The BTC Ecosystem: The New Wild West for Blockchain Developers 🌵🤠

Risk Warning: The new ecosystem is extremely imperfect and carries significant risks. Moreover, many assets within it are worthless, and I strongly oppose the senseless hype surrounding these assets. This is just my personal notes, not financial advice. Always DYOR! 🚨

Since my tweet last week, $ordi has surged by 100% in just a few days. As a blockchain developer still learning the ropes, this has not only yielded good returns for me but also fueled my interest in learning more.

Initially, it seemed pointless to me that people were adding strings to Bitcoin's UTXO. Having attended an Alchemy blockchain online course, I understand that the #BTC UTXO model is different from #eth's account model and that BTC uses a scripting language. This isn't like the Solidity language we use for writing smart contracts on the ETH network; it's not even Turing-complete.

This means we can't write smart contracts on the BTC network. Without smart contracts, even state management is unattainable, so how can tokens be issued on the chain? Hence, earlier this year, when I saw tokens being issued in the #BRC-20 standard by inscribing them into UTXOs, I merely thought it was another meaningless hype.

However, the developments have consistently exceeded my expectations. Missing the early opportunities with $BTC and $ETH taught me that if there's something you don't understand or appreciate, but it keeps surpassing your expectations, it deserves serious attention. It might signify a marginal emergence and a promising innovation in its early stages.

Given the relative maturity of the ETH ecosystem and the lack of significant innovations recently, apart from #RWA, I tend to believe that the rapidly developing BTC ecosystem could be a major narrative driving the next bull market.

Therefore, in the past two days, I've gone through the documentation of ordinals, Layer1Foundation, and BRC-20, trying to understand the current state of this ecosystem from a newbie developer's perspective and exploring potential opportunities within it.

Taproot, Ordinals, BRC20, Inscriptions, RGB, Taro: What on Earth Are These Dizzying Concepts? 🤯

I believe most junior developers like me, who have only studied Solidity and Ethereum smart contracts, are quite unfamiliar with the technological history of the # BTC network. They might feel as bewildered as I did when first encountering concepts like Taproot, Ordinals, BRC20, Inscriptions, RGB, and Taro. So, I'll attempt a simple clarification of their relationships here.

1. Taproot upgrade is essentially an integration of three different BIPs. These upgrades make it possible to identify, track, and transact a single satoshi with additional data on the Bitcoin network, laying the foundation for the Ordinals protocol. These upgrades are:

   • Schnorr Signatures (BIP 340): Taproot's Schnorr signatures are more efficient and secure than the existing ECDSA, facilitating the attachment of extra data (like NFT info) to satoshis.

   • MAST (BIP 341): By applying Merklized Alternative Script Trees (MAST), Taproot allows complex transaction structures to be compressed into a single hash, providing more space and flexibility for inscribing data on single satoshis.

   • Tapscript (BIP 342): Taproot's update of the Bitcoin script language enables more flexible handling and verification of additional data in Bitcoin's P2TR transactions.

     
     

2. Ordinals protocol is, in simple terms, a numbering scheme for each satoshi, allowing tracking and transfer of individual satoshis. It has a separate BIP 2220. The protocol was initially motivated by two things: determining the rarity of each satoshi based on its mining time and creating digital artifacts (what I consider NFTs) by inscribing extra data into each satoshi.

   Thus, its original purpose wasn't to issue fungible tokens on the Bitcoin network. On the contrary, I believe Casey @rodarmor's intention was to make each satoshi unique, which might explain his later efforts to distance himself from the $ORDI token.

   
   

3. Inscriptions in the Ordinals protocol refer to the additional content inscribed in UTXOs. You can write anything akin to the data transmission of web content: the first part is the MIME type, followed by the content text composed of strings, allowing web servers to retrieve and display the data in browsers.

   
   

4. BRC20 is an experimental protocol created by @domodata in March 2023. It explores the possibility of issuing tokens on the Bitcoin network using the concepts of Ordinals and Inscriptions.

   • Currently, the method of issuing tokens involves inscribing additional content in UTXOs following Ordinals theory. Without a Turing-complete programming language and smart contracts, managing the state of these inscriptions is indeed challenging.

   • The current temporary solution for state management relies on so-called Indexing services. I doubt this is the final solution, as a decentralized token on the Bitcoin network dependent on centralized offline services for state management poses significant risks.

   • The op field in the current BRC20 standard only supports three types of operations: deploy, mint, and transfer. Some institutions offering Indexing services also provide Bitcoin wallets, browsers, and NFT marketplaces supporting Ordinals and BRC20, like Unisat. If you wish to deploy your own BRC20 token, you can use their frontend service.

   • They're even developing a DEX supporting BRC20 tokens. However, I believe this project is highly experimental and risky, as there's no real solution for on-chain state management yet. Without smart contracts, transactions might not be actual swaps but a combination of transfer, escrow, and Indexing services. The examples section in the BRC20 whitepaper outlines possible operational steps.

     
     

5. RGB and Taro, similar to the Ordinals protocol, are other asset protocols on the Bitcoin network. The difference is they were designed for fungible tokens, whereas Ordinals was initially focused on NFTs. However, the most widely accepted standard for fungible tokens on the market, BRC20, is ironically based on Ordinals, not RGB or Taro, which is somewhat ironic.

Opportunities for Developers 🚀

1. As evident from the above analysis, the #btc network seems to be experiencing some unimaginable innovations, with some experimental projects already rising. $ORDI, the first token issued under the BRC20 standard, has nearly reached a market cap of $500 million. Other early projects, although they might be meaningless and only capable of transferring funds, have reached market caps of $300-400 million. For developers, compared to the mature #ETH network, this is like the Wild West of the westward expansion: scams, dangers, legendary stories, and wealth.

   
   

2. From my perspective, developing NFTs on the Bitcoin network is no issue, just use the Ordinals protocol. The main challenge, as previously mentioned, is the inability to develop and deploy smart contracts due to Bitcoin's scripting language and UTXO limitations, leaving both NFTs and FTs without a comprehensive on-chain state management solution. Therefore, whether it's the so-called orthodox #RGB, #Taro, or the wildly grown #BRC20, all must rely on centralized offline services and infrastructure, increasing risks and complicating user experiences.

   
   

3. For developers, participating in Bitcoin network-specific oracles (a field currently untouched by chainlink), decentralized, open-source Indexing service solutions, and integrating both to form a state management framework compliant with relevant fungible token protocols could be the most promising and certain direction.

   
   

Since you've read this far, give me a thumbs up, will ya? 👍