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New trends in the Bitcoin ecosystem: the rise of Lightning Network, Ordinal, Atomical, and bitVM.

2023-12-04 21:00

Read this article in 34 Minutes

Original Title: "New Trends in Bitcoin Ecology - Lightning Network, Ordinal, Atomical, bitVM"

Original Author: Beam, Everest Ventures Group

1. Introduction to Bitcoin Ecology

The position of Bitcoin in the cryptocurrency ecosystem is not only historic, but also crucial. As the first and most famous cryptocurrency, Bitcoin not only ushered in a new era of digital currency, but also laid the foundation for the widespread application of DeFi and blockchain technology. Its decentralized nature, limited supply (21 million Bitcoin cap), and ability to serve as a store of value and investment tool have made it a significant player in the cryptocurrency market.

People's attention to the Bitcoin ecosystem mainly stems from its innovation, challenge to the traditional financial system, and its potential economic impact. Over time, Bitcoin has not only become a part of asset diversification, but also an important topic in global financial discussions. However, after several cycles of bull and bear markets, people gradually realize that the non-Turing completeness of Bitcoin itself has greatly impacted the further expansion of the Bitcoin ecosystem.

Turing completeness refers to the ability of a system to simulate any Turing machine, and is usually associated with systems that can execute any computational instruction, including loops and branches. Bitcoin's scripting language is relatively simple and is primarily designed to handle conditions in transactions and control the transfer process, such as multi-signature or time-locking, rather than performing complex computational tasks. This design is intended to maintain the security and stability of the network. In contrast, blockchain platforms like Ethereum provide a Turing-complete environment that allows for the execution of complex smart contracts.

When discussing Bitcoin, it is important to recognize its limitations, especially in terms of its ability to execute complex programs and smart contracts. Therefore, in order to discuss the development of the Bitcoin ecosystem, we need to first summarize and categorize the problems that need to be addressed in the Bitcoin ecosystem.

Overall, there are three aspects: firstly, how to improve network efficiency and reduce transaction fees without compromising the security of the Bitcoin network; secondly, how to issue native assets on the Bitcoin network without burdening the network; and thirdly, how to address the problem of deploying more smart contracts and complex applications on the Bitcoin network in the context of Turing incompleteness.

Here are some exploration directions:

Enhancing Bitcoin Script Functionality: Although Bitcoin's scripting language is relatively simple, developers have been exploring ways to add more functionality within the existing framework. This includes developing more complex transaction types and conditions, such as improved multi-signature mechanisms and complex locking conditions.

·**Sidechain Technology:** A sidechain is an independent blockchain that is separated from the Bitcoin main chain but still connected to it. This allows for more complex functionality to be implemented on the sidechain, including Turing-complete smart contracts, without affecting the security and stability of the Bitcoin main chain.

· **Lightning Network:** As a second-layer solution for Bitcoin, the Lightning Network aims to provide faster and lower-cost micropayments while reducing congestion on the blockchain. Although this is primarily to address Bitcoin's scalability issues, it also provides a platform for developers to experiment with new features.

·**Rootstock (RSK):** RSK is a smart contract platform that is connected to the Bitcoin blockchain through a sidechain. RSK aims to bring Turing completeness to the Bitcoin ecosystem, allowing users to create and execute complex smart contracts within the secure framework of Bitcoin.

·**RGB:** The core goal of the project is to implement smart contracts and asset issuance on the Bitcoin blockchain while maintaining its decentralization and security features. By using Bitcoin's Layer 2 technology, the RGB project allows users to create and manage non-fungible tokens (NFTs) and other types of complex assets on top of the Bitcoin network. This means that RGB brings advanced functionality to Bitcoin, such as tokenized assets, smart contracts, and digital identities, without affecting the stability and security of the Bitcoin main chain. The RGB project represents the Bitcoin community's efforts to explore expanding its basic functionality, which may have a broader impact on the application scenarios and value of Bitcoin. However, such attempts also bring challenges in terms of technical implementation and community acceptance.

·**Taproot/Schnorr Signature:** These upgrades bring more privacy and efficiency to the Bitcoin network. Although these upgrades do not directly make Bitcoin Turing complete, they provide a foundation for possible future feature extensions.

