New Trends in the Bitcoin Ecosystem: The Rise of Lightning Network, Ordinals, Atomical, and bitVM

Original Title: "New Trends in the Bitcoin Ecosystem ------ Lightning Network, Ordinal, Atomical, bitVM"

Original Author: Beam, Everest Ventures Group

I. Introduction to the Bitcoin Ecosystem

Bitcoin's position in the cryptocurrency ecosystem is not only historical but also crucial. As the first and most famous cryptocurrency, Bitcoin not only ushered in a new era of digital currency but also laid the foundation for the widespread application of DeFi and blockchain technology. Its decentralized nature, limited supply (a cap of 21 million bitcoins), and ability to serve as a store of value and investment vehicle have secured its significant position in the cryptocurrency market.

The attention on the Bitcoin ecosystem primarily stems from its innovation, challenge to traditional financial systems, and potential economic impact. Over time, Bitcoin has not only become part of asset diversification but also an important topic in global financial discussions. However, after several cycles of bull and bear markets, people have gradually realized that the non-Turing completeness of Bitcoin itself has greatly impacted the further expansion of the Bitcoin ecosystem.

Turing completeness refers to a system's ability to simulate any Turing machine, typically associated with systems that can execute any computational instructions, including loops and branches. Bitcoin's scripting language is relatively simple, primarily designed to handle transactions and control conditions during the transfer process, such as multi-signatures or time locks, rather than executing complex computational tasks. This design is intended to maintain the security and stability of the network. In contrast, blockchain platforms like Ethereum provide a Turing-complete environment that allows for the execution of complex smart contracts.

When discussing Bitcoin, it is important to recognize its limitations, especially regarding its ability to execute complex programs and smart contracts. Therefore, to discuss the development of the Bitcoin ecosystem, we first need to summarize and categorize "what problems the Bitcoin ecosystem needs to solve."

Overall, there are three aspects: First, how to improve network efficiency and reduce transaction fees without compromising the security of the Bitcoin network; second, how to address the issuance of native assets on the Bitcoin network without burdening it; third, how to enable more smart contracts and complex applications on the Bitcoin network in a non-Turing complete environment.

Here are some exploration directions:

• Enhance Bitcoin's scripting capabilities: Although Bitcoin's scripting language is relatively simple, developers have been exploring ways to add more functionality within the existing framework. This includes developing more complex transaction types and conditions, such as improved multi-signature mechanisms and complex locking conditions.

• Sidechain technology: Sidechains are independent blockchains that run parallel to the main Bitcoin chain but are connected to it. This allows for more complex functionalities, including Turing-complete smart contracts, without affecting the security and stability of the Bitcoin main chain.

• Lightning Network: As a second-layer solution for Bitcoin, the Lightning Network aims to provide faster and lower-cost micropayments while reducing congestion on the blockchain. While this primarily addresses Bitcoin's scalability issues, it also offers developers a platform to experiment with new features.

• Rootstock (RSK): RSK is a smart contract platform that connects to the Bitcoin blockchain via a sidechain. RSK aims to bring Turing completeness to the Bitcoin ecosystem, enabling users to create and execute complex smart contracts within the secure framework of Bitcoin.

• RGB: The core goal of the project is to implement smart contracts and asset issuance on the Bitcoin blockchain while maintaining its decentralized and secure characteristics. By utilizing Bitcoin's Layer 2 technology, the RGB project allows users to create and manage non-fungible tokens (NFTs) and other types of complex assets on top of the Bitcoin network. This means that RGB brings advanced functionalities to Bitcoin, such as tokenized assets, smart contracts, and digital identity, without compromising the stability and security of the Bitcoin main chain. The RGB project represents the Bitcoin community's efforts to explore expanding its fundamental capabilities, potentially providing a broader impact on Bitcoin's application scenarios and value. However, such attempts also bring challenges in technical implementation and community acceptance.

• Taproot/Schnorr signatures: These upgrades bring more privacy and efficiency to the Bitcoin network. Although these upgrades do not directly make Bitcoin Turing complete, they lay the groundwork for future potential functionality expansions.

