Original title: State of Bitcoin: 2023
Original source: thesis
Original compilation: Vernacular Blockchain
When the world thinks of blockchain, the first thing that comes to mind is Bitcoin. While the past decade has seen countless developments and innovations in decentralized technology, from GameFi to DeFi to NFTs, Bitcoin remains the preeminent digital asset in the world. Therefore, its health, recent developments, and future indicators are crucial.
Looking ahead, the potential approval of the first Bitcoin exchange-traded fund (ETF) is expected to unlock a flood of new investment, meaning 2024 could be a pivotal year in the long-term development of the decentralized economy.
So, did Bitcoin deliberately scramble the serial numbers? Will DeFi exist on top of Bitcoin through protocols like Taproot Assets and BitVM, or are they just different attempts that didnt pan out? Will Bitcoin ever have a successful scaling solution? This article will provide an in-depth analysis and data interpretation of these issues and the status of Bitcoin in 2023.
2023 is the year of a huge leap forward for Bitcoin. During difficult times for digital assets and traditional markets, Bitcoin continues to hit historic milestones, solidifying its legitimacy as a global asset and network.
Bitcoin is no longer just a tool for digital non-mainstream speculation, but a cornerstone for various builders and investors to realize their visions. This has driven a wave of innovation that continues to expand Bitcoin’s capabilities while aligning with its core concepts of decentralization and permissionlessness.
New technologies like the Lightning Network and new token standards demonstrate Bitcoins continued evolution, bringing its functionality closer to that of other popular networks, but without relying on the centralized fixes and workarounds that underpin many blockchain projects. The development of Bitcoin goes far beyond technological innovation, and also includes innovations in financial services, gaming platforms and other fields. In 2024, Bitcoin is expected to see even greater progress.
1. In 2023, people’s confidence in Bitcoin will increase overall
When it comes to assessing the health of Bitcoin, price often dominates the headlines. Behind the ups and downs of the market, however, on-chain data tells a compelling story: mainstream adoption continues to expand, while long-term holders remain steadfast in their belief in Bitcoin.
1. Extensive participation of mainstream investors
The number of addresses holding balances between 0.01 BTC and 0.1 BTC has gradually increased over the past year, demonstrating the growing interest in Bitcoin among retail investors. Amid uncertainty in traditional markets, investors seek strong alternatives. Bitcoin’s scarcity and monetary policy add to its appeal as a secure store of value. Now, increased retail players are setting the stage for the next wave of adoption.
2. Long-term holders demonstrate deep conviction
As new investors flood the market, sophisticated Bitcoin holders have increased their holdings amid price swings, correlating with market moves. As price highs emerged, some began to take profits. The divergence between holder behavior and market price demonstrates firm belief. Continued accumulation often signals an upward price trend, indicating impending changes in holders expectations.
Large investors with more than 100 Bitcoins drive short-term fluctuations, which is reflected in the number of addresses. In the fourth quarter, these returned to yearly highs, hinting at a resurgence of institutional investment interest. The data proves Bitcoin’s appeal and staying power among those with experience.
3. The assets of the trading platform are lost and investors accept self-custody.
The trading platform’s assets have decreased and self-custody has increased, creating a sharp contrast. Investors prefer to have direct control over assets, unaffected by overall market trends. This migration squeezes liquidity on trading platforms while enhancing the potential upside from the inelastic nature of Bitcoin’s supply.
The number of self-custody addresses continues to rise, while trading platform assets continue to decrease. This trend, along with the accumulation of long-term holders as the price consolidates, demonstrates long-term confidence in Bitcoin as an investment and store of value. Continued accumulation often signals significant price increases. The data highlights the importance of holder belief in volatile markets and the strength of Bitcoin’s supply inelastic curve. As large institutions consolidate Bitcoin supply, the incentive to sell diminishes even as the price rises. This supply pressure and growing mainstream and institutional investment interest are a sign of a coming bull run.
The self-custody trend, the accumulation of high-confidence holders, and demand from larger investors pave the way for Bitcoin’s next wave of mass adoption. This macro backdrop provides an optimistic outlook for long-term Bitcoin investment. In a market downturn, strong demand remains, and even if prices rise, the incentive to sell is no longer apparent. Only assets with high confidence can withstand the test of the market. Self-custody is the best expression of pure intention to hold for the long term.
4. The momentum for the next round of bull market is increasing.
If blockchain signs are to be believed, Bitcoin is gearing up to launch its next major growth cycle. The key conditions are in place: mainstream and institutional participation expands, long-term holders continue to accumulate, and self-custody presents an unshakable trend. Investor composition and holder behavior suggest momentum is building to propel Bitcoin toward its next phase of adoption.
For long-time believers, Bitcoin’s emerging narrative represents an early opportunity. The foundation is constantly being strengthened and we are gradually moving towards the perfect vision of decentralized currency.
2. Bitcoin’s scaling issues
Scaling Bitcoin to meet growing demand remains a top priority in 2023. While innovations like the Lightning Network have increased capabilities, 2023 will bring new layer 2 protocols that will enable unlocking without sacrificing functionality. These include sidechains that are parallel and interoperable with Bitcoin.
Bitcoins different layers can improve performance without changing the base layer, just like the Advanced Internet Protocol enhances TCP/IP. Examples range from fast payments on the Lightning Network to complex smart contracts in Stacks and RSK. Bitcoin emphasizes the stability of the base layer of settlement while encouraging innovation at the upper level. These layers enable applications requiring comprehensive smart contracts, high throughput, and privacy, built on Bitcoins solid foundation.
