Bitcoin Ecosystem Panorama Exploration: From Asset Issuance to Layer2 Expansion

Bitcoin, as the first cryptocurrency, has been leading the development of this industry since its inception in 2009. In response to the inherent flaws of centralized financial systems, Bitcoin introduced the concept of a peer-to-peer electronic cash system, allowing for trustlessness and disintermediation without the need for intermediaries. The underlying technology of Bitcoin, blockchain, has fundamentally changed the way transaction records, verification, and security are handled.

After the birth of Bitcoin, it went through a phase of stable growth. In the early days, mainly technology enthusiasts and cryptography supporters participated in mining and trading. In 2010, programmer Laszlo bought 2 pizzas for 10,000 Bitcoins, which was a historic moment for the adoption of cryptocurrency. Subsequently, infrastructure such as exchanges, wallets, and mining pools began to form to meet the needs of this new type of digital asset.

In 2023, the popularity of the Ordinals protocol and BRC-20 Token brought about the "Summer of Inscriptions," rekindling interest in Bitcoin, the oldest public chain. What does the future development of the Bitcoin ecosystem look like? Can it become the engine of the next bull market? This article will delve into the historical development of the Bitcoin ecosystem, as well as the three core directions within the ecosystem: asset issuance protocols, scalability solutions, and infrastructure, analyzing their current development status, advantages, and challenges to explore the future of the Bitcoin ecosystem.

Why Bitcoin Ecosystem is Needed

Unlike traditional financial bookkeeping, Bitcoin has three core features:

1. Decentralized Distributed Ledger: Blockchain technology as the core, records all transactions.

2. Accounting through Proof of Work ( PoW ): Network nodes verify transactions by solving mathematical problems.

3. Mining and Bitcoin issuance: Miners verify transactions and create new blocks to receive Bitcoin rewards.

Bitcoin adopts the UTXO( unspent transaction output) model, rather than the account model. The features of the UTXO model include:

1. Each transaction generates new UTXO
2. Transaction verification relies on UTXO
3. UTXO as transaction inputs and outputs

The UTXO model provides higher security and privacy, allowing for parallel processing of transactions.

However, due to block size limits and a non-Turing complete development language, Bitcoin has primarily served as "digital gold" for a long time and has not been able to support more projects. After Bitcoin's birth, colored coins appeared in 2012; in 2017, a hard fork occurred due to the block size dispute; thereafter, BTC continued to explore scalability improvements, launching the SegWit upgrade in 2017 and starting the Taproot upgrade in 2021. These upgrades laid the foundation for the development of later expansion protocols and asset issuance protocols.

Comparison of Bitcoin ecosystem and Ethereum smart contracts

In 2013, Vitalik Buterin proposed Ethereum, whose core concept is to provide a programmable blockchain. Ethereum has become a smart contract platform that allows for the development of various applications.

Since Ethereum has realized smart contracts and various Dapp development, why is there still a need to expand and develop applications on BTC? The main reasons are:

1. Market Consensus: Bitcoin has the highest recognition and trust, accounting for about half of the total cryptocurrency market capitalization.

2. High degree of decentralization: Bitcoin has the highest degree of decentralization, and the entire chain is driven by the community.

3. The demand for Fair Launch among retail investors: In the Bitcoin ecosystem, inscriptions provide retail investors with more voice.

In summary, the popularity of the BTC ecosystem is mainly driven by inscription asset types such as the Ordinals protocol and BRC-20. This popularity also feeds back into the entire Bitcoin ecosystem, causing more people to pay renewed attention to the Bitcoin ecosystem.

Unlike previous bull markets, retail investors have increasingly gained influence in this market cycle. They hope to play a larger role in the market, participating in project development and decision-making. To some extent, retail investors have also driven the development and renewed prosperity of the Bitcoin ecosystem in this round.

