Original Title: "The Past, Present and Future of Bitcoin Ecosystem"

Original Source: ABCDELabs

Foreword

Bitcoin has been born for more than 15 years. Since its inception, Bitcoin's positioning has always been a peer-to-peer electronic cash payment system, which has nothing to do with the "ecosystem" because Bitcoin's technical characteristics do not naturally support Turing-complete smart contracts. The scalability around Bitcoin has also been widely discussed and controversial, from the block size debate and hard fork to the Lightning Network. The new attempts to expand the Bitcoin ecosystem have never stopped. However, on March 8, 2023, Domodata proposed the BRC20 experiment and deployed $ORDI, which was like opening Pandora's box. Overnight, a large number of inscriptions assets appeared in Bitcoin, just like the 2017 Ethereum ICO wave. $ORDI and $SATS and other assets rose tens of thousands of times, and their market value exceeded 1 billion US dollars.

If Bitcoin is digital gold, then Mingwen is the gold jewelry crafted with the essence of digital gold. The rise of Mingwen assets has also given Bitcoin a solid foundation for its ecosystem.

So what will the future of the Bitcoin ecosystem look like?

How did Bitcoin evolve from a peer-to-peer cash payment system to a digital gold ecosystem?

In late 2023, as Bitcoin is about to undergo its halving, we wrote a report attempting to review Bitcoin's past, take stock of its present, and look forward to its future. Dedicated to all contributors to the Bitcoin ecosystem.

"If you don't believe me, or don't understand, I don't have time to try to convince you, sorry."

- Satoshi Nakamoto

Bitcoin History: A Twisted Path of Ecological Development

2018-2023 Bitcoin Ecological Development Milestones

2008.11.01: Satoshi Nakamoto released "Bitcoin: A Peer-to-Peer Electronic Cash System".

2009.01.03: Satoshi Nakamoto mined the Genesis block on a small server located in Herkel, Finland, and the first 50 bitcoins were born. In the Genesis block, Satoshi Nakamoto inserted the sentence: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." This sentence from The Times not only indicates the time of block production, but also mocks the banking system during the financial crisis.

2009.01.12: Satoshi Nakamoto sent 10 bitcoins to developer Hal Finney, completing the first bitcoin transaction.

2010.05.21: Florida programmer Laszlo Hanyecz used 10,000 btc to purchase a $25 pizza coupon, marking the first price of bitcoin at 0.0025 USD/btc.

2010.07.17: Bitcoin trading platform MT.GOX was founded in Tokyo.

2010.08.15: Bitcoin-bugs, a vulnerability in Bitcoin, was discovered and exploited, generating over 184 billion Bitcoins in a single transaction and sent to two Bitcoin addresses. This illegal transaction was quickly discovered and fixed.

2010.12.16: Pooled-mining Bitcoin mining pool emerged.

2011.04.23: Satoshi Nakamoto disappeared completely after sending his last email. The content of the email was: "I've moved on to other things, Gavin and others will be good stewards of Bitcoin project."

2012.09.27: Bitcoin Foundation was established.

2012.11.28: The block supply was halved for the first time, from 50 every 10 minutes to 25. At the same time, the issuance of Bitcoin accounted for half of the total issuance of 21 million.

2012.12.04: The White Paper on Dyed Coins was released.

2013.08.15：MasterCoin ICO。

2013.10.29: Canada launched the world's first Bitcoin ATM, which was manufactured by the American company Robocoin.

2013.12.05: The People's Bank of China and five other ministries issued a notice on preventing Bitcoin risks, triggering a nearly 30% drop in global Bitcoin prices.

2015.01: Coinbase became the first compliant Bitcoin exchange in the United States.

2015.09: The U.S. Commodity Futures Trading Commission (CFTC) ruled that BTC is a commodity covered by the Commodity Exchange Act.

2016.07.10: Bitcoin underwent its second halving. The production of Bitcoin per block decreased from 25 to 12.5.

