According to the logic of MEME hype, it often appears at the end of a bull market. Why did Bitcoin's inscription become popular at the beginning of this round of bull market? Why did the inscription experience a period of decline in the first half of this year and then revive again? What are the underlying reasons behind this?
Is the popularity of the inscription just due to Meme hype?
From its essence, the inscription is currently just a Meme with no substantial application. In the first half of the year, when Bitcoin's inscription was being hyped, many people in the market believed that it would not last long, just like a passing fad in the previous bull market, similar to the animal coins that appeared on Ethereum before. But why did the inscription experience a period of decline in the first half of this year and then revive again? What are the underlying reasons behind this?
Before answering this question, it might be worth considering this phenomenon: Many public chains currently have performance that is not inferior to Ethereum, so why do Ethereum developers still occupy the majority? From different perspectives, the answers may vary, but the most fundamental reason may lie in its stronger consensus, which also makes its underlying security stronger. In the blockchain industry, consensus and value are deeply related. Understanding this point, the answer may be relatively easy to understand. Compared to Ethereum, Bitcoin naturally has a stronger consensus and security. But the next question is, why did the inscription become popular in this bull market?
First, the popularity of the inscription in this round of the bull market is not accidental. In fact, there has always been a group of people hoping to develop an application ecosystem on the Bitcoin chain, and they have never disappeared. Historically, 2017 should be considered the first year of public chains in the blockchain industry. At that time, various public chain concepts emerged one after another. In order to participate in the public chain competition, Bitcoin once experienced a fork in the community in order to scale, but from the final result, it is impossible for Bitcoin to take the big block route.
Secondly, objective technical conditions to support applications on the Bitcoin chain have begun to emerge. With the Taproot upgrade, Bitcoin has undergone a relatively large scaling (in terms of Bitcoin's scaling history), which has attracted a large number of developers to enter.
Finally, there is actually more potential value in developing on Bitcoin. With the approval of the Bitcoin ETF, the ecosystem applications on Bitcoin will have a broader market. In addition, DeFi applications in Ethereum have matured, making it difficult for new developments to compete, and more complex applications require more time to break through. Therefore, migrating mature applications from Ethereum to Bitcoin presents significantly greater opportunities. For example, Unisats, even the name seems to pay homage to Uniswap, while its design principles inherit the main mechanisms of Uniswap.
Behind the inscription, the enthusiasm of developers on the Bitcoin chain is soaring
At the end of 2022, Bitcoin core contributor Casey Rodarmor created the Ordinals protocol. On March 8, 2023, an anonymous developer named @domodata launched BRC-20 based on the Ordinals protocol, propelling the meme token hype in the Bitcoin ecosystem into the fast lane. After the release of Ordinals, another anonymous developer launched the Atomicals Protocol in September. Less than a week after the release of Atomicals, on September 26, Casey created a homogenized token protocol Runes based on Bitcoin. In addition, since the launch of BRC-20, community developer Beny has successively launched the BRC-20 token forging tool LooksOrdinal (no token), the BRC-20 improved version Tap Protocol targeting OrdFi, and the improved version Pipe of Runes. Overall, these protocols are quite innovative, showing the great enthusiasm of the Bitcoin developer community.
In terms of ecosystem applications, the main infrastructure on the Bitcoin side chain or Layer 2 includes: Stack, BEVM, Mintlayer, Spiral, Liquid Network, Fedi, Rootstock, Interlay, Babylon, Botanix, Bison Labs, Alpen Labs, Ark, etc.
The well-known DeFi infrastructure on Bitcoin includes: Unisats (which claims to be based on the BRC-20 protocol, providing users with liquidity and trading for BRC 20-swap), Bisq Network, Atomic Finance, etc.
The cross-chain assets on Bitcoin include: WBTC, which is centrally managed by BitGo, tBTC issued by Threshold, renBTC issued by Ren Protocol, and sBTC by Synthetix.
