BTC Tech Stack and Trends: Exploring Directions Amidst Confusion and Debate

BTC Tech Stack and Trends: Navigating Confusion and Debate

Author: Lao Bai, Source: Author’s Twitter Lao Bai@Wuhuoqiu, ABCDE Investment Partner, Amber Group Research Consultant.

Given the recent buzz around the BTC ecosystem, I have recently looked at several BTC ecosystem primary market projects and will first talk about the technical stack and trends that are currently full of contradictions and debates in BTC.

I. History

To understand BRC20, Ordinal and other things, you need to have a rough understanding of their technical historical background. Here, I will briefly introduce it in the simplest way possible.

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Satoshi Nakamoto invented Bitcoin with the original intention of creating a peer-to-peer cash system. Later, he stated on the forum that after Bitcoin grows and becomes stronger, it can carry more things on it, such as escrow transactions, bonded contracts, and third-party arbitration.

However, later everyone found that BTC’s performance was too poor, and the price fluctuations were too great, making it impossible to achieve peer-to-peer cash transactions. Therefore, it gradually moved towards the current “electronic gold” route, and Satoshi Nakamoto’s original intention and ideas also laid the foundation for later expansion disputes and events such as the BCH and BSV forks.

There is an OP_Return script opcode in Bitcoin, which can hold 80 bytes of content, so someone came up with Colored Coin in 2012, using Op_Return to mark some things, allowing Bitcoin to change from homogeneity to heterogeneity. However, it was not done due to BTC’s performance issues.

Later, in 2013, there was MasterCoin (later OmniLayer, where BTC-based USDT was issued), and in 2014, there was CounterBlockingrty, both of which were messing around with this Op_Return, with predictable results. In 2014, one of the co-authors of Colored Coin, who was ignored by MasterCoin when he made BTC upgrade suggestions, became angry and created ETH himself.

Later, due to the issue of expansion, countless disputes arose, the most famous being BCH and BSV, both of which took the big block route. BCH was slowly getting bigger, from 1M to 8M, then 32M and so on, and BSV was even more extreme, starting with several hundred M or even 1G.

On the BTC side, it has remained calm and used Segwit segregated witness technology to separate signature verification from transactions. The original 1M total data is now 1M transaction data + 3M witness data, which is a “small expansion”. Note that Segwit is very important! Because later, Ordinal, BRC20, and other things are derived from this.

II. Problems and Current Situation

Aside from direct block expansion, there are many ways in BTC’s own technology stack, but they are not as popular as ETH, after all, supporting smart contracts and not supporting smart contracts are not in the same dimension in terms of technical complexity and feasibility, but there is indeed a problem, that is, what to do with BTC’s security when there is no block reward in a hundred years (it will be very scarce in more than ten years), and is it necessary to switch to POS for increased issuance? How to stimulate enough on-chain TX is a problem.

Currently, the overall exploration direction is as follows:

1. Pure sidechain: Liquid Network, which is a consortium chain created by BlockSteam, is about 10 times the performance of BTC, mainly for large-scale BTC transfers and transaction settlement for institutions.

2. State channels: Lightning Network, need not be explained, everyone in the industry knows, it is also the most prominent technical stack of BTC so far, designed for fast payment of small or even micro payments, supporting stores like Walmart and McDonald’s, but the data is indeed mediocre after several years, with about 5,000 BTC locked up and about 70,000 channels.

3. Indirect sidechain: RSK and Stacks, RSK is EVM compatible, using a mechanism of joint mining with BTC to create blocks, Stacks is non-EVM compatible, creating its own Clarity language and using a POX transfer proof to create blocks. Neither really inherits BTC’s security or hash power, they just look a bit like it, and are completely different from ETH L2.

4. Client validation: RGB and Taro, which are relatively new paradigms, bind off-chain assets issuance with on-chain UTXO, but transaction verification and data storage are in the client. When you verify, you only need to verify the UTXO related to your off-chain assets with client software, without checking the whole network for consensus like traditional blockchains. It’s new, but development is relatively slow, and it has been overtaken by Ordinal.

5. Ordinal (including NFT, BRC20, etc.): This is actually stuffing things into the 3M witness data in Segwit. Previously, OP_Return could only hold 80 bytes, but now with Segwit, it can hold 3M. Originally, Segwit placed restrictions on the amount of data that could be stuffed into witness data for a single transaction, but the Taproot upgrade at the end of 2021 relaxed the requirements and completely removed the restrictions, so you can see BTC NFT, BRC20 and other small pictures with a size of 3M.

