SevenX Ventures: Interpreting the Essential Logic of BTC Ecosystem Prosperity and Exploring Potential Investment Opportunities

This article is an original work by the SevenX research team, intended for communication and learning purposes only, and does not constitute any investment advice. Please cite the source if you wish to reference it.

Author: Hill

Maintaining Bitcoin's massive hash rate requires an equally large income. With the halving of Bitcoin block rewards, increasing fee income has become urgent. Especially in the context of a bear market, miners need more revenue. The year 2022 was devastating for miners, with multiple costs rising simultaneously: funding costs skyrocketed with interest rate hikes, energy prices increased, and mining electricity costs surged. The drop in BTC prices can easily lead to two vicious cycles. First, there is the vicious cycle of BTC prices: approaching the shutdown price of mining machines ------ miners sell off ------ BTC prices drop ------ miner profits decline ------ more miners sell off. Secondly, there is the vicious cycle of mining machine prices: miners go bankrupt ------ mining machines are sold at a discount ------ machines are acquired at prices below market cost, restarted, and returned to the market ------ hash rate rises ------ mining difficulty increases ------ more miners go bankrupt. The stock performance of many mining companies during the bear market also fully demonstrates the brutality of the bear market.

At the same time, a new asset class based on Bitcoin inscriptions, represented by ordinals, has been enthusiastically embraced by the market. The fees generated provide miners with sufficient income to survive the harsh bear market, up until the current early stages of a bull market. We will observe this new asset class from two perspectives: the technical route and the leading product forms, and attempt to analyze the investment opportunities that exist within.

Bitcoin Technical Route Upgrades

Main Direction 1: On-chain Expansion

The Segregated Witness ("SegWit") implemented in 2017 changed the structure of Bitcoin transactions by dividing them into transaction data and witness data. This change introduced a new concept of block weight, where the weight of witness data is only 25% of transaction data. This measure effectively expanded Bitcoin's block size, making it easier and cheaper to store data in the witness part of transactions. Fundamentally, SegWit increased Bitcoin's maximum block size from 1 MB to 4 MB (including 1 MB of transaction data and 3 MB of witness data).

The Taproot upgrade in 2021, although hailed by supporters as bringing smart contracts to Bitcoin, has not seen widespread application since its launch over a year ago. Taproot simplifies the representation of complex smart contracts (such as multi-signature wallets, payment channels, etc.) on the blockchain into ordinary Bitcoin transactions, enhancing privacy and scalability. Bitcoin Script is a simple scripting language used to write and execute the logic of Bitcoin transactions, designed to provide a flexible way to set unlocking and locking conditions for Bitcoin transactions. The two major impacts of Taproot are: allowing advanced scripting in the witness part of blocks, and eliminating data restrictions between the two parts of blocks, allowing up to 4 MB of data in the witness part.

Ordinals & BRC 20

Launched in January 2023, Ordinals combined Taproot with ordinal theory to create sats with additional inscriptions. Ordinal theory equates 1 BTC to 100 million sats, assigning a unique identifier to each of Bitcoin's 21 trillion sats. Individual sats can be inscribed with any inscription, such as text, images, or videos, with a limit of 4 MB. Using an ordinal wallet is necessary to prevent accidentally using sats with inscriptions. The comparison with NFTs lies in the fact that Ordinals have an ordinal number, limited quantity, and are fully stored on-chain.

Additionally, the benefits brought by Ordinals include increased transaction fee income for miners, enhanced security, and a new narrative. However, it also brings some drawbacks, such as increased node storage, difficulties in content censorship, and potential fee increases. Active participants in this field include Xverse, Gamma, and other companies that quickly added Ordinals support and launched related products. Notable NFT studios like Yuga Labs and DeGods also released Ordinals-based projects last month.

The inscription operations and the introduction of the BRC 20 standard are conducted on a first-come, first-served basis. Anyone can upload a Punk to the Bitcoin network, but only the earliest Bitcoin Punk is authentic, which is essentially a form of consensus. However, due to some criticism regarding its consumption of network storage resources, this craze has gradually cooled. When the additional information attached to the Ordinals protocol is set to a unified standard, the Ordinals protocol can not only issue non-fungible tokens (NFTs) but also fungible tokens (FTs).