·**Stacks (STX):** Bitcoin smart contract layer, aimed at expanding the functionality of Bitcoin to support smart contracts and decentralized applications. The main goal is to introduce smart contract functionality on the Bitcoin blockchain, allowing developers to build decentralized applications (DApps) and smart contracts to expand the use of Bitcoin. Stacks 2.0 adopts POX consensus, and the rewards received by participants are more stable and the underlying chain cryptocurrency. Compared with the cryptocurrency of the new blockchain, the underlying chain cryptocurrency reward can better motivate early participants, which helps to attract early participants and strengthen consensus.

·Empowering BTC: By transforming BTC into assets for building DApps and smart contracts, it increases the vitality of the Bitcoin economy.

·**Ordinal Protocol:** Introduces an innovative data storage and tagging method to the Bitcoin network without changing the infrastructure of Bitcoin itself. This protocol utilizes the ordinal number of transaction outputs on the Bitcoin blockchain, allowing users to embed small pieces of data in specific Bitcoins. Although this increases the demand for data storage on the Bitcoin blockchain, it also opens up new possibilities for exploring Bitcoin as a multi-functional, multi-dimensional asset platform.

·**Atomical Protocol:** is a simple and flexible protocol that has recently emerged for the casting, transmission, and updating of digital objects on the blockchain of unspent transaction outputs (UTXOs) such as Bitcoin. The core of the protocol consists of some key simple rules that must be followed for casting, transmission, and updating operations.

·**BitVM:** The BitVM project is an innovative attempt to enhance the functionality and flexibility of the Bitcoin network. As a virtual machine implementation, the goal of bitVM is to provide advanced programming capabilities and smart contract functionality on the Bitcoin blockchain. This approach will allow developers to create more complex and multifunctional applications on the Bitcoin network, expanding its use cases beyond just being a digital currency. By implementing such a virtual machine, bitVM aims to maintain the security and decentralization of the Bitcoin core while introducing more programmability and interoperability. This project represents the Bitcoin community's exploration of technological innovation and expanding its blockchain capabilities, which may bring similar functionality to the Ethereum smart contract platform. However, it may face challenges in terms of technology and community consensus.

In this article, we will compare several of the hottest projects in the Bitcoin ecosystem, taking into account key aspects such as community consensus, technical difficulty, and future application scenarios. We will draw some general conclusions, including:

(I) Community consensus is crucial to the success of these projects. The Bitcoin community has always valued network security and decentralization, and any major changes require widespread consensus. Projects such as bitVM and RGB aim to expand the functionality of Bitcoin, but it must be ensured that the core properties are not compromised, which may trigger intense discussions within the community.

(II) Technical difficulty is another important factor. These projects are attempting to introduce new features through Layer 2 solutions or other technical means without compromising the stability of the Bitcoin main chain, which is undoubtedly a technical challenge.

(3) From the perspective of future application scenarios, these projects are extremely promising. bitVM has the potential to greatly expand the application scope of Bitcoin by providing advanced programming capabilities, while the RGB project can achieve smart contract implementation and asset issuance. This will make Bitcoin not only a platform for value storage. However, the realization of these application scenarios will depend on the successful implementation of technology and the widespread acceptance of the community.

(4) At present, the focus of breakthroughs in the Bitcoin ecosystem is still on "solving asset issuance". Therefore, we expect to see a period of active meme coin activity. Due to the huge wealth effect, more users and developers will be attracted to enter the ecosystem, find project landing and network value, and achieve a true ecological closed loop.

二、关于 segwit 和 taproot

Translation:

2. About SegWit and Taproot

Before introducing the various protocols and projects in the Bitcoin ecosystem, it is necessary to have a basic understanding of segwit and taproot.