• Stacks (STX): The Bitcoin smart contract layer aims to extend Bitcoin's functionality to support smart contracts and decentralized applications. The main goal is to introduce smart contract capabilities on the Bitcoin blockchain, allowing developers to build decentralized applications (DApps) and smart contracts to expand Bitcoin's use cases. Stacks 2.0 adopts a POX consensus, where participants receive rewards in a more stable underlying chain cryptocurrency, which incentivizes early participants more effectively than the new blockchain's cryptocurrency rewards.

• Empowering BTC: By converting BTC into assets for building DApps and smart contracts, it increases the vitality of the Bitcoin economy.

• Ordinal Protocol: This introduces an innovative method of data storage and tagging to the Bitcoin network without altering Bitcoin's underlying infrastructure. This protocol leverages the ordinal number of transaction outputs on the Bitcoin blockchain, allowing users to embed small pieces of data within specific bitcoins. Although this increases the demand for data storage on the Bitcoin blockchain, it also opens up new possibilities for exploring Bitcoin as a multifunctional, multidimensional asset platform.

• Atomical Protocol: This is a recently emerged simple and flexible protocol for minting, transferring, and updating digital objects (i.e., digital objects) on the Bitcoin blockchain, based on some key simple rules that need to be followed for minting, transferring, and updating operations.

• BitVM: The BitVM project is an innovative attempt to enhance the functionality and flexibility of the Bitcoin network. BitVM, as a virtual machine implementation, aims to provide more advanced programming capabilities and smart contract functionalities on the Bitcoin blockchain. This approach will allow developers to create more complex and multifunctional applications on the Bitcoin network, thus expanding its use cases beyond merely serving as a digital currency. By implementing such a virtual machine, BitVM aims to maintain the core security and decentralization of Bitcoin while introducing more programmability and interoperability. This project represents the Bitcoin community's exploration of technological innovation and the expansion of its blockchain capabilities, potentially bringing functionalities similar to Ethereum's smart contract platform to Bitcoin. However, it may face challenges in technical implementation and community consensus.

In this article, we will compare several of the hottest projects in the Bitcoin ecosystem, considering key aspects such as community consensus, technical difficulty, and future application scenarios, to draw some general conclusions, including:

1. Community consensus is crucial for the success of these projects. The Bitcoin community has always valued the security and decentralization of the network, and any significant changes require broad consensus. Projects like BitVM and RGB aim to expand Bitcoin's functionality but must ensure that they do not compromise core attributes, which may lead to intense discussions within the community.

2. Technical difficulty is another important factor. These projects attempt to introduce new functionalities through Layer 2 solutions or other technical means without compromising the stability of the Bitcoin main chain, which is undoubtedly a technical challenge.

3. From the perspective of future application scenarios, these projects hold great potential. BitVM, by providing advanced programming capabilities, and the RGB project, by implementing smart contracts and asset issuance, could significantly expand Bitcoin's application scope, making it more than just a platform for value storage. However, the realization of these application scenarios will depend on the successful implementation of technology and broad acceptance within the community.

4. At the current stage, the focus of breakthroughs in the Bitcoin ecosystem is still on "solving asset issuance," so we anticipate a period of meme coin activity, attracting more users and developers into the ecosystem due to the significant wealth effect, finding project implementations and network value, and achieving a true ecological closed loop.

II. About SegWit and Taproot

Before introducing the various protocols and projects in the Bitcoin ecosystem, it is necessary to have a brief understanding of SegWit and Taproot.

Since the birth of Bitcoin, with its simple and elegant technology and ingenious economic incentive design, it has become the faith of a large number of decentralization advocates. Throughout this process, after repeated community discussions and iterations, the network has undergone several significant upgrades, including BIP 34, which introduced version numbers in blocks, laying the groundwork for future protocol upgrades; BIP 66, which enhanced network security by requiring digital signatures in Bitcoin transactions to follow a defined format; and BIP 65 (OP_CHECKLOCKTIMEVERIFY), which allows the creation of transactions with time-locking features, thereby increasing the flexibility of creating complex transaction scripts. Among these upgrades, the most important for the expansion of the Bitcoin ecosystem is undoubtedly SegWit (Segregated Witness) and Taproot, aimed at improving the scalability and efficiency of the Bitcoin network, and also laying a solid foundation for subsequent technological innovations, including Ordinal and related protocols.

