Since Bitcoin’s Taproot upgrade in 2021, it has evolved from a simple blockchain structure used for recording transactions, transforming into a blockchain network space with data storage capabilities. This marked the beginning of more profound changes.

Presently, Bitcoin is experiencing a pivotal shift from quantitative to qualitative development, driven by ‘innovation.’ These innovations include the introduction of emerging protocols and the imaginative possibilities brought forth by the creation of the BRC-20 standard.

△ Overview of New Bitcoin Protocols

Source：imToken

In 2023, Bitcoin’s hash rate witnessed an over 80% growth. As the oldest digital asset in blockchain, Bitcoin is rejuvenating with impressive market performance. Emerging Bitcoin NFT and DeFi projects are also gaining increasing attention.

Amid the burgeoning development of Bitcoin applications, the Bitcoin ecosystem is taking shape. This article outlines the sought-after new protocols and technologies bolstering the Bitcoin ecosystem since 2023.

Ordinals Protocol:

Dispelling the ‘Vapor’ from BTC’s Value

In January 2023, Bitcoin core developer Casey Rodarmor officially released the Ordinals protocol. Its primary aim was to use Bitcoin’s smallest unit, ‘Satoshi,’ as a basis to assign unique identifiers to BTC, introducing the concepts of Ordinals and Inscriptions. This led to the birth of the first NFT within the Bitcoin network.

For more information:

• To understand the theory of Ordinals, the rules of ordinal identification, and the scarcity classification of Satoshi, visit: https://docs.ordinals.com

• To learn how to inscribe personalized content into a Satoshi using the Ordinals protocol, visit: https://github.com/ordinals/ord/blob/master/bip.mediawiki

Despite being relatively new, the Ordinals protocol has attracted participants from the Bitcoin community and numerous Ethereum developers. Protocols and applications around Ordinals are continually emerging.

● Igniting Bitcoin NFTs

Why has Bitcoin, despite its long existence, not seen the emergence of NFTs like Ethereum? The reason lies in the difficulty of running smart contracts on Bitcoin.

The innovation and cleverness of the Ordinals protocol is evident in its approach: while it’s challenging to execute independent smart contracts for NFTs on Bitcoin, marking non-fungible content on existing BTC assets can effectively create unique Bitcoin NFTs. This process of marking is often referred to as ‘inscription,’ and the non-fungible content marked on BTC is known as ‘Inscriptions.’ Thus, Bitcoin NFTs are essentially personalized BTC.

Since 2023, Bitcoin NFT transactions have seen a significant increase. According to data tracked by CryptoSlam, between May and June 2023, Bitcoin NFTs ranked second in public blockchain NFT transactions, trailing only behind Ethereum’s NFT volume. As of November 20, 2023, the trading volume of Bitcoin NFTs in the past 30 days has surpassed $302 million, leading the public blockchain NFT transaction volumes. In comparison, Ethereum’s NFT volume for the same period stands at $296 million, trailing behind Bitcoin.

△ 30-Day Total NFT Transaction Volume by Blockchain

Source: CryptoSlam, screenshot as of November 20, 2023

△ 30-Day Individual NFT Transaction Volume

Source: CryptoSlam, screenshot as of November 20, 2023

● BRC-20

With the Ordinals protocol enabling the engraving of non-fungible data on BTC to create Bitcoin NFTs, a question arises: Is it possible to deploy contracts on BTC using the Ordinals protocol to create a new Bitcoin Cryptocurrency? On March 8, 2023, the original Twitter user @domodata proposed the concept of using the Ordinals protocol to engrave JSON-formatted data on BTC, thereby deploying contracts on Bitcoin. This led to the announcement of the BRC-20 asset issuance standard, and the launch of the first Bitcoin inscription Cryptocurrency ‘$ordi’ based on the BRC-20 standard, with a total issuance of 21 million units.

From its name, it’s evident that the BRC-20 standard mirrors Ethereum’s ERC-20 standard. The JSON data included in BRC-20 mainly comprises three functions: Deploy, Mint, and Transfer. These correspond to three transactional capabilities: deploying assets, minting assets, and transferring assets.

For more information about the primary functions of BRC-20 and other details, please visit: https://domo-2.gitbook.io/brc-20-experiment/

● BRC-100

When the Ordinals protocol made it possible to issue new types of inscription Cryptocurrencies on Bitcoin (although they are essentially BTC), the construction of an ecosystem based on these inscription Cryptocurrencies was immediately put on the agenda. On October 25, 2023, the creator of the BRC-20 standard and original Twitter user @domodata, through the Layer 1 Foundation, announced the release of the BRC-100 standard.

The BRC-100 standard, based on the Ordinals protocol, is a design standard for creating decentralized applications (DApps) on Bitcoin. Developers can utilize BRC-100 to build decentralized financial applications and blockchain games on Bitcoin. Although BRC-100 is a protocol for creating applications, it also encompasses functions like deploying, minting, and trading assets found in BRC-20. Compared to BRC-20, BRC-100 is more comprehensive, bringing the entire inscription asset solution closer to the architecture and creation objectives of Ethereum’s ERC-20 standard.

The above summarizes the technical products and standards that have emerged around the Ordinals protocol since its release.

From the perspective of the development timeline, the transformation on Bitcoin began with the official launch of the Ordinals protocol, and the introduction of the BRC-20 standard has significantly heightened the popularity of inscription-based digital assets. However, without the support of transaction infrastructure, the widespread application of the BRC-20 standard could have faced significant challenges. Furthermore, inscription cryptocurrencies remain BTC in essence, and their inherent value is not particularly prominent, lacking practical application value in real-world scenarios. The release of the BTC-100 standard is timely and pivotal for the future development of inscription-type digital assets on Bitcoin.

