Original author: blockpunk (X: @blockpunk 2077)
While the BTC ETF speculation is skyrocketing, the ecology of BTC derivative protocols is also developing rapidly.
Only when a protocol has both the enthusiasm for hype and the legitimacy in the community can it become an alpha with real potential.
In the crypto world, where money is never scarce, the real competition is the competition for legitimacy. This is crucial for finding alpha.
The BTC community is an extremely conservative community that believes in decentralization. In the eyes of btc wizards, whoever is more halal and more in line with the community culture will be more likely to succeed in this agreement. After all, the buying and appeal of BTC OG is amazing.
Therefore, we start with the solutions of the above protocols to understand the legitimacy and advantages of different protocols.
First, remember the teachings of BTC wizards:
The BTC network itself cannot be modified or upgraded, which will complicate the system and affect the security of all BTC.
The BTC block cannot be expanded, which makes BTC centralized.
Not your keys not your coins, you hold your BTC by yourself and cannot give it to a third party.
Before understanding these protocols, first answer a question: Why is the value of BTC’s ecology suddenly discovered?
Two important technical updates need to be mentioned here:
The first is the Segregated Witness upgrade in 2017, which is equivalent to expanding the BTC block data from 1 MB to 4 MB, but the expanded part can only be used to store signatures.
Until the Taproot upgrade at the end of 2021, advanced scripts can be written in Segregated Witness for the first time, and complex data can be written on BTC.
BTC has made great progress in programmability and scalability. Some protocols containing complex logic have begun to appear. The BTC ecosystem has finally begun the next phase of milestones. This is the main opportunity for the ecological explosion in 2023.
Ordinals & BRC 20
The emergence of the ordinals protocol has completely ignited the BTC ecosystem, and its rapid development has also promoted each other with the adoption of Taproot. People can encode the NFT data and write it into the Segwit extended space (4 MB per block).
The NFT image itself is also permanently engraved into the BTC block, which is more decentralized than the ETH NFT. You can view and transfer this NFT (essentially UTXO) without relying on any third party.
The implementation of Ordinals uses the most basic functions of BTC, and NFT transfers are completely processed by the BTC network, so it is very consistent with the philosophy of the BTC fundamental community. This quickly ignited enthusiasm in the community and led to rapid adoption. However, due to the limitations of its artwork, its development potential is also very limited.
Soon, new developers improved Ordinals, imitating ERC 20 and writing the complete functions of Token into the BTC output script, and BRC 20 was born.
However, the output script of BRC 20 only stores data and cannot actually run Token functions such as transfer and minting. Therefore, we must use a third-party sequencer to record the ledger under the BTC chain and engrave new status data into the script.
Therefore, the third-party sequencer has become the weak point of the system. The transfer of BRC 20 is not executed on the BTC main chain and must be split into a two-step BTC transaction execution (that is, it is first aggregated in the sequencer and then transferred). Additional The complexity makes it generate a lot of junk transactions.
Therefore, it is not as accepted by the entire BTC community as Ordinals, and has been full of dissent since its birth. However, due to the tokens wide applicability and better liquidity, it is sought after by speculators.
Due to the weak legitimacy and lack of support from the BTC core community, BRC 20 and its improved protocols no longer have major innovations and gameplay.
In order to continue to gain legitimacy, some developers have started the development of decentralized sorters such as #Trac, which seems to be a good direction, but I think it is still limited by the overall framework and difficult to break through.
Atomical & ARC 20
Atomics Protocol is another derivative protocol that engraves data on UTXO to implement Token.
Different from Ordinals, which were originally designed for NFT, it rethinks how to issue tokens on BTC in a centralized, non-tamperable and fair manner from the bottom up.
Atomics uses sat, the smallest unit of Bitcoin, as the basic atom. The UTXO of each sat is used to represent the Token itself, 1 token = 1 sat.
When verifying an Atomics transaction, you only need to query the UTXO corresponding to sat on the BTC chain. The atomicity of ARC 20 Token is consistent with the atomicity of BTC itself, and the calculation of ARC 20 transfers is completely handled by the BTC basic network.
Therefore, compared with BRC 20, ARC 20 transactions have greatly reduced the need for third-party sequencers, greatly improving the decentralization of the entire system. This is closer to the culture of the BTC community.
