1.Introduction to the Bitcoin Ecosystem

Bitcoin’s position in the cryptocurrency ecosystem is not only historic but also crucial. As the first and most famous cryptocurrency, Bitcoin has not only ushered in a new era of digital currency but also laid the foundation for the widespread application of DeFi and blockchain technology. Its decentralized nature, limited supply (21 million Bitcoin cap), and its capability as a store of value and investment medium have secured its significant position in the cryptocurrency market.

Interest in the Bitcoin ecosystem mainly stems from its innovation, challenge to the traditional financial system, and potential economic impact. Over time, Bitcoin has become a part of asset diversification and a significant topic in global financial discussions. However, after several bull and bear cycles, it has become evident that Bitcoin’s non-Turing-complete nature greatly impacts the further expansion of the Bitcoin ecosystem.

Turing completeness refers to a system’s ability to simulate any Turing machine, typically associated with systems capable of executing arbitrary computational instructions, including loops and branches. Bitcoin’s scripting language is relatively simple, designed primarily for handling transactions and controlling conditions during transfers, such as multi-signature or timed locks, rather than performing complex computational tasks. This design is to maintain network security and stability. In contrast, blockchain platforms like Ethereum provide a Turing-complete environment, allowing complex smart contracts to run on them.

When discussing Bitcoin, it’s essential to recognize its limitations, especially in executing complex programs and smart contracts. Therefore, to discuss the development of the Bitcoin ecosystem, we first need to summarize and categorize the problems that the “Bitcoin ecosystem needs to solve.” These are threefold: 1) How to improve network efficiency and reduce transaction fees without compromising Bitcoin network security; 2) How to issue native assets on the Bitcoin network without burdening it; 3) How to solve the problem of hosting more smart contracts and complex applications in a non-Turing-complete environment.

Some exploration directions include:

Enhancing Bitcoin Script Functionality: While Bitcoin’s scripting language is relatively simple, developers have been exploring how to add more functionality within the existing framework. This includes developing more complex transaction types and conditions, such as improved multi-signature mechanisms and complex locking conditions.

Sidechain Technology: Sidechains are independent blockchains that are separate but connected to the Bitcoin main chain. They allow more complex functionalities, including Turing-complete smart contracts, on the sidechains without affecting the security and stability of the Bitcoin main chain.

Lightning Network: As a second-layer solution for Bitcoin, the Lightning Network aims to provide faster, lower-cost micropayments while reducing congestion on the blockchain. Although primarily for addressing Bitcoin’s scalability issues, it also offers a platform for developers to experiment with new functionalities.

Rootstock (RSK): RSK is a smart contract platform connected to the Bitcoin blockchain via a sidechain. RSK aims to bring Turing completeness to the Bitcoin ecosystem, allowing users to create and execute complex smart contracts within Bitcoin’s secure framework.

RGB: The core goal of the RGB project is to implement smart contracts and asset issuance on the Bitcoin blockchain while maintaining its decentralized and secure characteristics. Using Bitcoin’s Layer 2 technology, the RGB project enables users to create and manage non-fungible tokens (NFTs) and other types of complex assets on top of the Bitcoin network. This means that RGB brings more advanced functionalities to Bitcoin, such as tokenized assets, smart contracts, and digital identities, without affecting the stability and security of the main chain. The RGB project represents the Bitcoin community’s effort to explore extending its basic functionalities, potentially having a broader impact on Bitcoin’s application scenarios and value. However, such attempts also pose challenges in technical implementation and community acceptance.

Taproot/Schnorr Signatures: These upgrades bring more privacy and efficiency to the Bitcoin network. While they don’t directly make Bitcoin Turing complete, they lay the foundation for potential future functional expansions.

Stacks (STX): A Bitcoin smart contract layer, Stacks aims to extend Bitcoin’s functionalities to support smart contracts and decentralized applications. Its primary goal is to introduce smart contract capabilities on the Bitcoin blockchain, allowing developers to build decentralized applications (DApps) and smart contracts, thus expanding Bitcoin’s uses. Stacks 2.0 uses a POX consensus, with rewards in a more stable, underlying chain cryptocurrency, which can motivate early participants, aiding in attracting them and building stronger consensus.