This modular thinking reflects Bitcoin’s philosophy of extending functionality while minimizing trust. Keeping the base layer simple and allowing access without permission makes the network more adaptable to different needs. Many layered protocols strive to achieve Bitcoin’s versatility without compromising its decentralized nature.
1. Technical overview
The core idea of ZK Rollups is to bundle multiple transactions into a single transaction on the Bitcoin blockchain. This process uses zero-knowledge proofs to verify bundled transactions without exposing details. Sovereign and Starkware are leaders in driving zk rollup innovation on Bitcoin.
2. Centralization issues and decentralization efforts
Current versions of zk rollups raise concerns about centralization because they rely primarily on a centralized orderer. In many existing implementations, a single entity is responsible for aggregating transactions, generating validity proofs, and submitting batches of data to the Bitcoin network. This creates considerable trust in the sequencer. In the longer term, hybrid models may emerge, combining multiple prover types to suit different use cases.
Since this is inconsistent with the philosophy of Bitcoin, people are actively trying to decentralize the role of the sequencer. The goal is to spread the responsibility for transaction collection, proof generation, and block submission to multiple entities. This dispersion of trust is more in line with Bitcoin’s decentralized design.
Several approaches have been proposed:
Threshold schemes can allocate power to a dynamic group of ordering nodes based on stake or rotation.
Computational proof of work similar to Bitcoin mining is used to determine the nodes participating in ordering.
For full decentralization, a future opcode may enable bi-directional transfers of Sats and assets between the Bitcoin base layer and zk rollups. This requires Bitcoin mining nodes to directly parse the proof to greatly improve functionality while maintaining decentralized features.
3. Bitcoin’s L2 pattern
In addition to zk rollups, other second-layer technologies are also maturing. Two famous examples are Stacks and Rootstock (RSK).
1. Rootstock (RSK)
Rootstock (RSK) utilizes merged mining to ensure security comparable to Bitcoin, although its throughput exceeds the capacity of Bitcoin’s base layer.
Merged mining allows Bitcoin miners to simultaneously process and verify BTC and RSK transactions within the same block. In this mode, miners can mine simultaneously on the parent chain (larger blockchains such as Bitcoin) and child chains (smaller blockchains such as RSK).
The main advantage of merged mining is that it provides higher security to the child chain. By leveraging the computing power of the more powerful parent chain, the smaller chain gains additional security against double spends and 51% attacks. This approach allows RSK to achieve scalability, efficiency, and advanced features not possible with Bitcoin, while avoiding the adoption of other consensus models with less secure security.
However, despite the progress, RSK still faces challenges. RSK struggled to attract enough users, and the complexity and novelty of its merged mining mechanism also brought risks.
2. Stack
Stacks is a second-layer smart contract protocol designed specifically for Bitcoin to bring decentralized applications and smart contract functionality to the Bitcoin ecosystem.
2023 is a year of resurgence and enhancement for Stacks. Despite adoption challenges, overall metrics show that Stacks is making substantial progress on its roadmap and vision.
It is particularly worth mentioning that Stacks’ native Token STX showed a strong recovery in 2023 after a period of bear market. STX price increased by more than 50% in the first quarter and by more than 280% for the year, far outpacing Bitcoin and the market as a whole. This contrarian development is a remarkable turn of events that has solidified interest even during the cryptocurrency downturn.
Several key network upgrades were made this year, including Stacks version 2.1, which introduced decentralized mining and bridging to Bitcoin. As of the end of the third quarter, the number of Stacks developers exceeded 1,100, a 30% increase from the previous quarter. This efficiency improvement has been accompanied by community growth, with a 20% increase in followers.
The attractiveness of the ecosystem has grown steadily, albeit from a modest starting point. Assets under management reached all-time highs in both USD and STX, reflecting increased participation in DeFi. Non-fungible tokens and game projects have also begun to receive attention. The cumulative number of names registered on BNS exceeds 300,000, demonstrating users continued interest in the network.
However, not all indicators maintained growth. Daily active addresses, contract calls, and transaction volume have declined after surging in early 2023. This could mean instability in user retention that goes beyond speculation. Bottlenecks such as user experience, fees and network effects may remain barriers to wider adoption.
Stacks has made progress in security and scalability, preparing it for the anticipated tipping point in adoption. Public seed nodes are launched globally, eliminating the risk of concentration in query services. The project began to undergo formal audits, increasing risk prudence. Although growth in adoption indicators has slowed slightly, developments this year have seen cautious progress on several fronts. The still young ecosystem faces launch hurdles and needs to encourage users to use it even though features are not yet fully mature.
4. Lightning Network: Bitcoin’s scaling solution becomes mainstream
In 2023, payment channels on the Lightning Network (LN) circulated more than 5,400 BTC, worth more than $230 million. Its capacity has grown rapidly from 1 BTC in August 2018 to the strong liquidity pool it is today. Underpinning this growth are more than 70 LN-enabled wallets from leading providers such as BlueWallet, Muun and Phoenix, with adopters ranging from citizens of inflation-stricken countries to global enterprises.
But what are Lightning Channels? LN micropayment channels establish a relationship between two parties, allowing them to continuously adjust their balances without broadcasting each transaction to the blockchain. This method delays the broadcast of the total balance between the two parties to a future point in time, effectively processing the total balance in one transaction.
