Is the Bitcoin ecosystem a flash in the pan or brewing for a bigger explosion? BRC-20 has seen a roller coaster trend.

Will the Bitcoin ecosystem boom or bust? BRC-20 has had a roller coaster trend.

BTC ecology originally did not receive much attention, because compared with the TVL of Ethereum, which often reaches several tens of billions of dollars, the TVL of BTC ecology is not even a fraction of Ethereum ecology. However, with the explosion of the Ordinals protocol this year, the myth of hundreds or thousands of times NFT and FT was born, and the increase in revenue for BTC block producers has made the BTC ecology famous for a while.

With the recent sharp drop in the leading ORDI in the past two weeks, there has been a chorus of voices in the community that BTC ecology is a scam. Does BTC ecology really have development potential? Is the recent cooling down just preparing for the next outbreak or is it just a flash in the pan? Next, we will analyze from important ecosystems such as BRC-20, BTC NFT, and BTC Layer 2.

01 BRC-20

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Recently, the gas fee benchmark for the BTC network has remained at 15 sat/byte, while a month ago during the frenzy, gas was 20-30 times what it is now, indicating an obvious market downturn.

Before understanding BRC-20 and BTC NFT, we need to know some background: We all know that BTC is divisible, with the smallest unit being “sat” (satoshis), which is one hundred millionth of a Bitcoin, named after Satoshi Nakamoto, the anonymous founder of Bitcoin.

Because all Bitcoin is generated through block rewards and all generation history is recorded on the blockchain, Bitcoin itself can be distinguished by its generation order in time.

Each sat is one hundred millionth of a Bitcoin unit, and the Ordinals protocol tracks and records each sat with a number, and then writes different sats with numbers into different content carriers. For example, an image NFT (non-fungible token); if the content written is in the JSON data format that follows the BRC20 protocol, it produces a homogenized token, which is a BRC-20 token. The process of writing specific sats into content is called inscription in the Ordinals protocol, and the content inscribed on the sat is called an inscription.

This truly benchmarks the uniqueness of the sat against real-world content.

It is commonly said in the industry that “inscribing” is to annotate the sat. Different annotations result in NFTs, and the same annotations result in BRC-20 tokens.

The issuance of BRC-20 tokens is relatively fair and just. To obtain tokens, one must inscribe the sat, and the minting process is accompanied by the consumption of transaction fees, so anyone who obtains tokens has already paid a capital cost. This makes BRC-20 tokens have initial value, which in principle is more difficult to be zeroed out than the ERC-20 series, but this depends on the development of the project itself in practice.

Currently, BRC-20 Tokens do not have any practical application scenarios, and the only comparable area is the meme field. However, being built on the BTC network and having the characteristics of fair distribution, BRC-20’s meme narrative is quite impressive.

But at the same time, the development of BRC-20 also faces a series of challenges.

Firstly, when BRC-20 is in a frenzy, BTC cannot generate blocks for several hours, causing network congestion and disrupting the normal operation of the BTC network.

Secondly, the liquidity of BRC-20 Tokens is relatively poor, with most being valuable but not marketable. Thirdly, looking at the number of players holding the tokens, the largest market value holder of ORDI has only over 12,000 people, so the early hype is relatively high, and there is no widespread user support with actual demand. Therefore, how to avoid being limited to a Ponzi scheme is the primary problem that BRC20 needs to solve for further development in the future.

02 BTC NFT

On May 8, 2023, Binance NFT Marketplace announced that it will support Bitcoin NFTs to expand the platform’s ecosystem. Binance’s layout of the BTC NFT ecosystem undoubtedly boosts web3 users’ attention to BTC NFTs. The most well-known BTC NFT project currently is TwelveFold, issued by the NFT leader yuga labs, with a total of only 300, and is also the only NFT project with endorsement from a major institution. TwelveFold sold 288 NFTs through auction, with the highest bid at 7.1159 BTC and the lowest at 2.2501 BTC, earning about USD 16.5 million in auction revenue.

