Delphi Digital: Bitcoin Authority Report

Original Author: Delphi Digital
Original Compilation: DAOSquare

Introduction

2023 will become one of the most important years in Bitcoin's history. Bitcoin Ordinals have opened up a whole new concept and sub-market for Bitcoin. Bitcoin L2, sidechains, and scaling solutions have rekindled interest among market participants. Traditional financial markets are beginning to view BTC as a serious and effective asset class, with over a dozen spot BTC ETF applications submitted in 2023, many of which are expected to be approved in early 2024. However, most importantly, BTC seems to be emerging from one of the worst bear markets the crypto market has ever experienced. BTC has withstood the storms of the Luna, FTX, Voyager, and Celsius collapses and appears stronger than before, as evidenced by the market attention, ecological vitality, and new technologies we are witnessing. In summary, the current state of Bitcoin is exciting.

This report will focus on several key trends and areas where we believe Bitcoin will shine in 2023. Readers should not view this report as an exhaustive list of every Bitcoin development in 2023, as there are too many things to quantify and track. Thousands of people are working towards their own Bitcoin visions. Whether through the Lightning Network, inscription markets, or BTC micropayments via Bitcoin sidechains, the level of Bitcoin's development in 2023 has reached a fever pitch. The rigidity we observed in Bitcoin in 2021 and 2022 seems to be a thing of the past.

Bitcoin Network

The first area we want to focus on is how Bitcoin operates as a network. If we sometimes forget that Bitcoin is far more than just the price of BTC, crypto enthusiasts can be forgiven. Bitcoin is the world's largest decentralized currency network, so closely monitoring the health of the network is crucial. To some extent, buying BTC is a bet on the Bitcoin network absorbing more users and capital. Without growth, Bitcoin will fail. Fortunately, in 2023, almost everything in the Bitcoin network began to get back on track.

The hash rate in 2023 is astonishing. Given BTC's relatively poor price performance in 2022, we were surprised to see the hash rate continuously breaking historical highs before 2023. Since the beginning of 2022, Bitcoin's hash rate has doubled, and its hash rate is noteworthy for two reasons:

It represents the security level of Bitcoin. Generally speaking, the higher the hash rate, the more secure Bitcoin is (assuming the hash rate comes from new miners and not just all existing miners).

A higher hash rate indicates miners' confidence in the network. If mining is unprofitable or the profit cycle is too long, we expect the hash rate to decline.

The number of active BTC addresses saw a significant drop from the peak of 1.15 million addresses in 2021. As BTC prices stagnated, over 300,000 users disappeared within weeks. Even the new ATH reached in November 2021 did not bring back the lost users. Active BTC addresses remained unchanged throughout 2022. However, in 2023, we saw a growing trend in active BTC addresses. Yet, as we enter 2024, the growth trend seems to have stagnated, with active addresses stabilizing around 1 million.

In 2023, we observed an improvement in Bitcoin's fee revenue. Bitcoin has a problem. The issue is that at some point in the future, Bitcoin's fees will need to replace its block rewards to continue paying miners for securing the network. Unfortunately, Bitcoin's fee revenue has historically been too low to replace block rewards. However, 2023 has brought some new hope for addressing this challenge.

The inscriptions and new demand for block space have had a tremendous impact on Bitcoin. First, we saw a significant spike in fees at the beginning of the year. After the initial surge, fee levels calmed down, but fees still saw a notable increase.

A significant advancement that helps address Bitcoin's fee challenges is inscriptions. We will discuss them in detail later, but fundamentally, inscriptions allow users to store any arbitrary data on the Bitcoin network. Just like regular transactions, users must pay fees to inscribe data. This small technological development has led to an explosive increase in demand for Bitcoin block space. At the beginning of 2023, people inscribed data on thousands of Sats. Then, people figured out how to use inscriptions to create a simple token standard, BRC 20, which led to even more demand for block space. The demand for storing data on Bitcoin was so great that the average block size nearly doubled in 2023.