Therefore, although the Ethereum ecosystem is more flexible in terms of smart contracts and decentralized applications, the Bitcoin ecosystem, as digital gold and a stable store of value, along with its leading position and market consensus, still holds an unparalleled importance in the entire cryptocurrency field. People continue to pay attention to and strive to develop the Bitcoin ecosystem to further explore its potential and possibilities.

Analysis of the Current Development Status of Bitcoin Ecosystem Projects

In the process of developing the Bitcoin ecosystem, there are currently two main dilemmas facing Bitcoin:

• The scalability of the Bitcoin network is relatively low, and if you want to build applications on it, better expansion solutions are needed.

• The applications in the Bitcoin ecosystem are relatively few, and the development of the Bitcoin ecosystem requires some blockbuster applications/projects to attract more developers and give rise to more innovations.

To address these two dilemmas, the Bitcoin ecosystem mainly focuses on construction from three aspects:

1. Agreements related to asset issuance

2. Scalability Solutions: On-chain scalability and Layer 2

3. Infrastructure projects such as wallets, cross-chain bridges, etc.

As the development of the entire Bitcoin ecosystem is still in its early stages, applications like DeFi are still in their infancy. Therefore, this article will mainly analyze the development of the Bitcoin ecosystem from four aspects: asset issuance, on-chain expansion, Layer 2, and infrastructure.

1. Asset Issuance Agreement

The Bitcoin ecosystem has seen a surge since 2023, driven by the Ordinals protocol and BRC-20, allowing Bitcoin, which was originally only a store of value and medium of exchange, to also serve as a venue for asset issuance, greatly expanding the use cases of Bitcoin.

In terms of asset issuance agreements, after Ordinals, various types of protocols such as Atomicals, Runes, and PIPE have emerged to assist users and project parties in the issuance of assets on BTC.

Ordinals & BRC-20

Ordinals is a protocol that allows people to mint similar to NFTs on Ethereum on Bitcoin. The initially attention-grabbing Bitcoin Punks and Ordinal punks were both minted based on this protocol; later, the now popular BRC-20 standard also emerged from the Ordinals protocol, marking the beginning of the subsequent inscriptions summer.

The birth of the Ordinals protocol can be traced back to early 2023, and it was launched by Casey Rodarmor. He has been engaged in technical work since 2010, having worked at Google, Chaincode Labs, and Bitcoin core, and is currently a co-host of the SF Bitcoin BitDevs( Bitcoin discussion community).

Casey became interested in NFTs starting in 2017, inspired to develop Ethereum smart contracts using Solidity. However, he disliked building NFTs on Ethereum, considering it a "Gutenberg machine" ( that implemented simple things in an overly complex way ), and thus gave up on building NFTs on Ethereum. In early 2022, he reignited the idea of implementing NFTs on Bitcoin. During his research on Ordinals, he stated that his inspiration came from Bitcoin's creator, Satoshi Nakamoto, who referenced something called "atomic" in the original Bitcoin codebase. It is evident that Casey's motivation was, to some extent, to make Bitcoin interesting again, which led to the birth of Ordinals.

How does the Ordinals protocol implement what is commonly referred to as BTC NFTs, the Ordinal Inscriptions? There are two core elements:

• The first element is to assign a serial number to each Satoshis( satoshi), achieving the labeling of the smallest unit of Bitcoin, and tracking these Satoshis when spending transactions, thus allowing Satoshi to achieve non-homogeneity, which is a very creative approach.

• The second element is the support for attaching any content to individual Satoshis, including text, images, videos, audio, etc., thereby creating unique Bitcoin native digital items—inscriptions (, which we commonly refer to as NFTs ).

By numbering Satoshi and adding content, Ordinals allow people to have Ethereum-like NFTs on Bitcoin.

After the birth of the Ordinals protocol, many interesting NFTs emerged, such as Oridinal punks, TwelveFold, and so on. As of now, the inscriptions on Bitcoin have exceeded 54 million. Based on the Ordinals protocol, BRC-20 was also born, ushering in the summer of BRC-20.