ORC -20

ORC -20 surpasses the BRC -20 standard in terms of flexibility in token naming. Unlike BRC -20, which only allows four-letter words as names (symbols), ORC -20 permits words of any length as "ticks." For example, the first deployed ORC -20 token "ORC" consists of three letters. Additionally, the ORC -20 standard introduces the ability to modify total supply and maximum minting quantity after initial deployment, providing more flexibility for token economic experiments. This functionality can be achieved by correctly specifying "tick" and "id," and inscribing the upgrade feature into the sat. For instance, the supply can be adjusted from 21,000,000 to 2,100,000, the issuance limit can be modified from 10,000 to 1,000, and "ug" can be set to "false" to prohibit future upgrades. After each upgrade, the version "v" of the ORC -20 token will automatically increment by 1. In terms of the UTXO model, ORC -20 introduces this concept for token transfers, which is a clear distinction from BRC -20. For example, if A sends $2 to B, and B originally had $1, under the UTXO model, B's balance will show as two separate UTXOs rather than a simple total of $3. The advantage of this model is that UTXOs can only be used once, effectively preventing double-spending issues. To send ORC -20 tokens, the corresponding text must be inscribed into the sat, and the final inscription must be added to send the remaining balance back to the sender. This process is similar to how UTXOs are handled; if the final inscription is not executed, the transaction can still be canceled in between.

Atomicals

Atomicals is an optimization project for Ordinals and BRC 20, focusing on fungible tokens and addressing the over-reliance of BRC 20 on centralized off-chain indexing. Atomicals utilizes and expands Bitcoin's UTXO model, treating each sat (the smallest unit of Bitcoin) as a specific Atomical token or digital object, thereby creating and managing complex digital objects and token systems (ARC 20) on Bitcoin. The minting process of ARC 20 introduces POW, requiring the minter to calculate the hash of specific prefix characters to proceed with minting. The Atomicals protocol provides Bitwork Mining's prefix parameter settings for ARC -20, allowing participants to directly mine inscriptions/NFTs. The ARC -20 token standard adheres to Bitcoin's fundamentalist principles, and it is expected that the emergence of related tools in the future will enhance its liquidity.

Taproot Asset

The latest upgrade of Bitcoin, Taproot, makes it possible to directly embed asset metadata into Bitcoin outputs. It also supports multi-hop transactions on the Lightning Network, ensuring a seamless transaction experience for end users. Furthermore, assets issued through this protocol are interoperable across the entire Lightning Network. This interoperability manifests as atomic swaps, allowing for seamless transitions between Bitcoin and Taproot assets. Taproot Assets is a protocol launched by the renowned Lightning Labs, aimed at creating and trading various digital assets on the Bitcoin network, integrated with the Lightning Network. The updates to Taproot Assets expand the functionality of the Lightning Network from merely point-to-point transaction payment channels to point-to-multiple modes capable of asset distribution and circulation. The distinctive feature of Taproot Assets is that the token information is recorded in the UTXO output scripts of the Bitcoin mainnet as registration, while functions such as transfer transactions are realized within the Lightning channels. The biggest difference from BRC 20 and ARC 20 is that the issuance method of Taproot Assets is pre-minted by an owner and then distributed, rather than free minting. Taproot Assets integrate a sparse Merkle tree, aiding in efficient data retrieval. Additionally, it includes a Merkle-Sum tree to ensure the effective preservation of data. Assets can be transferred through on-chain transactions or, once included in a channel, via the Lightning Network. Notably, participants bear the responsibility for verification and storage costs. Therefore, the witness data of Taproot Assets remains off-chain, stored in a local data repository called "Universes." The validity of the assets is proven through their lineage since inception and cross-checked using transaction data files obtained from the Taproot Assets gossip layer. To maintain structural integrity and verifiability, Taproot Assets employ a complex indexing system, akin to a meticulously cataloged library, ensuring timely access and verification of token information. Users can choose to transfer tokens directly or utilize the fast Lightning Network. Similar to protecting the authenticity certificate of a precious item, users' tasks are to preserve and verify the data associated with their tokens, while the protocol provides tools to verify the credibility of these "certificates."

