Bitcoin Ecosystem Beginner's Guide

From last year's inscriptions to the current ordinal Bitcoin, the Bitcoin ecosystem has consistently attracted attention during market downturns, primarily because many VC coins have failed, leading to a sharp decline in interest in VC coins.

Moreover, some data does not lie. The leading projects in the Bitcoin ecosystem have maintained good data levels even during market downturns, while VC coins have plummeted by 70-80%. If there are any sectors worth paying attention to in the current market, aside from projects in the TON and SOL ecosystems, the only remaining option is the Bitcoin ecosystem.

Therefore, as Bitcoin currently triggers massive FOMO in the community, if you don't understand BTC well enough, you will always be a step behind when speculating. But don't worry, this issue has prepared the foundational knowledge you need to enter the Bitcoin ecosystem, giving you an optimal understanding of most projects when participating in the Bitcoin ecosystem.

Basic Knowledge of the Bitcoin Ecosystem

1. Bitcoin Ecosystem Wallets

To participate in an ecosystem, having a wallet is essential. Just like you need a Metamask/Keplr wallet for a project’s airdrop, you need a wallet for transfers and signatures. So, to engage with the Bitcoin ecosystem, the first thing you need to understand is the wallet.

There are many wallets in the Bitcoin ecosystem, among which Unisat is the most popular one, branching out since last year's inscription period. Other user-friendly wallets include Xverse, Magic Eden, and OKX Wallet. If you are a newcomer to the Bitcoin ecosystem or the crypto community, it is recommended to start with Unisat wallet, familiarize yourself with the basic operations, and then try other wallets.

Currently, Unisat offers a plugin wallet and a mobile version, providing good support for Bitcoin inscriptions and the BRC-20 protocol, making it favored by Bitcoin ecosystem players. With Unisat, users can store and transfer assets in the Bitcoin ecosystem, such as BTC, Ordinals, and BRC-20 tokens, with each wallet address used to receive these assets.

For first-time users of Bitcoin ecosystem wallets, understanding wallet security, how to back up mnemonic phrases, and how to manage assets is crucial foundational knowledge.

2. Unisat Bitcoin Wallet Addresses

When using the Unisat Bitcoin wallet, you will see four different types of Bitcoin addresses. They are: Legacy, Nested SegWit, Native SegWit, and Taproot.

Key Points:

1. Typically, use addresses starting with bc1. These addresses are modern, compatible, and suitable for daily use.

2. Bc1q addresses are usually used for daily payments and transaction fees, while bc1p addresses are more suitable for receiving Ordinals and BRC-20 assets.

3. BTC can be transferred between the four types of addresses, but it is best to transfer Ordinals and BRC-20 assets only between the same type of address to avoid compatibility issues. Additionally, note that transaction fees will vary between different types of addresses, and using SegWit can save some miner fees (Gas). Furthermore, in actual operations, it is necessary to choose the appropriate transfer method based on specific circumstances to ensure transaction security and quick confirmation.

Legacy Address: An old format starting with 1, with higher fees, and is no longer commonly used.

Nested SegWit Address: Starts with 3, suitable for receiving BTC but cannot be used to receive Ordinals or Rune.

Native SegWit Address: Starts with bc1q, highly compatible, especially suitable for interaction with mainstream CEX platforms (such as exchanges).

Taproot Address: Starts with bc1p, more advanced than bc1q, supporting complex smart contracts.

When users hold Bitcoin assets, they will inevitably engage in transactions, at which point you will encounter the Bitcoin ecosystem term Sats/vb, which indicates the transaction fee (Gas) per virtual byte.

3. Bitcoin Ecosystem Gas ------ Sats

First, we need to clarify that the Sats here does not refer to the Sats token in the Ordinals system, but rather to the smallest unit of Bitcoin, "Satoshi" (abbreviated as SAT). 1 Bitcoin equals 100 million Satoshis, meaning 1 Satoshi = 0.00000001 BTC. This unit of measurement emerged around 2011, and although it initially did not receive widespread attention, the advantages of "Satoshi" in payment and transfer scenarios gradually became apparent as Bitcoin prices rose.

For example, if the current price of Bitcoin is $60,000, then 1 dollar is approximately equal to 0.000017 BTC. Pricing in this way is very inconvenient for actual payments and transfers, making it easy to make mistakes. Using "Satoshi" as a unit simplifies this, as 1 dollar equals 1,700 Satoshis. This conversion method is much more intuitive for payments, transfers, or record-keeping, especially for small transactions.

Because "Satoshi" can more conveniently represent small payments, many industry insiders support this pricing method. Jesse Xiong, a representative of JPMorgan, has publicly stated that the increasing popularity of "Satoshi" is due to its ability to simplify records and avoid handling a long string of complex decimals, greatly reducing the hassle in the payment process.

This expression makes it easier for users to understand the smallest unit of Bitcoin and its advantages in practical scenarios.

Thus, we can understand that in the Bitcoin network, transaction fees are calculated based on the size of the transaction, with the unit being vByte (virtual byte). Therefore, sats/vb refers to the Bitcoin transaction fee required for each virtual byte.

Additionally, when you conduct a transaction, you may see two status terms: 'available' and 'unavailable.' 'Available' indicates the available balance, meaning the Bitcoin you can immediately use to send a transaction, while 'unavailable' refers to temporarily unusable balance, usually due to unconfirmed transactions.

When in 'unavailable' status, it is typically due to one of the following situations: waiting for confirmation; if the Bitcoin received by the user has not yet received enough block confirmations, then this Bitcoin is temporarily unavailable; locked status; sometimes Bitcoin may be locked due to contracts, pending orders, and other reasons, making it temporarily unusable for new transactions; using inputs; if the user is conducting another transaction and the amount involved has not been confirmed, the related Bitcoin will be marked as unavailable.