Source：Bitcointalk

Source：Bitcointalk

MasterCoin（Omin）

Counterparty

SegWit & Taproot

After the fork, the BTC chain gradually introduced a series of new technical solutions to improve scalability while maintaining the block size. The most important of these are SegWit and Taproot.

Segregated Witness (SegWit) was introduced as an "alternative solution" to directly increase the block size during the BCH fork in the encryption industry. SegWit divides transactions into two parts, the first part containing the sending and receiving addresses, and the second part saving the transaction signature or witness data, removing it from the main block but retaining the verification function. Removing the witness data allows for more transactions to be accommodated in the same block size, increasing throughput in another way. SegWit was introduced as a soft fork and its adoption rate has been continuously increasing, reaching over 60% by 2020 and expected to reach 95% by December 2023.

Source: https://buybitcoinworldwide.com/stats/segwit-adoption/

In November 2021, another important upgrade, Taproot, was officially implemented in the form of a soft fork. This upgrade is composed of BIP340, BIP341, and BIP342. BIP340 introduces Schnorr signatures, which can verify multiple transactions simultaneously, replacing the Elliptic Curve Digital Signature Algorithm (ECDSA). This once again expands network capacity and speeds up batch transaction processing, providing the possibility for deploying complex smart contracts. BIP341 implements Merkelized Abstract Syntax Trees (MAST) to optimize transaction data storage on the blockchain. BIP342 (or Tapscript) adopts Bitcoin's script encoding language to accommodate Schnorr signatures and Taproot implementation.

The mention here is that SegWit did not initially impose any restrictions on the length of verification information, which led to subsequent projects bypassing the 1 MB block size limit through verification information, and also laid the foundation for the rise of Ordinals. There has been controversy in the community about this approach, with some opponents arguing that SegWit's failure to set length limits is a "mistake," and therefore using verification information to transmit data is an improper "attack."

Bitcoin Layer2 Early Exploration

With the dust settled on the block size debate, Bitcoin L2 has begun to enter the public eye on a large scale. The most mainstream solutions are Lightning Network and Sidechains.

The idea of sidechains is to obtain/transfer bitcoins from/to the Bitcoin network, but the transaction behavior is independent of the BTC network. The attempt of sidechain solutions started earlier, in 2014 Blockstream published the first technical paper on Bitcoin sidechain solutions, but the solution was not actually implemented. RSK published a white paper in 2015 and in January 2018, RSK finally launched a fully functional mainnet; in September of the same year, Blockstream launched the Liquid Network sidechain. In addition to RSK and Liquid Network, Stacks, RootsStocks, Drivechain, and others are also sidechain solutions. In addition, developers are exploring and practicing in areas such as state channels and Roll-up.

Bitcoin Ecosystem: A String of Inscriptions Opens Pandora's Box

Before this, many people's impression of Bitcoin had nothing to do with "ecology" because of Bitcoin's technical characteristics and natural limitations that do not support Turing-complete smart contracts. The only thing that can barely be considered as part of the ecology of Bitcoin is the Lightning Network and Stacks, which have been neglected for years. Everyone's focus is on "smart contract platforms", whether it is ETH, L2, or various Alt L1.

No one expected that an Ordinal protocol would completely ignite the concept of Inscription and set the entire BTC ecosystem ablaze, surpassing all smart contract platforms in one fell swoop. Ironically, even the vast majority of smart contract platforms have started to dabble in Inscription.

The development history of Ordinal.

March 8th: @domodata proposed the brc20 experiment and deployed $ORDI.

March 9th: $ORDI was minted, with a price of around 5U per mint.

From March 10th to March 23rd: $ORDI OTC trading, trading around 0.03U.

March 23: UniSat launched the BRC20 trading market and the price quickly rose to 0.3U. However, due to double-spending issues, UniSat closed the trading market.

April 27th: UniSat is back on the BRC20 trading market, only open to some users. The price of $ORDI quickly rose to 1U and continued to soar.