SegWit, first introduced in 2017, primarily addressed the issue of transaction malleability by separating transaction signature information (witness data) from transaction data, increasing the effective capacity of blocks, thereby improving the network's processing capability and reducing transaction fees. Additionally, SegWit provides a better foundation for Bitcoin's second-layer solutions, such as the Lightning Network, making micropayments more feasible.

Taproot, activated in 2021, is another significant upgrade to the Bitcoin protocol. It enhances privacy and security by introducing Schnorr signatures while optimizing the efficiency and flexibility of smart contracts. Taproot makes all transactions, whether simple payments or complex smart contracts, appear the same externally, thereby enhancing user privacy. Furthermore, this upgrade reduces the cost of complex contracts on the Bitcoin network by simplifying the data requirements for multi-signature transactions.

Overall, the upgrades of SegWit and Taproot have collectively improved the performance, scalability, and functionality of the Bitcoin network, laying a solid foundation for Bitcoin's future development.

III. The Booming Bitcoin Ecosystem

When we analyze the income of Bitcoin miners across the network, it is evident that in May 2023, miner income reached about 70-80% of the income levels seen during bull markets, reflecting an increasing trend in on-chain Bitcoin transaction activity. In this process, the income model for miners has been significantly impacted. The primary sources of income for Bitcoin miners come from two aspects: new Bitcoin block rewards and transaction fees. Although the rate of new Bitcoin generation is fixed, transaction fees vary with the increase in network transaction volume. The fundamental reason for this change is that the introduction of the Ordinal protocol has increased the number of transactions on the Bitcoin network, especially if digital artworks and other NFTs become popular asset classes on Bitcoin, leading to increased transaction fees and indirectly boosting miners' total income.

Daily income of miners

In this article, we will focus on analyzing the Bitcoin ecosystem, including the Lightning Network, Ordinal, BRC20, Atomical, and BitVM.

Sidechains or Layer 2 Solutions Represented by the Lightning Network

For a long time, sidechains and Layer 2 solutions have been the focus of the Bitcoin ecosystem and are key technological innovations addressing the scalability and efficiency issues of the Bitcoin network. Projects in this category include Lightning Network, Rootstock (RSK), Stacks, Liquid, MintLayer, RGB, etc. Among them, the Lightning Network, as the king of legitimacy, originated from Satoshi Nakamoto's concept of "payment channels." From 2016 until the explosion of the Ordinal ecosystem, it attracted more than half of the developers and participants in the Bitcoin ecosystem. Around 2020, the Lightning Network became well-known throughout the crypto community through Nostr.

A sidechain is an independent blockchain that runs parallel to the main Bitcoin chain and interacts with the main chain through specific anchoring mechanisms. This design allows users to move assets from the Bitcoin main chain to the sidechain, which can provide faster transaction confirmations, lower fees, and even support more complex smart contracts and applications. By processing a large number of transactions off the main chain, sidechains help alleviate the burden on the main chain and improve overall network performance.

Layer 2 solutions, such as the well-known Lightning Network, are protocol layers built on top of the Bitcoin main chain. These solutions achieve fast and efficient transaction processing by creating off-chain transaction channels, requiring interaction with the Bitcoin main chain only when opening or closing channels, making them particularly effective for supporting small, high-frequency transactions, greatly expanding Bitcoin's application possibilities in everyday payments and micropayments.

However, for a long time, the Lightning Network was only used for small payments and did not support the issuance of other assets. With limited use cases, it was overtaken by the popularity of Ordinals. In October 2023, Lightning Labs released the Taproot Assets protocol on the mainnet, supporting the issuance of stablecoins and other assets on the Bitcoin and Lightning networks. As development director Ryan Gentry mentioned, Taproot Assets will provide developers with "the tools needed to make Bitcoin a multi-asset network while maintaining the core value of Bitcoin in a scalable way."