This approach allows financial relationships to eliminate the need to trust each other and avoid the risk of default by the other party. These micropayment channels use real Bitcoin transactions but choose to defer broadcasting these transactions to the blockchain. This allows both parties to confirm the current balance on-chain, while the actual payment is made outside the channel.
In October 2023, the Lightning Network’s channel count and total value shrank, possibly due to a consolidation event or in response to external market factors. However, both indicators subsequently recovered, demonstrating the networks resilience. Despite fluctuations, overall channel values have increased, demonstrating the expansion of network capacity.
1. Enterprise infrastructure becomes more robust
November marks another leap forward with Taproot Asset Protocol v 0.2. This toolkit provides support for asset issuance via LN and Bitcoin, with customizable asset destruction capabilities providing compliance controls for regulated industries.
LN now has established diversity for businesses, from tokenized securities to programmable contracts in restricted jurisdictions.
Enhanced RPC calls provide detailed proof transfer monitoring and sophisticated asset lifecycle management.
2. Nostr integration opens up P2P economy
In September, Nostr’s “NIP-57” upgrade was launched, introducing “Zap” notes, which represent lightning invoice receipts and combine Bitcoin micropayments with social interaction. Content creators tip with Zap, and readers fund posts to unlock more content and avoid spam. By the end of 2023, Zap payments exceeded 50,000, demonstrating the continued integration of Lightning Network solutions into wider applications.
Demand trends suggest that Bitcoin’s decentralized payment channel may continue to penetrate communications and community-building applications.
3. Retail giants drive adoption
In 2023, major retailers accelerated the penetration of Lightning Network (LN) in the consumer sector. Stripe’s “Pay with Bitcoin” button turns on the Lightning Network for businesses. Twitter and Zebedee have also integrated LN, allowing users to easily tip premium content and conduct fast Bitcoin transactions in the game. LN finally delivers on its promise as a scaling layer for global adoption, increasing Bitcoin’s transaction speeds and lowering fees. However, for more people to use LN, more integration of payments, e-commerce and social media is still needed to reduce barriers to use.
4. Custody problems
In stark contrast to the regulatory crackdown on custodial services, the breakthrough of non-custodial wallets. New asset designs and expansion protocols hint at enhanced functionality. Despite setbacks in applications and infrastructure in the Bitcoin space, overall progress has been gradual. Miniscript and RGB are promising extensions of Bitcoin programmability.
5. Continued optimistic outlook
Looking ahead, despite the progress made by Lightning Network, it still faces growing pains that do not match its external success. High-cost events caused by network congestion expose ongoing scalability limitations. The departure of core developers highlights technology risks. Approximately 90% of transactions are completed through custodial wallets, reflecting the user experience barriers to non-custodial use. While Lightning promises huge potential, its not yet a mature product.
Temporary volatility should not negate Bitcoin innovation. Lightning has changed the lives of millions of people around the world and seems to be preparing to move into the next phase with optimizations such as Anyons and group settlement. Bitcoin continues to iterate, turning challenges into progress. History suggests that Lightning setbacks may become opportunities for growth.
5. Ordinals: cultural relics engraved on Bitcoin
In the development of Bitcoin, a prominent technological innovation is the emergence of ordinal numbers. It transforms a single satoshi into a unique digital artifact capable of carrying rich data. Ordinal numbers are the smallest parts of Bitcoin and can record data such as text or images. Once each Satoshi is recorded, it becomes a unique digital asset.
The Ordinal Protocol was first proposed on January 21, 2023 by founder and developer Casey Rodarmor. It takes advantage of the 2021 Taproot upgrade, which enhances the functionality of Bitcoin and expands the data attachment size to 4 MB per transaction. This technological advancement leverages Bitcoin’s existing infrastructure, opening up new possibilities for embedding more rich data on the blockchain, and is significantly different from traditional digital assets and NFTs.
In February, Yuga Labs announced the first series of Bitcoin NFTs based on ordinal records.
By June, more than 11 million ordinal numbers had been burned into Bitcoin, and the peak volume occurred in May. Burn volume continues to increase from July to September, with plain text being the most popular type. Looking to the end of 2023, forecasts indicate that ordinal trading volume will reach approximately $725 million.
With ordinal numbers on the rise, NFT sales fell 8.7% from $4.2 billion in September 2021 to $3.8 billion in October 2023. The introduction of ordinal numbers caused Bitcoin transaction fees and block sizes to skyrocket, with a staggering 45.0745 million burns occurring on the chain. On November 12, 2023, the number of Bitcoin ordinal recordings hit a daily record high, reaching 505,345.
1. Technical in-depth analysis: understanding the ordinal protocol
Burning process
There are several services available to help create ordinal numbers. First, users need to set up a Taproot-compatible wallet that is synced with the Bitcoin Core chain and select the burn type: single ordinal or set. Then, users can upload images, text and other data from the device for burning. It is recommended that the uploaded file does not exceed 35 kb.
Upload file size and network congestion can affect burning transaction fees. Finally, an unused receiving address needs to be specified to receive the newly created ordinal.
This system enables each Satoshi to be identified with a unique serial number, thereby tracking the flow of assets. Each satoshi obtains a serial number based on mining time, and a maximum of 2, 100, 000, 000, 000, 000 serial numbers can be created. An ordinal system assigns rarity based on mining and burning time.
Unlike many NFTs, all ordinal-related information is permanently recorded on the chain and does not rely on third-party services to store data. This feature retrieves data from existing burns to generate new burns via a recursive protocol.
