Original Title: "MT Capital Research Report: A Comprehensive Scan of the Inscription Track"

Original Author: Xinwei

TL;DR

With the launch of ORDI on Binance, the inscription track of the Bitcoin ecosystem is rapidly developing, giving rise to various innovative technologies and concepts. SegWit and Taproot upgrades provide powerful support for the programmability and scalability of Bitcoin, driving the rise of projects such as Ordinals, BRC-20, and Atomicals. These technological advancements not only increase the transaction capacity and flexibility of the Bitcoin network, but also create more sources of income for miners.

Introduction

With the launch of ORDI on Binance exchange, we have witnessed the beginning of a new era: a technological revolution and market prosperity dominated by the Bitcoin ecosystem. From the Ming inscription craze at the beginning of the year to the current frenzy, the rapid development of the Bitcoin ecosystem and the huge increase in its value have attracted widespread attention. But what is driving the heat of the BTC ecosystem and the rapid expansion of its value?

Technology

Before exploring this issue, we first need to understand several key technological advancements in the Bitcoin ecosystem.

Segregated Witness (SegWit) is a key upgrade to the Bitcoin core protocol launched in 2017, aimed at addressing the challenges of Bitcoin scalability and specific vulnerabilities. It mainly promotes the inclusion of more transactions by correcting transaction scalability issues and expanding the Bitcoin block size limit. SegWit introduces the concept of block weight, replacing the traditional block size limit, allowing a fully loaded block to accommodate about 2700 transactions, a significant improvement over the previous 1650 transactions.

In addition, SegWit also brings new encoding method Bech32 and two innovative script types.

By the end of 2021, the Taproot upgrade brought significant progress to the programmability and scalability of BTC by enabling more complex scripts and data types in the Bitcoin ecosystem. This provides a crucial opportunity for the explosive growth of the Bitcoin ecosystem in 2023.

The Taproot upgrade mainly includes changing the transaction confirmation method and introducing the Schnorr signature algorithm. The introduction of Schnorr signatures provides many benefits, including better privacy protection, especially in multi-signature wallets. It allows all private keys to be compiled together, making multi-signature transactions look no different from other transactions, thereby improving privacy. In addition, Schnorr signatures support batch confirmation, making transactions on the entire network cheaper and faster.

Taproot also brings the potential to create smart contracts to the Bitcoin network. Although it may be more expensive and limited in functionality compared to platforms like Ethereum, its ability to enable smart contract interactions on a Bitcoin network worth up to $7 trillion is enormous and could drive smart contract technology into the mainstream.

Miner Benefits

As for the interests of miners, recent data shows that with the rise of projects like Ordinals and Atomicals, the Bitcoin mining market is experiencing an unprecedented boom. According to data from oklink Chain Master, in the past three months, Bitcoin miners' income has significantly increased, especially in November, where the proportion of on-chain transaction fees increased from 2.4% on August 19th to 23.46% on November 16th. This growth is mainly due to the introduction of the Ordinals trading pair. This indicates that the development of the Bitcoin mining market has significantly increased the proportion of miners' transaction fee income. It is expected that by the Bitcoin halving in April 2024, this proportion may reach 50%.

Currently, due to most of the US Bitcoin mining farms being in a state of loss and the semiconductor industry facing process bottlenecks, the competition for mining machine computing power is slowing down. Therefore, miners may turn to Bitcoin inscription as a new source of income. For example, Ordinals has launched for less than a year, and there are already over 50,000 tokens issued in the market, with rapid growth in minting and trading volume, which greatly promotes the increase of miners' transaction fee income.

The expansion of the Inscription Track not only drives the growth of miners' profits, but may also become the main driving force of the Bitcoin Inscription Track. However, miners are more concerned about the increase in transaction volume than the fluctuation of Inscription prices.

The above factors have jointly promoted the rapid development of the Bitcoin inscription track. However, we must also recognize that this development is not just a simple market trend, but represents a deep-seated change and technological progress in the Bitcoin ecosystem. As Bitcoin continues to demonstrate its strong potential in various aspects, we have reason to believe that the Bitcoin inscription track will become a key factor driving the development of the entire cryptocurrency industry.

Ordinals & BRC20

The Ordinals project was initiated by developer Casey Rodarmor in December 2022, benefiting from the flexibility and functionality of Bitcoin scripts due to the SegWit and Taproot upgrades. Ordinals gives each satoshi a unique sequence number and tracks them in transactions, allowing for additional data to be attached. Ordinals allows users to inscribe data such as images, text, and audio on specific unspent transaction outputs (UTXOs), realizing the concept of asset transfer. Earlier this year, Ordinals was officially launched, quickly igniting the BTC ecosystem.