3. Debate and Future

Ordinal has caused a lot of controversy, not only between ETH and BTC supporters, but also within BTC itself. On the one hand, Ordinal did stimulate on-chain TX, and at one point raised the proportion of transaction fees from 2% to 74%. Bitcoin was expensive and congested, and miners were happy. On the other hand, many bitcoin supporters feel that the bitcoin network is filled with small pictures or useless “inscription garbage,” which is not what BTC should look like.

So the focus of the debate is actually quite simple – how should this 3M data space be used? What is the most meaningful thing to put in it? There are currently and in the future several ways to do this, but technically, they all have their logical flaws (the hype is another matter).

1. NFT: BTC NFT is mainly a pure on-chain, and many NFTs on ETH only store a link to Arweave or IPFS on the chain. But if you think about it, is that small picture really that important on the ETH or BTC chain? At least ETH has been hyped about NFTs for the past two years, and no one really cares about it. Is it really worth more to put a small picture in this 3M isolation witness space than on AR or IPFS? It’s a bit far-fetched.

2. BRC20/ORC20/SRC20/BRCXXX: BRC20 has many restrictions and is inconvenient in many ways, so everyone has come up with ORC20, which is more powerful and flexible, and there is BRCXXX waiting behind… But the more functional XRCs at the back are actually more like ERCs, so why bother with them? Anyway, even if BTC is tinkered with, it cannot be more user-friendly than ETH and other smart contract-based public chains because it does not support smart contracts.

3. DA: This is what Celestia Rollkit is doing. The DA layer technology can be thrown into that 3M, but the problem is that DA is not superior in terms of speed or capacity. ETH will soon be upgraded to KanKun, and each block will be every 12 seconds (16M can be hung when Danksharding is fully upgraded in two years), 5M per minute, and 50M per 10 minutes. BTC is 3M for one block every 10 minutes, and it has to compete with BRC and others for space, and it is small and expensive.

Anyway, you find that no matter what you put in it, ETH can do it better, as mentioned earlier, the difference between having and not having smart contracts is a dimension, and no matter how you tinker with this 3M space, the ceiling is always ETH. If you insist that BTC is more OG or more secure than ETH, it’s not impossible, but do you really need to raise the security level from ETH to BTC? Moreover, after ETH switches to POS, who is safer, ETH or BTC, is also debatable…

Finally, let’s talk about some new BTC applications that we have seen in both primary and secondary markets.

1. Timestamp server: This is being done by Babylon in the Cosmos ecosystem, which uses BTC as a timestamp server to help POS chains prevent long-range attacks. This is a way to “borrow” the security of Bitcoin to serve some POS chains, but this only strengthens them and does not completely replace their own validation and consensus mechanisms.

2. DA: As mentioned earlier, we won’t go into detail about this.

3. EVM compatibility/equivalence: In fact, RSK is also EVM-compatible, but it hasn’t been done much. Currently, some new projects in the primary market are exploring this direction, such as using a similar method to ETH to pledge BTC as a node to do EVM equivalence, and forking OP and then using some form of BVM to implement “BTC-based Optimistic Rollup.”

4. Zk+BTC: This is being done by ZeroSync and is more of a public good style. ZK-STARK is used to generate ZK proofs for the Bitcoin network, which immediately verifies the latest state of the blockchain, so you don’t need to spend hours or even days synchronizing all BTC history. Currently, it can prove the block header and transaction data, and the signature information proof is still under development.

In short, the BTC ecosystem is a particularly confusing one. On the one hand, new things can really be speculated once they come out, after all, it is the ancestor of blockchain. On the other hand, many things cannot stand up to technical scrutiny and the test of time. It’s a bit like the earliest Ford cars. Later, others had turbocharging and even hybrid and pure electric technologies, while you could only increase cylinder displacement by expanding the cylinder. You really can’t catch up.

However, several decades later, BTC’s security issues and computing power are real concerns, and we really need to find a direction to use the 3M witness space to stimulate the generation of TX on the chain. The most ideal situation is something native to BTC that no other ecosystem has, or something that BTC is best suited for, but logically it seems that ETH can do anything in any direction, and do it better. It’s confusing…

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