Introduction

From the ICO craze in 2017 to the DeFi Summer of 2020 and the NFT explosion of 2021, each bull market has been driven by new narratives. If we were to pinpoint the main narrative of the new bull market, the surge in popularity of the BRC-20 standard, representing the inscription craze, cannot be ignored.

Looking back at the whole 2023 in early 2024, the Bitcoin ecosystem has witnessed a remarkable diversity and brilliance, starting from the historic moment of “spot Bitcoin ETF approval” at the beginning of the year to the emergence of the BRC-20 protocol, Bitcoin NFTs, Layer 2 solutions, and ecosystem infrastructure.

Approval of Spot Bitcoin ETF

If we were to identify a historic moment in the cryptocurrency industry in recent years, it would undoubtedly be the approval of the spot Bitcoin ETF by the U.S. SEC on January 10th of this year.

After several years of speculation and anticipation, the dust finally settled on the spot Bitcoin ETF, marking the beginning of a new era where Bitcoin truly integrates with traditional finance. Within three days of the Bitcoin ETF launch, the trading volume approached nearly $10 billion, making it one of the best-performing ETFs in history.

Overview of Relevant Data for the First 3 Days After the Launch of the Spot Bitcoin ETF (Source: Bloomberg)

Despite the pullback in the price of Bitcoin from over 48,000 USDT to over 38,000 USDT following the launch of the spot Bitcoin ETF, discussions in the market initially circulated around sentiments like “positive news brings negative side” and “Grayscale Bitcoin ETF causing dump.” However, data on the net inflow of funds into the ETF indicates that the approval of the spot Bitcoin ETF will become a significant channel for off-market funds to enter the cryptocurrency market. Moreover, the value effect of this funding channel is expected to become increasingly evident in the future.

The approval of the Bitcoin ETF signifies that Bitcoin is no longer a niche asset within a small community. Instead, it is formally aligning with the global capital market, gradually gaining acceptance in mainstream markets. The regulatory strength and the influx of substantial off-market funds may prevent Bitcoin prices from experiencing extreme volatility as seen in the past. Simultaneously, this development is expected to benefit the entire Bitcoin ecosystem and the entire cryptocurrency industry by reducing the massive exodus of talent and funds during each major bear market, fostering a more sustainable development for the entire industry.

Ordinals Protocol sets off new narrative

Apart from the spot Bitcoin ETF, the most significant development in the Bitcoin ecosystem over the past year has been the release of the Ordinals protocol.

The subsequent surge in popularity of the BRC-20 protocol and Bitcoin NFTs is built upon the Ordinals protocol. It can be said that without Casey Rodarmor’s development of the Ordinals protocol, there would be no rise in the underlying Bitcoin ecosystem driven by the BRC-20 protocol.

The Ordinals protocol was released in January 2023 and is an asset issuance protocol based on Bitcoin.

As Bitcoin does not have Turing-complete smart contracts like Ethereum, allowing direct issuance of tokens or NFTs, the SegWit and Taproot upgrades for Bitcoin enabled the storage of arbitrary data (up to 4MB) in Bitcoin blocks. Thus, Casey, the founder of the Ordinals protocol, assigned numbers to the smallest unit of Bitcoin, satoshis, and incorporated various content such as images, text, audio, and even videos into numbered satoshis. This innovation made it possible to issue NFTs on Bitcoin and even issue tokens.

Since the release of the Ordinals protocol in January 2023, the number of inscriptions created through the Ordinals protocol has exceeded 55 million, generating fees of over 5,700 BTC for Bitcoin block producers. In today’s environment of decreasing Bitcoin production, the emergence of Ordinals inscriptions provides new incentives for Bitcoin block producers facing diminishing returns. This development is undoubtedly a significant positive factor for the security and prosperity of the entire Bitcoin ecosystem.

Number and Trend of Ordinals Inscriptions and Transaction Fees (Source: Dune @dgtl_aasets)

While various new protocols such as Atomicals, Runes, and Pipe have emerged in the current Bitcoin ecosystem, the Ordinals protocol, as the vanguard of this wave of Bitcoin ecosystem asset issuance, surpasses other protocols in terms of overall market value and community enthusiasm.

It can be said that the Ordinals protocol ignited this wave of enthusiasm in the Bitcoin ecosystem, or rather, it initiated this bull market.

BRC-20 Protocol Explosion

If we talk about the most prominent term in the Bitcoin ecosystem in 2023, it would undoubtedly be “inscriptions”.

Although the true meaning of “inscriptions” refers to NFTs or tokens minted through the Ordinals protocol, in the prevailing craze for “inscriptions,” most inscriptions refer to tokens on the BRC-20 protocol.

At the inception of the Ordinals protocol, it primarily focused on issuing NFTs. However, two months later, an anonymous programmer named Domo realized that the Ordinals protocol could not only issue NFTs but also homogeneous tokens. When inscriptions are minted according to a unified protocol standard, they can generate homogeneous tokens, and these tokens are referred to as BRC-20 tokens.