In fact, given the construction plan and objectives of the Bitcoin blockchain, the emergence of the Ordinals protocol seems inevitable. The Ordinals protocol is not the first, nor the only, technology protocol attempting to ‘engrave’ (which can be understood as ‘store’) or ‘identify’ data in BTC transactions. However, it is the first to enable the engraved data to circulate with BTC, helping Bitcoin overcome the inherent risk of ‘nothingness’ that plagues blockchain cryptocurrency assets. This clever approach of adding value through technical logic is indeed ingenious.

Atomicals Protocol:

Simplifying the Creation of BTC Assets

With the rising popularity of Bitcoin inscribed assets, the Atomicals Protocol was officially launched on September 17, 2023. The Atomicals Protocol aims to facilitate the creation of cryptocurrency-like digital assets on Bitcoin. It introduces several optimizations over the previously released BRC-20 standard, striving for a simpler process of “creation” of “digital items” on Bitcoin. For instance, it allows for the storage of one or multiple files at the time of creation, whereas the BRC-20 standard only permits the inscription of a single file.

Key features of the Atomicals Protocol include:

• Like BRC-20, it is also based on the UTXO (Unspent Transaction Output) design.

• Utilizes Bitcoin’s smallest unit, “Satoshi,” as the basic unit.

• The asset issuance standard for applications using the Atomicals Protocol is ARC-20.

• ATOM is the name of the asset issued following the ARC-20 standard.

Learn More：

• A notable difference between the ARC-20 and BRC-20 standards is that in ARC-20, Taproot addresses (i.e., P2TR) are only used during the creation and updating of assets, but not for asset transfers. This means that related data will not be recorded on the blockchain during transfers. In contrast, in the BRC-20 standard, all interactions, including deployment, minting, updating, and transferring, require the use of Taproot addresses.

• In addition to the aforementioned Ordinals Protocol and Atomicals Protocol, Casey Rodarmor, the founder of Ordinals, launched the RUNE Protocol to address the shortcomings of BRC-20, based on the UTXO model. However, it has not yet been applied. Furthermore, BennyTheDev, a renowned developer, designed the OrdFi ecosystem protocol in response to the limitations of BRC-20… All of these are gradually gaining popularity in the Bitcoin community.

△ BTC Protocol Development History

Image source: Internet

In fact, the Bitcoin ecosystem is far more thriving than one might imagine. In addition to the emerging protocols mentioned above, the technological solutions that have appeared in the development of Bitcoin, involving the enhancement of its scalability and privacy, include various foundational infrastructure services such as Colored Coins, Omni Protocol, Lightning Network, Counterparty, Stamps, Liquid, Stacks, Libre, RGB Protocol, TAP Protocol, PIPE Protocol, Bitcoin Script, and Bitcoin Rollups. These diverse technological solutions are giving rise to a wide array of applications and products.

Taproot Assets: An Alternative Solution for Building “Contracts” on Bitcoin

On October 18, 2023, Lightning Labs released the alpha version of Taproot Assets on the mainnet, attracting the attention of many participants in the blockchain sector. Taproot Assets is a technical protocol directly integrated with the Lightning Network, supporting the creation of cryptocurrency and NFT-type assets. As is well known, the design architecture of Bitcoin does not fully support the running of smart contracts. However, it still possesses certain programming capabilities. For example, one can write “simple code” in the scripts of Taproot addresses (i.e., P2TR) and then execute this code as conditional commands for UTXO.

In the asset issuance scenario of Taproot Assets, the aforementioned “simple code” can be designated as the issuance rules for a certain type of token asset. It also allows integration with a set of multi-signature addresses, enabling both parties to jointly trigger this “simple code.” This means that both the party generating the multi-signature address and the party holding the multi-signature address can become issuers of the token asset. Consequently, the Taproot Asset mainnet also implements point-to-multipoint transaction scenarios, allowing assets to be transferred to multiple account addresses within a single transaction channel. This feature marks the most significant difference between Taproot Asset mainnet and the traditional Lightning Network (Lightning Labs), which only supports point-to-point transactions.

However, issuing assets on the Taproot Assets mainnet, due to its integration with a multi-signature system and not using Bitcoin as a layer for data validity, may present relatively higher engineering barriers and issuance costs compared to asset issuance using the Ordinals protocol or related standards. Nevertheless, industry experts believe that the Lightning Network’s advantage in high-frequency trading could potentially enable scenarios where popular stablecoins like USDT circulate on Bitcoin through the Taproot Assets mainnet.

△ Comparison of Taproot Assets, BRC-20 based on the Ordinals Protocol, and ARC-20 based on the Atomicals Protocol

Image source: Internet

As 2024 approaches, Bitcoin is nearing its next halving cycle. Although it’s difficult to predict the exact timing of the halving, each cycle’s approach brings a surge of emerging protocols and trading models for Bitcoin. A key focus of these innovations is the perpetual issue of seeking future appreciation for Bitcoin, ensuring asset liquidity, and protecting the interests of developers. A critical factor in exploring these issues is how to bring more participants into Bitcoin. This is essential for establishing and maintaining a continuous cycle of innovation. The success of this endeavor hinges not just on the allure of value but also on lowering the barriers to asset acquisition.

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