Since the birth of Bitcoin, with its simple and elegant technology and exquisite economic incentive design, it has become the faith of a large number of decentralization advocates. In this process, after repeated community discussions and iterations, its network has undergone multiple important upgrades, including BIP 34 introducing version numbers in blocks, laying the foundation for future protocol upgrades, BIP 66 enhancing network security by requiring digital signatures in Bitcoin transactions to follow a specific format, and BIP 65 (OP_CHECKLOCKTIMEVERIFY) allowing the creation of time-locked transactions, thereby increasing the flexibility of creating complex transaction scripts. Among many upgrades, the most important one for expanding the Bitcoin ecosystem is undoubtedly SegWit (Segregated Witness) and Taproot, aimed at improving the scalability and efficiency of the Bitcoin network, and laying a solid foundation for later technical innovations including Ordinal and other related protocols.

SegWit, first introduced in 2017, mainly solves the problem of transaction malleability. By separating the transaction signature information (witness data) from the transaction data, it increases the effective capacity of blocks, thereby improving the network's processing power and reducing transaction fees. In addition, SegWit provides a better foundation for Bitcoin's second-layer solutions, such as the Lightning Network, making micro-payments more feasible.

Taproot, activated in 2021, is another major upgrade to the Bitcoin protocol. It improves privacy and security by introducing Schnorr signatures, while optimizing the efficiency and flexibility of smart contracts. Taproot makes all transactions, whether simple payments or complex smart contracts, look the same externally, thereby enhancing user privacy. In addition, this upgrade reduces the cost of multi-signature transactions by simplifying their data requirements, making complex contracts more feasible on the Bitcoin network.

Overall, the SegWit and Taproot upgrades have collectively improved the performance, scalability, and functionality of the Bitcoin network, laying a solid foundation for the future development of Bitcoin.

Three, the hot Bitcoin ecosystem

Overall, the emergence of Ordinals and BRC20 not only ignited the Bitcoin market (completely changing the source of miner income, as shown in the figure below), but also pointed the way for subsequent protocol improvements. For example, the TRAC based on the BRC20 standard deployed by Beny, an active developer in the Bitcoin community, and the first curse inscription with a total amount of 21 million-CRSD, based on this, the BRC-20 improved version Tap Protocol targeting OrdFi was launched. Tap Protocol is an improvement at the protocol level of BRC-20, and TAP and -TAP were issued based on Tap Protocol. At the same time, the Pipe protocol was launched, which is an improved version of Runes protocol.

Miner Income Analysis

Here we provide a brief introduction to the Atomicals protocol.

Atomical or Atom is a way of creating, transmitting, and updating digital objects that organize numbers - essentially a digital ownership chain defined by some simple rules. The protocol is open source and free for anyone to use. All libraries, frameworks, and services are released under the MIT and GPLv3 licenses to ensure that no one can control these tools and protocols.

According to @bro.tree, the Atomicals protocol is the first protocol to mine token inscriptions using the POW process. Everyone can personally mine tokens/realm/NFTs using their CPU, which is the most fascinating feature of the protocol.

In terms of future ecological scenarios and landing, Atomical mainly considers three asset categories and their derived scenarios, namely ARC20 (homogeneous tokens), non-homogeneous digital objects (NFT), and realm (digital identity). The related landing scenarios include: digital collectibles, media and art, digital identity, identity verification and token access control content, network hosting and file storage (Bitcoin native file system), peer-to-peer exchange and atomic exchange (naturally supporting Swap), digital namespace allocation (DAO construction and domain name revolution), virtual land and property registration, dynamic objects and states of games (Gamefi), social media profiles, posts and communities (verifiable SBT, Socialfi), etc.

Overall, compared to the Ordinal protocol, ARC20 and $ATOM are still in their early stages and require further development of wallets and markets. However, due to their technical design and mining settings being more in line with Bitcoin, their legitimacy is relatively higher, which is precious to the Bitcoin community. In terms of possibility, there is also a chance to achieve true BTC-native DeFi. In terms of ecological development, the community has had a few small outbreaks (see the figure below), but has not yet experienced large-scale speculation and still has great potential.

Atomical Casting Status

Additionally, it is worth mentioning that all tokens under the Atomical protocol are represented in their native satoshi units, and can be split and combined like regular Bitcoin. 1 coin corresponds to 1 satoshi, and 1 atom is equivalent to 1000 coins, or 1000 satoshis of BTC. This may require some adjustment for beginners in the ecosystem, as mistaking atom for regular BTC during a transfer could result in its destruction as a transaction fee.

bitVM - The Holy Grail of the Bitcoin Ecosystem?