NostrAssets

Nostr Assets is an open-source protocol that introduces Taproot assets and Satoshis (Bitcoin units) into the Nostr ecosystem. Users can send and receive assets at the Nostr protocol layer using Nostr's public and private keys. The settlement and security of assets rely on the Lightning Network, while the Nostr Assets protocol itself does not issue assets but merely brings assets into Nostr through the protocol. Features of Nostr Assets include seamless integration of Taproot assets and Bitcoin into the Nostr ecosystem, providing developers with tools to create innovative products, enriching the value of the Bitcoin and Lightning Network ecosystem, and achieving a seamless experience from chat to transaction. In the future, Nostr Assets plans to import Taproot assets from other Daemon Universes, allowing for the reception and sending of Taproot assets in and out of Nostr.

Stamps

Bitcoin stamps store images in a permanent and unchangeable manner on the Bitcoin blockchain. Unlike storing images on separate websites or servers, Bitcoin stamps directly embed image data into Bitcoin transactions. To create a Bitcoin stamp, the image must be converted into a special format called base64. This format allows the image to be represented as a string of characters. This image string is then added to the description of the Bitcoin transaction and sent to the Bitcoin network using the Counterparty protocol. Each Bitcoin stamp is assigned a number based on the transaction time. This helps organize the stamps chronologically. The first Bitcoin stamp is the first transaction that contains a valid image string in its description. Transactions containing invalid image strings are not considered Bitcoin stamps. Bitcoin stamps differ from other digital collectibles because they are directly stored on the Bitcoin blockchain, specifically in unspent transaction outputs (UTXOs). This ensures that the images are securely and permanently recorded on the blockchain. Currently, the main protocols used for Bitcoin stamps are SRC -20 and SRC -721.

DLC

DLC (Discreet Log Contract) is a type of smart contract based on the Bitcoin blockchain that can execute complex financial transactions. To initiate a DLC, both parties must deposit Bitcoin into a shared 2-of-2 multi-signature wallet as a "stake." Next, both parties agree on the terms of the contract and sign the contract execution transaction (CET), which represents possible future outcomes. Since these transactions require signatures from an Oracle to settle, they remain unpublished. CETs occur off-chain and act as payment channels on the Bitcoin Lightning Network. The advantages of DLC include privacy protection, no need for third-party custody of funds, and lower energy consumption. However, it also has some drawbacks, such as centralization risks, difficulties in order matching, and novelty. DLC is a relatively new concept that has not yet been tested on a large scale.

Main Direction 2: Off-chain Expansion

State Channels and the Lightning Network are the two main off-chain expansion methods for Bitcoin. The Taro update is a proposed protocol that allows for the issuance of digital assets (FT/NFT) on the Bitcoin blockchain. Sidechains provide new application scenarios based on BTC, such as Liquid and Rootstock. Stacks introduces the POX consensus mechanism, interacting with the BTC layer. The Nakamoto upgrade is expected to provide higher security and decentralization in the fourth quarter of 2023.

Rollup establishes a concept based on BTC through inscription. Although BTC zk rollup can be compressed using validity proof, there are still some performance and security issues. The B2 network is a second-layer solution based on Bitcoin, aimed at improving transaction speed and expanding application diversity. The RGB protocol is built on top of the proof-of-work (PoW) consensus layer of the Bitcoin blockchain, one of its core features being client verification, which enhances scalability and privacy.

B^2 (B Squared)

The B^2 network is a second-layer solution based on Bitcoin, designed to improve transaction speed and expand application diversity without sacrificing security. It is the first commitment rollup to implement zero-knowledge proof verification on Bitcoin. B^2 runs zkEVM on the Bitcoin network layer, allowing users to directly control their zkEVM accounts by signing with their BTC wallets. This ensures a good experience for developers and users. The verification process of zkps in zkEVM is broken down into small units of values and stored on the Bitcoin network in the form of Taproot transactions. The verification itself does not occur on Bitcoin; it can only be restored from Bitcoin. To independently verify zkps, users still need to retrieve the entire verification process of the zkps from the Bitcoin network to achieve verification themselves. The verification of B2's zkps has not achieved the best results; that is, users still need to expend a certain amount of extra computation compared to directly verifying zkps on L1, but there are still significant advantages compared to recalculating all transactions directly.

RGB

RGB is a protocol built on the proof-of-work (PoW) consensus layer of the Bitcoin blockchain. Using RGB does not require protocol changes to the Bitcoin blockchain or the Lightning Network. The protocol acts as a directed acyclic graph (DAG) version, where participants cannot see the complete state of the network. Each new transaction must confirm at least two earlier transactions before being recorded on the network. Client verification is supported by the RGB model, which is the way users create smart contract protocols.