UTXO itself can be combined in BTC transactions, which makes the ARC 20 token even more programmable. For example, since BTC is essentially composed of utxo, the swap between BTC and ARC 20 can theoretically be realized by exchanging the input and output of UTXO.
Another key improvement of Atomics is the purchase of POW during the casting process of ARC 20. The minter must use the CPU to exhaustively calculate the hash value that matches a specific prefix character before making new. This is a more decentralized approach to fair distribution.
The design of Atomics binding UTXO cleverly avoids the complexity faced by BRC 20, making it more decentralized, more BTC native, and most importantly, more in line with the culture of the BTC community.
ARC 20 and $ATOM are still in their early stages and still need to wait for wallets and markets to improve, but they already have a high level of legitimacy.
At the level of possibility, there is also an opportunity to achieve true BTC native DeFi.
It has not experienced large-scale hype yet and still has great potential.
Rune & Pipe
Interestingly, although BRC 20 was born out of Ordinals, it has been criticized by founder Casey as a heresy.
However, under the general trend of hype, Casey also proposed an inscription implementation method specifically used for issuing FT, namely Rune.
In fact, Runes design may have been influenced by ARC 20. It chose to write Token data directly in the UTXO script, which includes Tokens ID, output and quantity.
Obviously, the implementation of Rune is very similar to ARC 20, and the token transfer is directly handed over to the BTC main network for processing. The difference is that Rune writes the number of Tokens in the script data, which gives it higher accuracy than ARC 20.
But at the same time, the complexity has become higher, making it difficult to directly utilize the composability of BTC UTXO like ARC 20.
The idea of Rune was just an idea, the founders of #Trac wrote the first usable protocol based on it and released $pipe. Due to Caseys high reputation, $pipe took over the hype that continued from BRC 20 and quickly completed the first wave of hype.
Runes legitimacy is stronger than BRC 20, but it is still difficult to be accepted by the BTC community.
Lightning Lightning Network
The Lightning Network is the king of legitimacy in the BTC community. Starting in 2016, for a long time, more than half of the developers in the BTC ecosystem have been engaged in the development of the Lightning Network.
The basis of the Lightning Network is the payment channel. This concept was first proposed by Satoshi Nakamoto (legitimacy MAX). Both parties to the transaction lock BTC through multi-signatures, and both parties maintain an off-chain ledger to record the transaction.
Payment channels connected in pairs form a network, and two parties who are not directly connected can also jump to the channel to complete transactions. The Lightning Network has indeed expanded the performance of BTC transfers, giving users a better experience.
The final settlement of BTC can only be carried out on the BTC main network, and all coins are still saved by the public and private key system.
The Lightning Network is designed based on cryptography. It does not require upgrading the BTC network, does not require BTC block expansion, does not add redundancy to the network, and strictly adheres to the core of your keys your coins. At the same time, the number of nodes in the network itself is close to 15,000.
Therefore, although it needs to rely on a large number of third-party nodes for off-chain calculations such as pathfinding, routing, and balancing channel status, the legitimacy of the Lightning Network is still very high.
However, the use cases of the Lightning Network are very limited. It can only be used for BTC payments, cannot issue Tokens, and has no smart contract function, making it almost insulated from speculation.
Although the Lightning Network gained a wave of growth around 2020 and became known to the entire crypto community with the help of Nostr, it is still not accepted by the public outside the BTC community. After Ordinals exploded in popularity, its usage also dropped significantly.
Halal, but there are too few use cases, it cannot accept BTC funds, and it is difficult to be used for speculation.
Taproot Assets (Taro)
In fact, the Lightning Network has been trying to expand its use cases. The popularity of BRC 20 prompted Lightning Labs to release Taproot Assets, which is also a protocol for issuing Tokens on BTC.
Unlike Brc 20 and others, Taproot Assets only writes the Token information in the UTXO output script of the BTC main network, and does not store the transfer, mint and other functional codes of this Token.
Taproot Assets only regards the BTC main network as a registry of Tokens and does not completely rely on the BTC main network to operate. Therefore, these assets must be deposited into the Lightning Network before they can be traded.
Therefore, the Tokens of Taproot Assets must rely on a third-party storage indexer. Without the storage indexer, these Tokens will be lost forever.
Therefore, users must either run a BTC full node and Taproot Assets client themselves, or completely rely on a centralized server to trade Taproot Assets Token. This may be the most centralized solution in the current BTC Token protocol.
