This article aims to clarify the origins and development of the BTC asset issuance scheme through a timeline, to explore what ignited the fervor of Bitcoin inscriptions.

Author: Howe

TL;DR

With the recent fervor in the BTC ecosystem, we can see various tokens being issued on the Bitcoin mainnet. What are these tokens, and how do the protocols behind them operate?

This article aims to use a timeline to help everyone understand the origins and development of the BTC asset issuance scheme, and to explore what ignited the fervor of Bitcoin inscriptions.

At the same time, this article refers to many articles. During my reference and research, I found that some articles may have errors in the timeline of certain protocols/projects. Therefore, all timelines in this article are accompanied by relevant materials. If there are any errors, please point them out to me. Thank you.

Disclaimer: The tokens mentioned in this article are for learning and communication purposes only, and do not constitute any investment advice. DYOR

Chapter Ⅰ — The Gear of Destiny Begins to Turn

「1」Ordinal Numbers

Many existing articles start with the Ordinals protocol, but in the official documentation of Ordinals, the first thing mentioned is the Ordinal Numbers theory. From this, it can be inferred that Casey also gained some inspiration from the Ordinal Numbers theory and created the Ordinals protocol.

It is well known that the smallest unit in the Bitcoin world is a satoshi (sat). The Ordinal Numbers theory can be simply understood as artificially numbering these sats. From the motivation section of the BIP proposal, we can summarize that the theory aims to provide a way for Bitcoin to have a stable identifier to prevent ownership transfer or key rotation without making any changes to the Bitcoin network.

Of course, this theory also has some opposing views, such as reducing user privacy, increasing the size of the UTXO set, dust attacks, etc. For specific details, please refer to the BIP proposal.

「2」Ordinals Protocol

Protocol Proposal

The Ordinals protocol was proposed and released by Casey, who presented the following idea:

"Can we arrange these 'sats' in a certain order, assign them a number between 0 and 2,100,000,000,000,000, and then connect them to other information: images, text, videos, or even a piece of code? This makes each sat unique and irreplaceable. This is equivalent to giving Bitcoin the native ability to create NFTs."

The Ordinals protocol was deployed by the end of 2022, and the first inscription on the mainnet was engraved on December 14, 2022, UTC (https://ordinalswallet.com/inscription/6fb976ab49dcec017f1e201e84395983204ae1a7c2abf7ced0a85d692e442799i0). During this period, the protocol has been continuously updated and iterated without official announcements. Currently, the first official announcement tweet that can be found from Casey's Twitter is as follows, so the Ordinals protocol can be considered to have been proposed in December or January: (Thanks to shep for providing the clue)

Protocol Features

1. Numbering and rarity division of sats

Humans are natural collectors. Since Ordinal Numbers are artificially numbering sats, why not differentiate these sats by rarity? Currently, rarity is divided into 6 categories:

This rarity is similar to what we call "lucky banknotes" or "consecutive number banknotes" when playing with paper money in real life. In essence, they are all banknotes, and their actual value is the face value of the banknote. However, because people have given them special meanings, they have higher collectible value and therefore a premium, which is what we often refer to as "consensus creates value."

In addition to tracking the specific rules assigned to each sat and allowing anyone to attach additional data such as images, text, videos, audio, etc. through the Ordinals protocol, the protocol also allows for the creation of NFTs. In the early days, many players were creating NFTs on it, and the founder Casey's initial positioning for it was to allow people to store something eternal on the oldest and most consensus-strong chain of Bitcoin. So for a period of time, many people equated Ordinals with "Bitcoin NFTs." Even today, we can still see their presence in the Unisat Wallet.

2. First in, first out transactions

To ensure that sats with numbers are not mixed up during transactions, a first in, first out approach is adopted. Here is an example from an article by Professor Wang Yishi (https://yishi.io/a-beginner-guide-to-the-ordinals-protocol/) to explain this feature:

In the transaction below, there are two inputs on the left, addresses 1 and 2 have a total of 5 sats. In this transaction, 4 sats are sent to an address starting with 3oPz, and the remaining 1 sat is used as a miner fee.