Client Verification
One of the core features of RGB is client verification, a concept proposed by Peter Todd. Since RGB transactions are not included in Bitcoin or Lightning transactions, scalability and privacy are significantly improved. In addition to storing transaction data off-chain, RGB transactions also use one-time seals (or seals) to allocate them to the UTXO set, closing Bitcoin transaction outputs as another security measure. Seals can prevent two different participants from providing different versions of what should be the same data. Therefore, they allow qualified participants to verify the historical state of smart contracts.

The origin-level model of RGB defines the verification rules for each state, ensuring that each successive state owner uses the same model to verify its history. Thus, the model guarantees social consensus, verification, and the state of smart contracts. RGB smart contracts include states, owners, and operations that participants can execute to update the state.

• By default, RGB contracts have clearly defined parties that own specific state atoms, referred to as owned states.
• The states of the contracts include state atoms of different data types, similar to variable types in structured languages (e.g., Rust).
• Operations include genesis operations, state transitions for updating or adding data, and state extensions for enabling public participation.

The verification logic of RGB ensures that it always produces the same result, regardless of the platform or library used. This is achieved through two main components:

• The core verification logic utilizes the Rust language. All contract-specific verification logic runs on the Alluvium Virtual Machine (AluVM), which is a highly deterministic and exception-free virtual machine that provides a platform-independent instruction set.
• The architecture of RGB nodes is the same as that of LNP and BP nodes designed and maintained by the LNP/BP Standards Association. The node consists of multiple microservices, designed to run as a single daemon on a desktop or server (e.g., a program running in the background without user intervention), as a thread in a single mobile application, in cloud systems, or as independent nodes combined in a single mobile application. Additionally, all peer-to-peer communications are end-to-end encrypted and operate on the Tor network.

All data of RGB smart contracts is fully stored off-chain, run by RGB nodes. The RGB protocol utilizes UTXOs to store state transition proofs to track and verify the state of smart contracts, allowing users/validators to confirm the correctness of the smart contract's state by scanning UTXOs on the Bitcoin network. Utilizing the Bitcoin consensus layer only requires retaining a brief encrypted commitment of ledger events, a technique that proves the existence of specific data without revealing the actual content, typically achieved through hash functions, storing only these commitments on-chain to ensure data authenticity and integrity, thus reducing the on-chain data burden. The ledger data designed by RGB is stored off-chain, meaning that all contract data and state transitions are retained off-chain rather than on the blockchain. By using one-time seals and state transitions to track and verify the state of smart contracts, it effectively handles and verifies the state and transactions of smart contracts without storing all data on-chain.

ROOS Network

ROOS Network is a Bitcoin Layer 2 scaling solution based on ZK Rollup architecture and compatible with EVM, aimed at expanding Bitcoin's smart contract scenarios without sacrificing security and decentralization, breaking free from Bitcoin's non-Turing complete constraints, improving transaction efficiency, and minimizing transaction costs. ROOS will allow developers to build a variety of rollups, including sovereign rollups and settlement rollups. According to the official website, ROOS's next step is to launch the ROOS Alpha testnet and establish a developer community and network ecosystem services.

Layertwo Labs

Layertwo Labs has developed Drivechain, allowing developers to create any blockchain application they want by connecting to the BTC network's sidechains. On the sidechain, developers have complete freedom to create any tokens, coins, smart contracts, block sizes, consensus models (PoW, PoS), use cases, DApps, UX and UI, features, and rules without any restrictions. Drivechain essentially provides a mechanism for building L2 on top of Bitcoin. With only 256 slots available, any additional L2 needs to cover the previous ones, which can be understood as turning Bitcoin into a Polkadot relay chain without various interoperability features.