We can easily see the demand for block space in Bitcoin's mempool. Starting in the first quarter of 2023, Bitcoin's mempool exploded. The mempool was suddenly clogged with thousands of transactions trying to inscribe their data on Sats. When bots stifled users' ability to create BRC 20, fees briefly dropped again (which will be detailed later), but the mempool became congested once more. For struggling miners, a congested mempool can be a godsend, but those making small transactions find it frustrating. For some, the chain has become nearly unusable.

The boom in inscriptions has led to a sharp decline in small BTC transfers, seemingly the reason we see BTC transaction volume collapse after the inscription craze. Bitcoin's transaction volume (measured by the total number of successful BTC transfers on-chain) has dropped to levels not seen since 2020, and the downward trend appears likely to continue.

The increase in demand for inscriptions and fees has led Bitcoin's FRM to its lowest level in some time. FRM, or Fee Ratio Multiple, measures the multiple of fees required for a chain to replace its block rewards. The lower the FRM, the better. In 2022, Bitcoin's FRM hovered between 40x and 120x, meaning Bitcoin needed 40 to 120 times the fees to replace block rewards. The surge in inscriptions has begun to lower this number. In 2023, the FRM plummeted from 80x to between 12x and 40x, closer to the levels seen in 2020 to 2021. Lower FRM levels are more promising, and if you are a long-term believer in Bitcoin, you hope to see this downward trend continue.

Bitcoin's network statistics paint a vivid picture, largely dependent on large-scale adoption. Bitcoin seems to be moving beyond the HODL meme into scenarios we frequently use. When inscriptions first entered the market, we predicted the scene you see today. The demand for Bitcoin's block space has created new sources of fees and users for the chain. To some extent, thanks to the new sources of fees, the network is now as busy and secure as ever. Despite some naysayers, by 2023, inscriptions have undoubtedly proven to be a boon for the entire Bitcoin network.

However, it is important to note that an FRM between 12x and 40x is still high. Bitcoin still faces challenges surrounding its security model and what it will do when block rewards end. But inscriptions are a step in the right direction. If the Bitcoin community can find more sources of fees, the future of Bitcoin will be promising.

Bitcoin Entities

Despite being one of the most decentralized cryptocurrencies, large entities and institutions still have a significant impact on it. To gain a comprehensive understanding of Bitcoin, we need to analyze the behaviors of some BTC whales.

Exchanges

One of the most common metrics analysts like to discuss is the BTC balance on exchanges. The reason is simple: since almost all BTC transactions occur on centralized exchanges, a decrease in BTC on exchanges means a decrease in available BTC for purchase, leading to supply shortages and potentially driving up BTC prices. At this point, 2023 has continued the trend that began during the COVID-19 crash in 2020. That is, BTC has been flying off exchanges. The BTC on exchanges is at a level we haven't seen since 2018, slightly above 2 million.
There have been rumors that exchanges have been re-hypothecating BTC. After the FTX implosion, BTC may continue to fly off exchanges as BTC holders become increasingly reluctant to trust centralized entities. The explosion of Ordinals may also have played a role in this trend.

Miners

Next, we will focus on miners in our journey through Bitcoin entities. Bitcoin miners are a fundamental component of the Bitcoin ecosystem. Without industrial-scale mining, Bitcoin's security would be greatly diminished. But the cost of security is not cheap. The network pays miners in BTC for security fees. Because of this, miners rely on BTC for operations, which may be a source of selling pressure on BTC. Moreover, miners' behavior also reflects their market stance; a large sell-off could indicate a belief in a downward trend. If miners choose to continue holding BTC, it suggests they believe prices may rise.

In 2023, miners generally held more BTC than they sold, although not by much. During the FTX collapse, miners sold a significant amount of BTC, but starting in 2023, they began hoarding BTC again (although they have been selling in Q4 2023 and Q1 2024).

Several large mining companies are publicly listed, and any analysis of the state of BTC mining should focus on these companies. If mining companies are suffering heavy losses, Bitcoin's security will be affected by shutdowns.

