Bitcoin Ecosystem Overview

1. Introduction: The Historical Development of the BTC Ecosystem

The popularity of Bitcoin inscriptions has sparked a frenzy among cryptocurrency users, bringing renewed attention to the development and possibilities of the Bitcoin ecosystem.

Bitcoin was created in 2008 by an anonymous founder, Satoshi Nakamoto, and is the first decentralized digital currency, challenging the traditional financial system. Bitcoin introduced the concept of a peer-to-peer electronic cash system, eliminating the need for intermediaries and achieving trustlessness and disintermediation. The underlying technology of Bitcoin, blockchain, has fundamentally changed the way transaction records, verification, and security are handled.

Bitcoin has undergone a phase of stable growth, initially adopted mainly by technology enthusiasts and cryptography supporters. In 2010, programmer Laszlo used 10,000 Bitcoins to purchase 2 pizzas, marking a historical moment in the adoption of cryptocurrency. Subsequently, the ecological infrastructure related to Bitcoin began to take shape, including exchanges, wallets, and mining pools.

In 2023, the popularity of the Ordinals protocol and the BRC-20 Token has brought about the summer of inscriptions, refocusing people's attention on Bitcoin, the oldest public chain. This article will delve into the historical development and core directions of the Bitcoin ecosystem, including asset issuance protocols, scalability solutions, and infrastructure, analyzing its current development status, advantages, and challenges, and exploring the future of the Bitcoin ecosystem.

2. Why is a Bitcoin ecosystem needed

1. Characteristics and Development History of Bitcoin

Bitcoin has three core features:

1. Decentralized distributed ledger: Blockchain technology as the core, composed of blocks, each block contains the hash of the previous block, forming a chain structure, ensuring the transparency and immutability of transactions.

2. Accounting through Proof of Work ( PoW ): Network nodes verify transactions and record them on the blockchain by solving mathematical problems, ensuring the security and decentralization of the network.

3. Mining and Bitcoin Issuance: Miners verify transactions and create new blocks by solving mathematical problems, receiving a certain amount of Bitcoin as a reward.

Bitcoin uses the UTXO( Unspent Transaction Output) model to track ownership and transaction history, with each unspent output representing a transaction output. The characteristics of the UTXO model include:

1. Each transaction generates new UTXO
2. Transaction verification relies on UTXO
3. UTXO as transaction inputs and outputs

The UTXO model provides higher security and privacy, allowing for parallel processing of transactions.

Bitcoin development history:

• 2012: Colored coins emerged
• 2017: Hard forks occurred due to the block size debate, such as BCH, BSV, etc.
• 2017: SegWit upgrade launched, introducing extended blocks and block weight
• 2021: Taproot upgrade, enhancing transaction privacy and efficiency

These upgrades laid the foundation for later expansion protocols and asset issuance protocols.

2. Comparison of Bitcoin ecosystem and Ethereum smart contracts

Ethereum was proposed by Vitalik Buterin in 2013 and is a programmable blockchain that allows developers to build various applications. Ethereum's smart contract functionality makes it a leader in Crypto, giving rise to various Layer 2 solutions, applications, and diverse asset types.

Despite Ethereum being more flexible in smart contract and Dapp development, there is still a need to scale and develop applications on BTC, mainly for the following reasons:

1. Market Consensus: Bitcoin has the highest recognition and trust, with a market cap of about $800 billion, accounting for about half of the entire cryptocurrency market.

2. High degree of decentralization: Bitcoin has the highest degree of decentralization, and the entire chain is driven by the community.

3. Retail investors' demand for Fair Launch: The inscriptions in the Bitcoin ecosystem provide retail investors with a Fair Launch venue that offers more voice.

In summary, although BTC is weaker than Ethereum in terms of TPS and block time, its market consensus, level of decentralization, and Fair Launch characteristics still attract developers to introduce smart contracts and application development on it.

3. Analysis of the Current Development Status of Bitcoin Ecological Projects

The Bitcoin ecosystem faces two main dilemmas:

1. Scalability is relatively low, and better scaling solutions are needed to build applications.
2. Fewer applications are needed, and popular applications/projects are required to attract developers and promote innovation.

To address these two dilemmas, the Bitcoin ecosystem is mainly built from three aspects:

1. Asset issuance related agreements
2. Scalability Solutions: On-chain Scalability and Layer 2
3. Wallets, cross-chain bridges and other infrastructure projects

1. Asset Issuance Agreement

1) Ordinals & BRC-20

The Ordinals protocol was launched by Casey Rodarmor in early 2023, allowing the minting of assets similar to Ethereum NFTs on Bitcoin. Its core elements include:

• Assign a serial number to each Satoshi, achieving labeling of the smallest unit of Bitcoin.
• Support attaching any content to a single Satoshi

BRC-20 is a token standard developed based on the Ordinals protocol, enabling the deployment, minting, and trading functionalities of tokens. Currently, BRC-20 accounts for over 70% of the Ordinals asset type, with a market cap of $2.6 billion.

The popularity of BRC-20 has two main reasons:

• Wealth Creation Effect: As a new asset class on the BTC chain, it has a natural appeal.
• Fair Launch: The fair launch feature allows retail investors to stand on the same starting line as VCs.

2) Atomicals & ARC-20

The Atomiclas protocol was released in September 2023, aiming to build a more native and complete asset issuance protocol than the Ordinals protocol. Its core differences include:

• Indexing using UXTO units instead of numbering Satoshi.
• Engrave the content in UXTO instead of appending it to Satoshis.