2. Wallets that support ordinal numbers
Ordinal Wallet: A Bitcoin wallet that improves the limitations of previous wallets and supports various operations on ordinal numbers. User-friendly interface, supported by community funding.
Xverse wallet: Bitcoin Web3 wallet, supports interaction and provides Bitcoin ordinal services within Gamma. The serial number will appear in the users NFT collection within approximately 30 minutes.
Hiro Wallet: Supports secure storage, transfer and rapid creation of ordinal NFTs for Bitcoin. Compatible with platforms like Gamma and OrdinalsBot for in-browser burning.
MetaMask: manages Bitcoin Taproot keys, verifies ordinal addresses, and provides keystores. Supports hardware wallets and has Generative Marketplace to explore ordinal numbers.
OKX Wallet: Integrates Taproot upgrade, supports viewing and transferring serial numbers, and has cross-chain operations and BRC 20-S standards.
3. The transaction volume of the Bitcoin Ordinals market increased across the board
Various Bitcoin Ordinals markets, including platforms such as OKX, Uniswap, Magic Eden, and Gamma, have shown significant growth in trading volume.
Overall trading volume: Data from Dune Analytics shows that the total trading volume on the Bitcoin Ordinals market is $794, 330, 265.
Total number of transactions: 1, 173, 402 transactions were conducted on these markets in 2023.
Unique Users: The cumulative number of unique users interacting with these platforms is reported to be 253,379.
Individual High Value Transactions: On markets such as OKX and Ordinals Wallet, there are instances of high value transactions exceeding $1 million.
4. Technical basis: SegWit Taproot
The Segregated Witness (SegWit) upgrade in 2017 laid the foundation for Ordinals, introducing the concept of witness data, reducing the block space occupied by each trading platform, and increasing the processing power of the network. The 2021 Taproot upgrade further enhances this capability, introducing new scripting capabilities and removing the size limit on transaction witness data, making it possible to store up to 4 MB of data on Bitcoin.
5. Advantages of Ordinals Protocol:
Attract new users: The introduction of NFT-like assets has allowed Bitcoin to attract new users interested in digital assets and NFT transactions.
Market demand: The increase in engraving transactions demonstrates market interest and demand for this new way of utilizing block space.
Increased miner fee income: Ordinals Protocol brings additional fee income to miners, which contributes to Bitcoin’s security model.
Promote the adoption of second-layer solutions: Increased transaction fees and block space usage may drive the adoption and development of second-layer solutions such as the Lightning Network, helping to expand the Bitcoin network.
Driving Taproot adoption: The launch of Ordinals accelerates adoption of Taproot upgrades, providing more compact transactions and enhanced privacy.
6. Disadvantages of Ordinals Protocol:
Increased block space costs: Including additional non-financial data in blocks increases fees and puts pressure on node operations, potentially leading to the centralization of full nodes.
Speculation and Market Distortion: The potential shift of capital towards trading Ordinals assets rather than storing value in Bitcoin could impact the perception of Bitcoin as an investment.
Impact on Satoshi’s fungibility: By creating non-fungible properties, Ordinals could challenge Bitcoin’s use case as an ultrasonic currency, potentially impacting Bitcoin’s fungibility.
Additional tracking and privacy issues: Data related to Ordinals may make on-chain behavior easier to track, raising privacy issues.
Risk of data pruning: Bitcoin nodes may prune inscribed data, raising concerns about the permanence of digital assets, which may be a potential vulnerability to Bitcoin’s decentralization.
7. Concerns about Ordinals
The Ordinals protocol has sparked controversy for the indexing of digital assets on the Bitcoin chain. Managing these numbers is difficult, resulting in some incorrect number inscriptions (called cursed ordinals), adding to the complexity of the system. These errors may result from minting multiple engravings in one transaction or assigning multiple to the same satoshi. Proposals to resolve this include renumbering existing ordinals, but this may affect previous data. Some worry the change could harm the value of the collection. Others support renumbering as a solution to the problem, while proposing options to preserve affected ordinals via snapshots or allow users to re-engrave to mitigate the impact.
8. Recursive ordinal numbers
Recursive ordinal numbers are an important development aimed at solving join problems in protocols.
By utilizing the storage method of ordinal data, recursive ordinal can implement complex on-chain software operations, avoiding the 4 MB limit of standard ordinal numbers.
Recursive ordinal allows for more interconnected on-chain data sources, greatly improving storage efficiency and reducing transaction costs.
The protocol enables developers to host applications, video games, and other large files directly on the Bitcoin network, opening up the possibility of building more advanced applications and smart contracts.
Recursive ordinal numbers are a key step toward enabling more complex DeFi architectures and dovetail with efforts to integrate the Ethereum Virtual Machine and Solidity into the Bitcoin network.
Although the recursive ordinal has caused some controversy, some people worry that it is maintained by a more centralized developer organization, which is contrary to the philosophy of Bitcoin. But others welcome the development because it promises to reduce storage redundancy and transaction costs.
9. Application scenarios of ordinal numbers:
Collectibles: Taproot Wizards, ORD Rocks, and Bitcoin Punks are currently the most well-known collectibles, and the upcoming generative art collectible TwelveFold is also expected to be popular.
Market: OpenOrdex is a very interesting marketplace that is completely open source and strictly uses decentralized tools for trading. It enables trusted listing and purchase inscription using Partially Signed Bitcoin Transactions (PSBT).