As a result, the way Taproot Assets creates new products has also changed.
Users cannot directly send transactions on the BTC main network to mint Tokens on their own. Instead, there is a project party address that issues (or registers) all Tokens at once, and then the project party transfers them to the Lightning Network for distribution.
Therefore, Taproot Assets Tokens are not distributed fairly through free casting, and often require airdrops from a centralized project party. The project party itself can also reserve tokens, as is the case with the just-issued $trick $treat.
From the perspective of decentralization, Taproot Assets is far inferior to the introduced Rune, ARC 20 and even BRC 20. However, because it is released by Lightning Labs, the King of Legitimacy, it does not increase the burden on the BTC network, so the community at least Not to object.
Yes, orthodoxy is such an elusive thing. The Pope who has the right to speak says you are halal, you are halal.
However, it should be noted that changes in distribution methods and the emergence of project parties have led to important changes in the logic of speculation. More attention is paid to the pattern of project parties, which invisibly increases the cost of speculation.
RGB
RGB is a smart contract system based on BTC and Lightning Network. It is the ultimate expansion method, but its progress is slow due to its complexity.
RGB converts the state of a smart contract into a short proof and engraves the proof into the BTC UTXO output script.
Users can check the status of the smart contract by verifying this UTXO. When the smart contract status is updated, a new UTXO is created to store the proof of this status change.
All data of the smart contract is completely under the BTC chain and is run by a dedicated RGB node. The RGB node itself records the complete data of the smart contract and handles the calculation volume of the transaction. Users can verify the certainty of contract status changes by scanning the UTXO of the entire BTC chain.
Each smart contract of RGB has separate state history and data. In other words, RGB itself has no concept of chain, and the states of different smart contracts do not overlap, which is different from the shared state of ETHs smart contracts.
To interact with multiple RGB contracts, it must be implemented with the help of the Lightning Network, such as the swap function of multiple RGB tokens.
RGB can be regarded as the L2 of BTC. The advantage of this design is that it uses the security of BTC to guarantee smart contracts. However, as the number of smart contracts increases, the demand for UTXO encapsulated data will also increase, which will eventually become unavailable. Avoid creating a lot of redundancy in the BTC blockchain.
As of 2018, RGB is still in the development stage, and there is nothing to speculate about. Frontida, the issuing company of USDT, is an important promoter of RGB. They have always said that they will re-issue USDT on BTC RGB in large quantities.
Although RGB must rely on third-party nodes to run smart contracts, the UTXO record of each status update also makes it the safest and most BTC-native smart contract implementation method, and its legitimacy is still very strong.
RSK & RIF
RSK can be regarded as the L2 of BTC, which is essentially a smart contract chain with an EVM structure.
RSK does not write anything in the BTC network at all, so its operation and security do not rely on the BTC network.
RSK simply links the main network BTC to its own chain through hash locks for use as network gas.
At the same time, RSK uses the same POW consensus algorithm as BTC, so BTC miners can also mine RSK at the same time and earn transaction fees of $RBTC.
It can be seen that the relationship between RSK and BTC is almost better than nothing, and there is very little ecological connection. $RIF has little business relationship with RSK itself. Its rise fully illustrates the enthusiasm for speculation in the BTC ecosystem and the scarcity of targets for speculation.
Stacks & SBTC & STX
Stacks can be regarded as the smart contract side chain of BTC.
Unlike RSK, Stacks has its own block reward system, and both gas and block rewards are $STX.
Stacks will produce multiple micro-blocks during the 10-minute gap between BTC blocks. When BTC blocks are produced, the hashes of these blocks will be written into the BTC transaction script at once.
At the same time, to become a Stacks node, miners need to stake BTC on the main network to qualify. The rewards are sent to miners in $STX, and the pledged BTC is distributed to $STX pledgers. This is equivalent to burning BTC in exchange for $STX tokens. For BTC maximalist, let alone accepting it, it is simply outrageous.
Although its legitimacy has been questioned, it has to be said that $STX has done a very good job of sticking to the accurate narrative, has the best liquidity, and its rise is also very impressive.
At the same time, Stacks has recently launched the SBTC network. This is actually to lock BTC on the main network through the threshold signature of $STX pledgers, thereby generating 1:1 SBTC assets on the Stacks chain for DeFi.