Overall, with Bitcoin moving towards the traditional market, the number of ecosystem users on Bitcoin far exceeds that of Ethereum. With the Taproot upgrade and the launch of the Ordinals protocol, a vigorous ecological construction movement relying on Bitcoin is unfolding. From the perspective of technological development, MEME may just be an early warm-up, anticipation, or eager desire for Bitcoin's technological advancement or application. Even though Bitcoin core developer Luke intends to suppress the inscription on the Bitcoin chain, the development activities related to Bitcoin can still transition to Layer 2, which is undoubtedly becoming a new trend.
Accelerated iteration of Bitcoin technology opens up new narratives for BTC
In addition to the Taproot upgrade, there are several noteworthy developments and proposals related to Bitcoin in the fourth quarter of 2023.
BitVM supports smart contracts on Bitcoin. Considering the nature of Bitcoin's design, executing smart contracts directly on Bitcoin is both slow and expensive. The operation of BitVM is similar to Optimism in the Ethereum ecosystem, including elements such as fraud proofs and challenge-response protocols.
Taproot Assets mainnet launch: Taproot Assets was officially released on October 18, 2023, allowing developers to issue, send, and receive Bitcoin-based assets.
OP_CAT proposal: Bitcoin researcher Ethan Heilman submitted a Bitcoin Improvement Proposal (BIP) to the Bitcoin-Dev mailing list, suggesting adding the OP_CAT opcode to Bitcoin's script language. This opcode will enable developers to build and evaluate Merkle trees and other hash data structures in Tapscript, enhancing Bitcoin's programmability and creating new opportunities for different use cases.
OP_TXHASH proposal draft: Bitcoin core developer Steven Roose proposed a BIP focusing on the benefits of implementing two new opcodes, OP_TXHASH and OP_CHECKTXHASHVERIFY, in Bitcoin's script language. OP_TXHASH will directly compete with two major contract proposals, BIP-118 and BIP-119, imposed on Bitcoin transactions.
Lightning Timeout Trees: The Lightning Network is the primary layer 2 solution for Bitcoin, and a key barrier it further adopts is that users need to initiate at least one on-chain Bitcoin transaction to move funds off-chain when using the Lightning Network. This limits the number of users who can move assets off-chain, especially in situations where on-chain transaction fees are high. A long-term solution being explored is a concept called "channel factories," which allows multiple users to join the Lightning Network in a single Bitcoin transaction. John Law's "Timeout Trees" proposal may have found a solution using contracts (i.e., spending conditions of BTC transaction outputs). The proposal introduces the concept of a coordinator (or Lightning Service Provider - LSP) who will oversee the opening and closing of user channels. By using contracts, the coordinator will be restricted from spending users' BTC without proper authorization. It is the first channel factory architecture to utilize contracts, which are a powerful mechanism for adding spending conditions on BTC.
Updated Musig 2 Proposal: MuSig 2 is an upgraded version of MuSig 1, which is a Bitcoin multi-signature scheme that achieves privacy and scalability. MuSig 2 (BIP-327) is an improved iteration of MuSig 1, providing superior security, efficiency, and privacy features by operating as a two-round multi-signature scheme, requiring only two rounds of communication between signers to generate a valid signature, instead of three. In October, Bitcoin Core developer Andrew Chow proposed two new BIPs focused on MuSig 2 development. The proposed BIPs are MuSig 2-PSBT and MuSig 2-Descriptor.
BIP-324 – V2 Transport: BIP-324 is a privacy-focused improvement to the Bitcoin P2P layer. This layer on Bitcoin facilitates data transmission between Bitcoin nodes, acting as a high-speed highway for data. The latest version of Bitcoin Core (v0.26) added support for version 2 encrypted P2P transport as specified in BIP-324. This feature is disabled by default but allows anyone to enable it and benefit from additional protection. This is an important step forward for privacy at the Bitcoin P2P level.
Summary
The surge in popularity of Bitcoin's inscription may not just be a MEME hype, but should be seen as the prologue to the construction of the Bitcoin ecosystem. The reasons for its outbreak are threefold: the completion of the Bitcoin Taproot upgrade, increased innovation difficulty on Ethereum, technological stagnation, and the potential for a large user base with the approval of the Bitcoin ETF, presenting significant opportunities.
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