Atomicals also introduces a PoW mechanism to control mining difficulty and achieve a fairer distribution.

3) Runes & Pipe

The Runes protocol was proposed by Ordinals developer Casey in September 2023, aiming to address the meaningless UTXO problem brought by BRC-20. Runes is similar to the ARC-20 standard, inscribing Token data in the UTXO script.

The Pipe protocol was launched by Trac founder Benny, with principles basically consistent with Rune, and plans to support more asset types.

4) BTC Stamps & SRC-20

BTC Stamps addresses the risk of Ordinals data being "trimmed" by storing data in the UTXO of Bitcoin. SRC-20 is its corresponding token standard, featuring more secure and immutable characteristics.

5) ORC-20

The ORC-20 standard aims to enhance the use cases of BRC-20 tokens and optimize existing issues. It is compatible with the BRC-20 standard while improving adaptability, scalability, and security, and eliminating the possibility of double spending.

6) Taproot assets

Taproot assets is an asset issuance protocol launched by Lightning Labs, directly integrated with the Lightning Network. Its core features include:

• Fully based on UTXO, can integrate with Bitcoin native technologies such as RGB and Lightning
• Users can customize the number of Token trades.
• Direct integration with the Lightning Network to reduce transaction costs.

2. On-chain scaling

1) Segwit upgrade

In July 2017, Bitcoin underwent a SegWit upgrade (, significantly enhancing scalability. SegWit reorganizes the transaction data structure by separating the witness data from the transactions, effectively increasing the block capacity.

The importance of SegWit is not limited to this, but also promotes the occurrence of subsequent major events, including the Taproot upgrade and the development of the Ordinals protocol.

)# 2### Taproot Upgrade

The Taproot upgrade took place in November 2021, aimed at enhancing the scalability, privacy, security, and functionality of Bitcoin. Its core advantages include:

1. Schnorr multi-signature aggregation: allows multiple public keys and signatures to be aggregated, reducing the size of transaction data.
2. Stronger privacy: makes it difficult to distinguish between multi-signature and single-signature transactions.
3. Support for more complex smart contracts: Introduction of a new script type Tapscript

) 3. Off-chain scaling: Layer2

The Layer 2 solutions for Bitcoin mainly include state channels, sidechains, and Rollups.

1### State Channel

State channels are temporary communication channels created on the blockchain for efficient off-chain interactions and transactions. The Lightning Network was one of the earliest state channel projects, launched in 2018 by Lightning Labs.

The core logic of the Lightning Network:

1. The trading party opens the payment channel and transfers funds as a deposit.
2. Conduct any number of transactions through the off-chain Lightning Network
3. Close the payment channel after completing the transaction, and the smart contract will allocate the funds.

Advantages of the Lightning Network:

• Real-time payment, speeds can reach millisecond to second level.
• High scalability, capable of processing millions to billions of transactions per second.
• Low cost, suitable for small payments
• Cross-chain capability, supporting atomic swaps between heterogeneous blockchains.

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)# 2### sidechain

A sidechain is an independent blockchain network that runs in parallel with the main chain, allowing for customizable rules and functions. Major examples include Rootstock and Stacks.

Rootstock )RSK(:

• Bitcoin sidechain solution, providing smart contract functionality
• Core advantages: Ethereum's development language is user-friendly, and merged mining encourages miner participation.
• A new block is created every 30 seconds, with a TPS of 10-20.

Stacks:

• A sidechain based on Bitcoin, featuring its own consensus mechanism and smart contract functionality.
• Adopting the Transfer Proof ) PoX ( consensus mechanism
• The Nakamoto upgrade is planned for the second quarter of 2024 to improve transaction throughput and finality.

)# 3### Rollup

Rollup is a layer two solution built on the main chain, transferring most computations and data storage to the Rollup layer. Currently, major projects include:

• Merlin Chain: Launched by Bitmap Tech, using ZK-Rollup technology.
• B² Network: provides an off-chain trading platform that supports Turing-complete smart contracts.
• BitVM: Achieving Rollup through off-chain processing of complex calculations

)# 4### other

The RGB protocol is a private and scalable client-validated smart contract system that operates in a client validation mode. Its core features include:

• Client verification mode: Data is stored off-chain, and smart contracts are responsible for validating data validity.
• One-time seal: Tokens need to be associated with specific UTXOs, providing greater privacy protection.

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) 4. Infrastructure

1### wallet

UniSat Wallet is an open-source wallet and indexer for storing and trading Ordinals NFTs and BRC-20 tokens. Its main features include:

• Store and trade Ordinal NFTs, store, mint, and transfer BRC-20
• Index code open source
• Users can register instantly without running a full node.

)# 2### Decentralized Index

Trac Core is a decentralized indexer that provides oracle services. Its core functions include:

• Solve indexing and oracle issues
• Introduce more nodes to achieve decentralized indexing
• Establish a channel to obtain external data from off-chain

)# 3### Cross-Chain Bridge

Polyhedra Network is an infrastructure for cross-chain interoperability, and its zkBridge supports Bitcoin messaging protocol. Main features:

• Supports Bitcoin as the messaging send chain and receive chain
• Use a mechanism similar to PoS to ensure the correctness of the written information.

)# 4### Staking Agreement

The Babylon project was launched by researchers at Stanford University, aiming to extend the security of Bitcoin to other blockchains. Its core feature is the staking protocol for Bitcoin, which allows BTC holders to stake on PoS chains to earn rewards.

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4. Challenges and Limitations of Bitcoin Ecosystem Development

1. BRC-20 needs