The method of introducing BTC assets through threshold signatures does not require a third-party bridge. Compared with the previous method of using a third party to lock not your keys not your coins through a third party, it is more decentralized and more halal.
The launch of SBTC and the upgrade of the Stacks chain, although its legitimacy is not high, these plans also seem to be leading to healthy speculation in $STX.
Rollkit by Celestia
$TIA goes live tonight, @CelestiaOrg
As a promoter of modular blockchain, a Rollup based on the BTC network called Rollkit has also been issued, which also writes L2 data into the data under Taproot.
Of course, this looks more like a demonstration of the possibilities and should not be really practical at the moment.
BitVM
BitVM is currently the most BTC-native, most potential, and most technically hard-core smart contract expansion solution.
Without modifying the BTC network, a VM virtual machine that supports general computing is run through optimistic rollups to implement BTC smart contracts.
The BTC network is used to run optimistic rollups for fraud proofs,
Using the most basic hash lock and BTC script opcodes OP_BOOLAND and OP_NOT, a simple logic gate is implemented.
By combining the logic gates of BTC, a circuit that can operate is formed, through which the fraud proof is processed on the BTC chain.
The smart contract runs off the BTC chain, and only the fraud proof of optimistic rollups runs on BTC.
If there is a problem with optimistic rollups, the verifier can launch a fraud challenge in the BTC network, and the penalty will be realized directly through BTC transfer. This ensures the overall security of the rollup and is verifiable to the BTC mainnet.
Starting from the logic gate and rubbing the circuit by hand, it can be seen that this implementation method is very hard-core. It has the aesthetic feeling of rubbing the computer with redstone circuit in the game Minecraft.
It perfectly hits the psychology of die-hard BTC developers and communities, and can be said to be the king of legitimacy at the BTC smart contract level.
Although BitVM is still in the theoretical stage, it has attracted the attention of BRC 20 and Ordinals speculators, as well as developers in the BTC community. Many people have joined its development, and it is estimated that it may be available within a year. With the launch of the first version, it can be expected that the hype will also occur simultaneously, and BitVM is my most important focus at the moment.
Summarize
To summarize the above BTC derivative protocols, BRC 20, ARC 20, Rune, and Taproot Assets serve as token issuance protocols:
The implementation of ARC 20 is the most decentralized, closest to the native BTC DeFi, and has great potential, but the current hype focus is not as good as others;
Taproot Assets is backed by Lightning Labs and is also very strong. However, due to changes in distribution methods, there will be changes in hype ideas, with more focus on the project sides structure;
BRC 20 has the largest audience outside the BTC community and is a good choice from a short-term hype perspective.
For BTC extension protocols such as RGB, Lightning, Stacks, BitVM, and RSK:
Lightning is the undisputed king of legitimacy, but the hype can only be based on the aforementioned Taproot Assets;
Although RGB seems to have a high degree of halal, it has been delayed in releasing, difficult to hype, and no one cares about it;
Strictly speaking, RSK and Stacks are not native BTC protocols. Just because they occupy the narrative and have good liquidity, they have become good targets for BTC leverage. The launch of SBTC will not really bring any ecology;
BitVM has attracted a lot of attention from both speculators and the BTC community. It is currently the protocol with the most potential to realize the BTC ecosystem, but it needs to wait. There are also speculation opportunities, and it may be the largest alpha.
The above protocols are sorted based on halal, which are:
Lightning > RGB > BitVM > Atomicals > Rune > TaprootAssets > BRC 20 > RSK > Stacks
at last
In the interest rate hike cycle with government bond interest rates as high as 5%, ETH converted to POS has a difficult time as an interest-earning asset. However, BTC, which is supported by the original value of POW, is obviously more popular, and the exchange rate of ETH/BTC continues to fall.
The status of ETHs smart contract platform has not been shaken. We still mainly use ETH smart contracts to implement complex applications such as DeFi and Gamefi.
But at the same time, BTC’s derivative protocols (and even smart contract protocols) are catching up.
Although it seems that these protocols are primitive, old, troublesome and difficult to use, this is still a historic development opportunity. BTCs technology has accumulated enough to go further, and the community is gradually opening up and beginning to accept derivative innovations.
Backed by a huge developer base, funding and attention, the potential may be far higher than any other field.
Will the use of BTC smart contracts surpass ETH smart contracts in a certain future?