Source: https://yishi.io/a-beginner-guide-to-the-ordinals-protocol/

Assuming that we secretly use the Ord protocol to assign an identity (number) to each sat, after the transaction is completed, the 4 numbered sats from addresses 1 and 2, Ord A->D, will move to address 3, and the last sat will go to the miner.

The so-called "first in, first out" means that the numbering order of each sat is determined by its index in the transaction output. For example, in the transaction output in the figure below, address 3 is placed before the miner address, so the sats transferred from addresses 1 and 2 are inherited by address 3 first, and then by the miner address.

Source: https://yishi.io/a-beginner-guide-to-the-ordinals-protocol/

Protocol Principle

For friends who are familiar with Bitcoin, they know that Bitcoin was originally created as a peer-to-peer electronic cash system, using a non-Turing complete scripting language, making it almost impossible to implement complex functions. However, the two major updates to BTC in 2017 and 2021 have allowed us to implement some complex logic on BTC.

Based on the above development premise, the Ordinals protocol achieves the viewing and transfer of inscriptions by writing their content into Taproot scripts and using UTXOs. Since Taproot script spending can only be done from existing Taproot Outputs, a two-stage commit/reveal process is used to achieve inscription. In the commit transaction, a Taproot Output containing the inscription content needs to be created, and then in the reveal transaction, the previously created commit transaction is spent, thereby revealing the content of the inscription on the chain. During this process, the content of the inscription needs to undergo a series of serialization.

In simpler terms, it's like initiating a WeChat transfer, where the content of the inscription is written in the remarks (Taproot Output) during the transfer process, and then the transfer is sent out (spending the commit transaction). After the transfer is completed, the recipient can see the content written in the remarks in the chat box (reveal transaction). If the transfer has no remarks or the transaction is canceled, the content of the inscription will not be recorded on the chain.

Chapter Ⅱ — Flourishing of Asset Issuance in the BTC Ecosystem

「1」Brc20 Protocol

Protocol Proposal

After the release of the Ordinals protocol, early players were involved in NFTs, and anonymous developer domo released an experimental standard on March 8, 2023, called the BRC-20 protocol, an improvement based on the Ordinals protocol, and officially deployed the first BRC20 $ordi. This protocol allows anyone to issue tokens on the Bitcoin network, similar to the gameplay of ERC-20 tokens on Ethereum.

Note:

1. domo's earliest tweet about BRC-20 was on March 9, 2023, but based on the deployment times of $meme and $ordi, it seems that it was already launched on March 8, 2023.

2. $meme was the first deployed BRC20, while $ordi was the first officially released BRC20, which can be inferred from their deployment times.

Regarding the development of $ordi, most people should have some understanding, so it will not be discussed in detail here. For more details, please refer to the following tweet:

Protocol Principle

The BRC-20 protocol implements the deployment, minting, and transfer of BRC20 tokens based on the Ordinal theory by establishing a series of standards. The format standards of this protocol are derived from the Sats Name project (the first DID project based on the Ordinals protocol):

In simple terms, just like the Ordinals protocol, it's like initiating a WeChat transfer, but with different content in the remarks.

Extension

Although the BRC-20 protocol allows the free issuance of homogeneous tokens on the Bitcoin chain, the lack of an account model in Bitcoin and the fact that BRC-20 content is stored in Segwit's Taproot scripts means that we cannot directly calculate the BRC20 balance of each account on the chain. Therefore, the current approach is to build an index server off-chain to achieve token information retrieval, balance calculation, and transaction transfers for BRC20, but this approach carries centralization risks.

First, it's important to understand the three main parts of the BTC protocol: the protocol sets the rules for writing data on Bitcoin, the indexer provides the ability to query and parse this data, and the ledger records token balances and handles transfers.

For BRC20, the index server first needs to identify each deployment of BRC20 to read token information, which is called "indexing."

