointing to Arweave or IPFS. But if you think about it, is that small image really that important on the ETH or BTC chain? At least in the past two years, no one really cared about this when ETH was speculating on NFTs. Does putting small images in this 3M isolation and witness space really make them more valuable than putting them on AR or IPFS? It’s a bit far-fetched.

2. BRC20/ORC20/SRC20/BRCXXX – BRC20 has many restrictions and inconveniences, so ORC20, which is more powerful and flexible, was created, and then BRCXXX is waiting… But the more functional the XRC is, the more it looks like ERC. So why bother? In any case, even if BTC is tinkered with, its functionality cannot be better than that of ETH and other smart contract-based public chains.

3. DA – This is what Celestia Rollkit is doing. Technically, the DA layer can be put into that 3M space. The problem is that whether it is speed or capacity, your DA is not advantageous. ETH will upgrade to Cancun soon, and then every 12 seconds per block, 1M data can be hung (when Danksharding is fully upgraded in two years, it can hang 16M), 5M per minute, 50M per 10 minutes. BTC is 3M per block every 10 minutes, and it also has to compete with BRC for space, which is small and expensive.

In short, you will find that no matter what you put in it, ETH can do it better. As mentioned earlier, whether there are smart contracts is a dimension, and no matter how you tinker with this 3M space, the ceiling is ETH. Can you say that BTC is more OG or safer than ETH? It’s not that it’s not possible, but do you really need to raise the security level from ETH to BTC? Moreover, after ETH switches to POS, who is safer, ETH or BTC, is also debatable…

Finally, let’s talk about some new BTC applications that have been seen in both primary and secondary markets.

1. Timestamp server – This is being done by Babylon in the Cosmos ecosystem. Using BTC as a timestamp server to help POS chains prevent long-range attacks. This strengthens, instead of completely replacing, these POS’ own validation and consensus mechanisms.

2. DA – As mentioned above, I won’t go into detail here.

3. EVM compatibility/equivalence – Actually, RSK is also EVM compatible, but hasn’t done much in this area. Some new projects in the primary market are exploring this direction, using methods similar to ETH to pledge BTC as a node for EVM equivalence. There is also Fork OP, which uses some form of BVM to implement “Optimistic Rollup based on BTC”.

4. Zk+BTC – This is being done by ZeroSync, with a Public Good style. Using ZK-STARK to generate ZK proofs for the BTC network, the latest state of the blockchain can be verified in real time, without having to spend hours or even days synchronizing all BTC historical data. Currently, proof can be made for block headers and transaction data, and proof of signature information is still under development.

In any case, the BTC ecosystem is a particularly vexing one. On the one hand, once new things come out, they can indeed be hyped, after all, it is the blockchain ancestor. On the other hand, many things cannot withstand technical scrutiny and the test of time. It’s a bit like the earliest Ford cars. Later, others had turbocharging, hybrid, and pure electric technology, but you at most expanded the cylinder and increased the displacement, and you really couldn’t keep up.

However, decades later, the security issues and computing power of BTC are still a real concern, and a direction needs to be found quickly to utilize the 3M witness space and stimulate TX generation on the chain. Ideally, it should be something native to BTC, that other ecosystems don’t have, or that is best suited for BTC, but logically it seems that ETH can do whatever direction, and do it better. It’s a dilemma…

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