The emergence of the Ordinals protocol complements the adoption of Taproot, promoting the encoding and writing of NFT data into the Bitcoin blockchain. NFT images are permanently engraved into BTC blocks, making this method more decentralized than ETH NFTs, allowing NFTs to be viewed and transferred without relying on third parties.

The ordinal theory mainly focuses on the traceability of Bitcoin's smallest unit, sat, by designing rules to give each sat a unique identifier. Based on the ordinal theory, on-chain data can be associated with sats to form inscriptions. Inscriptions are stored in the taproot script and identified and displayed by off-chain indexing nodes. Due to the limitations of indexing, the expansion of inscription functionality depends on the development of ord, such as parent-child inscription and curse inscription indexing. Inscriptions are similar to Colored Coins, both of which store data in transactions for off-chain program indexing, but inscriptions are stored in the input taproot script, while Colored Coins are stored in the output.

The implementation of Ordinals relies entirely on the basic functions of BTC, and the transfer of NFTs is also completely processed by the BTC network. Due to its artistic nature, the development potential of Ordinals is limited, but its emergence was quickly adopted by the BTC purist community.

Initially, Ordinals was mainly used for creating NFTs. However, on March 8th, 2023, an anonymous developer named Domo launched BRC-20 based on the Ordinals protocol. This is a Bitcoin altcoin issuance protocol similar to ERC-20. It defines a specific format of JSON data package and is engraved on the BTC chain through Ordinals. The deployer of BRC-20 can decide the total amount and name of the token and follow the first-come-first-served principle. $ORDI is the first BRC-20 token deployed by Domo.

BRC-20 further developed on the basis of inscriptions, achieving homogeneous tokens and writing the token's minting and transfer processes into the BRC-20 indexer. However, BRC-20 requires the assistance of a third-party sorter to record the ledger under the BTC chain, which adds additional complexity and becomes a weak point in the system.

The transfer of BRC20 tokens is not executed on the BTC main chain and requires two steps of BTC transactions (collecting and then transferring), resulting in a large number of junk transactions. Therefore, despite the widespread applicability and liquidity of BRC20, it has been controversial due to the lack of support from the BTC core community. Recently, some developers have started developing decentralized sorters, such as #Trac, but this is still limited by the overall framework and difficult to make breakthroughs. The founder of BRC-20, domo, proposed the concept of Inscription-Based Virtual Machines and Rollup at the Ordinals Summit, indicating that BRC-20 may move towards the development of a second-layer network.

With the launch of BRC-20, the usage scope of the Ordinals protocol has expanded, but it has also caused dissatisfaction from Casey. The Casey team even requested that Binance remove the association with Ordinals from the introduction of the ORDI token to draw a clear boundary. This indicates that although Ordinals and BRC-20 are both promoting the development of the BTC ecosystem, they have significant differences in community acceptance and development direction.

Atomicals & ARC20

Atomicals is an optimization project for Ordinals and BRC20, focusing on homogeneous tokens and solving the problem of BRC20's excessive reliance on centralized chain indexing. It utilizes and extends Bitcoin's UTXO model, using each satoshi (the smallest unit of Bitcoin) as a specific Atomical token or digital object, thus creating and managing complex digital objects and token systems (ARC20) on top of Bitcoin.

Atomicals' main features include:

1. Use Cong as the basic unit to represent the token.

2. Allow the creation, transmission, and updating of digital objects on Bitcoin.

3. Provide a decentralized and Bitcoin-culture-compliant tokenization method.

4. Utilizing Proof of Work (POW) to increase fairness and decentralization in the minting process.

Rune & PIPE

Bitmap & BRC420

·Bitmap theory was proposed by Twitter user @blockamoto on June 13, 2023. This theory maps each transaction input in a Bitcoin block to a parcel, forming a block or district. The size difference of different transaction inputs results in different sizes of mapped parcels.

Buyers on Bitmap.land have been influenced by Decentraland and The Sandbox, adopting a similar logic of buying land and drawing patterns on the map. Users write data into Satoshi through inscriptions to obtain ownership of specific Bitcoin blocks, similar to free coin minting.