Through a Taproot-centered design, Taproot Assets delivers assets on the Bitcoin and Lightning networks in a more private and scalable manner. Assets issued on Taproot Assets can be stored in Lightning Network channels, where nodes can provide atomic conversions from Bitcoin to Taproot Assets. This allows Taproot Assets to interoperate with a broader Lightning Network, benefiting from its coverage and enhancing its network effects.

However, as noted by @blockpunk2077, at the current stage, "users cannot directly send transactions on the BTC mainnet to mint tokens themselves; instead, there is a project address that issues (or registers) all tokens at once, which are then transferred by the project party into the Lightning Network for distribution. Therefore, Taproot Assets tokens are not fairly distributed through free minting but often require a centralized project party for airdrops, and the project party itself can reserve tokens, as was the case with the recently issued $trick and $treat." This centralization characteristic has drawn some criticism, as it does not fully align with the Bitcoin community's pursuit of decentralization and disintermediation.

Ordinal, BRC20, and the Pandora's Box It Opens

We will not elaborate much on the Ordinal and BRC20 protocols here. As an innovative application, Ordinal implements a new method of data storage on the Bitcoin blockchain, assigning a unique serial number to each satoshi and tracking them in transactions, allowing users to embed non-fungible, complex data within Bitcoin transactions. With the ability to use NFTs on Bitcoin through inscriptions, the natural progression of development has shifted towards fungible tokens. On March 9, an anonymous Crypto Twitter user named @domo posted a thread theorizing a method called BRC-20, which could create fungible token standards on top of the Ordinals protocol. Essentially, this method involves inscribing text on sats to create fungible tokens. The initial design only allowed for three different operations: deploy, mint, and transfer.

We believe that the Ordinal protocol and its derivative BRC20 design are very ingenious, solving the major issue of asset issuance in the Bitcoin ecosystem in a simple and quick manner, aligning well with Bitcoin's design philosophy, making it easier to gain widespread attention and support from participants in the Bitcoin ecosystem. In the Bitcoin ecosystem, it plays more of a bridging role. It leverages the new features introduced by the Bitcoin Taproot upgrade, making it possible to store large amounts of data within a single transaction. Through this method, the Ordinals protocol can directly create and transfer digital artworks, collectibles, etc., on the Bitcoin chain, bringing the concept of NFTs (non-fungible tokens) to the Bitcoin blockchain, which differs from the implementation of NFTs on platforms like Ethereum.

The BRC20 standard, derived from the Ordinals protocol, aims to implement a token standard similar to Ethereum's ERC20 on the Bitcoin blockchain. The goal of BRC20 is to provide a standardized definition and interface for tokens in the Bitcoin ecosystem, allowing developers to create, issue, and manage tokens on the Bitcoin blockchain, similar to token operations on Ethereum. This means that in the future, complex token transactions and smart contract operations can also occur on the Bitcoin chain, although this requires complex programming and data storage technologies. The introduction of the BRC20 standard is an expansion of Bitcoin's functionality, demonstrating the continuous maturation and diversification of the Bitcoin ecosystem. However, implementing such a standard requires broad community support and further technical development.

The innovation of Ordinals primarily lies in the fact that, prior to this, Bitcoin was fungible (interchangeable), and one satoshi on the blockchain could not be distinguished from another. Ordinal changes this by leveraging two updates to the original Bitcoin protocol: Segregated Witness (SegWit) and Taproot. In simple terms, SegWit allows cheaper data to be placed in the witness portion of transactions, effectively increasing block size, while Taproot allows for advanced scripting within the witness portion. Together, these two updates are crucial for inscriptions, as they allow for more arbitrary data storage in the witness portion of any Bitcoin block.