Empowering BTC: By transforming BTC into an asset used for building DApps and smart contracts, the Bitcoin economy’s vitality is enhanced.

Ordinal Protocol: Without altering Bitcoin’s fundamental infrastructure, this protocol introduces an innovative method of data storage and marking on the Bitcoin network. It utilizes transaction output ordinals on the Bitcoin blockchain, allowing users to embed small data pieces in specific Bitcoins. While this increases the demand for data storage on the Bitcoin blockchain, it also opens new possibilities for exploring Bitcoin as a multifunctional, multidimensional asset platform.

Atomical Protocol: A recent, simple, and flexible protocol for minting, transferring, and updating digital objects on UTXO blockchains like Bitcoin, Atomical focuses on key simple rules that minting, transferring, and updating operations must follow.

BitVM: The bitVM project is an innovative attempt to enhance the functionality and flexibility of the Bitcoin network. As a virtual machine implementation, its goal is to provide more advanced programming capabilities and smart contract functionalities on the Bitcoin blockchain. This approach allows developers to create more complex and multifunctional applications on the Bitcoin network, extending its use cases beyond just digital currency. By implementing such a virtual machine, bitVM aims to maintain Bitcoin’s core security and decentralized nature while introducing more programmability and interoperability. This project represents the Bitcoin community’s exploration of technological innovation and expanding its blockchain capabilities, potentially bringing Ethereum-like smart contract platform functionalities to Bitcoin. However, it may face challenges in technology and community consensus.

In this article, we compare several of the hottest projects in the Bitcoin ecosystem, considering key aspects such as community consensus, technical challenges, and future application scenarios, leading to some general conclusions, including:

1) Community consensus is crucial for the success of these projects. The Bitcoin community has always valued network security and decentralization, and any significant changes require widespread consensus. Projects like bitVM and RGB, which aim to expand Bitcoin’s functionalities, must ensure they do not compromise its core attributes, which could lead to intense discussions in the community.

2) Technical difficulty is another significant factor. These projects attempt to introduce new functionalities through Layer 2 solutions or other technical means without disrupting the stability of the Bitcoin main chain, presenting a technical challenge.

3) From the perspective of future application scenarios, these projects hold great potential. bitVM, by offering advanced programming capabilities, and the RGB project, by implementing smart contracts and asset issuance, could significantly expand Bitcoin’s application range, making it more than just a store of value platform. However, the realization of these application scenarios depends on the successful implementation of the technology and broad community acceptance.

4) As of the current phase, the focus of breakthroughs in the Bitcoin ecosystem still lies in “solving asset issuance.” Therefore, we expect a period of active meme coin issuance, attracting more users and developers into the ecosystem,finding project implementation and network value, and achieving a real ecological closed loop.

2.SegWit and Taproot: Key Upgrades in Bitcoin’s Evolution

Before delving into the various protocols and projects within the Bitcoin ecosystem, it’s essential to understand SegWit and Taproot, two significant upgrades that have shaped Bitcoin’s network. Since its inception, Bitcoin has captivated a vast number of decentralization enthusiasts with its elegant technology and ingenious economic incentive design. Throughout its journey, the Bitcoin network has undergone several critical upgrades, fostering its growth and adaptation.

Key upgrades include BIP 34, which introduced version numbers to blocks, laying the groundwork for future protocol upgrades. BIP 66 enhanced network security by standardizing the format for digital signatures in Bitcoin transactions. BIP 65 (OP_CHECKLOCKTIMEVERIFY) allowed for time-locked transactions, increasing the flexibility for creating complex scripts. Among these, the most impactful for Bitcoin’s expansion are undoubtedly SegWit (Segregated Witness) and Taproot. These upgrades have significantly improved Bitcoin’s scalability and efficiency and laid a solid foundation for subsequent technological innovations like Ordinals.