May 5th: Opensea announced support for Ordinals and BRC20, causing a complete fomo sentiment and prices reaching 6U. Various new BRC20 tokens are being hyped by different communities, such as nals, xing, oshi, shib, etc.

May 8th: $ORDI was listed on gate.io. On the same day, BTC transaction fees accounted for 43.7% of the total mining revenue. After being listed on gate.io, the price surged from 9U to 20U.

May 9th: $ORDI surged to its highest point of 28U, and gate.io began listing various BRC20 tokens such as BANK and PIZA, as well as LRC20 and DRC20 tokens, which emerged one after another, diverting from BRC20.

May 9th to May 12th: With the dumping of large holders and the overall market downturn, the price of ordi continued to decline to around 7.5U, and market sentiment decreased.

May 12th: OKX announced official cooperation with UniSat to jointly build the BRC20 industry standard. After a strong boost, the price of $ORDI rebounded and fell back to around 12U that day.

May 20th: @okx and @HuobiGlobal launched $ORDI, with the price rising from 12U to 15U. This was followed by a continuous decline lasting over 4 months.

September 11th: A dark day for the cryptocurrency industry as it fell below 3U, with Ordinal Black leading the decline.

October 18th: UniSat releases brc20-swap, and ORDI begins to recover. From this point on, $ORDI starts to rise.

November 3rd: BRC20 ecology gradually gains momentum, and the price gradually rises to 6.2U. On that day, the market value of $sats exceeded $ORDI.

November 7th: Binance announced the launch of $ORDI, which surged from 7.4U to 13.5U, marking the beginning of its comeback journey.

November 10th to December 1st: hovering around 20U.

December 2nd: $ORDI rose from 21.7U to 32U, reaching a new historical high in over 5 months.

December 5th: $ORDI rose to 69U, with a market value exceeding 1 billion US dollars.

Source:BitcoinFrogs

Rune, BRC100

Rune

BRC100

The concept of BRC100 is to introduce some decentralized computing concepts on top of the Deploy, Mint, and Transfer functions of BRC20, making it possible to build Bitcoin-native decentralized applications such as AMM DEX, lending, SocialFi, Gamefi, etc. However, BRC100 is currently in the development stage. For specific development details, please refer to: https://docs.brc100.org/

SRC20，BRC420

SRC20

SRC20 originated from the BTC Stamps protocol, which is not derived from Ordinal, but directly competes with Ordinal. There is a picture online that can illustrate the difference between BTC Stamps and Ordinal very well.

It's quite funny that Casey's Rune protocol is just an "idea" without any specific product, which led to the founder of Trac writing the first usable protocol based on it and releasing the Pipe protocol.

BRC420

BRC420 brings three very interesting things:

The third is Bitmap, which is a very "cool" and hardcore thing. It can be understood as a BTC-based Sandbox, but it is much more native than Sandbox. Because each .bitmap inscription maps every block on Bitcoin, and the number increases with the synchronization of blocks. There are currently more than 810,000 Bitmaps, and 50,000 are added each year. Holder has more than 20,000 independent addresses, second only to Ordi and Sats.

BRC420 does not actually own Bitmap, but it is the biggest booster behind Bitmap and monopolizes over 95% of the traffic of Bitmap browser. Over a hundred teams have already issued assets on BRC420. It can be said that BRC420 is an application protocol deeply bound with Bitmap.

Taproot Asset，RGB

These two technical solutions are representatives of Client Side Validation and are also considered as the most powerful competitors for BTC's long-term expansion plan in the eyes of many people.

Taproot Asset is worth mentioning, and the project that naturally comes to mind is the Nostr Asset Protocol. Contrary to what many people think, the relationship between Nostr Asset and Nostr, the decentralized social network messaging protocol, is not significant because it does not use the Nostr protocol to issue assets. Instead, it is simply an application on Nostr that controls the custodial wallet using Nostr messages, allowing users to send and receive introduced assets at the Nostr protocol layer through their Nostr public and private keys.

Taproot Asset. The project party has also been controversial on the Internet for a period of time because of the name.