When looking at miners' performance and lifecycle, the most important factor is their revenue. BTC miners' revenue comes from two independent sources: block rewards and fees. As we are sure readers know, Satoshi programmed Bitcoin to reward miners, which we call block rewards. However, the block reward is halved approximately every four years. People generally view the reduction in block rewards as an important positive catalyst. However, miners may feel somewhat fearful about the next halving.

Most of BTC miners' revenue has historically come from Bitcoin block rewards. Looking back to 2016, we see that the revenue miners earned from fees was usually just a small portion of block rewards. Fees sometimes accounted for less than 1% of miners' revenue and rarely exceeded 10% since 2016. The fees generated by inscriptions may provide some hope for miners, but whether inscriptions can fundamentally solve Bitcoin's fee problem remains questionable.

Unless BTC prices rise significantly, miners' revenue will be severely impacted. Bitcoin has not generated enough fees to replace the daily loss of approximately 450 BTC in revenue that will come from the halving. Since the last halving, Bitcoin has averaged only about 50 BTC per day in fees, which is 1/9 of what miners will lose in the halving. From a very practical perspective, the halving will cut miners' revenue in half.

Interestingly, the halving makes inscriptions even more critical for Bitcoin's long-term success. As the block reward halves around April 2024, the proportion of fees in miners' revenue will be larger than before, making inscriptions an even more important new source of fees for Bitcoin. Since their rise in February 2023, inscriptions have become a significant component of Bitcoin's fee structure. On average, inscriptions account for about 13% of Bitcoin's fees. During certain frenzied periods, inscriptions may even account for over a quarter of the fees. At one point in 2023, inscriptions accounted for as much as 60% of Bitcoin's fees.

Given the halving of Bitcoin's block rewards, the fees generated by inscriptions will become increasingly important for miners looking to sustain their livelihoods. For this reason, we expect miners to become staunch advocates of the thriving inscription ecosystem.

Institutions and ETFs

In 2023, a new Bitcoin entity emerged that deserves our attention: traditional institutions. 2023 has been a year of flourishing for Bitcoin. No longer just a label for anarchists, libertarians, degenerates, and rebels. Respected and reputable companies are lining up to bring BTC into traditional markets for the first time in its history. "Serious" investors are beginning to view BTC as a legitimate asset.

In 2023, we saw significant progress between Bitcoin and institutions, and we recommend that people stay updated on these developments. We will detail the approval status of BTC ETFs and their performance in this week's market memo for Pro subscribers.

For those who already hold spot BTC or other crypto assets, BTC ETFs may not seem like a big deal. However, trading spot BTC ETFs on traditional exchanges could have a significant impact on Bitcoin. The first impact is that spot ETFs are a strong signal indicating that BTC and other crypto assets are an important asset class. Before the emergence of spot ETFs, crypto assets were in a gray area. Many investors considered them legitimate asset classes, but many others did not. Warren Buffett referred to BTC as "rat poison." Spot BTC ETFs managed by well-known companies like VanEck or Blackrock send a strong signal that BTC has transitioned from being an important asset class in grandma and grandpa's 401(k) to a significant asset class. Interestingly, CME has surpassed Binance in OI, which is another signal that the market is placing greater importance on this asset class.

Secondly, and perhaps more importantly for most, spot BTC ETFs open the door to a massive influx of capital. As we mentioned, many capital allocators are unable to invest in BTC. Rules and regulations may prevent them from trading with crypto asset exchanges, and existing custody solutions may not be suitable. However, spot ETFs managed by reputable companies and traded on well-regulated securities exchanges open the door for almost everyone. Investors can purchase ETFs through banks, financial apps, corporate 401(k)s, and more. Spot BTC ETFs will firmly place BTC in the mainstream and open up vast pools of liquidity for it.