Additionally, because BRC20 balances are written into scripts and cannot be recognized by the BTC network itself, the BRC20 index server must build a local ledger to record BRC20 balances. Each time a transfer occurs, the local ledger needs to be checked and updated to determine if the transaction can proceed (if there are enough tokens).

Therefore, when conducting a BRC20 transaction, two transactions need to be sent:

1. The first transaction reads the latest ledger data locally and calculates the balance.

2. The second transaction completes the transfer.

The Ordinals protocol is essentially designed for NFTs, and the improved BRC20 based on it has increasing complexity in transfers. The BRC20 indexer also takes on the role of the ledger, which exists completely off-chain from Bitcoin. The indexer must accurately record every balance change to ensure the integrity of the ledger.

Therefore, as time accumulates, the ledger of the indexer will continue to grow, and the pressure on nodes will increase. If the indexer is not continuously incentivized, it will be difficult to sustain. If the indexer ledger no longer provides services, then BRC20 will be completely unusable.

「2」TRAC Systems

Source: https://twitter.com/trac_btc/status/1722648122269012428

$TRAC

$TRAC is a BRC20 Token launched by Benny on May 3, 2023, and officially deployed on May 22, 2023.

Trac Core

Trac Core is a decentralized oracle and indexer for Bitcoin inscriptions, addressing issues related to inscription ecosystem data indexing, retrieval, and price feeding.

For example, in terms of the indexer, although inscription data is stored on the Bitcoin chain, this only contains information about the inscriptions, and the data update and accounting processes rely on third-party centralized indexers, which has always been criticized for security (e.g., the market's criticism of Binance's ordi indexer accounting errors at the end of November). Therefore, Trac can to a greater extent inherit the security of the Bitcoin inscription ecosystem, collect, organize, and sort all data on Bitcoin, and plans to introduce hundreds of indexer nodes in the future.

With the increase in nodes, Trac Core also integrates the role of an oracle, obtaining necessary reliable data from external sources to input into the blockchain, serving as the foundation for building inscription-native DeFi and other upper-layer protocols in the future. Additionally, the Trac oracle's API is free to use.

Therefore, Trac Core combines the roles of a decentralized indexer and a Bitcoin oracle, placing it at the forefront of most inscription projects.

Tap Protocol

The Tap Protocol is an improved protocol based on Ordinals, released by the $TRAC team on August 7, 2023. It can be seen as an upgraded version of the mirrored BRC20 protocol, providing compatibility and upgrades for BRC20. It has the following four characteristics:

1. The unique token standard of the OrdFi protocol
2. Compatibility with BRC20 tokens, facilitating market integration, and breaking the length limit of BRC20 token names. BRC-20 tokens have a fixed length of 4 digits, while Tap tokens have a length of 3 or 5-32 digits (cannot be 4 digits).
3. Support for batch transfers, asset staking, token swaps, and other functions. It improves transaction efficiency without relying on L2 chains.
4. The first protocol to support cursed inscriptions.

The previously deployed $TRAC is used as the governance token for the protocol (not really a feature, but mentioned here for clarification).

Currently, the official issuance in the Tap Protocol includes $TAP and $-TAP tokens. $TAP was minted by BennyTheDev on August 6, 2023, but has not been circulated. $-TAP was minted and made available to the community, with a total supply of 21,000,000 tokens (equivalent to 21,000 units). According to Shep's research, $-TAP was deployed 30 minutes earlier than $TAP, making it the first native token in the protocol.

Pipe

The Pipe protocol was proposed by Benny, the creator of $TRAC. This protocol can be seen as an improvement on the Runes protocol. The Pipe protocol can be considered as taking a shortcut ahead of the Runes protocol, as the Runes protocol was proposed by Casey, the founder of the Ordinals protocol, but most of the focus was on the Ordinals protocol, resulting in slow development progress for the Runes protocol. After studying the ideas behind the Runes protocol, Benny launched the Pipe protocol in just about a month.

