Risks and Opportunities in the Bitcoin Ecosystem (Part 1)

Bitcoin Ecosystem Risks and Opportunities (Part 1)

Over the years, my focus on ecology and technology has mainly been on Ethereum, not Bitcoin. In fact, when it comes to Bitcoin, I basically only see it as a benchmark and value store in the encryption ecology, and pay little attention to the technological progress and ecological applications that occur in its ecology, nor do I attach much importance to them.

However, the emergence of various protocols in recent times has made me feel that it is still necessary to put down the kind of contempt for the Bitcoin ecology that existed in my heart before, and to delve into each protocol to understand what they are doing. What are the various new assets built around these protocols? And is it possible for these new assets to coalesce new consensus and create new value tokens?

The value of an asset in an ecosystem generally comes from two sources: one is a consensus formed purely because of culture, dissemination, etc. (typical of NFTs); the other is direct value generated by actual use (such as some DeFi tokens that can generate rights).

In this article, we will only discuss the first type: consensus formed purely because of culture, dissemination, etc., which gives value to tokens.

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Currently, the token assets built on various protocols based on the Bitcoin ecosystem are basically divided into two categories: one is homogeneous assets, similar to Ethereum’s ERC-20 tokens; the other is non-homogeneous assets, similar to Ethereum’s ERC-721 or ERC-1155 tokens.

For the first type of homogeneous tokens, the hottest ones right now are the BRC-20 standard and the ORC-20 standard, which is based on the BRC-20 standard upgrade. And both of these standards are based on the Ordinals protocol.

There are already countless online articles on the technical details of these two standards and the Ordinals protocol, so I will not go into the technical details here.

What I care most about is: Are the assets generated by the Ordinals protocol safe? Is it really tamper-proof as widely circulated?

This is the core and fundamental guarantee of the value of all encrypted assets, and it is also fundamentally incomparable to traditional Internet digital assets.

This core and fundamental guarantee comes from two aspects technically: one is the blockchain on which the token assets are based, and the other is the protocol that constructs the token assets.

ERC-20 tokens are built on Ethereum and the way assets are constructed is through tamper-proof smart contracts. These two points ensure the fundamental security of ERC-20 tokens in terms of technology.

The Ordinals protocol is based on Bitcoin, which undoubtedly makes everyone feel at ease. But what about its protocol? In fact, there is a certain hidden danger in its protocol. The protocol data is stored in the witness data, and theoretically, the witness data can be deleted by a hard fork.

So there is a certain hidden danger in Ordinals at the foundation, which comes from the protocol rather than the underlying blockchain.

Although ORC-20 has made significant improvements and enhancements compared to BRC-20, in my opinion, there has not been a fundamental improvement and transformation, so these two types of standards can basically be regarded as one type.

And if these two types of standards can eventually produce assets that are valuable purely because of culture and dissemination, I’m afraid that the main ones will still be the early token assets created in the BRC-20 standard, because those early assets have the advantage of timing and are easier to build consensus.

As for the Bitcoin NFTs created using Ordinals, there is a saying on the Internet: that the data of Bitcoin NFTs is all on the chain, while the data of Ethereum NFTs (especially image data) is not on the chain, so Bitcoin’s NFTs are more secure than Ethereum’s.

This statement is actually somewhat misleading.

First of all, there are also NFTs on Ethereum that store images on the full chain. Secondly, many of Ethereum’s NFT projects do not store data on the chain not because it is not technically feasible, but because it is not economically feasible.

Ethereum’s ERC-2569 standard defines how image data is stored in Ethereum: by storing the image completely on Ethereum in the form of an SVG file.

This standard was proposed by a geek team in China, submitted to the Ethereum EIP standard library in 2019, and created NFTs with images that exist completely on the chain in the same year. It was around 2020 that overseas teams began to create full-chain storage NFT projects using this method and sell them on Opensea.

However, the more milestone event is that the original team of CryptoPunks, Larva Labs, also used this method to re-upload all 10,000 CryptoPunk images to Ethereum for full-chain storage, making the avatars of these 10,000 CryptoPunks coexist with Ethereum.

However, a basic principle is always invariant no matter what standard storage is adopted: the cost will be high if the data volume is large, no matter which chain it is on.

In fact, there is also a size limit for NFT images stored on Bitcoin, and large images cannot be stored due to control over economic cost.

Therefore, there are no technical obstacles to storing images on Bitcoin or Ethereum, only economic obstacles.

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