A good example of what a spot ETF means for Bitcoin is the performance of gold prices after the listing of the first gold ETF. The first gold ETF entered the market in 2003 when gold was trading at about $650 per ounce. The gold ETF opened the door for a massive influx of capital, and now gold trades at about $2000 per ounce, more than tripling in price. Spot BTC ETFs could have a similar impact on BTC prices, which is why people are closely watching this process.

The Evolution of Bitcoin

One of the most interesting developments in Bitcoin in 2023 was Casey Rodarmor's development and release of the inscription technology on the Bitcoin network. Inscriptions use Taproot to allow users to store any data on the Bitcoin network and bind or inscribe that data onto specific Sats. Users simply send it to a new address to transfer the data. Once launched, the market quickly embraced inscriptions, and by early 2023, we saw a massive influx of users flocking to the Bitcoin network to create inscriptions, with over 59 million inscriptions on the Bitcoin network as of the publication of this report.

Early Inscription Market

The inscription craze gradually faded after reaching several key psychological numbers: 1K, 10K, 100K, and 1M. The current number of inscriptions has exceeded 59 million, so this psychological effect is less significant now. Some market participants still believe that the earliest inscriptions will command a premium. Some collectibles were hot early on, such as Bitcoin Punks, a copy of CryptoPunks, which the team inscribed between 89 and 34,399. However, the enthusiasm for these early inscriptions has been overshadowed by BRC 20s. That said, these early inscriptions will always hold their status. They may become future collectibles or digital artifacts, especially if inscriptions gain more importance or popularity in the future.

For this reason, it should be noted that the Bitcoin Ordinal market has achieved some significant successes. The renowned New York auction house Sotheby's recently completed the auction of Bitcoin Shroom. The three items sold for between $101 and $241, three to five times Sotheby's estimates. Other notable mentions include Taproot Wizards, OCM (the first recursive collection), and Ordinal Maxi Biz. Particularly, Taproot Wizards seem attractive as they leverage early Bitcoin memes. Regardless, the Ordinal market has become an exciting place for collectors, and NFT enthusiasts should keep an eye on this space, even as BRC 20 venture capital overshadows it.

BRC 20 Chain?

Inscriptions emerged when an anonymous Twitter developer, Domo, pushed a simple token standard using Bitcoin inscriptions. This simple token method is called BRC 20, which has created a sub-industry with a market cap of $1 billion and has become the absolute battleground for inscriptions.

BRC 20 is super simple. They are JSON text files embedded by users into Sats to describe three token functions: deploy, mint, and transfer. Initially, users deploy tokens by inscribing token parameters onto Sats, including a four-letter token symbol, token quantity, and minting amount. Then, other users can mint tokens within the range specified in that inscription. For example, if a user deploys a token with a supply of 10K and a minting parameter of 1000, the first 10 inscriptions will mint the entire supply. Transferring tokens is a simple text inscription specifying the token symbol, quantity, and receiving address. These simple functions have now created a multi-billion dollar industry.

While it is hard to overstate how much BRC 20 has surpassed other inscription markets, they are not even in the same league. However, as shown in the chart above, the number of BRC 20 transactions far exceeds other types of inscription transactions. At one point, the number of BRC 20 inscriptions even surpassed regular BTC transactions.

Towards the end of 2023, the BRC 20 craze seemed to have ended. New BRC 20 minting and deployment transactions dropped to zero. However, the reason was not that the market did not want BRC 20. Rather, some were skeptical of BRC 20 and created a bot to pre-run any BRC 20 deployment transactions, setting the total supply to 1. This bot essentially shut down all new BRC 20 minting, nearly stifling the market. But eventually, the bot ran out of BTC transaction fees, and the BRC 20 market returned to previous levels.

Fee Issues

As we mentioned earlier in the article, Bitcoin miners and its security are being impacted by a lack of fees. BRC 20 is an important new source of fees for Bitcoin. However, I believe readers can infer from the chart above that BRC 20 fees should not be viewed as a silver bullet for Bitcoin's fee challenges. While BRC 20 and Ordinal fees still only account for a small portion of Bitcoin's fee structure, they are growing.