4. Inputs and Outputs

In Bitcoin transactions, there are two key concepts: Inputs and Outputs.

Inputs: Inputs are the sources of Bitcoin used for payment, coming from a Bitcoin that the user received previously. These Bitcoins have not been spent yet, so they can be used for payment. For example, if a user previously received 1 BTC, then when the user initiates a new transaction, this 1 BTC is the "input" used for payment.

Outputs: Outputs are the destinations of the Bitcoin you pay. Each transaction can have one or more outputs, indicating which addresses the user has transferred Bitcoin to. For example, if a user transfers 0.5 BTC to someone, this 0.5 BTC becomes the "output" of this new transaction and will be recorded on the chain.

A simple analogy:

You can think of inputs as the cash in your wallet, while outputs are what you buy with that cash, and the change will be given back to you. Therefore, every time you pay with Bitcoin, new "change" (unspent transaction output, UTXO) is generated, which can be used as new inputs for the next transaction.

5. UTXO

UTXO is the balance model adopted by the Bitcoin network. Simply put, UTXO can be understood as the "change" in your wallet that has not yet been spent, which will become the source of funds for future payments.

At this point, you may have the same question. Isn't Bitcoin a decentralized ledger? Why not directly use the account model we are familiar with, but instead use the UTXO model?

The account model is like your account in a bank or Alipay, which clearly records how much money you have; 10 dollars is just 10 dollars, written in the system. This model is intuitive, flexible, and has been adopted by other blockchains like Ethereum.

However, Bitcoin is different. For example, if user B has 10 Bitcoins, you cannot actually see the number "10" on the blockchain because Bitcoin does not record account balances, only transactions. So how do we see the balance on a blockchain explorer? Actually, it is calculated by the explorer, not stored by the blockchain itself.

So why do many industry insiders think the UTXO model is great? The reason is that it is particularly suitable for parallel processing, making it more efficient in a distributed network, especially in a network environment like Bitcoin, where it is very clever. The essence of the UTXO model is: each transaction consumes old UTXOs and generates new UTXOs, which can be used in future transactions.

But this is not all there is to Bitcoin ecosystem transactions; transactions also need to wait for execution in the Mempool (memory pool).

6. Mempool (Memory Pool)

The memory pool (Mempool) is a queue used by Bitcoin network nodes to store unconfirmed transactions. Each node has its own memory pool, so different nodes may contain different transactions.

Mempool explorers allow you to view real-time and historical information about the node's memory pool, visualize transactions, and search for and view transactions.

In other words, the BTC blockchain explorers we usually look at show on-chain data, while the Mempool shows broadcasted transactions that have not yet been confirmed on-chain. Understanding the Mempool can give you a head start.

The Bitcoin mining we commonly know is the process of confirming unconfirmed transactions from the memory pool onto the blockchain. Miners select unconfirmed transactions from their memory pools and arrange them into a block to solve a specific mathematical problem. The first miner to find a suitable block will receive the transaction fees from all transactions in that block. Therefore, miners tend to prioritize transactions with higher fees.

A commonly used tool for viewing the Mempool (memory pool) is: mempool.space.

When using mempool.space, you will see some blocks separated by dashed lines at the top of the screen. The left yellow section represents blocks that have not yet been mined, while the right purple section represents blocks that have been successfully mined.

Whether in the yellow unmined area or the purple mined area, there are some key pieces of information:

Average fee rate: This number indicates the average fee rate paid per transaction in that block (unit: Satoshi/byte).

Fee range: Displays the range of fee rates paid for transactions within the block (unit: Satoshi/byte).

Total fee: Shows the total fee paid for packaging transactions in the entire block (unit: BTC).

Number of transactions: The number of transactions contained in that block.

Block time: The yellow block will display the estimated block time, while the purple area will show the actual block time.

Block height: This is the number displayed in the purple area, indicating which block of the Bitcoin network has been mined. The miner's name is displayed below the block height.

If you click on a mined purple block and scroll down the page, you can see detailed information about each transaction, such as input addresses, output addresses, transaction fees, and confirmation counts.

Here’s a small tip when using mempool.space:

Hover your mouse over the visualized memory pool graph, and a small magnifying glass will appear. Click it, select Consolidation, and it will automatically highlight all consolidation transactions. You can see that consolidation transactions occupy a high proportion in the queued blocks in the memory pool. If it’s a transfer or wallet splitting operation that is not urgent, you can wait for the consolidation peak to pass before initiating the transaction.

7. Miners and Block Packaging

In the Bitcoin network, miners play a very important role. They are responsible for verifying, propagating, and storing transactions, as well as maintaining the security and stability of the entire decentralized network by running nodes.

The main task of miners is to find qualifying blocks by solving complex mathematical problems. These blocks contain the transactions submitted by users. When miners successfully find a block and package the transactions, they can add this new block to the Bitcoin blockchain.

For each successfully packaged block, miners receive a certain amount of newly generated Bitcoin as a reward. This is how Bitcoin is generated, but with Bitcoin halving, the block reward for miners is halved approximately every four years (210,000 blocks). This process will continue until the total supply of Bitcoin reaches 21 million.

So, when you learn that Unisat has recently launched ordinal Bitcoin that can be double-mined, you can imagine how happy the miners are! The work of miners not only ensures the decentralization of the network but also guarantees the authenticity and immutability of every transaction.

Conclusion

Due to space limitations, the above is part of the Bitcoin ecosystem beginner's manual. There will be further updates to the Bitcoin ecosystem beginner's manual in the future. This content is very suitable for newcomers who want to engage with the Bitcoin ecosystem. In the current moment when the Bitcoin ecosystem is about to explode, mastering every knowledge point is very important.