Typically, Ethereum ecosystem L2 withdrawals are initiated by smart contracts placed on L1, usually controlled by the L2 project's own multi-signature. Some L2s have a force exit mechanism that allows users to withdraw funds directly from ETH L1 (users submit their own L2 state fraud proof or zk proof, etc.). The withdrawal process of Drivechain is essentially a multi-signature signed by all Bitcoin nodes. This multi-signature is signed multiple times by all Bitcoin miners on L1. Each withdrawal can complete a multi-signature confirmation for each Bitcoin block, requiring a total of 13,150 multi-signature confirmations to unlock the transaction for sending money out (3-6 months). When a user initiates a withdrawal from L2, L2 generates a 32-byte hash (based on the global state of that L2, the user's L2 state, L1 receiving address, etc.). Of course, this hash could be forged by an attacker, so a competition mechanism similar to a signature race is needed to ensure that honest withdrawals prevail, achieving the goal of only one honest withdrawer correctly receiving the funds. The winning condition is that a withdrawal transaction receives 26,300 signatures.

Starting from 1, each time a block wins, the score increases by 1; if a block is denied by multi-signature, the score decreases by 1. If the score reaches zero, the withdrawal fails, and the fastest withdrawal reaching 13,150 will be sent to the user's L1 receiving address. From the perspective of an attacker, they need to control more than half of the Bitcoin hash rate to influence a single multi-signature result while accurately predicting the user's account status on L2 (which requires matching the changing hash of each block, which is difficult and requires monitoring L2 status; L2 accounts and L1 accounts have no necessary connection, and user behavior is unpredictable) and the global state of that L2 (also difficult), and then sign their own fraudulent withdrawal transaction. They would need to successfully perform these operations at least 13,150 times in a row (any mistake along the way could extend the entire process beyond three months).

Cheating behavior is easily detected (since everything is on L1), and honest participants have sufficient time to take action. BIP300 emphasizes slow, transparent, and auditable transactions, making it easy for honest users to succeed while dishonest users find it difficult to abuse.

Platform Projects

The functions provided by platforms for minting and trading inscribed assets are largely similar, generally including:

• Inscription tools: Allow users to set asset minting details (total amount, minimum and maximum single minting quantity, etc.), query existing inscription information, and track minting progress.
• Trading platforms: Similar to NFT trading platforms, users can check floor prices, place orders, and view recent transactions.

UniSat

OKX

Magic Eden

Stamp

Overview of Secondary Projects

Currently, market sentiment is clearly overheated, with many people reducing their IQ below 50, and currencies are severely over-issued, with over 50% of coins generating no more than three transactions after being listed. Leading coins have already been listed on Binance. Compared to the previous cycle, the author believes that this round of inscription market is similar to the food coin market before the official start of DeFi summer; pure air speculation cannot last forever. Investors may consider deploying in advance in the next market segment where asset trading and service platforms are more likely to survive and thrive.

Bitcoin Ecosystem Inscribed Assets

BRC 20 ($ mcap)

• Sats: Meme coin named after Bitcoin's smallest unit.
• Ordi: The earliest BRC 20 coin.
• Trac: Decentralized indexing.

Nostr Asset

• Treat: Governance token for the Nostr Asset protocol.
• Trick: Governance token for the Nostr Asset protocol.
• Nostr.

Atomicals

• Atom.
• Realm.
• Arcs.

Stamp

• Stamp.
• Kevin.
• Pepe.

Bitmap

• BRC -420.

Non-BRC 20

• AUCTION: Launchpad + scaling chain.
• MUBI: Cross-chain bridge.
• BSSB: Asset platform.
• Turt: BRC 20 launchpad.

Other Chain Inscribed Assets

• ETHS: Inscribed assets on Ethereum, based on the facet platform.

• FACET: An inscription and trading platform on Ethereum that developed its own Ethscriptions VM, mainly used for parsing inscription transactions on Ethereum.

• PAMP: Meme coin on Ethscriptions VM.

• Sols: Inscribed assets on Solana.

Driving Forces Behind Ecosystem Prosperity

In the past three months, Bitcoin miners' income has significantly increased, especially in November, where the contribution of on-chain fees rose from 2.4% on August 19 to 23.46% on November 16. This growth is primarily attributed to the introduction of Ordinals trading pairs. This indicates that the development of the Bitcoin inscription market has significantly increased the proportion of miners' fee income. It is expected that by the Bitcoin halving in April 2024, this proportion may reach 50%.

Currently, as most Bitcoin mining operations in the U.S. are operating at a loss and the semiconductor industry faces process bottlenecks, the competition for mining machine hash rates is easing. Therefore, miners may turn to Bitcoin inscriptions as a new source of income. For example, less than a year after the launch of Ordinals, the market has seen the issuance of over 50,000 tokens, with minting and trading volumes rapidly increasing, greatly boosting miners' fee income.