SegWit , introduced in 2017, addressed transaction malleability by separating the signature information (witness data) from transaction data, increasing the effective block size. This upgrade not only improved network throughput and reduced transaction fees but also bolstered the foundation for second-layer solutions like the Lightning Network, making micropayments more feasible.

Taproot , activated in 2021, is another major upgrade to the Bitcoin protocol. It introduced Schnorr signatures, enhancing privacy and security while optimizing the efficiency and flexibility of smart contracts. Taproot made all transactions, whether simple payments or complex smart contracts, appear identical externally, thus enhancing user privacy. Additionally, this upgrade simplified the data requirements for multi-signature transactions, reducing costs and making complex contracts more viable on the Bitcoin network.

Overall, the SegWit and Taproot upgrades collectively elevated Bitcoin’s performance, scalability, and functionality, solidifying the foundation for Bitcoin’s future development.

3.The Booming Bitcoin Ecosystem

A clear trend emerges when analyzing the income of Bitcoin miners across the network. In May 2023, miners’ earnings reached nearly 70-80% of the levels seen in bull markets, indicating a rise in on-chain transaction activities. The primary income sources for Bitcoin miners are new block rewards and transaction fees. While the rate of new Bitcoin generation is fixed, transaction fees fluctuate with the network’s transaction volume. This change is largely attributed to the introduction of the Ordinals protocol, which has increased the number of transactions on the Bitcoin network. Particularly, if digital art and other NFTs become popular assets on Bitcoin, this could lead to a rise in transaction fees, indirectly boosting miners’ total income.

Daily income of miners

In this article, we will focus on analyzing the bitcoin ecosystem including the Lightning Network, ordinal as well as BRC20, atomical as well as ARC20, bitVM, and others.

The Bitcoin ecosystem, represented by projects like the Lightning Network, Ordinals, and various token standards (BRC20, Atomicals, ARC20, bitVM), showcases a diverse range of technological innovations and applications.

The Lightning Network and Sidechain/Layer 2 Solutions

Representative sidechains or Layer 2 solutions such as the Lightning Network have long been a focus of the Bitcoin ecosystem, and a key technological innovation addressing Bitcoin network’s scalability and efficiency. This category includes projects like Lightning Network, Rootstock (RSK), Stacks, Liquid, MintLayer, RGB, etc. Among these, the Lightning Network, as the king of orthodoxy, originated from Satoshi Nakamoto’s concept of “payment channels.” From 2016 until the explosion of the Ordinal ecosystem, it attracted over half of the developers and participants in the Bitcoin ecosystem. Around 2020, the Lightning Network became well-known throughout the crypto community with the help of Nostr.

A sidechain is an independent blockchain that runs parallel to the main Bitcoin chain and interacts with it through a specific anchoring mechanism. This design allows users to move assets from the Bitcoin main chain to the sidechain, offering faster transaction confirmations and lower fees, and even supporting more complex smart contracts and applications. Since sidechains handle a large volume of transactions from the main chain, they help alleviate its burden and improve the overall network’s performance.

Layer 2 solutions, like the famous Lightning Network, are protocol layers built on top of the Bitcoin main chain. These solutions facilitate fast and efficient transaction processing by creating off-chain transaction channels, which only interact with the Bitcoin main chain when channels are opened or closed. They are particularly effective for supporting small, high-frequency transactions, significantly expanding Bitcoin’s applicability in daily payments and microtransactions.

However, for a long time, the Lightning Network was merely used for small payments and did not support the issuance of other assets, limiting its use cases. It was eventually overtaken in popularity by Ordinals. In October 2023, Lightning Labs launched the Taproot Assets protocol on the mainnet, supporting the issuance of stablecoins and other assets on both Bitcoin and the Lightning Network. As Ryan Gentry, the lead developer, mentioned, Taproot Assets provides developers with “the tools needed to make Bitcoin a multi-asset network, while maintaining Bitcoin’s core values in a scalable way.”