The release of Bitmap.land is closely related to ordinal theory, similar to the virtual land release of Decentraland and The Sandbox, which relies on the ERC-721 standard. Ordinal theory is similar to the early principle of colored coins, but differs in the current narrative, consensus, ecology, and infrastructure of Bitcoin. Although ordinal theory is not as innovative as ERC-721, the BRC-20 method is more primitive.

Bitmap theory has added a new interpretation to Bitcoin blocks, providing a topic of discussion despite its lack of practicality. It changes the relationship between Bitcoin and the metaverse by allowing users to own and record individual blocks, providing a new dimension to each block in the Bitcoin blockchain and making it a part of the metaverse.

The theory of bitmaps has attracted the attention of the Ordinals community and sparked a craze for inscriptions. Any block on the Bitcoin blockchain can become part of the metaverse through Bitmaps, bringing new opportunities for creation and ownership to the community.

Bitmap.land blurs the boundaries between Bitcoin and the Metaverse through bitmap theory, paving the way for ownership, creativity, and community development. As the craze for NFTs continues, this means huge potential for those seeking to establish a presence in the digital realm.

BRC-420 protocol, since November 13, 2023, with the total number of Ordinals exceeding 40 million, has become one of the active token protocols in the Bitcoin ecosystem. Unlike traditional token protocols, BRC-420 focuses on on-chain inscription modularization, creating a new asset type on Bitcoin. Its first token, commonly known as the "Blue Box", has achieved significant market growth, rising from an initial price of $0.15 to $1000, and developers have earned significant on-chain royalty income in a short period of time.

The BRC-420 protocol is an asset protocol based on Bitmap. By combining multiple inscriptions into a complex asset, it creates various assets ranging from small characters, pets to complete game scripts and virtual machines. Due to its on-chain open source nature, these assets can be run or verified by any client, fully embodying the "Client Agnostic" spirit of the whole-chain game. Although RCSV's Bitmap browser dominates the market, other teams also have the opportunity to develop clients to run BRC-420 assets.

From a market perspective, the number of Bitmap holders has exceeded 25,000, surpassing Sandbox and becoming the metaverse asset with the most holders in the entire chain. This achievement is due to its fair launch mechanism and the collective efforts of over 200 development teams around Bitmap. The market value of BRC-420 has grown with the launch of the Bitmap browser and protocol itself, currently reaching approximately $30 million.

RCSV, the project party of BRC-420, is actively promoting the full-chain game plan of the Bitcoin ecosystem. The plan emphasizes assets, gameplay, logic, and data on the entire chain, aiming to create a truly decentralized Bitcoin on-chain game ecosystem. For example, developers can use the "Combat Module" on BRC-420 to quickly develop and release new games, while only paying royalties through the protocol.

RCSV has also proposed a scaling solution for the Bitcoin network to address its capacity limitations when processing a large number of transactions. The solution aims to migrate assets from layer one to layer two and implement a complete virtual machine environment in the next layer of the Module. This arrangement is designed to maximize security while providing a low-fee, high-efficiency interaction environment for layer one assets in Bitcoin.

Overall, the BRC-420 protocol and related Bitmap projects are inspiring innovation and vitality in the Bitcoin ecosystem. By creating complex, modular digital assets, BRC-420 is providing new economic opportunities and interactive experiences for creators, developers, and users. With the continuous efforts of the RCSV team, the concept of full-chain games and metaverse in the Bitcoin ecosystem is gradually becoming a reality, demonstrating the vast prospects of Bitcoin technology and applications.

BRC100

BRC-100 is an extended protocol based on the Ordinals theory, designed specifically for implementing various decentralized applications on the Bitcoin Layer 1. This protocol not only inherits the basic functions of brc-20 on Bitcoin, such as creation, minting, and trading, but also introduces the concept of decentralized computing. This means that, based on the BRC-100 protocol stack, various decentralized applications such as DeFi, SocialFi, and GameFi can be developed, bringing truly decentralized, trustless, censorship-resistant, and permissionless application scenarios to the first layer of Bitcoin.

One of the major features of the BRC-100 protocol is its interoperability. It not only allows all protocols and applications within its protocol stack to be mutually compatible, but also supports interaction with BTC, brc-20, or other layer 1 chains such as Ethereum and Stacks. In addition, the protocol introduces the UTXO model and state machine model, enhancing its security and computational capabilities.

This agreement also includes a series of innovative features, such as inheritance concepts, application nesting, address and application program status, permission settings, and decentralized governance. For example, the inheritance concept introduced by BRC-100 allows the protocol to directly or indirectly inherit the features of BRC-100. At the application level, applications deployed based on BRC-100 and its extended protocols can be nested to form sub-applications. At the same time, the protocol also introduces two roles: owner and administrator, providing a foundation for decentralized governance of applications.