The BRC-20 protocol is based on the Ordinals protocol, which incorporates functionalities similar to ERC-20 Tokens into script data, thereby enabling the processes of Token deployment, minting, and trading.

1. Token Deployment: Specify "deploy" in the script data, along with the token name, total issuance, and the quantity limit for each unit. The indexer can begin recording the minting and trading of the corresponding Token once it detects the token deployment information.

2. Minting Tokens: Specify "mint" in the script data, indicating the name and quantity of the mint token. The indexer will recognize it and add the corresponding token balance to the recipient's ledger.

3. Transaction Token: Indicate "transfer" in the script data, specifying the name and quantity of the token. The indexer will deduct the corresponding amount of tokens from the sender's balance on the ledger and add it to the receiver's address balance.

From the technical principles of minting, it can be seen that since the balances of BRC-20 tokens are inscribed in the segregated witness script data, they cannot be recognized and recorded by the Bitcoin network, so an indexer is needed locally to maintain the ledger of BRC-20. Essentially, Ordinals just treat the Bitcoin network as storage space, recording metadata and operational instructions on-chain, but all actual computations and state updates are handled off-chain.

After the birth of BRC-20, it ignited the entire inscription market, with BRC-20 occupying a significant majority of the Ordinals asset types. As of January 2024, BRC-20 assets account for over 70% of all Ordinals asset types. Furthermore, from a market capitalization perspective, the current market cap of BRC-20 tokens has reached $2.6 billion, with the leading token Ordi having a market cap of $1.1 billion, and Sats' market cap also around $1 billion. The emergence of BRC-20 tokens has brought a new shot in the arm to the Bitcoin ecosystem and the Crypto world.

The popularity of BRC-20 is also hidden behind many reasons, which can be summarized into the following two aspects:

• Wealth Creation Effect: The explosive popularity of Web3 protocols and projects is inseparable from the wealth creation effect. As a new asset class on the BTC chain, BRC-20 has a natural appeal that can attract a large amount of user attention and occupy their minds.

• Fair Launch: BRC-20 inscriptions feature a fair launch characteristic, where no one is a natural dealer. Compared to traditional Web3 projects, Fair Launch allows retail investors to stand on the same starting line as VCs in token investments, making retail investors more willing to participate in Fair Launch projects; even if some scientists want to maliciously mint a large amount of BRC-20 tokens, there are still minting costs involved.

Overall, although the Ordinals protocol has faced considerable controversy within the Bitcoin community since its inception, with concerns that Bitcoin NFTs and BRC-20 will lead to a rapid increase in block size, resulting in higher requirements for node operating equipment and fewer nodes, thereby reducing the degree of decentralization; from a positive perspective, the Ordinals protocol and BRC-20 present a new value use case for Bitcoin, aside from digital gold, bringing new vitality to the ecosystem and attracting many developers to refocus on and develop the Bitcoin ecosystem, working on expansion, asset issuance, and infrastructure.

(# Atomicals & ARC-20

The Atomiclas protocol was launched in September 2023 by an anonymous developer from the Bitcoin community, essentially hoping to achieve the issuance, minting, and trading of assets without the need for an external indexing mechanism, thereby constructing an asset issuance protocol that is more native and complete than the Ordinals protocol.

The technical core differences between the Atomicals protocol and the Ordinals protocol can be summarized in the following two aspects:

• In terms of indexing, the Atomicals protocol does not adopt the mechanism of numbering Satoshi off-chain, but instead chooses to index using UXTO as the unit.

• In terms of content addition or "inscription," the Atomicals protocol does not attach content to the script data of individual Satoshis in the Segregated Witness, but rather inscribes it in the UXTO.

In addition, the Atomicals protocol introduces a PoW mechanism that controls the mining difficulty by adjusting the length of the prefix characters. Miners need to use their CPU to calculate the matching hash value, thereby achieving