Centered around Taproot, Taproot Assets delivers assets on Bitcoin and the Lightning Network in a more private and scalable manner. Assets issued on Taproot Assets can be deposited into Lightning Network channels, where nodes can provide atomic swaps from Bitcoin to Taproot Assets. This enables Taproot Assets to interoperate with the broader Lightning Network, benefiting from its coverage and enhancing its network effect.

However, as @blockpunk2077 pointed out, at the current stage, “users cannot directly mint Tokens on the BTC mainnet in a self-serve manner. Instead, there’s a project address that issues (or registers) all the Tokens at once, which are then distributed through the Lightning Network by the project. Consequently, Taproot Assets Tokens are not distributed through a free minting process but often require a centralized project to airdrop them. The project itself can also reserve tokens, as was the case with the newly issued $trick and $treat.” This centralized nature has drawn some criticism and does not fully align with the Bitcoin community’s pursuit of decentralization and disintermediation.

Ordinals, BRC20, and the Pandora’s Box They Opened

Regarding the Ordinal and BRC20 protocols, we won’t elaborate much here. As an innovative application, Ordinal has implemented a new method of data storage on the Bitcoin blockchain. It assigns unique sequence numbers to each satoshi and tracks them in transactions, allowing users to embed non-fungible, complex data in Bitcoin transactions. With the introduction of NFT inscriptions on Bitcoin, the natural progression of development shifted towards fungible tokens. On March 9, an anonymous Crypto Twitter user named @domo posted a theory about a method called BRC-20. This method, built upon the Ordinals protocol, creates a standard for fungible tokens. Essentially, it involves engraving text on satoshis to create these tokens. The original design allowed for only three different operations: deployment, minting, and transferring.

We believe that the Ordinal protocol and its derivative, the BRC20 design, are brilliantly conceived. They solve the significant issue of asset issuance in a simple and efficient way, aligning perfectly with Bitcoin’s design philosophy and thus gaining widespread attention and support from the Bitcoin ecosystem. In the Bitcoin ecosystem, they play a crucial bridging and initiating role. They leverage new features available after Bitcoin’s Taproot upgrade, enabling the storage of large amounts of data in a single transaction. Through this, the Ordinals protocol can directly create and transfer digital artworks and collectibles on the Bitcoin blockchain, bringing the concept of NFTs (Non-Fungible Tokens) to it, distinct from implementations on platforms like Ethereum.

The BRC20 standard, derived from the Ordinals protocol, aims to implement a token standard on the Bitcoin blockchain similar to Ethereum’s ERC20. Its goal is to provide a standardized definition and interface for tokens within the Bitcoin ecosystem, allowing developers to create, issue, and manage tokens on the Bitcoin blockchain, akin to token operations on Ethereum. This implies that in the future, complex token transactions and smart contract operations could be conducted on the Bitcoin chain, though this requires sophisticated programming and data storage technologies. The proposal of the BRC20 standard represents an expansion of Bitcoin’s functionalities, showcasing the ecosystem’s ongoing maturation and diversification. However, realizing such a standard demands broad community support and further technical development.

The innovation of Ordinals primarily lies in: Before this, Bitcoin was fungible, meaning one satoshi was indistinguishable from another. Ordinals changed this by utilizing two updates to the original Bitcoin protocol: Segregated Witness (SegWit) and Taproot. Simply put, SegWit allows for cheaper data to be placed in the witness part of a transaction, effectively increasing block size, while Taproot enables advanced scripting in the witness part. Together, these updates are crucial for inscriptions, as they allow for more arbitrary data storage in the witness part of any Bitcoin block.