Browsers: OpenOrdex, Gamma and Ordinals.com are research tools used to analyze ordinal/inscriptional activities. These browsers also provide data on transaction ID, address, output value, weight, satoshi number and location.
Inscription Services: Minting serial numbers are complex, so Inscription Services were introduced to help collectors create collections. OrdinalsBot, OrdSwap, Gamma, Bitcoin Bandits, and Luxor Mining are some of the popular inscription service providers that take care of the various steps of ordinal creation.
Wallets: Current Bitcoin wallets lack satoshi selection functionality, which is necessary for sending ordinal numbers to other addresses. However, wallets that offer UTXO selection functionality like Sparrow Wallet, Electrum, and Xverse are widely used in ordinal collections.
Data and Discovery: OrdinalHub and Ordinal Directory are platforms for collectors to discover popular collectibles, new collectibles, and analyze reserve price data.
6. Taproot Assets: Making Bitcoin a Multi-Asset Network
In mid-October, Lightning Labs announced the Alpha version of “Taproot Assets,” a meta-protocol that can issue and manage any asset on the Bitcoin blockchain. Using Taproot assets, you can create fungible and non-fungible tokens and store the assets metadata in an existing UTXO. This provides the basic tools for building Bitcoin’s multi-asset network.
Taproot assets are tightly integrated with the Lightning Network, enabling cheap and fast transactions using any of these assets. This move is believed to usher in a new era of Bitcoin, allowing various global currencies to become Taproot assets and enabling instant foreign exchange transactions on the Lightning Network. But what impact will this have on Bitcoin? Supporters and worryers are sharply divided about its impact, with some questions including whether there will be a fee surge similar to Ordinal and BRC-20, and whether it will bring regulatory scrutiny to the Lightning Network as different assets enter the Bitcoin network.
1. The core mechanism of Taproot Asset Protocol (TAP)
Taproot assets are a protocol built based on the upgraded data storage method of the Taproot network, similar to BRC-20. But unlike BRC-20 and other fungible token protocols, Taproot Assets uses the universe to track token ownership information. The process of creating Taproot assets is complex and involves using a special Merkle tree (MS-SMT) and Taptweak to build the asset information. This includes the outpoint used to mint the asset, a tag for the asset chosen by the minter (such as a hash of the brand name), and meta-information associated with the asset, such as a link, image, or document. All this information is stored in a 32-bit asset ID, a UTXO that is a unique identifier for a newly created asset.
Handle Taproot assets:
Once created, Taproot assets can be transferred on the Bitcoin blockchain or directly through Lightning Network channels. Compared with other fungible tokens, Taproot assets implement multiple asset operations (such as casting, sending, receiving) in a single on-chain transaction, improving on-chain efficiency and reducing congestion and costs. In contrast, BRC-20 caused significant congestion in the Bitcoin network and drove up fees (which peaked at $30 during the ordinal frenzy).
One of the most notable applications of the Taproot asset is its compatibility with the Lightning Network (LN). Although the assets are issued on the Bitcoin blockchain, by bridging with LN, you can enjoy lower costs and faster transactions, improving the utility of the assets. In the future, it will also be possible to deploy directly on Lightning channels.
Trading with Taproot assets on LN is very simple; there is no need to select a payment method as a routing channel. Bitcoin provides liquidity for payments across different assets, so routing node operators have an incentive to help route Taproot assets, thereby receiving more routing fees paid in satoshis.
Here is an example scenario: L-USD (Lightning Network USD, a Taproot asset stablecoin) can be paid in BTC and ultimately settled as L-USD, thanks to edge liquidity: LN nodes willing to exchange value with BTC, Allows you to pay any LN invoice using Taproot assets, or collect any asset by issuing a standard Lightning invoice.
Note that intermediary transactions do not directly transfer the stablecoin itself - no selection is required, the transaction can be routed as long as there is available BTC liquidity. Invoices ultimately settled in Taproot assets can be paid with BTC or any other asset, and anyone with a Taproot asset balance can pay any Lightning invoice.
2. Custody and ownership of Token
As mentioned above, the custody and ownership of Taproot assets are different from other fungible tokens on Bitcoin.
The Taproot Asset Universe is a repository of assets and their proofs, essentially a full node for a specific asset, providing historical data for verification. The universe will contain all relevant information about the Token, such as issuance, recent transfers, quantity, etc., but this information can only be disclosed at the discretion of the Universe Operator. Therefore, the Taproot universe is more private compared to blockchain explorers.
Pocket Universe is a way to collectively store Taproot assets and use TAP (Taproot Asset Protocol) without giving up ownership of the assets. Pocket Universe controls the Taproot key of a UTXO, but does not control the keys of the (possibly multiple) Taproot assets held in the UTXO. Asset holders can use Pocket Universe to batch their transactions efficiently.
3. Advantages and disadvantages of Taproot assets
Overall, we can look at the potential benefits of Taproot assets for Bitcoin and understand some of the pros and cons of this upgrade.
Statistics
There is currently very little transaction and value data for the Taproot asset on Bitcoin. Although nearly 65,000 unique assets have been minted on the network, the protocol is still in its first implementation phase, so these are still mostly experimental.
Given the explosive growth weve seen this year for BRC-20 tokens, it will be interesting to see if the Taproot asset can find similar demand. Once there is support for deploying directly to Lightning channels, we expect to see more activity and usage of TAP.
Taproot assets and consumer-facing Bitcoin applications drive real-world use and adoption of Bitcoin, making it part of the global financial system.