Unfortunately, BRC 20s and Ordinals may lead to a decline in overall BTC transaction volume. As we mentioned earlier, bulk demand has pushed the lower limit of fees, which has already kicked small transactions out of the market. Therefore, BTC transaction volume tends to stabilize, even as the mempool explodes with high transaction volumes.

BRC-20 Metrics

The BRC 20 market has been an interesting market in 2023. Over 56,000 BRC-20 tokens have been deployed. However, since each BRC 20 token only requires one deployment transaction, the number of deployments exceeds minting and transfer transactions. Particularly, minting transactions constitute a huge part of the BRC 20 market, which is not surprising. Generally, minting is completely free except for transaction fees. When someone deploys a token, they specify the number of tokens users can mint in the transaction. For example, $ORDI allows a minting cap of 1000 per user. The nature of this minting process means that whenever a new token enters the market, people rush to mint it because it is free. Of course, since minting is the most popular transaction type, they account for most of the fees.

Since minting is essentially free, transfer transactions are the best barometer of activity in the BRC 20 market. BRC 20 transfer transactions are crucial for tracking as they indicate a certain level of buy and sell activity. So far, the BRC 20 market has functioned similarly to an auction, so if someone wants to buy or sell them, transfer transactions will occur. Transfers become an indicator of volume and activity. With the arrival of the first mini bull market, transfers surged, with daily transactions typically exceeding 10K. BRC 20 transaction volume disappeared in June but began to recover in November.

However, the transfer amounts indicate that BRC 20 is still a smaller market, with participants focusing on minting and holding tokens. Minting transactions are about 10 times more than transfer transactions. Those minting tokens seem more interested in holding them rather than quickly selling them.

New Terminology: The Dominance of $ORDI

Although Bitcoin currently has thousands of tokens or even more if we include various non-BRC 20 standards, ORDI still dominates the market. Due to the peculiarities of BRC 20 transactions, it is difficult to find accurate figures. Aside from ORDI, most BRC 20 tokens are traded through auctions on markets like Unisat. The auction mechanism creates a strange situation where if we infer their market value through some auction sales, we may arrive at very inaccurate numbers. Therefore, some websites claim that the BRC 20 market is an incredible $11.2 trillion, or we see tokens with market caps in the millions but no trading volume. Fortunately, through ORDI's trading on Binance and OKX, we can obtain a more accurate market cap for ORDI, currently at $1.3 billion. However, the market is certainly larger than ORDI. Other popular BRC 20 tokens are still primarily traded through auctions, such as SATS, MEME, DOMO, etc., which we need to take into account. Unfortunately, viewing them from a market cap perspective is inaccurate. Therefore, we can understand the importance of $ORDI to the BRC 20 market by looking at popular transactions rather than market cap.

One trend in the BRC 20 market is that someone will release a new token, and then people will rush to mint it. However, once the minting ends, trading collapses, and no one trades it. There are 56K BRC 20 tokens with almost no trading volume after the initial minting frenzy. These "dead" tokens are not significant. Therefore, when we look at trading, we see that $ORDI is one of the few tokens that maintains trading volume after minting. We can also view fees as another barometer of popularity. There have been 140K transactions of $ORDI, and approximately 23 BTC in fees have been paid for this single token. The next comparable token is $MEME, which has seen 114K transactions but only around 4.8 BTC in fees. The difference between the two is that after the initial minting frenzy, $MEME's transfer transactions quickly disappeared.

The popularity of $ORDI also means it is the first BRC 20 to be listed on a CEX. CEX listings are generally a good sign for tokens as they signify endorsement and better liquidity. After being listed on Binance, $ORDI began a legendary new ATH. In October, $ORDI was trading at around $4. As of the writing of this report, $ORDI has reached an all-time high of $82. The impressive performance of the token seems to have no utility beyond the meme effect and collectible value.