Overall, the emergence of Ordinals and BRC20 has not only ignited the Bitcoin market (the source of miner income has completely changed, as shown in the chart below) but also pointed the way for subsequent improved protocols. For example, the BRC20 standard's TRAC, deployed by active Bitcoin community developer Beny, and the first cursed inscription with a total supply of 21 million - CRSD, have led to the introduction of the BRC-20 improved version Tap Protocol, which is an upgrade at the BRC-20 protocol level, and based on the Tap Protocol, TAP and -TAP have been issued, along with the Pipe protocol, which is an improved version of Runes.

Analysis of miner income

In September, another anonymous developer in the Bitcoin community, after some time of refinement, identified some design flaws in the Ordinal protocol and launched the Atomicals Protocol. From a technical aesthetic perspective, Atomicals is based on BTC's UTXO for minting and propagation, not adding extra burden to the BTC network, aligning more closely with Bitcoin technology, and gaining support from some Bitcoin maximalists. On the other hand, the Ordinal protocol has a stronger "experimental" nature, being a more spontaneous product, and its BRC20 protocol is another kind of "derivative" that even the Ordinal founder Casey did not anticipate, thus the Ordinal ecosystem does not possess "planning." In contrast, Atomicals, having undergone thoughtful refinement and with the foresight of its founder, has a clear blueprint for its ecosystem.

Here we provide a brief introduction to the Atomicals protocol.

The Atomicals protocol is a simple and flexible protocol for minting, transferring, and updating digital objects (i.e., digital objects, traditionally referred to as NFTs; Atomical believes that NFT is a highly technical term that cannot express its various potential uses, and thus chooses to use the term "digital objects" to highlight all potential uses of the protocol, which is more familiar to the general public and more developer-friendly).

Atomicals (or Atom) is a way to organize the creation, transfer, and updating of digital objects—essentially a chain of digital ownership defined by some simple rules. The protocol is open-source, and anyone can use it for free. All libraries, frameworks, and services are released under MIT and GPLv3 licenses to ensure that no one can control these tools and protocols.

Compared to other Bitcoin ecosystem protocols, Atomicals' main advantage is that it does not require centralized services or intermediaries as trusted indexers. It does not require any changes to Bitcoin and does not need sidechains or any auxiliary layers. It is designed to work in coordination with other existing protocols (such as Nostr, Ordinals, etc.). Each protocol has its own advantages, and Atomicals Digital Objects expand the range of options available to users, creators, and developers.

According to @bro.tree, "The Atomicals protocol is the first to mine token inscriptions through a POW process, allowing anyone to personally mine tokens/realms/NFTs using their CPU, which is the most fascinating feature of this protocol."

In terms of future ecological scenarios and implementations, Atomicals primarily considers three asset categories and their derived scenarios: ARC20 (i.e., fungible tokens), non-fungible digital objects (i.e., NFTs), and realms (digital identities). Related implementation scenarios include: digital collectibles, media and art, digital identity, authentication and token-gated content, web hosting and file storage (Bitcoin native file system), peer-to-peer exchanges and atomic swaps (naturally supports swaps), digital namespace allocation (DAO building and domain name revolution), virtual land and property registration, dynamic objects and states in games (GameFi), social media profiles, posts, and communities (verifiable SBT, SocialFi), etc.

Overall, compared to the Ordinal protocol, ARC20 and $ATOM are still very early and need to wait for the improvement of wallets and markets. However, due to their technical design, mining settings, and other aspects being more aligned with Bitcoin, their legitimacy occupies a relatively high position, which is invaluable for the Bitcoin community. In terms of possibilities, there is also a chance to achieve true BTC native DeFi. From the perspective of ecological development, the community has experienced several small bursts (see the chart below), but has not yet undergone large-scale speculation, still possessing significant potential.

Atomical minting situation

Additionally, it is worth mentioning that all tokens under the Atomicals protocol use native satoshi units to represent each token, allowing them to be split and combined like regular Bitcoin. 1 coin corresponds to 1 satoshi, and one atom is 1000 coins, corresponding to 1000 satoshis of BTC. This requires a period of adaptation for ecological beginners; if they mistakenly burn an atom as regular BTC transaction fees during transfers, it will result in destruction.