In the Bitcoin ecosystem, the bitVM, Ordinal, and atomicals protocols represent different directions of technological innovation and expansion. The goal of bitVM is to provide the Bitcoin network with more advanced programming capabilities and smart contract functionality, thereby expanding its range of applications and increasing its functionality. This approach attempts to introduce more programmability and flexibility while maintaining Bitcoin's core properties, such as security and decentralization.

Simply put, bitVM is a computing model that allows developers to run complex contracts on Bitcoin without changing its fundamental rules. Since the concept of bitVM was proposed and the white paper was published in October 2023, it has attracted widespread attention and expectations from the Bitcoin community. Super Testnet, a Bitcoin community developer, boldly claimed that "this may be the most exciting discovery in Bitcoin script history." In abstract terms, the working principle of bitVM is similar to the Lightning Network, which is considered by some in the community to be the future of Bitcoin payments because it also uses off-chain mechanisms to extend Bitcoin transactions.

As mentioned earlier, Bitcoin is the digital gold standard of cryptocurrency, but it lags behind other public chain ecosystems in its ability to handle complex, Turing-complete smart contracts. BitVM, created by Robin Linus, is a "Bitcoin virtual machine" that addresses this issue. It is worth noting that Robin also created ZeroSync, an exciting direction that introduces zero-knowledge proofs into the Bitcoin ecosystem, with a focus on implementing Stark Proofs for Bitcoin.

If summarized in one sentence, in BitVM, computation will be executed off-chain and verified on-chain, similar to the op rollup mechanism on Ethereum.

Similarly, BitVM involves two main participants: the prover and the verifier. The prover is the party that initiates the computation or declaration, essentially stating, "This is a program, and this is what I assert it will execute or generate." On the other hand, the verifier is responsible for verifying that declaration. This dual-role system can achieve a certain degree of balance, ensuring that the computation results are accurate and trustworthy.

The uniqueness of BitVM lies in its handling of computational workloads. Unlike traditional blockchain operations that place a heavy burden of computation on the chain, most of BitVM's complex calculations are performed off-chain. This greatly reduces the amount of data that needs to be directly stored on the Bitcoin blockchain, improving efficiency and reducing costs. This off-chain approach also provides higher speed and flexibility, as developers or users can run complex programs or simulations without worrying about overburdening the blockchain.

However, BitVM does indeed adopt on-chain verification when necessary, especially in cases of disputes. If the verifier questions the legitimacy of the declarer's statement, the system will refer to the immutable and decentralized ledger of the Bitcoin blockchain to resolve the issue. This is achieved through the so-called "fraud proof".

If the claim of the prover is proven to be incorrect, the verifier can submit a concise proof of fraud to the blockchain to expose dishonest behavior. This not only resolves disputes but also maintains the overall integrity of the system. By integrating off-chain computation and on-chain verification, BitVM achieves a balance between computational efficiency and strong security, known as Optimistic rollup. The basic idea is to assume that all transactions are correct ("optimistic") unless proven otherwise. Only when there is a dispute, the relevant data and calculations will be published and verified on the main blockchain. This significantly reduces the amount of data that must be stored on the chain, freeing up space and reducing transaction costs.

In BitVM, Optimistic rollup is particularly useful. Most of the computational work happens off-chain, reducing the amount of data that needs to be stored on the Bitcoin blockchain. When a transaction is initiated, BitVM can use Optimistic Rollups to bundle multiple off-chain transactions into a single on-chain transaction, further reducing blockchain space usage.

In addition, in case of disputes, the use of fraud proofs by BitVM is very compatible with the inherent "challenge-response" system of Optimistic Rollups. If the prover makes false claims, the verifier can quickly expose dishonest behavior by providing concise evidence of fraud. Then, the fraud evidence will be reviewed within the Optimistic Rollup framework and if validated, the dishonest party will be punished.