The performance of $ORDI is a strong endorsement of the BRC 20 market. CEXs typically do not care about technology; they care more about fees. As $ORDI proves the demand for BRC 20 transactions, it seems likely that more CEXs will list BRC 20 tokens. Only time will tell whether the new landscape will see more CEXs listing $ORDI or whether exchanges like OKX and Binance will list more BRC 20 tokens. But it seems that it is coming soon.

The Ordinals Market

Exchanges and markets are areas that provide some opportunities for BRC 20 and Ordinal inscriptions. It has proven that BRC 20 and inscriptions are popular, and exchanges and markets can profit. The competition we see between ERC 20 transactions and various DEXs and CEXs may occur in BRC 20, with the winners taking the spoils.

So, who is winning the Ordinals market war? It is still too early to draw conclusions. Early Ordinal players used Discord for OTC trading to exchange these items. However, some platforms, such as Ordinals Wallet, Ordswap, and Open Ordex, quickly filled this gap with viable platforms. New entrants like Unisat, Magic Eden, and OKX have surpassed the early market. OKX has become very popular in this field, but with Binance recently entering the BRC 20 market, we speculate that this landscape will change. So far, OKX has dominated the BRC 20 market in terms of trading volume and scale.

One area where OKX has truly surpassed its competitors is in acquiring new users. If Binance releases some data, OKX's lead may change, but OKX has already brought a large number of users into the market. What we see is an explosive growth trend in new users trading, which then quickly stabilizes. Typically, users flock to new exchanges, but once the novelty wears off, there is almost no new growth. However, OKX has been an outlier in this regard, attracting users to the BRC 20 ecosystem at a rapid pace. Of course, guiding users through a CEX is always easier than requiring wallets like Magic Eden or Unisat. But for now, OKX is surging ahead, and of course, Binance could potentially change this landscape.

Of course, there is room for more than one exchange in the market. In particular, the prospects for DEXs still await an ambitious project to emerge. So, who will build the first Uniswap for BRC 20?

Cultural Issues

It is important to note that BRC 20 and Ordinals are not without controversy. Bitcoin and its believers are very skeptical of any additions to the core Bitcoin protocol. They are more resistant to any actions that change Bitcoin's vision as the world's hardest currency by introducing something new that makes it impure, and Ordinals and BRC 20 are no exception.

Many Bitcoin believers view Ordinals and BRC 20 as garbage, harmful to the chain, and a deviation from Bitcoin's original intention. However, despite their doubts, Bitcoin is a neutral, permissionless platform, and due to its decentralized nature, it is nearly impossible to "shut down" Ordinals without spending years convincing everyone that they are detrimental to the chain. Given that the market for Ordinals has rapidly ballooned to over $1 billion, "shutting down" Ordinals and BRC 20 seems increasingly unlikely. Additionally, miners may become staunch advocates of this technology as the halving approaches, as they need the new fees brought by these innovations to make up for revenue losses.

Nonetheless, we expect Ordinals to remain controversial, and some Bitcoin believers will continue to hate them. However, due to their strong incentives and market presence, they may continue to exist. At the time of drafting this report, the U.S. government added inscriptions to their national vulnerability database, citing it as a vulnerability because Ordinals bypass data carrier restrictions by obfuscating data as code. Being added to the database does not mean the market will immediately consider them, but it makes their future more uncertain.

Moreover, Ordinals have sparked a more relevant cultural debate for Bitcoin, which, in hindsight, may become as significant as the block size wars from 2015 to 2017. Ordinals have reignited interest and conflict over Bitcoin's changes and developments. The debates surrounding Ordinals involve the core premise of Bitcoin. For example, is Bitcoin only for BTC transactions? Does Bitcoin's permissionlessness mean users can use it in any way they want? Who decides how people use it? Is it reasonable to cut certain use cases and prioritize others? These questions have no simple answers, and anyone's response merely reflects their values and perspectives on Bitcoin rather than the fundamental "truth" of the blockchain. Bitcoin believers are unlikely to resolve this debate anytime soon, and we expect it to continue until 2025.

