Four Major Directions for Expanding the Bitcoin Ecosystem

Author: Ken You

The emergence of the Ordinal NFT protocol and the BRC-20 token protocol has once again brought the development of Bitcoin's scalability ecosystem to the forefront.

Today, Bitcoin supporters are divided into two camps: one is the conservatives, who believe that the pure monetary nature must be preserved, even as a pure store of value, without any form of scalability. The other is the radicals, who argue that scalability is necessary, and that more native application ecosystems should be created and endowed to promote the large-scale and sustainable development of Bitcoin.

Neither side seems able to agree with the other's approach. Is there a possibility that can simultaneously satisfy both conservatives and radicals, allowing Bitcoin holders to make choices freely according to their needs?

Below, we will review the four major directions of Bitcoin's scalability ecosystem and explore the development trends of the scalability ecosystem from the perspectives of scalability degree, decentralization, ledger security, and implementation difficulty.

Non-upgradeable Expansion

Non-upgradeable expansion means that there will be no new inventions or changes to the existing technological system of Bitcoin, but rather specific expansions utilizing Bitcoin's existing features.

Representative technologies include RGB technology and Bitcoin Script. RGB technology is defined as a scalable and confidential smart contract system that can run directly on the Lightning Network, but all generated data exists outside of Bitcoin transactions (off-chain), which leads to ledger security not being reliant on the security of the Bitcoin mainnet.

The Ordinal protocol utilizes Bitcoin Script to implement additional data, assigning a unique serial number to each Bitcoin's smallest unit, Sat. Therefore, relying on this principle can only provide minor enhancements to Bitcoin's scalability. Currently, Bitcoin NFTs and BRC-20 tokens have sparked a wave of market enthusiasm, but the sustainability of their value remains to be observed.

Excluding the functional distinctions assigned to Sat by third parties, the various data accompanying Script is essentially meaningless gibberish from the perspective of the Bitcoin mainnet, causing waste of Bitcoin block space and transaction congestion, leading to significant dissatisfaction among some members of the Bitcoin community regarding this solution.

Overall, the technical solutions for non-upgradeable expansion are decentralized, and their implementation does not require the overall consensus of the Bitcoin community. However, RGB technology fails to rely on the ledger consensus security of the Bitcoin mainnet, and Bitcoin transaction Script is very limited in terms of scalability.

Sidechain Type

As the name suggests, sidechain type involves creating a separate public chain and linking it to the Bitcoin mainnet through specific cross-chain technologies.

This was once a popular and easily achievable direction for Bitcoin's ecosystem scalability, primarily because sidechain projects can generally issue their own tokens, and the issuance and market value increase of these tokens can attract community attention, leading to market enthusiasm. However, this solution has several issues regarding Bitcoin's scalability.

Projects like Liquid (BlockStream), Stacks, and Rootstock share the commonality of mapping BTC to the sidechain through a bidirectional cross-chain bridge, but they have some subtle differences.

Liquid resembles a Bitcoin alliance chain sidechain composed of large corporate institutions, where the mapping and conversion of BTC between the sidechain and the mainnet require multi-signature approval from these major institutions.

Stacks is a Bitcoin sidechain technology that issues new tokens, where PoX is the "protocol" for staking newly issued STX to earn BTC staked by miners. However, how this "protocol" achieves decentralized distribution on both sides remains to be examined.

Rootstock is a sidechain technology that allows merged mining, where the cross-chain transfer of BTC is controlled by multiple institutions through multi-signature mapping coins: rBTC.

Overall, sidechains can support smart contracts and various decentralized applications like DeFi, offering strong scalability and relatively low implementation difficulty compared to other solutions, while also being relatively secure. However, not everyone can run nodes on sidechains, and ledger consensus relies on the management of certain central institutions, leading to a low degree of decentralization. This may be the main reason why many attempts at sidechain scalability solutions have not achieved large-scale application.

Upgrade Type Expansion

Upgrade type expansion means upgrading the technical architecture or system of the Bitcoin network, with the representative being the BIP-300/301 protocol proposed by the LayerTwo Labs team. Its scalability concept is Drivechain, which essentially uses Rollup for expansion.

LayerTwo Labs' current approach is to directly hard fork a PoW blockchain Mainchain that incorporates BIP-300/301. When the Bitcoin community reaches a consensus and recognizes this Mainchain, the Bitcoin mainnet will undergo an upgrade to BIP-300/301.

Overall, LayerTwo Labs' solution can ensure the degree of decentralization of Bitcoin while addressing scalability issues, but its upgrade requires unanimous consensus from the Bitcoin community to advance. Given the current overall atmosphere of the community, the difficulty of upgrading the Bitcoin mainnet is extremely high.

Unidirectional Transfer Type

Bidirectional transfer of Bitcoin is a common method in cross-chain and sidechain solutions, while the unidirectional transfer type scalability solution for Bitcoin is currently proposed by the Hacash community and the Hacash.com team. Its principle is to irreversibly transfer Bitcoin to a new chain that is theoretically more decentralized and has a more mature technical architecture than Bitcoin, and then to expand through multiple layers.

One layer of Hacash can achieve unidirectional transfer of Bitcoin, transferring BTC from the Bitcoin chain to the Hacash chain, where the user's private key remains unchanged during the transfer process, allowing them to use Bitcoin on the Hacash chain with the same private key, without any transfer of control over BTC.

The Hacash.com team has proposed a Layer3 multi-chain scalability infrastructure based on the Hacash chain's Layer1 and Layer2 payment network, allowing Bitcoin to make instant payments on Layer2 and expand the application ecosystem on Layer3. The essence of Layer2 is to achieve instant payments through state channels, while Layer3 is essentially a customizable expansion through multiple Rollups and multi-chains.

In summary, the Hacash chain, which undertakes the unidirectional transfer of BTC, still operates on a pure PoW consensus mechanism, where every full node can be run by anyone, ensuring a level of decentralization and security comparable to the original Bitcoin chain. On this basis, Layer2 and Layer3 address scalability issues, allowing anyone to unidirectionally transfer their BTC to the Hacash mainnet, leaving it to each Bitcoin holder to decide whether their Bitcoin needs scalability, with relatively simple implementation difficulty and strong optionality.

Conclusion

Bitcoin's ecosystem scalability mainly consists of non-upgradeable expansion, sidechain type, upgrade type expansion, and unidirectional transfer type. Non-upgradeable expansion cannot achieve strong scalability and ledger security simultaneously, sidechain type has centralization weaknesses, upgrade type expansion has high implementation difficulty, and unidirectional transfer type performs relatively well across all four evaluation dimensions but has not yet gained significant market attention.

For over a decade, despite being born for the goal of free currency, Bitcoin's role that can be fully substantiated today is still as a store of value, theoretically requiring no scalability to achieve this primary goal. How to achieve scalability while maintaining Bitcoin's value storage capability unchanged, and even addressing the sustainability of scalability after the 21 million Bitcoins have been mined, will undoubtedly be the future direction for Bitcoin.