Connection Between the Three

In less than half a year, Benny has launched three projects in succession, and these three projects are interconnected, creating a nested structure. Through the use of governance tokens, Benny has achieved mutual promotion and restraint among the three projects, which is extremely rare. The specific functions of these governance tokens have not been officially announced, so in the future development, we can see if this will lead to some different and exciting collisions.

「3」Atomicals Protocol

Protocol Proposal

The founder of the Atomicals protocol attempted to develop a DID project based on the Ordinals protocol in February, but during the development process, he found that the limitations of the Ordinals protocol prevented him from implementing some desired features or made them awkward. Therefore, on May 29, 2023, he posted the first idea about the Atomicals protocol on Twitter, and after several months of development, the protocol was launched on September 17, 2023.

Initially, the launch of the Atomicals protocol did not cause much of a stir in the Bitcoin ecosystem, as at that time, a large number of improved protocols based on the Ordinals and BRC-20 protocols emerged on different chains. However, when we look at the Atomicals protocol documentation, we will find that it is a completely different protocol.

Theoretical Basis - Digital Matter Theory (DMT)

DMT refers to the Digital Matter Theory, which suggests that digital information is not just random numbers and letters, but can actually be considered its own "matter," similar to wood or metal. In blockchain data, DMT can be transactions, bytes, or any other pattern of blockchain data, and these patterns can become valuable digital projects or assets.

Here is a quote from Dr. Jingle to help everyone better understand:

"Some physicists claim that information is a new form of matter that may eventually dominate everything on Earth (also controversial). According to current growth trends, the amount of digital information used on Earth may exceed the number of atomic matter atoms in about 350 years, highlighting the exponential growth and importance of digital information."

"The idea of physicists has encouraged many people to transform it into an executable protocol, extracting valuable information from the Bitcoin blockchain to create 'non-arbitrary tokens.' Using the Digital Matter Theory may completely change the creation of digital value, making it more non-arbitrary and meaningful. By using data in the background of the Digital Matter Theory, new mechanisms can be created to identify and extract new value sequences from the data, opening up possibilities for new forms of tokens."

"For example, some even compare Bitcoin to a form of DMT application. Bitcoin is also a non-arbitrary token, with its own specifications such as 21 million coins, and a block every 10 minutes, and so on. Through the exchange of digital information on the Bitcoin network, value can be transferred and stored. Although Bitcoin only exists in the digital world, its value and influence can have a significant impact in the real world, just like traditional physical currency."

However, DMT is not without controversy. Some critics argue that digital information cannot be equated with fundamental physical entities such as matter and energy, because digital information itself cannot directly change the real world. However, advocates of DMT believe that while digital information cannot directly change the real world, it can indirectly change the world through human actions and decisions, such as the application of cryptocurrencies.

Challenges Faced by Existing Bitcoin Builders

• Various issues caused by proprietary APIs:
• Service lock-in, high interaction costs, different representations of the same on-chain data, competition among developers
• Unreliable indexers:
• Asset security issues, frequent changes, positive and negative numbers in Ordinals
• Lack of top-level design:
• Difficulty in combining protocols and developing proprietary facilities
• Limitations of on-chain metadata:
• Example: collections must be manually uploaded to a Github repository and manually updated on dozens of markets, lack of consensus on on-chain responses
• Errors cannot be fixed or fixing them is costly:
• The data structure of the Ordinals protocol heavily relies on the use of individual files, meaning that different markets have off-chain agreements and proprietary indexes
• Lack of control:
• If access to powerful, high-performance decentralized indexers and more services/indexer lock-ins is not available, data portability becomes an issue
• Lack of revenue:
• Relying on specific services and markets, as well as their indexers, APIs, and other proprietary services, leads to reduced profits

The first three points are issues for developers, while the last three are issues for creators.

Atomic Theory

The Atomicals protocol is a simple and flexible protocol used to mint, transfer, and update digital objects (traditionally known as NFTs) for unspent transaction outputs (UTXOs) blockchains such as Bitcoin.