Another BTC NFT project is the Sub 10 K Bitcoin NFT project, where each inscription has an inscription number, and the earlier the minting time, the smaller the number, the more valued it will be, so NFTs with numbers between 10,000 and 100,000 have an antique feel. Of course, as the ecosystem develops, more and more other types of NFTs have emerged.

Because BTC NFT data is completely stored on the BTC network, for example, an image, in the BTC NFT protocol, the image content will be directly uploaded to the chain and stored in the Bitcoin block. Ethereum will only extract the important elements of the image and store them on the Ethereum network. NFTs stored on Ethereum only contain partial information, which is obviously more authentic for creative works, and the BTC network can preserve the content in a more authentic way.

As the currently safest, most expensive, and longest-running blockchain network, we have reason to believe that perhaps the BTC network will have an even longer lifespan. The BTC network has a wider consensus group and is a completely out-of-the-box blockchain project, which also gives BTC NFT a higher intrinsic value.

It is worth noting that the order of engraving of Bitcoin NFTs will lead to a difference in serial number size. The earlier the Bitcoin is engraved, the more valuable it may be in the future. Early NFTs have become antique-level and have commemorative value.

Since the current NFT ecological application is still in its early stages, when the blue-chip projects of BTC NFT have not yet been determined in contrast to the NFT ecology of ETH, it is almost inevitable that a truly blue-chip project will emerge in the future. Therefore, for a long time to come, it will be a rising track.

For the entire crypto market, what is lacking is a new round of narrative that can form a broad consensus, and BTC NFT undoubtedly opens up new narrative space for the NFT market.

Of course, because BTC itself does not support the creation of smart contracts, it is difficult to surpass ETH on the ecological level, and due to the cost factor of BTC NFT (fully on-chain), and because the limited block space of the Bitcoin network, the application of NFTs has exacerbated the congestion of the BTC network, and large-scale applications and popularization may currently be impossible.

03 BTC Layer 2 Ecosystem

With the development of Ethereum Layer 2, there is a certain consensus on the development of Layer 2. Although it is difficult for Bitcoin to look forward to it, it is also developing. Based on the current ecological development situation, we can divide the Bitcoin Layer 2 ecosystem into two categories:

– Lightning Network: OmniLab, Lightning Labs, RGB, Portal

– Sidechain: RSK, Stacks (formerly Blockstack), Liquid Network (developed by Blockstream)

The Lightning Network focuses on expanding Bitcoin payments, solving the problems of slow transfer speeds and high fees, and settling on the Bitcoin main chain, making it one of the earliest Layer 2 solutions for Bitcoin.

The sidechain focuses on forming a Layer 2 of Bitcoin that can develop smart contracts, that is, developing applications on the sidechain, and the basic requirements of the sidechain are to be able to execute contracts.

In addition to Ordinals, sidechain Stacks and Lightning Network also gained some popularity in the first half of this year. At the end of this year, Stacks will undergo a Nakamoto upgrade, and at the same time launch an important product – SBTC, which will bring a comprehensive improvement in network performance and make Stacks more efficient in executing smart contracts. Although compared to Ethereum and other prosperous ecosystems, the Bitcoin ecosystem is relatively small, and the TVL cannot even see the proportion of BTC ecosystem, but compared to Ethereum, the development potential of BTC’s ecosystem is huge, and this is closely related to the development of Bitcoin Layer2.

04 Conclusion

Compared with the market size of ERC-20 on Ethereum of over 150 billion US dollars, the market size of BRC-20 of 475 million US dollars is like a baby. Although BRC-20 has existed for a period of time, it can only be regarded as a small flame, and the problems and lack of practical value it faces are also an indisputable fact.

Whether BRC-20 can eventually become a prairie fire from a small flame? We still need to pay attention to the next stage of plans such as the Lightning Network and Layer2 sidechains. It can only be said that the story of the BTC ecosystem still needs time and cycles.

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