Overall, the emergence of Ordinals and BRC20 not only ignited the Bitcoin market (with a complete change in the source of miner revenue, as shown in the diagram below) but also directed the path for subsequent protocol improvements. For instance, the BRC20 standard TRAC deployed by active Bitcoin community developer Beny, the first 21 million total curse inscription CRSD, and the OrdFi-oriented BRC-20 improved version Tap Protocol. Tap Protocol is an improvement at the protocol level of BRC-20, with the issuance of TAP and -TAP based on it, and the introduction of the Pipe protocol, an improved version of the Runes protocol.

Miner Income Analysis

In September, another anonymous developer in the Bitcoin community, after a period of refinement, identified some design flaws in the Ordinal protocol. Consequently, he introduced the Atomicals Protocol. From a technical aesthetic standpoint, Atomicals mint and propagate based on BTC’s UTXO, without adding extra burden to the BTC network. This closer alignment with Bitcoin technology garnered support from some Bitcoin purists. On the other hand, the Ordinal protocol, with its stronger emphasis on “experimentation,” emerged more naturally and spontaneously. Its BRC20 protocol is an unexpected “byproduct” even for Ordinal’s founder, Casey, thus lacking in “planned” nature. In contrast, Atomicals, after thoughtful consideration and refinement, and guided by the foresight of its founder, has a clear blueprint for its ecosystem.

Here, we provide a brief introduction to the Atomicals protocol.

The Atomicals protocol is a simple and flexible approach to minting, transferring, and updating digital objects (traditionally known as NFTs) on unspent transaction output (UTXO) blockchains like Bitcoin. The protocol uses the term “digital objects” instead of NFTs, as it believes NFT is a technically dense term that doesn’t fully capture the diverse applications possible, making “digital objects” more familiar to the general public and more developer-friendly.

An atom (Atomical or Atom) is a method of organizing the creation, transfer, and updating of digital objects — essentially a chain of digital ownership defined by simple rules. The protocol is open source, allowing free use by anyone. All libraries, frameworks, and services are released under MIT and GPLv3 licenses to ensure that no one can control these tools and protocols.

Compared to other Bitcoin ecosystem protocols, Atomicals’ main advantage is that it operates without centralized services or intermediaries as trusted indexers. It requires no changes to Bitcoin, nor does it need sidechains or any auxiliary layers. It is designed to work in coordination with other emerging protocols (like Nostr, Ordinals, etc.). Each protocol has its unique advantages, and Atomicals Digital Objects expand the range of options available to users, creators, and developers.

According to @bro.tree, “The Atomicals protocol is the first to mine token inscriptions through the POW process, allowing anyone to mine tokens, realms, or NFTs with their CPU. This is one of the protocol’s most fascinating features.”

In terms of future ecological scenarios and implementations, Atomical primarily considers three asset categories and their derivative scenarios: ARC20 (homogenized tokens), non-fungible digital objects (NFTs), and realms (digital identities). The related applications include digital collectibles, media and art, digital identity, authentication, and token-gated content, web hosting and file storage (native Bitcoin file system), peer-to-peer and atomic exchanges (naturally supporting Swaps), digital namespace allocation (DAO building and domain revolution), virtual land and property registration, dynamic objects and statuses in gaming (Gamefi), and social media profiles, posts, and communities (verifiable SBT, Socialfi).

In summary, compared to the Ordinal protocol, ARC20 and $ATOM are still in their early stages, awaiting the development of wallets and markets. However, due to their closer technical alignment with Bitcoin, they hold a relatively higher position of legitimacy within the Bitcoin community, which is highly valued. In terms of potential, there is also an opportunity to realize true native BTC DeFi. From an ecosystem development perspective, the community has experienced several small bursts (as shown in the diagram below), but it has not yet undergone large-scale speculation, leaving substantial potential for growth.

Atomical Minting Statistic

It’s important to note that in the Atomical protocol, all tokens are represented using the native Satoshi unit. This allows each token to be split and combined just like regular Bitcoin. One coin is equivalent to one Satoshi, and an atom equals 1000 coins, which corresponds to 1000 Satoshis of BTC. For beginners in the ecosystem, this concept may require a period of adjustment. There’s a risk that an atom could be mistakenly used as ordinary BTC for transaction fees and get burned, resulting in its loss. To prevent such mishaps, users are advised to use wallets specifically designed for the Atomical protocol, such as @atomicalswallet and @wizzwallet. These wallets provide enhanced safeguards and isolation for Atomical FT and NFT assets, helping to prevent accidental burning through user errors.