The expansion of the inscription track not only drives the growth of miner revenues but may also become a major driving force for the Bitcoin inscription track. However, miners are more concerned about the increase in transaction counts rather than the fluctuations in inscription prices.

The main reason is that the fees consumed by inscriptions are staggering. Taking the recent normal price of 200 sats/vB as an example, the image content of Bitcoin Frogs is 3078 bytes (3 kb), requiring a fee of 61,000 sats, not including other content and fees for accelerating the transaction. 61,000 sats is approximately equal to 0.0061 BTC (1 BTC = 100 million sats). The entire Bitcoin Frogs collection has 10,000 pieces, so if deployed now, just the deployment of content would cost the team 61 BTC, not counting other expenses. At a price of 40,000 per BTC, just the gas for this image would cost $244, making the total cost of the entire collection at least $2.44 million. During community interviews, it was also learned that some teams spent tens of millions of dollars to deploy NFTs. And this is just the cost for the project party to issue tokens. As users inscribe, gas levels around 200 sats/vB can lead to gas costs ranging from $100 to $300 per transaction/image. The high costs and absolute fairness of the launch create an excellent meme playground.

Key Data

Transaction data on the Bitcoin network shows that the trading volume of BRC -20 and Ordinals has already accounted for a significant proportion, at times exceeding 50%. This indicates that inscribed assets have already occupied a considerable share within the Bitcoin ecosystem, making it hard to imagine that this asset class will completely disappear.

New assets often come with the emergence of new trading platforms. In the early stages of the track, community-built marketplaces dominated. However, as the track matures, it can be seen that the current trading volume and transaction counts are mainly occupied by three giants: OKX, Unisat, and Magic Eden. In addition to the massive traffic brought by the original platforms, a better user experience is also key.

Some Conclusions

The infrastructure of the BTC ecosystem has made progress, mainly in the following aspects:

• Increased complexity of on-chain information.
• Enhanced off-chain computing and storage capabilities.
• Many new projects are bringing technologies like zk from the Ethereum ecosystem to the Bitcoin ecosystem to achieve off-chain expansion.

If these infrastructure advancements are compared horizontally, there is no absolute advantage in scalability, security, and decentralization compared to other L1 and L2 ecosystems like Ethereum. However, within the Bitcoin ecosystem, it is still a 10X or even 100X improvement, sufficient to support user and asset growth for a period. The technical idea of inscriptions can be simply understood as placing security, consensus, and liveness on the BTC chain while placing settlement on the indexer.

From the use case perspective, the fair launch model of inscriptions is a significant innovation that supports this round of Bitcoin market activity.

• Due to the limitations of programmability, inscriptions are all fair launches, making it almost impossible to implement more complex logic that differentiates users, such as pre-mines during the ICO era, locked DeFi tokens, or NFT whitelist mechanisms. Once the standard format for inscriptions is published, it immediately supports minting (users can even mint in advance, but they are likely to be ignored by the indexer), with only the miner network deciding which user's transaction is included in the block. The entire process is very fair, with the competition solely based on users' information asymmetry and willingness to pay gas fees.
• The threshold for using inscriptions is gradually lowering with the proliferation of tools and tutorials, leveling the advantages of retail investors and scientists with easier no-code inscription and trading tools, while the advantages of front-running are being mitigated by bots monitoring on-chain inscription behavior.
• Due to infrastructure limitations, the environment for serious teams to build more complex use cases remains poor, and user quality does not match, making it difficult to form competitive advantages beyond new asset classes compared to other ecosystems.
• Essentially, it is a market driven by the creation of new asset classes using existing technologies, with upward trends synchronized with the macro environment.

The emergence of a large number of high-value assets has caused a phenomenon of ecosystem prosperity for several detailed reasons:

• The BTC ecosystem largely missed the last 1-2 bull markets, and miners need new sources of income, creating better wealth opportunities that meet this demand.
• The difficulty of achieving a fair launch in the later stages of the bear market has decreased, making market sentiment easier to mobilize compared to the end of the bull market and the beginning of the bear market.
• The absolute fairness of the launch ensured by technical limitations makes it possible for retail investors to profit in a bear market and inevitable in a bull market.
• The BTC network is robust enough to avoid downtime and errors, ensuring the safety and user experience of the majority of users' assets.