Since its inception in March of last year, BRC-20 tokens have experienced a significant explosion. The total market value of tokens in the BRC-20 track has now exceeded $3.3 billion. Leading projects like Ordi and the runner-up Sats have successively listed on top platforms, rapidly climbing to the Top 60 in terms of market capitalization.

From being an unknown meme to becoming the darling of capital, BRC-20 has indeed dominated the spotlight.

Bitcoin NFT Surpasses Ethereum NFT

Bitcoin NFTs have a long history, but it wasn’t until the birth of the Ordinals protocol that Bitcoin NFTs truly started to gain traction.

However, the extent of this “traction” is relative to Ethereum and other ecosystem NFTs. Currently, Bitcoin NFTs are still limited to a small circle and have not, like the previous round of Ethereum NFTs, attracted a significant influx of external funds and talent.

The overall NFT space is currently in a relatively quiet state. Since the last bear market, Ethereum blue-chip NFTs have struggled, with prices continuously falling. Until now, the entire Ethereum NFT space has not regained much momentum. Occasionally, a project might create some ripples, but it has not truly ignited the NFT space.

According to Cryptoslam data, in the last 30 days, the trading volume of Bitcoin NFTs has far exceeded that of Ethereum and other public chain NFTs. The trading volume of Bitcoin NFTs has even surpassed Ethereum NFTs by more than double. Moreover, popular Bitcoin ecosystem NFTs such as Bitcoin Frogs and Bitmap have emerged successively, posing a trend of challenging blue-chip NFTs.

Source: Cryptoslam.io

In just one year, Bitcoin NFTs have not only surpassed Ethereum NFTs but have also reached a significant scale. Though not as prominent as Ethereum NFTs in 2021, it’s not an exaggeration to describe the Bitcoin NFT space as “booming.”

ARC20 and other protocols are flourishing

Any new thing inevitably has its imperfections, whether it’s the Ordinals protocol or the BRC20 protocol. After the outbreak of the Ordinals protocol, a plethora of new protocols quickly emerged in the Bitcoin ecosystem, including Atomicals, Runes, PIPE, Stamps, BitVM, and more. Most of these protocols claim to improve upon the Ordinals protocol, presenting a lively and diverse landscape.

Compared to the Ordinals protocol, the Atomicals protocol is more decentralized in terms of asset trading sequence, not relying on third-party sequencers. Initially, the Atomicals protocol faced less popularity due to its higher technical difficulty and limited institutional support compared to Ordinals. However, with the support of Unisats and rumored support from a major platform, Atomicals has shown a noticeable growth trend.

The Runes protocol, proposed by the founder of the Ordinals protocol, Casey, aims to address the efficiency issues present in BRC20. However, its development has been relatively slow, and it has not formed its own ecosystem like the Ordinals or Atomicals protocols. Instead, based on the concept of the Runes protocol, Bitcoin ecosystem programmer Benny developed the PIPE protocol, cleverly integrating the strengths of the Ordinals and Runes protocols.

In contrast to the controversy surrounding potential removal of redundant data brought by the Ordinals protocol to Bitcoin blocks, the Stamps protocol emphasizes the reliability of data that cannot be permanently removed from the public Bitcoin ledger. Therefore, amid the controversy surrounding potential data removal due to the Ordinals NFT outbreak, attention has turned towards the Stamps protocol.

However, at present, despite the diverse range of protocols in the Bitcoin ecosystem, the spotlight remains on the Ordinals protocol. Moreover, the various protocols in the Bitcoin ecosystem are not interconnected, with most using different wallets and trading platforms. Additionally, some protocols occasionally experience asset transfers being burned, making the barrier to entry relatively high for newcomers.

The rise of Bitcoin’s smart contract layer

With the outbreak of the Ordinals protocol, congestion on the Bitcoin mainnet has intensified, leading to a continuous increase in transaction fees. Consequently, the Bitcoin smart contract layer, aimed at addressing network congestion and reducing transaction fees, has also begun to gain traction.

Currently, there are numerous smart contract projects on Bitcoin, but two projects that stand out with strong consensus are Stacks and RSK.

In terms of Total Value Locked (TVL), RSK currently boasts a TVL in the billions, making it the project with the highest TVL in the Bitcoin ecosystem. However, despite the significant TVL, the RSK ecosystem hasn’t seen many standout projects emerge amid the recent surge in the Bitcoin ecosystem, nor has there been much notable activity.

Stacks, while not having a high TVL, benefits from favorable conditions, and its ecosystem development is commendable, making it one of the most anticipated star projects in the Bitcoin ecosystem. According to the latest official updates, the Nakamoto upgrade is expected to be completed before the Bitcoin halving, significantly enhancing the performance of the Stacks network. Additionally, the project plans to launch SBTC, a stablecoin pegged to BTC, which is anticipated to significantly increase BTC liquidity. Being the first SEC officially recognized compliant token, Stacks indeed has several noteworthy features.

Of course, with the booming Bitcoin ecosystem, numerous Bitcoin smart contract projects have emerged recently, and whether they can make a significant impact remains to be seen.

