^Preface^

From the inscription craze at the beginning of the year to its current resurgence, the rapid development of the Bitcoin ecosystem and its value growth have attracted market attention. During market fluctuations, the performance of the BRC-20 sector has become the focus of investors, and the rise of Bitcoin inscription tokens has triggered a significant wealth effect. Although the surge in inscriptions has been questioned by some, it is undeniable that the market enthusiasm has also revitalized the Bitcoin community and driven innovation within the Bitcoin ecosystem.

Market Background

Key Technological Advances

The introduction of Segregated Witness (SegWit) in 2017 was a significant event for the Bitcoin protocol, upgrading it to address the challenges of Bitcoin scalability and specific vulnerabilities. Its main goal was to solve the transaction malleability issue and expand the Bitcoin block size to facilitate more transactions. SegWit introduced the concept of block weight, breaking through traditional block size limits, allowing blocks to accommodate approximately 2,700 transactions, a significant increase from the previous 1,650 transactions.

With the Taproot upgrade at the end of 2021, the Bitcoin ecosystem began to support more complex scripts and data types, giving BTC programmability and scalability, laying the foundation for the explosive growth of the Bitcoin ecosystem in 2023. The Taproot upgrade mainly included changes to transaction confirmation methods and the introduction of Schnorr signatures, which provide better privacy protection, especially in multi-signature wallets, allowing all private keys to be compiled together, making multi-signature transactions indistinguishable from other transactions. Additionally, Schnorr signatures support batch confirmations, making transactions across the network cheaper and faster.

ETF Approval Expected

While the Bitcoin native ecosystem is thriving, the external environment has also undergone dramatic changes, with the proposal of a Bitcoin spot ETF laying the groundwork for Bitcoin's compliance. As early as June 29, 2021, ARK Invest, led by Cathie Wood, submitted an application for a Bitcoin ETF. This application underwent multiple delays and was ultimately rejected by the SEC in April 2022. ARK was again denied at the beginning of 2023 and submitted a third Bitcoin spot ETF application in May. On June 15, 2023, sources revealed that BlackRock, the largest asset manager, was about to submit a Bitcoin ETF application. Subsequently, Fidelity, the third-largest asset manager, also joined the ranks of ETF applicants. On September 12, news of Franklin Templeton submitting an ETF application further ignited market enthusiasm, and Bitcoin completed its final bottom formation.

Development History of Inscriptions

Source: Self-made image

Source: Self-made image

According to Dune data, as of November 23, 2023, the cumulative transaction count of Ordinals reached 43.27 million, with cumulative transaction fees of approximately 3,875.7 BTC.

Source: https://dune.com/cryptokoryo/brc20

Protocol Overview

In the Ordinals protocol ecosystem, various tokens represented by BRC20 have brought significant wealth effects, driving FOMO sentiment in the market. Over time, more protocols have emerged, including Atomicals, Taproot Assets, Runes, and BRC420, indicating that the Bitcoin ecosystem is moving towards greater diversification. What trends will emerge from the hot developments in the Bitcoin ecosystem? Below is an overview of key protocols.

Ordinals and BRC20

Source: unisat.io

In January 2023, Bitcoin developer Casey Rodarmor released the Ordinals protocol, an asset issuance protocol based on Bitcoin, primarily composed of the Ordinals ordinal theory and the Inscription process.

Casey carried content on UTXOs by:

Assigning a unique identifier to the smallest unit of Bitcoin, 21 trillion satoshis, which constitutes the ordinal theory of the Ordinals protocol.

Inscription is a process that associates content with UTXOs. The asset issuance process of the Ordinals protocol is similar to writing information into witness data and recording token information in JSON format using BRC20.

On March 8, 2023, an anonymous developer named Domo launched BRC-20 based on the Ordinals protocol, a Bitcoin ecosystem token issuance protocol similar to ERC-20. BRC-20 defines a specific format of JSON data and inscribes it on the BTC chain through Ordinals. The deployer of BRC-20 can decide the total supply and name of the token, following a first-come, first-served principle. $ORDI is the first BRC-20 token deployed by Domo. However, BRC-20 relies on third-party indexing to record the ledger on the BTC chain, adding extra workload to the system and becoming a weakness of the system.

Atomicals and ARC20

Source: https://docs.atomicals.xyz/

Atomicals is a protocol built on the Bitcoin network aimed at creating, transferring, and upgrading various digital items on the Bitcoin network, including native digital NFTs, game NFTs, digital identities, domain names, and social networks. The protocol also supports the creation of exchangeable tokens, enabling token issuance and trading on the Bitcoin network.