How the Ecosystem Will Develop Next

After extensive interviews with community users and project parties, some preliminary conclusions and reasoning have been drawn.

Preliminary Conclusions

• Currently, due to limitations in infrastructure development, applications find it difficult to be complex; the biggest use case for inscriptions is memes.
• User acquisition and retention are highly dependent on the attributes of fair launches.
• Empowering inscribed assets is limited to very simple scenarios, such as coin storage for new launches.
• There are not many teams seriously working on complex applications.

Reasoning

• The fair launch as an asset issuance method has inherent flaws:
• Project parties lack incentives to work seriously in the long term, making it easy to abandon projects.
• Users only care about asset performance, easily leading to bad coins driving out good coins.
• In the upcoming bull market, other ecosystems will have more good projects that have weathered the bear market, potentially attracting more funds and causing the average price performance of fair launch projects to decline further.
• Inscribing is a good way to fairly distribute benefits to users, ensuring fairness among users.
• Inscribing is a cheaper and safer operation than directly interacting with smart contracts:
• It only requires the consumption of a simple transaction's gas.
• It does not involve the transfer of assets within the user's wallet.

Possible Directions for Increased Market Demand

• Inscribed asset trading platforms:
• New asset classes will give rise to new trading scenarios, potentially leading to new trading platforms.
• However, as previous data shows, the current asset classes of ordinals and BRC 20 are mainly dominated by OKX, Unisat, and Magic Eden, which have captured market share from previously community-built exchanges through better user experiences.
• If new asset classes emerge, there may be trading opportunities for other asset standards. The earliest supporters and those with the best product experiences may have opportunities:
  • ORC, ARC, Stamps, and other standards.
  • The ecosystem is relatively small and needs time to continue developing.
  • Inscription asset standards from other chains.
  • They already have some recognition (though still relatively small), but since other chains generally have lower gas fees than the BTC chain and higher throughput, high-value asset opportunities may not easily arise, but the volume of long-tail assets remains considerable.
• Faster and safer L2 solutions:
• As the bull market approaches, BTC network gas fees will rise, potentially creating demand for new users to enter at lower transaction costs, similar to the previous DeFi cycle where high L1 gas fees led users to enter L2.
• Inscribed assets on L2 can generate more complex DeFi gameplay due to lower transaction costs.
• Bitcoin-native DeFi:
• Directly operating DeFi on Bitcoin based on inscriptions.
• The demand for new stablecoins may arise from the trading needs of inscribed assets, possibly through over-collateralized minting of inscribed assets.
• Cross-chain bridges:
• Bringing liquidity into the Bitcoin ecosystem beyond trading.
• High requirements for business development and ecosystem capabilities.
• Market competitors include Thorchain, Multibit, Polyhedra, etc.
• More complex protocols based on BRC protocols or more complex applications:
• New asset classes bring in certain users, generating demand for higher complexity applications (replicating paths taken by the EVM ecosystem such as ICOs, DeFi, games, etc.).
• There may be innovative gameplay mechanisms (bringing the fair launch characteristics of inscriptions into DeFi or even gaming).
• The segmentation of transactions and usage scenarios caused by inscribing behavior based on different use cases may lead to new tool opportunities on BTC or other chains:
• Creating and transferring assets through inscriptions, executing other logic through on-chain contracts.
• Ensuring fairness in operations that require user execution, such as claiming airdrops.
• Ensuring safety in operations that require user execution, such as registering asset ownership.
• Projects or inscription platforms from other chains:
• Replicating verified methods of creating new assets in other ecosystems.

Conclusion

The emergence of new asset classes always brings new users and new sources of funds. This is an exciting opportunity. These opportunities may arise on the infrastructure side, platform side, or application side. New asset classes will also inevitably repeat the cycles of past asset classes: early consensus building, market oversaturation with air coins, rapid overheating, periodic returns to rationality, remaining project parties continuously accumulating value, and finally leading to an explosion, establishing the consensus for the next phase. Inscriptions represent a revival of Bitcoin, and how can they not also represent a revival of blockchain? The demand for fair launches will always exist, and air coins will always exist. We believe that the Bitcoin ecosystem will undergo a new round of cleansing, with existing players potentially facing significant growth opportunities, while new players will also have ample chances to challenge the market leaders.