BitVM – The Holy Grail of the Bitcoin Ecosystem?

In the Bitcoin ecosystem, BitVM, Ordinals, and the Atomicals protocol each represent different directions in technological innovation and expansion. BitVM’s goal is to provide the Bitcoin network with advanced programming capabilities and smart contract functionality, thereby broadening its application scope and enhancing its functionality. This approach attempts to introduce greater programmability and flexibility while maintaining Bitcoin’s core attributes, such as security and decentralization.

Simply put, BitVM is a computational model that allows developers to run complex contracts on Bitcoin without altering its basic rules. Since its concept was proposed, leading to the release of a white paper in October 2023, BitVM has generated widespread interest and anticipation within the Bitcoin community. A community developer, Super Testnet, boldly claimed, “This could be the most exciting discovery in the history of Bitcoin scripting.” Abstractly, BitVM works similarly to the Lightning Network, which some in the community consider the future of Bitcoin payments due to its use of off-chain mechanisms to extend Bitcoin transactions.

As mentioned earlier, while Bitcoin is the digital gold standard of cryptocurrencies, it lags behind other public blockchain ecosystems in its ability to process complex, Turing-complete smart contracts. BitVM, created by Robin Linus, emerges from this context as a “Bitcoin Virtual Machine.” Notably, Robin also created ZeroSync, an exciting direction introducing zero-knowledge proofs into the Bitcoin ecosystem, focusing on implementing Stark Proofs for Bitcoin.

In summary, under BitVM, computations are executed off-chain and verified on-chain, similar to Ethereum’s op rollup mechanism.

Like Ethereum, BitVM involves two main participants: the prover and the verifier. The prover initiates the computation or claim, essentially stating, “This is a program, and this is what I assert it will execute or produce.” On the other hand, the verifier is responsible for validating this claim. This dual-role system achieves a balance, ensuring accurate and trustworthy computation results.

BitVM’s novelty lies in its handling of computational workloads. Unlike traditional blockchain operations that burden the chain with extensive computations, most of BitVM’s complex calculations are performed off-chain. This significantly reduces the data volume that must be directly stored on the Bitcoin blockchain, improving efficiency and reducing costs. This off-chain approach also provides higher speed and flexibility, as developers or users can run complex programs or simulations without overloading the blockchain.

However, BitVM does employ on-chain verification when needed, especially in disputes. If a verifier questions the legitimacy of a prover’s claim, the system refers to Bitcoin’s immutable, decentralized ledger to resolve the issue, achieved through so-called “fraud proofs.”

If a prover’s claim is proven false, verifiers can submit concise fraud proofs to the blockchain, exposing dishonest behavior. This not only resolves disputes but also maintains the system’s overall integrity. By integrating off-chain computation and on-chain verification, BitVM achieves a balance of computational efficiency and robust security, known as Optimistic rollup. Its basic idea is to assume all transactions are correct (“optimistic”) unless proven otherwise. Only in disputes are the relevant data and computations published and verified on the main blockchain. This significantly reduces the data volume that must be stored on-chain, freeing up space and reducing transaction costs.

In BitVM, Optimistic rollup is particularly useful. Most computational work happens off-chain, reducing the data volume needed on the Bitcoin blockchain. When transactions are initiated, BitVM can use Optimistic Rollups to bundle multiple off-chain transactions into a single on-chain transaction, further reducing blockchain occupancy.

Additionally, in disputes, BitVM’s use of fraud proofs aligns well with the inherent “challenge-response” system of Optimistic Rollups. If a prover makes a false claim, verifiers can quickly expose dishonest behavior by providing concise fraud evidence. This fraud evidence is then reviewed within the Optimistic Rollup framework, and if validated, the dishonest party is penalized.