7. Overview of the BRC-20 Agreement
The BRC-20 protocol implements enhanced token creation and management on the Bitcoin network. Through ordinal technology, this protocol allows Tokens containing JSON data to be seamlessly transferred and interacted on the Bitcoin network. This standard provides developers with a framework for creating various Tokens on the Bitcoin network, bringing a wide range of possibilities for programmable assets.
1. BRC-20 trends and market performance:
The initial ORDIToken was quickly minted, with a market value of US$1.4 billion, but then the market value dropped significantly, from US$990 million to US$379 million, a decrease of 62%. This Token accounts for more than 80% of the trading volume in the BRC-20 market, and its price fluctuations directly affect the market value of other BRC-20 Tokens.
Although the value fluctuations of BRC-20 Token vary, the overall ecosystem appears to be robust. Activity was relatively stable between May and July 2023, before rebounding from late September to late October 2023. It is particularly noteworthy that in November 2023, BRC-20 Token hit a record high of minting more than 492,000 Tokens.
Important findings:
Blockchain technology innovation: Through Taproot upgrade, the ordinal protocol embeds rich data on the Bitcoin blockchain, allowing Bitcoin to support more types of assets.
Enhanced market potential: The Ordinal Protocol attracts new users and market demand, driving digital asset creation and interest in Bitcoin digital collectibles and artwork, increasing demand for block space.
The emergence of recursive ordinal numbers: The introduction of recursive ordinal numbers has brought significant progress, enabling complex software operations and avoiding the 4 MB limit of standard ordinal numbers, expanding more complex and interconnected data sources, improving storage efficiency and reducing transaction cost.
The potential of DeFi architecture: Recursive ordinal opens up new possibilities for complex DeFi architectures built on Bitcoin, going beyond simple file connections and allowing the creation of decentralized platforms that require complex logic and algorithms.
Future Prospects and Impact:
Ordinal and recursive ordinal numbers will continue to impact the Bitcoin ecosystem. The potential to host large projects such as applications or video games directly on-chain will lead to innovative applications. As developers explore the possibility of integrating complex structures on Bitcoin, it may change certain dynamics in the ecosystem.
But this evolution is not without challenges. Numbering architecture controversies and centralization concerns in maintaining and committing protocol settings highlight the delicate balance between innovation and adhering to decentralization principles.
The impact of ordinal numbers on transaction fees, block space utilization, and Bitcoin’s overall scalability is still being discussed. As ordinal markets mature and more platforms emerge, we may see more clearly how these digital artifacts fit into the Bitcoin ecosystem and connected Web3 platforms.
Although the full potential and long-term impact of ordinal and recursive ordinal numbers have not yet been fully realized, they represent an important stage in Bitcoins development. As the ecosystem evolves, we can expect to see further developments that continue to leverage the unique capabilities of ordinal numbers, perhaps reshaping the landscape of blockchain technology and digital assets.
2. Bitcoin shopping and services
Bitrefill: Allows users to use Bitcoin to purchase gift cards, mobile phone top-ups and daily purchases. It expanded to the United States in 2023 and launched the Pay Bill service, which allows users to pay various bills using cryptocurrencies such as Bitcoin.
OpenBazaar: A decentralized marketplace where users can buy and sell goods and services directly with Bitcoin. A restart was announced in 2023, with plans to launch OpenBazaar 3.0.
River Financial: Financial services that specialize in the purchase, sale and management of investments in Bitcoin have received significant financial support. Offering a comprehensive range of services including a Bitcoin trading platform, secure storage, private customer service and Bitcoin mining services.
Swan Bitcoin: Focuses on Bitcoin savings plans that allow users to automatically purchase Bitcoins on a regular basis.
Strike: A financial app that allows users to send and receive funds globally, with the option to convert payments into Bitcoin.
Zebedee: Provides a Bitcoin gaming platform where players can earn Bitcoin through gaming activities. In 2023, it launched the function of sending funds instantly and launched the No Big Deal (NBD) non-profit organization to promote open source Bitcoin development.
The above is some important information about Bitcoin shopping and services.
3. Privacy and security come first
Wasabi Wallet and Samourai Wallet are wallet applications that focus on Bitcoin privacy and security. They enhance Bitcoin’s privacy and user security by providing anonymized transactions and powerful privacy features. These wallets are constantly updated and improved to meet the needs of users and provide better performance and functionality.
In addition to these wallets, there are other applications and services that have driven the global adoption of Bitcoin by integrating it into daily life, the financial sector, and the gaming industry. However, these applications also face challenges such as issues with scalability, regulatory environment, and user adoption. Overall, Bitcoin has come a long way, but there are still some challenges that need to be overcome on the road to continuing to drive global adoption
8. Fold: Bitcoin Rewards and User Adoption Cases
Fold’s growth and user traction demonstrates growing interest in Bitcoin rewards and highlights the growth of the Bitcoin economy. More than 250,000 people are waiting to join Fold, and 20,000 early users have participated in the Fold card program, showing consumer acceptance of new Bitcoin reward financial products.
High trading volume and cumulative Bitcoin earnings of 65 billion satoshis highlight Fold’s success in the world of financial trading and Bitcoin investment. This success is a testament to Bitcoin’s growing popularity in everyday financial transactions.
The popularity of the Fold points to a trend toward consumer acceptance of Bitcoin in everyday transactions, extending beyond just experienced cryptocurrency users to a broader group. This bodes well for Bitcoin’s potential to become part of a more general financial system.