RGB protocol comes to the public eye

The RGB protocol was initially proposed in 2016 but remained relatively quiet until April 2023 when version 0.1 of the RGB protocol was released, marking its official entry into commercial use.

The release of this version brought about significant breakthroughs, including the removal of restrictions on smart contract development, integration with the Lightning Network, and support for wallets. These advancements have brought the RGB protocol back into the public eye amidst the current surge in the Bitcoin ecosystem. The integration with the Lightning Network, in particular, has led many to compare the RGB protocol with Taproot Assets, considering the advantages of leveraging the security of the Bitcoin mainnet and utilizing the existing channel nodes in the Lightning Network.

However, as of now, most projects within the RGB ecosystem are still in the development or beta phase, and the true performance will only become clear with time.

Lightning Network Drives Bitcoin into the Era of Multiple Assets

The release of Lightning Network’s Taproot Assets signifies Bitcoin’s entry into the era of issuing multiple assets, similar to Ethereum.

While protocols like BRC20 are currently popular, Bitcoin’s network only passively records data, and once issued, project teams have no means to carry out operations such as withdrawal, burning, or repurchase of tokens. In other words, although protocols like BRC20 offer fairer token issuance and are more advantageous for retail investors, the lack of empowerment and operations by a centralized team makes it challenging for a project to truly grow.

Through Taproot Assets on the Lightning Network, teams can issue and burn assets. Additionally, the subsequent circulation of assets will be directly compatible with the existing over 14,000 Lightning Network nodes globally. This solution combines the security of the Bitcoin mainnet with the fast and low-fee transaction characteristics of the Lightning Network, making it seem like a superior asset issuance solution for the Bitcoin ecosystem.

The Nostra Assets platform announced the introduction of Taproot Assets functionality in November 2023. The platform currently has four types of assets, and although its popularity is not yet very high, the overall trading experience is comparable to that of centralized payment experiences, offering a smooth and seamless experience.

As of now, there are 14,658 Lightning Network nodes globally, with over 4,900 bitcoins locked in the Lightning Network. Over the past two years, during the bear market, the number of bitcoins in the Lightning Network has not experienced drastic fluctuations with the market but has shown a slow and steady growth trend.

Locked BTC Changes Over Time on Lightning Network (Source: bitcoinvisuals)

However, at present, the Lightning Network, whether in terms of the number of nodes or the amount of BTC locked up, is relatively small. Currently, it mostly involves small transactions and has not yet been linked with other assets in the Bitcoin ecosystem. With the prosperity of Bitcoin ecosystem assets such as Taproot Assets and the RGB protocol in the future, it is believed that the value of the Lightning Network can be further maximized.

BitVM brings new hope for Bitcoin smart contracts

Despite Bitcoin’s longstanding position as “digital gold,” exploration into its programmability has never ceased. In October 2023, the BitVM whitepaper titled “BitVM: Compute Anything On Bitcoin” was released, proposing a solution to achieve Turing completeness without altering the existing consensus of the Bitcoin network. This solution makes it possible to run complex contracts on Bitcoin, igniting new hope for the prosperity of Bitcoin smart contracts and the ecosystem.

However, as of now, BitVM remains a concept, and practical implementation is expected to be a long journey.

If protocols like Taproot Assets and RGB, combined with the Lightning Network, can be rapidly implemented and meet expectations, this might be a faster path to the prosperity of the Bitcoin ecosystem.

Other ecological infrastructure comes to the fore

In addition to these developments, many other promising projects emerged in the explosive year of 2023 for the Bitcoin ecosystem.

For instance, Thorchain, which delves into cross-chain functionality, provides cross-chain transactions for multi-chain assets, including Bitcoin. Another rising star in the Bitcoin ecosystem’s cross-chain domain is Multibit, offering cross-chain services from BRC20 to ETH/BNB networks. This includes IDO platforms like Bounce, Bakery, Turtsat, stablecoin platform BSSB, among other notable Bitcoin ecosystem infrastructure projects.

Certainly, with the Ethereum and other public blockchain ecosystems becoming increasingly mature, the rise of Bitcoin ecosystem projects has many reference paths. In the current fervent market sentiment, it is easier to quickly gather consensus and propel market capitalization.

Regardless, the rise of inscriptions like BRC20 has attracted more funds and resources to collaboratively build the underlying infrastructure of the Bitcoin ecosystem.

Conclusion

2023 has been a remarkable year for both the Bitcoin ecosystem and the entire cryptocurrency industry, building momentum for the upcoming bullish market.

What will be the development of the Bitcoin ecosystem in 2024? After the frenzy of memes such as BRC20 and Bitcoin NFT, will a significant amount of funds and resources settle into ecosystem development, replicating the path to prosperity seen in the Ethereum ecosystem? Or will it be a scene of chaos after the excitement, leaving things in disarray?

The former is more probable, given that under the short-term excitement, we have witnessed enthusiasm from developers, communities, and investors towards the Bitcoin ecosystem.

In this bull market, the Bitcoin ecosystem will likely play an indispensable and crucial role.

Disclaimer：

1. This article is reprinted from [白话区块链]. All copyrights belong to the original author [Joyce]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.