The practicality of BRC-100 is demonstrated in its diverse range of use cases, from governance protocol BRC-101 to automated liquidity protocol BRC-102, as well as features such as staking, airdrops, lending, and stablecoin pools. These expansion protocols allow BRC-100 to support not only token trading, but also more complex financial operations and calculations.

Overall, the BRC-100 protocol has opened up a new decentralized application field on the Bitcoin chain through its innovative features and powerful computing capabilities. It not only inherits the advantages of BRC-20, but also provides an open protocol framework, offering new possibilities for the future development of the Bitcoin ecosystem.

Taproot Assets & Nostr Assets

Taproot Assets is a protocol launched by the well-known Lightning Labs, aimed at creating and trading various digital assets on the Bitcoin network, and integrating with the Lightning Network. The Lightning Network has been widely recognized by the Bitcoin community as a mature Bitcoin derivative protocol. The update of Taproot Assets expands the functionality of the Lightning Network from simple peer-to-peer transaction payment channels to a point-to-multi-mode that can realize asset distribution and circulation. The feature of Taproot Assets is to record Token information as registration in the UTXO output script of the Bitcoin mainnet, while transfer transactions and other functions are implemented in the Lightning channel. The biggest difference between Taproot Assets and BRC20 and ARC20 is that the issuance of Taproot Assets is pre-minted and distributed by an owner, rather than freely minted.

Taproot Assets has received support from Lightning Labs, which has a significant financing background, and Jack Dorsey, the founder of Twitter. This support has made it superior to other grassroots projects in terms of legitimacy and community support.

NostrAssets is an open-source protocol that introduces Taproot assets and Satoshis (Bitcoin units) into the Nostr ecosystem. Users can use Nostr's public and private keys to send and receive assets at the Nostr protocol layer. Settlement and security of assets rely on the Lightning Network, while the Nostr asset protocol itself does not issue assets, but only introduces them into Nostr through the protocol.

NostrAssets features seamless integration of Taproot assets and Bitcoin into the Nostr ecosystem, providing developers with tools to create innovative products, enriching the value of the Bitcoin and Lightning Network ecosystems, and enabling a seamless experience from chat to transaction. In the future, NostrAssets plans to import Taproot assets from other Daemon Universes, allowing for the receipt and sending of Taproot assets in and out of Nostr.

NostrAssets' vision is to encourage users to join the Bitcoin ecosystem and deliver Taproot assets to global users. By providing modular development tools, NostrAssets aims to facilitate the construction of decentralized applications, thereby providing user-friendliness and commercial practicality.

On October 30th, Nostr Assets conducted an airdrop for users who participated in its early missions, distributing its first token TRICK&TREAT on the platform to celebrate Halloween. Currently, the value of these tokens has risen to about $2000.

The total supply of these tokens is 210 million each, totaling 420 million. The total amount of airdrops is about 80 million, accounting for approximately 20% of the total supply.

Nostr Assets has also announced the upcoming launch of its Fair Mint feature and is seeking collaboration with interested project parties on Twitter to issue assets. This means that once the feature is launched, it is expected that a large number of new assets will appear on the protocol, which may attract widespread attention and participation from the community. This series of activities indicates that Nostr Assets is actively expanding its ecosystem and preparing for future development.

Ethereum Inscription

Ethscriptions is a protocol that serves as an alternative to smart contracts and L2, allowing users to share information and execute computations on Ethereum L1 at a low cost. It achieves decentralized computation by applying rules to Ethereum call data, bypassing smart contract storage and execution. In August 2023, Ethscriptions introduced a virtual machine (ESC VM) to enhance its functionality and make it a general-purpose computing engine.

Ethscriptions was founded by Middlemarch (similar to Domo, a BRC20) and Michael Hirsch. Its first protocol token was $eths, which is currently the leading token. The early minting price was only about $0.5, but it later rose to around $3,000 on the market, bringing significant returns to investors. Although this achievement is not as good as $ORDI and $SATS in the BRC20 track, it has shown significant growth compared to other inscription tracks, establishing its position in the thousand-fold track.