The protocol uses the smallest unit of Bitcoin, satoshis, as the basic unit of tokens, with each satoshi's UTXO representing an independent token, meaning 1 token equals 1 satoshi. By binding UTXOs with tokens, the Atomicals protocol successfully avoids the complexity of off-chain indexing in Ordinals and enhances the overall decentralization of the system.

However, Atomicals currently faces some issues, one significant problem being the introduction of proof of work (POW) in the minting process of ARC20 tokens, requiring minters to run a full Bitcoin network node to participate in minting. While this ensures fairness and decentralization in minting, the high technical barrier limits participation for most people. Additionally, the underlying technology's imperfections lead to users easily losing ARC20 tokens during Bitcoin transfers.

Runes and Pipe

Runes were proposed by Casey Rodarmor, the founder of the Ordinals protocol, to address the efficiency issues present in BRC-20. Unlike the complexity of certain protocols, Runes are designed to be simple and convenient. Runes prompt the allocation of tokens to specific UTXOs with output indices, token counts, and token IDs in transactions, without requiring additional off-chain data or native tokens, thus optimizing on-chain data usage.

The concept of Runes was initially just an idea, from which the founder of Trac built the first usable protocol and issued the PIPE token. Due to Casey's high profile, PIPE inherited the speculative enthusiasm carried over from BRC20. Although Runes are more orthodox compared to BRC20, gaining recognition within the BTC community still faces certain challenges.

Bitmap and BRC420

Source: https://ordinalswallet.com/collection/bitmap

Bitmap is the first metaverse project in the Bitcoin ecosystem, based on ordinal theory and bitmap theory. Ordinal theory numbers the smallest unit of Bitcoin, "satoshi," emphasizing the scarcity of satoshis, which can be used to carry data. Bitmap theory maps each transaction input in a Bitcoin block to plots, forming blocks or areas, with the specific plot size determined by the size differences of different transaction inputs.

In Bitmap.land, land is divided and patterns are drawn on the map, similar to the land purchase logic on these two platforms. Users inscribe data into satoshis to gain ownership of specific Bitcoin blocks, akin to free minting.

The BRC-420 protocol is an asset protocol based on Bitmap, creating various assets ranging from small characters and pets to complete game scripts and virtual machines by combining multiple inscriptions into a complex asset. Due to its open-source nature on-chain, these assets can run or be verified on any client.

Overall, the BRC-420 protocol and the related Bitmap project are stimulating innovation and vitality in the Bitcoin ecosystem. By creating complex, modular digital assets, BRC-420 is providing new interactive experiences for creators, developers, and users.

Taproot Assets and Nostr Assets

Source: https://doc.nostrassets.com/

Taproot Assets is a protocol launched by the well-known Lightning Labs, aimed at creating and trading various digital assets on the Bitcoin network and integrating with the Lightning Network. The updates to Taproot Assets have expanded the Lightning Network from simple peer-to-peer payment channels to a point-to-multipoint model, enabling asset distribution and circulation. The uniqueness of this protocol lies in the fact that token information is recorded in a registered form in the UTXO output script of the Bitcoin mainnet, while functions like transfers are implemented within Lightning channels. The main difference from BRC20 and ARC20 is that Taproot Assets are minted in advance by an owner and then distributed, rather than being fairly distributed.

NostrAssets is an open-source protocol that introduces Taproot assets and satoshis into the Nostr ecosystem. Users can send and receive assets using public and private keys at the Nostr protocol layer. The settlement and security of assets rely on the Lightning Network, while the Nostr asset protocol itself does not issue assets but merely introduces them into Nostr through the protocol.

The features of NostrAssets include seamlessly integrating 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 ecosystems, and achieving a seamless experience from chat to transaction.

This concludes the introduction to Bitcoin-related protocols, including the RGB protocol, BRC100, etc. With the explosive popularity of BRC20, the inscription craze has also spread to other public chains, such as dogim on Doge, pols on Polygon, and sols on Solana.

Conclusion

From the inscription craze at the beginning of the year to the current resurgence of the inscription sector, the rapid development of the inscription sector demonstrates the immense vitality and potential of the Bitcoin ecosystem. In the future, more creative projects and protocols will emerge, further enriching the ecosystems of Bitcoin and other public chains. However, the inscription sector is still in an exploratory phase, awaiting further development and refinement.

Author: Snow

Translator: Piper

Article Reviewers: KOWEI, Piccolo, Elisa, Ashley He, Joyce

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