Fold’s success is representative of the overall trend of Bitcoin adoption and demonstrates how innovative platforms can leverage the properties of cryptocurrencies to deliver new solutions and drive greater integration of digital currencies into daily life.
9. Cross-chain Bitcoin: Introducing Bitcoin to assets on other networks
Staking assets have attracted much attention in the cryptocurrency field in recent years, especially in the DeFi field. Users can obtain income such as handling fee distribution by pledging assets, which has become a mainstream trend in the market. However, many participants are wary of projects that do not generate revenue. Despite the unsustainable design of the yield concept, which requires giving up control of the asset, there are still projects trying to bring yield into the Bitcoin network in a safe and ethical way.
Babylon created a way for Bitcoin to secure various proof-of-stake chains and provide guarantees without bridging to other chains. Through remote staking, the pledged Bitcoins are locked in contracts on the Bitcoin chain. When breaches occur on other chains, similar to shared security solutions like Ethereum or Cosmos, these stakes are slashed.
Since Bitcoin does not have smart contract capabilities, Babylon can create a remote staking environment through advanced encryption technology, consensus protocol innovation, and optimized use of the Bitcoin scripting language. Babylon’s key features include:
Bitcoin timestamps can help synchronize proof-of-stake chains with the Bitcoin network and enable quick unlocking of staked Bitcoins.
Extractable One-Time Signatures (EOTS) allow staked Bitcoins to be slashed in the event of malicious stakers.
Native staking on Bitcoin to secure other proof-of-stake chains, with multiple values. First, this functionality is completely independent of the Bitcoin network, eliminating the risk of bridging Bitcoin and increasing demand on the Bitcoin network, helping to increase miner payment fees. Secondly, this opens up new ways to earn income on Bitcoin, enhancing Bitcoin’s viability as an asset and store of value. Finally, extending Bitcoin’s security to other proof-of-stake chains increases the economic security of those chains, which is of huge value to Babylon and native Bitcoin staking.
Bitcoin wrappers are increasingly popular for transferring Bitcoin wealth across different ecosystems. Some currently popular packaging options include Avalanche’s BTC.b. BTC.b is an ERC-20 Token in the Avalanche ecosystem, specially designed for the Avalanche C chain. Its bridge uses a highly secure method to encapsulate Bitcoin into the Avalanche ecosystem, allowing users to use encapsulated Bitcoin for transactions and swaps on the Avalanche C chain. As of December 4, 2023, the market capitalization of BTC.b was approximately US$152.4 million, and trading activities were carried out on multiple decentralized trading platforms.
1. wBTC currency
wBTC is an ERC-20 Token representing Bitcoin on the Ethereum blockchain. It connects wBTC one-to-one with the BTC that supports it through a bridging process. Users need to deposit Bitcoin into a specific custodian to create wBTC. While these custodians are generally regulated and follow industry best practices, wBTC is not fully decentralized due to the interfaces involved with centralized institutions.
wBTC is created by a custodian in cooperation with authorized entities and merchants. After Bitcoin is deposited, wBTCToken is issued at a ratio of 1 to 1. Users can transfer wBTC back to Bitcoin, the merchant destroys the corresponding wBTCToken, and the custodian returns the equivalent Bitcoin to the user. The system ensures authenticity through third-party auditing and on-chain data analysis. As of December 4, 2023, wBTCs market capitalization was approximately US$6.7 billion, and its 24-hour trading volume was close to US$239 million. On October 24 and November 9, 2023, there was a significant increase in transaction volume.
2. Threshold and tBTC
tBTC is a tokenized version of Bitcoin on the Ethereum blockchain developed by Threshold. It aims to integrate Bitcoin into other blockchains and promote Bitcoin’s participation in DeFi applications. tBTC adopts a decentralized model and does not require KYC protocols to protect user privacy and autonomy. It has been integrated in multiple blockchain networks and has shown market demand and value.
Threshold works with partners like Wormhole to enhance tBTC’s cross-chain capabilities and expand its presence in more than 20 blockchain ecosystems. Other BTC DeFi assets may start to impact wBTC, which was the first mover in the market and holds the majority of the share.
10. Bitcoin ETF: The significance of institutional adoption of Bitcoin and the regulatory development of Bitcoin
2023 will be a historic year for Bitcoin in U.S. financial markets. Bitcoin continues to thrive despite facing regulatory scrutiny. The world’s largest asset manager has submitted multiple applications for Bitcoin ETFs, with approval expected to be imminent. The launch of a Bitcoin ETF will bring institutional investment and wider acceptance of Bitcoin. Although controversial, ETFs will bring new uses for Bitcoin as an investable asset, such as a store of value. Institutional interest and investment in Bitcoin have already emerged, and the approval of ETFs will attract more funds to flow into the Bitcoin market and create greater liquidity.
Traditional stock market instruments currently available (such as the iShares Bitcoin Futures ETF, BITO) have preempted demand for Bitcoin as an asset and reached an all-time high in assets under management at the end of November.
1. The rise of Bitcoin as a store of value
Bitcoin’s rise as a store of value has been widely recognized, especially among institutional investors. Bitcoin is considered the digital asset equivalent to gold and can be used as a hedge against inflation and as a safe haven. However, institutional investors remain cautious about Bitcoin and have reduced their investments in Bitcoin to some extent. Nonetheless, the approval of a spot Bitcoin ETF remains highly anticipated, which will open up investment avenues for both retail and institutional investors. The price of Bitcoin is expected to increase significantly as a result. Overall, Bitcoin continues to solidify its position in financial markets and is gaining increasing attention and acceptance around the world.