Taproot Asset will conduct integration testing with the Lightning Network in the first half of next year. If successful, we will see more Taproot Asset asset issuance and new applications on the Lightning Network in the next 6-12 months.

RGB is basically empty in this round of BTC ecosystem, but in the long run, it is still one of the best solutions for BTC expansion. Its support for smart contracts makes it more flexible and scalable than Tarpoot, especially since Tether intends to issue USDT on RGB, which has a high voice. The number of teams developed based on RGB is also far more than Taproot Asset.

However, through communication with multiple RGB and Taproot developers, it has been learned that the current technology stack of RGB faces significant difficulties in integrating with the Lightning Network. Therefore, in the short term, Liquid sidechain may be the "temporary choice" for RGB. Founder Maxim even intends to create a new Layer1 to support RGB. From a legitimacy perspective, the Lightning Network is undoubtedly the best choice, but whether the technical compatibility issues can be overcome remains to be seen and only time can give us the answer.

BRC420 does not actually own Bitmap, but it is the biggest booster behind Bitmap and monopolizes over 95% of the traffic of Bitmap browser. Over a hundred teams have already issued assets on BRC420. It can be said that BRC420 is an application protocol deeply bound with Bitmap.

Bitcoin Future: Entering the Golden Age

When we look to the future of the Bitcoin ecosystem, we can anticipate exciting innovations and changes in multiple key areas. It may even redo what has happened in the Ethereum ecosystem over the past few years.

Layer 2 Solution

The Layer 2 solution of the Bitcoin network is designed to address the problems of network congestion and high transaction fees. These solutions, such as BSquared, are EVM compatible Layer 2 solutions that provide an off-chain transaction platform that supports Turing-complete smart contracts, improving transaction efficiency and reducing costs. By integrating zero-knowledge proof (ZKP) technology with Bitcoin's Taproot, the project ensures enhanced privacy and security for transactions. This project can achieve 50 times cheaper and 300 times faster transactions compared to BTC. The team also encourages developers to build various DeFi and NFT platforms on the chain, and the network aims to develop Bitcoin into a dynamic platform. In addition, Bitmap and Babylon will develop their own layer2 businesses. Bitmap has a strong community and asset protocol discourse power on one layer, which gives it a huge advantage in the layer2 ecosystem. Babylon can empower the construction of Layer2 with the huge traffic brought by BTC collateral.

Asset Issuance and Trading

In the future Bitcoin ecosystem, it is expected that more asset issuance and trading platforms will emerge, allowing users to create and trade various digital assets. Bitmap has innovatively proposed the BRC420 protocol, which is different from Ordinals and other protocols in that it recursively combines multiple strings into a complex string. From small things like a character or pet, to large things like entire game scripts, virtual machines, and even AI models, they can all be combined into on-chain assets for developers to purchase or pay royalties. BRC-420 consists of two parts, the Metaverse Standard and the Royalty Standard. The former defines open formats for assets in the metaverse, while the latter sets on-chain protocols for creator economics.

Stablecoin

Stablecoins will play an important role in the Bitcoin ecosystem, providing users with a relatively stable digital asset aimed at mitigating Bitcoin price volatility. This will enhance the usefulness of Bitcoin, making it more suitable as a stable store of value. BitSmiley is a comprehensive solution for BTC DeFi, filling the most missing "stablecoin" link in the current Bitcoin ecosystem. In addition to providing URC20 format stablecoins compatible with BRC20 in the form of BTC over-collateralization, BitSmiley also provides peer-to-peer lending based on BRC20, as well as insurance and CDS derivatives built on top of lending, and has established partnerships with multiple BTC Layer2 to provide stablecoins and DeFi ecosystem products. The overall over-collateralization mechanism of BitUSD is similar to MakerDAO, where users collateralize BTC on the issuance layer (using Wrap BTC on the cooperative Layer2 or bridging BTC into BitSmiley DAO through BitSmiley's official bridge) to mint bitUSD. BitSmiley fills the most missing "monetary stablecoin" link in the current BTC ecosystem, and opens up a new door for BTC DeFi through lending, insurance, CDS derivatives, and other solutions, which is bound to become an indispensable key component project in the BTC ecosystem.

