The recent surge in popularity of “inscription fever” has indeed left many people bewildered. The apparent lack of value in these “thin air” creations has raised the question: why are they so highly sought after? In the community, the daily chatter about “inscribing” seems to confuse many who are still unclear about what “inscribing” actually means. It feels like another wave is about to rapidly pass by. Can these highly controversial things really last? Today, let’s talk about the essence and value logic of inscriptions, as well as the doubts surrounding them, and explore what exactly “inscribing” Bitcoin inscriptions means.

The Essence of Inscription and BRC20

As early as January 3, 2009, on the Bitcoin genesis block, the first Bitcoin inscription was recorded. Satoshi Nakamoto engraved the headline of that day’s edition of The Times in hexadecimal on the blockchain — “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

The use of the terms “engraving” and “inscription” is deliberate because information recorded on the anti-fragile, decentralized blockchain is akin to inscriptions on hard stone, indelible and permanent. Previously, people have also engraved messages on the Bitcoin blockchain, such as vows of eternal love, to commemorate special information. Nowadays, it is possible to track the issuance and circulation of tokens by assigning serial numbers to the smallest Bitcoin unit, Satoshi. On reflection, the modern BRC20 and the ancient Yapese stone money share a striking similarity in their ingenious approaches.

Yapese stone money，or Rai stone

In fact, there are many very similar examples in modern society, which can also help to understand inscriptions and BRC20:

In 1990 and 1991, in order to commemorate the Disney banknotes being submitted to the U.S. government for approval and becoming circulated currency for the first time, special $1 banknotes were issued (with first-day cover, stamped with Walt Disney image stamps, and the pattern was Mickey Mouse).

Disney Mickey commemorative $1 dollar bill

Of course, there are also commemorative coins printed on coins of different denominations such as “Dragon Banknotes” that are being snatched up in China. With the superior anti-counterfeiting, independent numbering and circulationability of legal tender banknotes, these commemorative banknotes have become very unique collectibles. It is obvious that a commemorative banknote with a face value of 1 US dollar is much larger than 1 US dollar.

The medium for these inscriptions has shifted from paper money to the smallest unit of Bitcoin, also known as its smallest denomination: the Satoshi. When certain Satoshis are inscribed with NFT patterns, scripts for the issuance and trading of BRC20 Tokens, Bitcoin also imparts to these pieces of information special attributes such as anti-counterfeiting and immutability. With these attributes, the NFTs and BRC20 inscribed on Bitcoin have the strongest network in the crypto industry as their “backbone,” maximizing their anti-fragility. Coupled with the FOMO (Fear of Missing Out) effect of memes, the Bitcoin inscription craze does not fade away as quickly as many new concepts often do, instead showing a certain vitality. BRC20, in particular, even exhibits a spiraling upward trend. Of course, there are more factors behind the inscription fever than just these…

Use the analogy of commemorative banknotes to express BRC20

The Driving Force Behind the Inscription Craze

It is not easy to explain the logic behind the phenomenon of inscription fever. It may not be as simple as we think. It is at least composed of the driving force composed of the following factors:

1) Meme: a mysterious power that is difficult to explain

Meme, a force difficult to fully explain, is powered primarily by FOMO (Fear of Missing Out) emotions. Most memes are often dismissively referred to as “air.” However, perhaps it is precisely because they are considered “air” that they break through the ceiling of imagination, surpassing the confines of detailed roadmaps and precise concepts found in white papers. Instead, they are attributed with consensus and value based on perception. Whether it’s early Bitcoin or BRC20, it is both air and not air at the same time. At this moment, it serves more as a carrier for emotional trends and speculative hype.

This phenomenon has long existed in other markets, which is why we see certain phenomenal events and personalities, like the Spring Festival Gala or certain celebrities who suddenly rise to fame, as well as the haloed figure of Elon Musk tweeting, quickly become the subject of numerous memes that carry people’s emotions. Whether it’s FOMO or mere curiosity, as long as there is a market demand, these memes will emerge. Of course, this is often further fueled by the involvement of capital and institutional players.

2) BRC20 brings innovation to the market

BRC20 looks a lot like NFT but is not an NFT. It is similar to a homogeneous Token but a little different.

Compared with ERC20 (Ethereum’s mainstream homogeneous token protocol), BRC20 seems to be more open and fair and is backed by the consensus of the number one crypto asset. During the ERC20 wave in 2017, Ethereum’s position was not particularly stable.

Compared to ERC721 (the mainstream NFT protocol on Ethereum), BRC20 can be minted one by one like NFTs, yet it is easier to add liquidity. It is very convenient for homogeneous accounting and can be directly listed on the trading pairs of major platforms, eliminating the past issue of NFTs where liquidity tended to dry up.

3) Expectations of Bitcoin Ecosystem

In the past few years, memes have already turned the world upside down. Now, as they align with the emerging Bitcoin ecosystem, they’ve become even more unstoppable. Bitcoin’s status as the elder statesman, serving as a sort of totem of consensus in the crypto community, is unshakeable. The Bitcoin ecosystem, with elements like BitcoinFi and Bitcoin NFT, has actually been brewing for a long time. In fact, since 2013, there have been voices and attempts to expand the digital gold functionality. However, due to the trilemma that made scaling a persistent issue, progress had been slow and exploratory.