DeFi and Scaling

Bitcoin DeFi

To gain a deeper understanding of the current state and challenges of Bitcoin DeFi, we will link our December ZetaChain report. If you are interested in this specific area of Bitcoin, be sure to read that section.

Lightning Network

The adoption of the Lightning Network stagnated in 2023 as the narrative of Bitcoin as a neutral payment rail gradually faded and never truly materialized. Spending Sats or BTC is somewhat painful due to tax laws, conversions, and volatility, especially in a world with decent payment channels like Visa, Mastercard, electronic transfers, USDT on Tron, physical cash, or countless other methods. Admittedly, the Lightning Network has attempted to alleviate the challenges of using BTC for payments through TARO and Lightning Network stablecoins, but it has never really taken off compared to other methods. The Lightning Network has always been a decent product, but it has struggled to find use cases.

With Ordinals and BRC 20 pushing fees higher, the Lightning Network may find its product market fit in basic BTC transactions rather than as a payment channel. The Lightning Network can easily handle smaller BTC transactions and may become the technology that allows BTC and Ordinal enthusiasts to coexist relatively peacefully.

Since the Lightning Network may become key for Bitcoin to maintain its ordinary ecosystem and low-cost transactions, we are curious about the position of the Lightning Network after a year of Ordinals and how it will change before the end of 2024. For this reason, 2023 has been a neutral year for the Lightning Network.

The Lightning Network successfully maintained its overall scale in 2023. The Lightning Network allows users to create off-chain channels to transfer BTC without settling on the main chain. Once the channel is closed, the Lightning Network settles the transactions on-chain. Users must allocate a certain amount of BTC to the channel, providing the Lightning Network with transmission capacity. In 2023, the capacity of the Lightning Network (the amount of BTC in channels available for transactions) remained relatively stable, which is a good sign for the network.

Secondly, the number of Lightning Network nodes running Lightning channels has begun to rebound from the lows of 2023. The more nodes there are, the more decentralized and secure the Lightning Network becomes. Based on these statistics, Lightning is set to have a fruitful year.

Bitcoin Rollup and Others

Bitcoin Rollups have recently garnered a lot of market attention and funding. Today we saw the launch of Citrea, a zk-rollup incubated by Chainway that uses BitVM. We will see more similar announcements and progress, which we will delve into further in 2024.

Additionally, the renewed interest in Bitcoin scaling in 2023 has brought back the Bitcoin Drivechain proposal. Fundamentally, Drivechains will allow people to temporarily lock their BTC on the main chain and then release it to a sidechain. Like other sidechains, Drivechains can offer users low-cost payment transactions or smart contracts. Some experimental Drivechain projects are already underway, such as Zside (which brings privacy attributes to BTC transactions) and ETHside (a clone of an Ethereum sidechain).

Bitcoin Outlook for 2024

Ordinals have shaken the core of Bitcoin. The Ordinal crypto space emerged from nothing at the beginning of this year, starting with the humble act of allowing users to store any data on Bitcoin sats and inscribing PFPs and Bitcoin artifacts on-chain, evolving into an ecosystem now valued at over $1 billion, supported by CEXs and markets, with popular token standards and new technological protocols. However, not everyone is excited. Many Bitcoin believers view Ordinals and BRC 20 as vulnerabilities and "garbage." Skeptics prefer developers to fix Ordinal technology and everything surrounding it. The community is still grappling with the debates surrounding Ordinals, and we believe this may continue into 2024, possibly even into 2025.

Perhaps more importantly for Bitcoin, institutions submitted ETF applications to the SEC in 2023. No fewer than 12 well-known companies applied for permission to offer spot BTC ETFs to traditional markets, with approvals expected in the first quarter of 2024. These ETFs provide a channel for a massive influx of new capital and market participants. For an asset that once could be obtained for free and began its life on some small cryptography forums, this is significant.

2023 has been an important year for Bitcoin, and 2024 seems poised to continue these positive trends. We look forward to seeing its development direction.