Other projects worth paying attention to in the Ethscriptions track besides $eths include Facetswap. Facet is a decentralized trading platform developed by Middlemarch and Michael Hirsch, originally named dumbswap and later renamed Facetswap. Although the price and market value of $Facet are currently lagging behind $eths, its potential value may become more apparent after the mainnet launch.

iERC20 is a new token protocol based on Ethereum, which provides a low-cost token ecosystem that allows anyone to deploy, mint, and trade tokens on it. $Ethi, as the first token in the iERC20 ecosystem, has received official support. This protocol not only provides more choices for Ethereum users, but also promotes the development of inscription ecology on the Ethereum blockchain.

There are various protocol layers in the inscription track, and the most benefited are of course the miners. According to Tokenview's on-chain data monitoring, the daily transaction fee of the Bitcoin network reached 11.6 million US dollars, exceeding Ethereum for the first time since 2020. As Bitcoin is about to halve, miners urgently need to find additional income. The prosperity of the inscription track brings benefits to miners while indirectly maintaining the security of the Bitcoin network. The reduction of block incentives will also make miners increasingly rely on transaction fee income to pay for operating costs. In the long run, the future of Bitcoin will definitely be a competition of various expansion solutions. The outbreak of this round of the inscription track and the high transaction fees generated from it are catalysts towards this future. Currently, BRC20's trading activities are mainly concentrated in OKX and Unisat. With the emergence of various protocols, different trading markets have emerged, such as Atomicals Market for ARC20. The emergence of a leading protocol will inevitably give birth to a unique trading market, and the competition in the trading market is far from over. The wallet market is similar, with Unisat being the main wallet for BRC20, but there are still different wallets launching and integrating different inscription protocols in the market.

With the continuous influx of funds into the inscription market, users are no longer satisfied with the speculation of memes and are beginning to turn their attention to applications based on inscriptions. BRC420 mentioned in this article is a typical example. Unisat also brings innovation to BRC20. Through BRC20-Swap, users can easily exchange BRC20 tokens like AMM DEX. As the first product to improve the liquidity of the Ordinals ecosystem, it is expected to unleash the potential of the Bitcoin DeFi ecosystem, and more functions such as lending and derivatives may appear in the future. Recently, Unisat has also opened API interfaces, which is very friendly to small developers and can call many functions, such as automatic batch scanning of orders, monitoring inscriptions and automatically minting, which can generate a lot of tool projects.

ORC20 returned on November 20th and released the Nirvana upgrade, which improved the token format to support BTC DeFi integration, introduced stablecoin support, and provided services for issuers such as USDT and USDC. Compared to BRC20, ORC20 is clearly more complex, as it can change the initial supply and maximum coin minting limit, and is no longer limited by four-letter words in naming. However, it is also considered more centralized by the community, and its upgradability is seen as violating the immutable spirit of blockchain, raising concerns about issues such as malicious issuance and insider trading by project teams.

Overall, BRC20 is the most original and first protocol to be listed on exchanges, with the strongest community consensus and a great impression left on users due to its fair launch. With the listing of ORDI on Binance, it represents that all exchanges have started to recognize and support the innovative Mingwen track, as the technical difficulty of supporting BRC20 deposits and withdrawals and building self-indexing is not small. It is expected that the priority for listing in the future will still be BRC20 tokens. BRC20 tokens cannot be a meme forever, and the project party can choose an existing BRC20 token with community consensus as a practical token, which not only avoids regulatory risks but also gains an existing community.

Summary and Outlook

The development of the Inscription racecourse has shown significant vitality and innovation. The growth of this racecourse is mainly due to key technological advancements in Bitcoin such as SegWit, Bech32 encoding, Taproot upgrade, and Schnorr signatures. These technologies not only improve the transaction efficiency and scalability of the Bitcoin network, but also increase its programmability. With the application of these technologies, the Inscription market has experienced rapid prosperity, attracting not only investors and users, but also promoting the development of diverse projects and protocols such as Ordinals, BRC20, and Atomicals.

The growth of this track has also had a positive impact on the interests of miners. With the rise of projects like Ordinals and Atomicals, miners' sources of income have been expanded, demonstrating the importance of the Inscription track to the Bitcoin network. In addition, other public chains have also begun to appear in the Inscription track, demonstrating its wide potential and influence.

Looking ahead, the Inscription track is expected to continue witnessing technological innovation and driving the implementation of more complex functions. The market is expected to continue growing, bringing more investment and participation opportunities. At the same time, it can be foreseen that more innovative projects and protocols will emerge, further enriching the Inscription ecosystem of Bitcoin and other public chains. Miner revenue may also continue to grow as the Inscription track provides new revenue opportunities.

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