Despite this sudden bullish sentiment in the United States, global attitudes toward Bitcoin regulation are far from uniform, with countries adopting different strategies ranging from enthusiastic acceptance to outright bans.
2. Friendly jurisdictions:
El Salvador: Groundbreaking Bitcoin integration. In 2021, El Salvador ushered in a new chapter in cryptocurrency history by making Bitcoin legal tender. The government requires businesses to accept Bitcoin payments and also provides citizens with the Chivo digital wallet for transactions. El Salvador exempted Bitcoin transactions from capital gains tax, boosting the popularity of the cryptocurrency.
United States: Regulatory situation is unstable. U.S. regulators view Bitcoin as a commodity and are considering treating it as a security.
The CFTC regulates Bitcoin futures contracts, and FinCEN applies anti-money laundering and customer identification regulations.
EU: Creating a unified framework. The European Central Bank recognizes Bitcoin as a currency and promotes the exploration of regulatory frameworks. The Markets in Cryptocurrency Act (MiCA) plans to unify cryptocurrency regulation across EU member states.
3. Strict Jurisdictions:
China: Strict ban. China bans financial institutions from participating in Bitcoin transactions and even restricts cryptocurrency services and mining activities.
India: Regulatory uncertainty. Indias central bank has expressed concerns about cryptocurrencies and banned banks from dealing with them. The government is debating a cryptocurrency bill that could ban it or create a regulatory framework.
Russia: Diverse regulations. Russia recognizes that cryptocurrencies are not legal tender but allows ownership and trading. Mining and trading activities need to be registered with the authorities, and more regulatory measures may be introduced in the future.
Different countries’ different attitudes towards Bitcoin reflect the challenges faced by the globalization of cryptocurrencies. The lack of a unified regulatory framework creates uncertainty for users and businesses, hampering the potential for a complete global financial system. This inconsistency could lead to regulatory arbitrage, with users and businesses seeking more permissive jurisdictions, while making international cooperation more difficult.
4. Summary
2023 will be the year when the U.S. financial market looks forward to spot Bitcoin ETFs, which may change traditional concepts and promote Bitcoin to become a mainstream global asset. The SEC’s more relaxed attitude indicates that Bitcoin may gain wider acceptance, especially among traditional financial institutions. The participation of major institutions such as BlackRock and Grayscale in the application for a spot Bitcoin ETF highlights Bitcoins transformation from a niche digital currency to a well-respected investment variety, a view shared by industry leaders and analysts.
11. BitVM: Perform any calculation on Bitcoin
This article covers various aspects of the development of Bitcoin blockchain technology, such as scalability solutions and changes brought about by metadata stored in transactions. These changes are rapid and widespread, with a huge impact on the Bitcoin network. BitVM is a new development direction that proposes a new method of handling smart contracts on Bitcoin, similar to Rollup on the Ethereum network. Compared to other protocols, BitVM does not require a soft fork of the Bitcoin network, which allows it to be implemented and tested immediately, potentially accelerating its adoption process. While some may have reservations about the impact of these innovations on Bitcoin principles, these debates need to take all factors into consideration.
Anonymous developer Super Testnet considers BitVM to be one of the most exciting discoveries in the history of Bitcoin scripts. One of BitVMs important features is its prover-validator structure, similar to the optimistic rollup on the Ethereum network. This structure works by performing computations off-chain and then publishing proof of transactions on Bitcoin. Verifiers check the validity of transactions, while provers are penalized if they make false claims.
This architecture helps increase the trustworthiness of wrapped Bitcoin assets. All participants understand that the central party cannot lie when certifying transactions, in case the verifier obtains the deposit posted by the certifier. BitVMs latest innovation enables trust minimization by transmitting state in Bitcoin transactions through place value commitments. This incentive mechanism enables provers to perform computational steps under a set of rules to prove state changes, helping to reduce trust in the custodian.
While some have reservations about BitVM, it has significant potential to enhance the security and functionality of the Bitcoin ecosystem, such as increasing trust in wrapped Bitcoin. BitVM can also provide support for complex applications such as trading platforms, derivatives, prediction markets, and games, although actual applications will take time to develop. Nonetheless, the emergence of BitVM means that there may be more application examples based on this script in the future.
12. Conclusion and Outlook: How will Bitcoin develop in 2024?
Bitcoin is ushering in wider participation, thanks to its scarcity and stable monetary policy. Technological innovation improves transaction speed and scalability, providing wider applications for daily transactions and gaming platforms. New concepts such as Ordinals have transformed Bitcoin transactions, and recursive ordinals have further enhanced its functionality.
Other innovations like Babylon’s remote staking concept open up new avenues for BTC earnings, reinforcing Bitcoin’s legitimacy as an asset and store of value. The self-custody trend highlights investors’ desire for control over Bitcoin, potentially affecting market dynamics and increasing its value and stability.
The growth of consumer applications, such as Fold, Lolli, and Bitrefill, has deepened Bitcoins use in daily life and broadened its appeal. At the same time, wallets that emphasize privacy such as Wasabi and Samourai Wallet meet users needs for data protection and anonymity.
Despite the challenges it faces, Bitcoin continues to evolve due to its fundamental strengths and diverse applications, which bodes well for its future in the global economy and finance.