BitVM ------ The Holy Grail of the Bitcoin Ecosystem?

In the Bitcoin ecosystem, BitVM, Ordinal, and Atomicals protocols each represent different directions of technological innovation and expansion. The goal of BitVM is to provide more advanced programming capabilities and smart contract functionalities for the Bitcoin network, thereby broadening its application scope and increasing its functionality. This approach attempts to introduce more programmability and flexibility while maintaining Bitcoin's core attributes—such as security and decentralization.

In simple terms, BitVM is a computational model that allows developers to run complex contracts on Bitcoin without changing its fundamental rules. Since the concept of BitVM was proposed until the white paper was published in October 2023, it has attracted widespread attention and anticipation from the Bitcoin community. Bitcoin community developer Super Testnet boldly claimed, "This may be the most exciting discovery in the history of Bitcoin scripting." Abstractly speaking, BitVM operates similarly to the Lightning Network, which some in the community view as the future of Bitcoin payments, as it also uses off-chain mechanisms to extend Bitcoin transactions.

As mentioned earlier, Bitcoin serves as the digital gold standard of cryptocurrencies, but it lags behind other public chain ecosystems in its ability to handle complex, Turing-complete smart contracts. BitVM starts from this point, created by Robin Linus, who also created ZeroSync, an exciting direction that brings zero-knowledge proofs into the Bitcoin ecosystem, focusing on the implementation of Stark Proofs in Bitcoin.

In summary, under BitVM, computation will be executed off-chain, with on-chain verification, similar to the op rollup mechanism on Ethereum.

Similarly, BitVM involves two main participants: the prover and the verifier. The prover is the party initiating the computation or claim, essentially saying, "This is a program, and this is what I assert it will execute or generate." On the other hand, the verifier is responsible for validating that claim. This dual-role system can achieve a certain degree of checks and balances, ensuring that the computation results are accurate and trustworthy.

The originality of BitVM lies in its handling of computational workloads. Unlike traditional blockchain operations that place a heavy computational burden on-chain, most of the complex computations in BitVM are executed off-chain. This significantly reduces the amount of data that needs to be stored directly on the Bitcoin blockchain, improving efficiency and lowering costs. This off-chain approach also provides higher speed and flexibility, as developers or users can run complex programs or simulations without worrying about overloading the blockchain.

However, BitVM does adopt on-chain verification when necessary, especially in cases of dispute. If the verifier questions the legitimacy of the prover's claim, the system will refer to the immutable decentralized ledger of the Bitcoin blockchain to resolve the issue. This is achieved through what is known as "fraud proofs."

If the prover's claim is proven to be false, the verifier can submit a concise fraud proof to the blockchain, exposing dishonest behavior. This not only resolves disputes but also maintains the overall integrity of the system. By integrating off-chain computation and on-chain verification, BitVM achieves a balance between computational efficiency and robust security, known as Optimistic rollup. The basic idea is to assume that all transactions are correct ("optimistic") unless proven otherwise. Only when disputes arise will the relevant data and computations be published and verified on the main blockchain. This significantly reduces the amount of data that must be stored on-chain, freeing up space and lowering transaction fees.

In BitVM, Optimistic rollup is particularly useful. Most computational work occurs off-chain, reducing the amount of data that needs to be stored on the Bitcoin blockchain. When a transaction is initiated, BitVM can use Optimistic Rollups to bundle multiple off-chain transactions into a single on-chain transaction, further reducing the space occupied by the blockchain.

Moreover, in the event of a dispute, BitVM's use of fraud proofs aligns well with the inherent "challenge-response" system of Optimistic Rollups. If the prover makes a false claim, the verifier can quickly expose dishonest behavior by providing concise fraud evidence. This fraud evidence will then be reviewed within the Optimistic Rollup framework, and if verified, the dishonest party will be penalized.