1️⃣ Digital Objects - "atom" NFTs

Atomicals (or "atomic") is a new type of NFT that can be minted, transferred, and updated on Bitcoin. The main difference is that it does not require the use of centralized services or trusted third-party indexers. It can run without making any changes to Bitcoin and without the need for sidechains or any L2 solutions. It's time to permanently reclaim control over our digital lives.

2️⃣ BitWork - Micro Proof of Work (PoW)

The most interesting improvement in the Atomicals protocol is the inclusion of a CPU computing step in the token minting process, known as BitWork. Minters need to exhaustively compute a hash value that matches specific prefix characters before they can mint.

PoW can make token minting relatively fair, injecting value from energy and time, as well as introducing a random luck factor.

Unlike traditional PoW algorithms with high computational difficulty, BitWork adjusts mining difficulty in a fine-grained manner by changing the prefix matching. It can add a number between 1 and 15 after the prefix, such as "7777.1" or "7777.15," or any number in between. This number represents the range of variation allowed for that character.

The working principle is that the number after the "." is a wildcard used to match any fifth character starting from that number. For example, in "7777.10," the first 4 characters of the txid (in hexadecimal) must be "7777," and the fifth character can be the number 10 (in hexadecimal) or any number higher.

So, the 5th digit can be a, b, c, d, e, or f. This allows the system to have a range of 2 to 16 times the selection when the difficulty increases, rather than just 16 times.

BitWork also brings some novel use cases:

• Introducing a random luck factor in the minting process
• Organizing communities around vanity TXIDs and REFs
• Organizing a related community based on consensus when you have a very cool reference or prefix
• Content ranking based on the Expensive Signal Theory
• Ranking content based on energy consumption, among other things
• Throttling and limiting token minting - acting as a spam filter

3️⃣ Container NFTs - NFT Standard

A container is a standard for representing collections of NFTs and metadata. It can be used to add/modify/delete content for any protocol such as Atomicals, Ordinals, and Bitmaps, and can also be permanently "sealed" to lock the content into a container and destroy the key that can open the container, thus maintaining the sealed state and preventing modifications.

Container naming service:

• Container names start with a hashtag symbol and each name is unique and non-repeating, following a first-come, first-served approach during minting
• Names are between 3-64 characters in length and BitWork is used to slow down the registration speed of container names
• Example container names: #bitcoin-funks, #gemini-warriors, etc.

4️⃣ ARC20 - Colored Coins

The Atomicals protocol uses the smallest unit of Bitcoin, sat, as the basic "atom" for ARC20. Each sat's UTXO represents the balance of this token, with 1 token equaling 1 sat.

ARC20 is a colored coin model, with registration information recorded in the transaction script. By binding information to UTXOs, token programmability and decentralization are enhanced, and transaction security is guaranteed by the BTC mainnet. There is no need for any off-chain systems to calculate ARC20 token balances, as the token balance is consistent with the number of sats in the UTXO. This is the biggest difference from the BRC-20 protocol.

When deploying ARC20:

• Token name, total supply, quantity limits, difficulty settings, starting block, image, etc. When minting ARC20:
• The token name is written into the UTXO script, and the quantity is directly determined by the number of sats in the UTXO, where 1 sat = 1 token. When transferring ARC20:
• Users do not need to deposit any data into BTC, they only need to use the UTXO holding the token as the transaction input and output it to another address.

For ARC20, we only need one index to help us read the token registration information and identify mint transactions to confirm which UTXOs are ARC20.

The benefits include:

• Greatly reducing the cost of index servers, allowing almost anyone to create their own index server, resulting in a highly decentralized system
• Transfers rely entirely on the BTC network, avoiding the creation of redundant transactions, and the security of ARC20 transfers is guaranteed by BTC
• Consistency between the atomicity of ARC20 and BTC, suitable for implementing many native applications

Of course, the design of colored coins also brings some disadvantages, as the balance of ARC20 has a minimum split precision of 1, as it is bound to sats rather than written into the data.

This also means that, due to the minimum 546 sat transaction limit set by the BTC mainnet to prevent dust attacks, users are currently unable to conduct fine-grained transactions. However, the Atomicals protocol has already provided a specific splitting solution and is actively under development.