Ethereum, too, originated from an idea proposed by Vitalik Buterin, then part of the Bitcoin community, to expand smart contract capabilities. The recent explosion of the Ethereum ecosystem and the implementation of Layer2 have, to some extent, stimulated the development of the Bitcoin ecosystem. The successful experiences and paths carved out in the Ethereum ecosystem served as a test field, providing direction and confidence for Bitcoin ecosystem developers.

Thus, building upon existing Bitcoin developments like Segregated Witness, the Ordinals protocol and the BRC20 protocol were successfully launched as a powerful combination…

4) Forced by the pressure of halving and driven by the internal motivation of the Bitcoin community

Although the previous Bitcoin halvings were followed by a bull market, most people in the Bitcoin community know that the system rewards are getting smaller and smaller, and it is unlikely that block producers can be stable every time simply relying on system rewards. Therefore, the Bitcoin community, including the block producer group, is eager for the Bitcoin ecosystem to prosper and to resolve this issue that affects the sustainable development of the Bitcoin system before halving.

On January 12, according to Dune data, the cumulative fee income from Bitcoin Ordinals inscription casting exceeded 5506 BTC, which is approximately US$254 million (calculated at the current price of 46032/BTC.) Inscription has obviously begun to bring high profits to block producers, and block producers have also become one of the main beneficiary groups of Bitcoin Inscription, especially BRC20.

Cumulative cost of inscription casting, source: Dune analysis

5) Bitcoin ETF and the general environment

The biggest expectation this year lies in the cryptocurrency industry’s highly anticipated Bitcoin spot ETF. Outside the crypto industry, it is the end of the US dollar interest rate hike cycle that dominates the big picture.

Regarding the Bitcoin spot ETF, Baihua Blockchain has already done a lot of popularization and interpretation in the past, and its importance and significance are presumably self-evident. In terms of the broader context, the end of the US dollar interest rate hike cycle in 2024, or even a shift to a rate cut, implies enhanced dollar liquidity and more capital flowing into the market. Coupled with the impending Bitcoin halving, these multiple major positive expectations suggest a rising tide for the Bitcoin ecosystem. The expectation laid as a foundation brings more certainty to capital, once again maximizing the sustainability of the inscription craze.

If Regarded as A Vulnerability by The Core Developers, Will It Lead to Zero Value?

With the Bitcoin consensus as the backing, the Bitcoin Inscription memes seem to have a good opportunity to develop at the right time and place, but they are still questioned by some people, and many opponents have raised serious criticisms.

Recently, the attitudes of some Bitcoin core developers have garnered significant attention, such as Luke Dashjr, a Bitcoin core developer and the founder of Eligis mining pool. Luke has repeatedly condemned inscriptions and BRC20 on social media, arguing that inscriptions exploit a vulnerability in BitcoinCore to send junk information to the blockchain. In essence, opponents like Luke aim to treat these protocols as vulnerabilities and seek to patch and block them. Subsequently, Luke submitted a related proposal, sparking a thousand ripples with a single stone!

Because the Bitcoin core developers have the “power” to modify the Bitcoin client, many people think that Inscription is about to end, because once the “vulnerabilities” they claim are fixed, the NFTs on the Ordinals protocol include all BRC-20 Tokens All traces will be erased and all value will be reset to zero.

However, the “vulnerabilities” theory and the panic of a small number of people did not cause violent vibrations in the market. After simple consolidation, some BRC20 even continued to rise “like nothing happened”.

So, why are people so calm in the face of opposition from core developers?

In reality, the Bitcoin core developers form a vast, decentralized organization, and Luke is just one of its members. It’s not as if Bitcoin Core will execute modifications simply because someone opposes something. Even if the majority of Bitcoin Core agrees, it doesn’t necessarily mean a successful client upgrade, as the power to upgrade clients lies in the hands of the block producers. In the Bitcoin community, the identities of block producers and developers often overlap, and inscriptions are already closely tied to their interests. Maintaining a stable and sustainable development of the inscription protocol is, for the most part, more beneficial than harmful to the Bitcoin ecosystem and the majority of the Bitcoin community.

Most people are convinced that Luke and other opponents cannot make waves, even though Luke controls a mining pool. However, it should be noted that behind the support of BRC20, there are several mining pools with the largest computing power, which actually represent the interests of block producers.

Recently, as expected, Luke’s proposal to ban inscriptions was rejected by several core developers. Bitcoin Core developer Ava Chow summarized that the proposal was highly controversial and not even worth continuing the discussion.

Existence is reasonable, and it is certain that inscriptions will continue to exist under the consensus driven by strong interests.

Summary

Obviously, the inscription craze is not a coincidence. The Bitcoin community and ecosystem have long been prepared, and this bottom-up innovation has surprised the capital, from being cold and arrogant to joining. Even if BRC20 is not a perfect protocol, it is uncertain whether there will be a better protocol to replace its position in the future. However, what can be determined at the moment is that it has opened the door to the Bitcoin ecosystem, and the momentum of the Bitcoin ecosystem has already been established.

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