What sets BitVM apart is that although both BitVM and Ethereum's EVM (Ethereum Virtual Machine) provide smart contract functionality, their methods and features differ. Ethereum's EVM is more versatile in supporting multi-party contracts and providing a wider range of computing tasks on the blockchain, but this may lead to higher costs and a cluttered blockchain. BitVM, on the other hand, focuses mainly on two-party contracts and executes most of the computing work off-chain. This minimizes the footprint on the Bitcoin blockchain and reduces transaction costs. However, the current design of BitVM limits its applicability in complex multi-party environments, an area where Ethereum's EVM excels.

Not everyone believes that BitVM is worth paying attention to, and it has also raised concerns among some people. As Dan from the Paradigm Research Institute said, the protocol is only applicable to two parties, so it cannot be used for rollups or other multi-party applications. This is not particularly novel in itself, as programmer Greg Maxwell proposed a better protocol ("ZK or contingent payments") a long time ago to solve the same problem. However, it must be admitted that if BitVM is effective, it may have a wide-ranging impact on building on top of Bitcoin. Another criticism is that even if the computation is done "off-chain", on-chain verification can still result in huge costs. The BitVM proposal states that it will not add a large amount of transaction volume to the network and will not cause gas fees to skyrocket, as was the case with the popularity of Ordinals.

Overall, bitVM is still in the conceptual stage. As Linus said, "The purpose of publishing a white paper is to describe the idea in simple terms, stimulate community interest, but it is not yet a complete solution."

Summary

Compared to other public chain ecosystems, Bitcoin is the most established and decentralized practice with the highest degree of consensus. The community is very persistent in upholding the legitimacy and authenticity of Bitcoin. To explore different Bitcoin ecosystems horizontally, it is necessary to consider the opinions of the community to a greater extent and to refrain from causing damage to the Bitcoin network.

1. Sidechains and Layer2, represented by Lightning Network, are the longest-standing ecological explorations and practices in the cryptocurrency industry. Among them, Lightning Network has gathered more than half of the developers in the Bitcoin ecosystem, and has a consensus and cohesion that other sidechains and protocols cannot match. As a protocol aimed at solving the scalability problem of Bitcoin, Lightning Network creates payment channels on top of the main chain to achieve fast and low-cost microtransactions, effectively alleviating the congestion and high fees of the Bitcoin network. However, for a long time, Lightning Network was only used for small payments and did not support the issuance of other assets. In the case of limited use cases, it was surpassed by the popularity of Ordinal. Its project company, Lightning Labs, timely released the Taproot Assets protocol on the mainnet, supporting the issuance of stablecoins and other assets on Bitcoin and Lightning Network, providing developers with the tools needed to make Bitcoin a multi-asset network while maintaining the core value of Bitcoin in a scalable way.

2. Various asset issuance protocols represented by the Ordinal protocol have clever designs and strong technological innovation highlights. They have solved the "asset issuance" problem that has plagued the Bitcoin ecosystem in a simple way, and have attracted a lot of market attention in a very short period of time. The wealth effect and the influx of developers have created a similar atmosphere to the defi summer. Other innovative protocols such as BRC20, Rune, and Atomicals, which originated from Ordinal, have a strong sense of technological iteration. Although there are negative evaluations such as "increasing the burden on the mainnet" in the Bitcoin community, we believe that asset issuance protocols represented by the Ordinal protocol will become a market hotspot for a period of time and will be a transitional or phase-change innovation for the Bitcoin ecosystem.

The position of 3.bitVM and similar virtual machines or smart contract platforms in the Bitcoin ecosystem is particularly unique and important. The emergence of these platforms represents the Bitcoin ecosystem's desire for functional expansion and technological innovation, especially in the areas of smart contracts and advanced programming capabilities, bringing new use cases and value to Bitcoin. Although it is still in the development and exploration stage, the ability to introduce smart contracts is crucial for the long-term development and competitiveness of Bitcoin, and may become a key driving force for innovation and diversification in the Bitcoin ecosystem. However, the success of these systems will depend on the community's acceptance, the feasibility of the technology, and whether they can maintain consistency with the security and decentralization characteristics of the Bitcoin main chain.