L2 New Narrative? Understanding Ethereum Inscriptions in One Article

Ethereum Deciphering the Latest Narrative of L2 Through One Comprehensive Article

Source of Hype

On June 17th, the Ethereum inscriptions protocol Ethscriptions was launched, with the minting cost of its text token $eths being approximately 0.5 U. Within a few days after minting, its off-exchange price reached 100 U, bringing in hundredfold profits for early participants. In early August, the price skyrocketed to 500 U. However, as the price of $ordi continued to decrease, the hype around $eths gradually faded, and the price fell to around 300 U. After more than two months of silence, on October 8th, $eths experienced a sudden surge, with the price climbing to 800 U, igniting FOMO emotions in those who missed the opportunity to jump on board.

In the official Telegram group, community members stand by, ready to comment and retweet under $eths-related tweets in order to increase their visibility and promote their spread. At the same time, KOLs see $eths as a traffic boost, posting various content related to $eths, even casually mentioning it can generate huge engagement. Under the promotion and discussion of community members and some KOLs, many onlookers who had not previously participated in Ethscriptions joined the massive discussion. However, this is merely a case of the tail wagging the dog and should not be the basis for investment decisions.

Ethereum Inscriptions Concept

The Ethscriptions protocol for Ethereum inscriptions is similar to the Ordinals protocol on Bitcoin. It allows people to engrave different types of files on the Ethereum mainnet, as long as the size does not exceed 96 KB. Specifically, the protocol notes information (in hexadecimal characters) on a transaction, and since the transaction occurs on the chain, it is a completely on-chain behavior with features such as immutability and ETH security sharing.

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The concept of Ethscriptions was proposed by Tom Lehman, co-founder and former CEO of Genius.com, who developed a search engine and website for the protocol on June 17, 2023.

Tom’s original intention was to use the Ethscriptions protocol to reduce the minting cost of NFTs, thus lowering the financial barrier to minting NFTs and further popularizing them. Later, Tom Lehman and his team used the calldata field in ETH transactions to store unique reference identifiers, developing a smart contract protocol based on ETH inscriptions to achieve low transaction fees and fast functionality.

Development History

On June 17th, Ethscriptions was founded, and the first official project launched was Ethereumpunks, which sold out within approximately 2 hours and currently has a floor price of 0.006 E. Although Ethereumpunks was the first project officially launched, it didn’t receive a strong market response. The real breakout for Ethereum inscriptions was $eths, which brought in impressive profits.

On July 17th, the trading market Ethscriptions.com was hacked, and a large number of listed engravings were stolen. In this attack, approximately 123 addresses lost a total of about 202 engravings. Previously, $eths had already experienced a price surge, with individual engravings reaching up to 5 ETH. The vulnerability can be traced back to a smart contract created by two co-founders, which contained a piece of code that allowed people to withdraw engravings that did not belong to them from the market. However, this issue has since been resolved. The founders have stated that they have been in contact with many users affected by this vulnerability.

On July 25th, founder Tom Lehman announced the launch of Ethscriptions Marketplace V2 and introduced a new protocol called ESIP-2, which is aimed at the Ethereum subscription market. The launch of the new marketplace once again ignited the trading enthusiasm for Ethereum engravings. OpenSea data shows that the total trading volume of Ethereum engravings has reached 655 ETH so far.

On August 8th, ESC VM (Ethscriptions Virtual Machine) testnet went live, taking Ethscriptions onto a new development trajectory. In the ESIP-4 proposal, the Ethereum engravings introduced a virtual machine. This is a new protocol built on top of Ethscriptions. ESC VM provides computational functionality to Ethscriptions. Ethscriptions also introduced a contract system called “Dumb Contracts,” with which users can interact through engravings.

On September 8th, Ethscriptions officially announced $eths as their official token. Engraving tokens can be split using the Dumb Contract bridge, and $eths will become the pioneer token for the official bridge of Ethscriptions and plans to launch a Dumb Contract DEX based on UniswapV2. The increased divisibility of the tokens and the compatibility of Dumb Contract token standards with ERC-20 improve transaction convenience and reduce entry barriers.

On September 27th, the DumbSwap DEX based on Dumb Contracts went live on the testnet.

On the evening of October 8th, the price and volume of $eths rose simultaneously, surging from around 300 U to 800 U, sparking widespread discussion.

On October 9th, Ethscriptions completed the ESIP-5 upgrade, reducing the transfer gas fee to around 0.05 U, which is lower than some L2 solutions.