However, although BitVM and Ethereum’s EVM (Ethereum Virtual Machine) both offer smart contract functionality, their approaches and capabilities differ. Ethereum’s EVM is more versatile in supporting multi-party contracts and provides a broader range of computing tasks on the blockchain, but this can lead to higher costs and a cluttered blockchain. In contrast, BitVM mainly focuses on two-party contracts and executes most computational work off-chain. This minimizes the Bitcoin blockchain’s footprint and lowers transaction costs. However, BitVM’s current design limits its applicability in complex multi-party settings, an area where Ethereum’s EVM excels.

Not everyone is convinced of BitVM’s significance, with some expressing concerns. Paradigm Research Institute’s Dan noted that the protocol is only suitable for two parties, thus unsuitable for rollups or other multi-party applications. Moreover, there’s nothing too novel about it, as programmer Greg Maxwell had previously proposed a better protocol (“ZK or contingent payments”) to solve the same problem. Nevertheless, if effective, BitVM could have a widespread impact on developments atop Bitcoin. Another criticism is that even if computations are “off-chain,” on-chain verification could still incur significant overhead. The BitVM proposal indicates it won’t add a substantial transaction volume to the network, nor cause a surge in gas fees, unlike the rising popularity of Ordinals.

In conclusion, BitVM is still conceptual. As Linus stated, “The purpose of publishing the white paper was to describe the idea in simple terms, spark community interest, but it is not yet a complete solution.”

Summary

Compared to other public blockchain ecosystems, Bitcoin, recognized as the most established and oldest decentralized practice with the highest consensus, has a community deeply committed to its orthodoxy and fundamental principles. To horizontally compare different explorations within the Bitcoin ecosystem, it’s crucial to consider the community’s opinions and ensure that these explorations do not harm the Bitcoin network.

The Lightning Network, representing sidechains and Layer 2 solutions, is the most longstanding ecological exploration and practice. It has garnered consensus and cohesion unmatched by other sidechains and protocols, with over half of Bitcoin developers involved. As a protocol designed to address Bitcoin’s scalability issues, the Lightning Network creates payment channels on top of the main chain, facilitating rapid, low-cost microtransactions and alleviating congestion and high fees on the Bitcoin network. However, for a long time, the network was limited to small payments and did not support the issuance of other assets, leading to limited use cases. This situation changed with Ordinal’s rising popularity. Lightning Labs timely launched the Taproot Assets protocol on the mainnet, enabling the issuance of stablecoins and other assets on both Bitcoin and the Lightning Network, providing developers with the tools to make Bitcoin a multi-asset network while maintaining its core values in a scalable way.

Protocols like Ordinal, designed for asset issuance, are technically innovative and elegantly solve the significant problem of “asset issuance” in the Bitcoin ecosystem. They quickly gained substantial market attention, creating a wealth effect and a surge in developer interest reminiscent of the previous DeFi summer. Innovations stemming from Ordinal, such as BRC20, Rune, Atomicals, and others, have shown strong technical evolution. Despite some negative perceptions within the Bitcoin community, such as increasing the mainnet’s burden, we believe that asset issuance protocols represented by Ordinal will be a market focus for some time, marking a transitional or phase-based innovation in the Bitcoin ecosystem.

Platforms like bitVM, along with other virtual machines or smart contract platforms, hold a unique and significant position in the Bitcoin ecosystem. Their emergence reflects the Bitcoin community’s desire for functional expansion and technical innovation, especially in smart contracts and advanced programming capabilities. These platforms bring new use cases and value enhancements to Bitcoin. Although still in development and exploration, introducing smart contract capabilities is crucial for Bitcoin’s long-term development and competitiveness, potentially becoming a key driver of innovation and diversification in the ecosystem. However, the success of these systems will depend on community acceptance, technical feasibility, and their compatibility with the security and decentralized nature of the Bitcoin main chain.

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