借贷&质押平台

Loan & Pledge Platform

With the further popularization of Bitcoin, lending platforms will provide more financial services options for users holding Bitcoin, such as borrowing and earning interest. This will help promote the wider financialization of Bitcoin and attract more participation from traditional financial institutions. Babylon allows Bitcoin holders to pledge idle Bitcoin to increase the security of the PoS chain and earn profits in the process. A Bitcoin pledging protocol has been proposed that allows Bitcoin holders to pledge Bitcoin without the need to bridge to the PoS chain and earn stake income, providing complete reducible security guarantees for the chain. The protocol supports fast unbundling to maximize the liquidity of Bitcoin holders. In addition, the protocol is designed as a modular plug-in that can be used on a variety of different PoS consensus algorithms and provides the foundation for building reset protocols.

Cross-chain technology

In the future, cross-chain technology in the Bitcoin ecosystem will become more mature, achieving interoperability between different blockchains. This will strengthen the collaborative role of the entire blockchain ecosystem, making it easier for different projects and blockchains to cooperate and interact. To explore DeFi applications in the Bitcoin network without smart contracts, a relatively efficient way is to bring BTC assets into public chains such as Ethereum with smart contract functionality, directly utilizing its sophisticated DeFi infrastructure. Polyhedra Network has launched a Bitcoin cross-chain messaging protocol based on zkBridge to significantly improve the interoperability of the Bitcoin network. This innovation aims to enable the Bitcoin network to efficiently and securely interact with other layer-1 and layer-2 blockchain networks. The Bitcoin interoperability protocol introduced by Polyhedra Network marks a major leap forward in blockchain technology. By enabling the Bitcoin network to act as both a sender and a receiver, combined with zkBridge, such interoperability protocols pave the way for unprecedented interaction between Bitcoin and various blockchain networks.

Application

Bitcoin-based applications are flourishing and covering multiple fields. From identity verification to supply chain tracing, various decentralized applications will provide users with more reliable solutions through the security and tamper-proof nature of Bitcoin. Bitmask is the most popular and well-known wallet on RGB, and its built-in Market Place (Coming Soon) makes it easy to trade RGB assets. In addition, the team will launch the launchpad section in the next phase. RGB, as a "native scaling" solution, is the most suitable for BTC in terms of logic and technology. RGB V0.1 has been officially released for half a year, and V0.11 Alpha will be released soon. The RGB ecosystem is expected to take off within six months. With the Bitcoin halving, the timing is just right.

MEV

MEV, as a feature of the POW mechanism, theoretically also applies to Bitcoin. In the BRC20 craze, a Bitcoin OG developed a MEV machine called "Sophon" to protect BTC from dust attacks. "Sophon" deploys tokens with the same name quickly through a front-running strategy, sets the supply to 1, and obtains priority deployment by paying high gas fees, preventing others from deploying tokens with the same name again. Sophon caused a surge and decline in the number of BRC-20 tokens in a short period of time and was an attempt at MEV on BTC. However, in practice, since Bitcoin transactions are mainly simple Bitcoin transfers, MEV opportunities are relatively rare. But as more complex transactions are introduced into Bitcoin through Taproot or Layer 2, MEV opportunities may increase, especially as MEV may become a new source of mining revenue after all Bitcoins are mined. Currently, there is no economic incentive for miners to actively seek MEV, but we can expect to see ecosystem projects like Flashbot on BTC Layer2 soon.

ABCDE BTC Ecosystem Investment Landscape

We believe that these innovations and changes will shape the Bitcoin ecosystem in the future, giving it broader usability, scalability, and applicability. This vision is not only a preliminary imagination, but also a hopeful prospect. The future development will benefit from the continuous progress of technology, the collaborative cooperation of the community, and the constant demand for innovation in the market.

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