Three stages of Ethscriptions’ development:

1. In the first stage, $eths can be compared with $ordi.
2. In the second stage, $eths is a token. The base layer can be compared with Arbitrum or Optimism, and various types of native projects will emerge.
3. In the third stage, projects on the Ethereum mainnet will expand into the ecosystem of Dumb Contracts.

Scalability Implementation Principle

The origin of L2 new narrative comes from the development proposals ESIP-5 and ESIP-6 of Ethscriptions.

ESIP-5 proposal refers to Bulk Ethscription Transfers from EOAs. Currently, only a single Ethscription can be transferred in a non-contract address transaction. After the launch of ESIP-5, batch transfer of Ethscriptions will be supported in a single transaction. ESIP-5 elevates EOAs to the level of smart contracts by introducing EOA batch transfer mechanism. According to co-founder @0xHirsch’s tweet, a maximum of 4,000 Ethscriptions can be transferred per transaction, costing only 0.11 ETH under current gas fees.

ESIP-6 proposal refers to Opt-in Ethscription Non-uniqueness. Currently, only the first Ethscription with the same content (characters) is considered valid. This indexing rule ensures the uniqueness and uniqueness of Ethscriptions, but it limits and poses problems for use cases that require duplicate information transfer between smart contracts, etc. For example, the operation of Ethscriptions virtual machine requires the exchange and verification of information between smart contracts and dumb contracts.

The core of Ethscriptions is ESC VM, which can be compared to EVM (Ethereum Virtual Machine).

The dumb contracts in ESC VM free Ethscriptions from the limitations of NFT speculation, and enter the realm of functionality and practicality, officially entering the competition of the underlying layer with L2 solutions.

ESC VM provides a runtime environment similar to EVM for dumb contracts. Dumb contracts can perform two commands: deployment (creating new contracts) and invocation (calling state-changing functions of existing contracts). The interaction of such contracts is a more special way of interaction. Because they are stored through Ethscriptions, they bypass the execution and storage costs of EVM (transactions are stored on the chain using the calldata field). This also allows dumb contracts to have much lower fees than smart contracts.

Limitations

1. The functions of dumb contracts cannot be directly invoked. If you want to send ETH through a dumb contract, you must go through a process similar to bridging.

(1) Users send ETH to Smart Contracts.

(2) The smart contract creates an Ethscription and sends an invocation to the dumb contract, notifying the dumb contract that the Smart Contract has received ETH.

(3) The dumb contract verifies whether the Smart Contract is on the trusted Smart Contracts list, and then sends assets to the user.

2. Limitations on openness and versatility. Ethscriptions do not allow the arbitrary creation of dumb contracts, and lack programmability. Its code is defined together with other Ethscriptions Protocol rules in the ESIP process. Dumb contracts have fewer functions compared to normal smart contracts, and currently can only implement some basic content, such as Deploy, Swap, etc.

3. Unable to solve some complex requirements. Although Ethscriptions and L2 are both addressing Ethereum’s scalability and cost issues, some well-defined and simple requirements are better suited to be resolved through Ethscriptions. L2 solutions have better openness and versatility, larger capacity, and are more comprehensive.

Summary

Although the skyrocketing prices and active promotion from the community have garnered significant attention, based on the current implemented technology, Ethscriptions still cannot directly replace the position of L2 due to its limitations in openness and programmability. It can only execute simple instructions, which fails to meet the needs of some developers. This poses a considerable challenge to the development of the ecosystem. However, Ethscriptions is still in its early stages and has great potential for growth.

The future development of Ethscriptions is highly uncertain, requiring constant updates and improvements from developers. The following two points need particular attention:

1. Can the existing limitations be optimized or resolved?

2. Will the establishment of the ecosystem be able to attract users?

With its low gas feature similar to L2, Ethscriptions will be a good point of focus when the L2 track launches. Currently, L2 projects have already implemented the technology and completed infrastructure, while Ethscriptions is still in the planning and design phase. Time is not on its side, and the emphasis on L2 as a promotional point is primarily about capturing market share. At this stage, Ethscriptions is like a blank canvas, and with the support of capital, as well as the imagination and technical advantages of ETH, it is not impossible for it to become the beginning of a new track.

Related Information

• Ethscriptions Minting and Secondary Trading platform: https://www.etch.market/tokens
• Ethscriptions Official Twitter: https://twitter.com/eths_official
• Ethscriptions Community Telegram: https://t.me/ethscriptionsglobal
• Dune Board: https://dune.com/etchmarket/ethscriptions-marketplaces

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