In contrast, while both BitVM and Ethereum's EVM (Ethereum Virtual Machine) provide smart contract functionality, their approaches and functionalities differ. Ethereum's EVM is more general in supporting multi-party contracts and offers a wider range of computational tasks on-chain, but this can lead to higher costs and a more chaotic blockchain. BitVM, on the other hand, primarily focuses on two-party contracts and executes most computational work off-chain. This minimizes the footprint on the Bitcoin blockchain and reduces transaction costs. However, the current design of BitVM limits its applicability in complex multi-party environments, which is a domain where Ethereum's EVM excels.

Not everyone believes that BitVM deserves attention, and it has raised concerns among some. As Dan from Paradigm Research Institute stated, the protocol is only applicable to two parties, making it unsuitable for rollups or other multi-party applications, and it does not introduce anything particularly novel, as programmer Greg Maxwell proposed a better protocol ("ZK or contingent payments") long ago to address the same issue. However, it must be acknowledged that if BitVM is effective, it could have a broad impact on constructions built on Bitcoin. Another criticism is that even if computation is completed "off-chain," on-chain verification may still incur significant overhead. The BitVM proposal claims that it will not add a large volume of transactions to the network, nor will it cause gas fees to soar—unlike the surge in popularity of Ordinals.

Overall, BitVM is still in the conceptual stage. As Linus stated, "The purpose of publishing the white paper is to describe the idea in simple terms to spark community interest, but it is not yet a complete solution."

Conclusion

Compared to other public chain ecosystems, Bitcoin, as the most consensus-driven and long-standing decentralized practice, has a community that is very committed to Bitcoin's legitimacy and maximalism. To horizontally compare different explorations of the Bitcoin ecosystem, it is essential to consider community opinions to a greater extent and to ensure that no harm is done to the Bitcoin network.

1. The sidechains and Layer 2 solutions represented by the Lightning Network are the longest-standing explorations and practices in the ecosystem. The Lightning Network has gathered more than half of the developers in the Bitcoin ecosystem, possessing a consensus and cohesion that other sidechains and protocol solutions cannot match. As a protocol aimed at solving Bitcoin's scalability issues, the Lightning Network creates payment channels on top of the main chain to achieve fast, low-cost micropayments, effectively alleviating congestion and high fees on the Bitcoin network. However, for a long time, the Lightning Network was only used for small payments and did not support the issuance of other assets. With limited use cases, it was overtaken by the popularity of Ordinals. Its project company, Lightning Labs, timely released the Taproot Assets protocol on the mainnet, supporting the issuance of stablecoins and other assets on the Bitcoin and Lightning networks, which will provide developers with "the tools needed to make Bitcoin a multi-asset network while maintaining the core value of Bitcoin in a scalable way."

2. The various asset issuance protocols represented by the Ordinal protocol are intricately designed and possess strong technological innovation highlights, solving the major issue of "asset issuance" that has plagued the Bitcoin ecosystem in a simple manner, quickly attracting significant market attention. The wealth effect and influx of developers have made it reminiscent of the previous DeFi summer. Other innovative protocols derived from Ordinal, such as BRC20, Rune, Atomicals, etc., have generated a strong sense of technological iteration. Although there are negative evaluations in the Bitcoin community regarding these protocols, such as "increasing the burden on the mainnet," we believe that asset issuance protocols represented by the Ordinal protocol will become a market hotspot for some time, serving as a transitional or phase-based innovation in the Bitcoin ecosystem.

3. BitVM and similar virtual machines or smart contract platforms hold a particularly unique and important position in the Bitcoin ecosystem. The emergence of these platforms represents the Bitcoin ecosystem's desire for functional expansion and technological innovation, especially in terms of smart contracts and more advanced programming capabilities, bringing new use cases and value enhancement to Bitcoin. Although it is still in the development and exploration stage, in the long run, the ability to introduce smart contracts is crucial for Bitcoin's long-term development and competitiveness, potentially becoming a key driving force for innovation and diversification in the Bitcoin ecosystem. However, the success of these systems will depend on community acceptance, technical feasibility, and whether they can align with the security and decentralization characteristics of the Bitcoin main chain.