Here is a diagram to illustrate the fundamental difference between BRC20 and ARC20:

5️⃣Realm Name System (RNS) - Domain Name System for Realms

RNS claims to be a true competitor to the DNS domain name system, aiming to be a global alternative to DNS and other blockchain domain name systems.

Realm Names are human-readable identifiers used to associate network addresses and resource information. Domain names start with a plus sign (+) and must have at least one letter character, for example, +alice and +agent007, both of which are valid names (top-level - domains or TLR in the Realm Name System (RNS)).

Realm Names are directly owned and managed on the Bitcoin blockchain using the atomic digital object format, which essentially means there are no intermediaries or centralized registrars.

6️⃣Subrealm Minting - Subrealm Minting

Managing and tokenizing communities by issuing subrealms (Subrealm) under any realm (Realm), with the following specific rules:

• Any realm or subrealm can issue subrealms
• All subrealms can inherit the same characteristics and issue their own subrealms based on the subrealm
• Everyone is the registrar of the realms they own, with no centralized institutions

To illustrate:

• First, we register a realm +ATOM
• When we want to build a community about Punk NFTs under this realm, we can create a subrealm +ATOM.PUNK based on the +ATOM realm
• Later, if we want to establish a DAO in the Punk community, we can create another subrealm +ATOM.PUNK.DAO
• In the DAO, each person is assigned a DID, and a subdomain +ATOM.PUNK.DAO.JINGLE can be created

In addition, Subrealms can also be used for social media organization, identity verification, loyalty rewards, and more.

Protocol Features

Based on the atomic theory mentioned above, the main features of the Atomicals protocol include:

• Using sat as the basic unit to represent tokens
• Allowing the creation, transfer, and updating of digital objects on Bitcoin
• Providing a decentralized and Bitcoin-culture-compliant tokenization method
• Increasing the fairness and decentralization of the minting process through Proof of Work (POW)
• Aimed at expanding the functionality of Bitcoin to support a wider range of applications

Key Differences from Other Protocols

The best way to understand the differences of the Atomicals protocol is to compare it with other popular NFT protocols:

"4" Bitmap Protocol

Protocol Proposal

Bitmap.land is the first metaverse project in the Bitcoin ecosystem, based on Ordinals theory and Bitmap theory.

Bitmap theory was proposed by Twitter user @blockamoto on June 5, 2023.

This theory maps each transaction input in a Bitcoin block to a parcel, forming a block or district. The size differences of different transaction inputs result in different sizes of mapped parcels.

Protocol Concept

Buyers of Bitmap.land are influenced by Decentraland and The Sandbox, adopting a method of dividing land on a map and drawing patterns, similar to the land purchase logic on these two platforms. Users gain ownership of specific Bitcoin blocks by writing data into Satoshis through inscriptions, similar to free minting.

On the Bitcoin blockchain, each block is divided into four parts to represent different halving periods. Users can view the block number and color of each block on the Bitmap.land website, where different colors represent different selling statuses.

The sale of Bitmap.land is closely related to Ordinals theory, similar to the virtual land sales of Decentraland and The Sandbox, which rely on the ERC-721 standard. While Ordinals theory is similar to early colored coin principles, it differs in the current narrative, consensus, ecosystem, and infrastructure of Bitcoin. Although Ordinals theory is not as innovative as ERC-721, the approach of BRC-20 is more primitive.

Bitmap theory adds a new interpretation to Bitcoin blocks, providing a topicality despite lacking practicality. It changes the connection between Bitcoin and the metaverse by allowing users to own and record individual blocks, providing a new dimension to each Bitcoin block and making it part of the metaverse.

Bitmap theory has attracted attention from the Ordinals community, sparking an inscription craze. Any block on the Bitcoin blockchain can become part of the metaverse through Bitmap, bringing new opportunities for creativity and ownership to the community.

Bitmap.land blurs the boundaries between Bitcoin and the metaverse through Bitmap theory, paving the way for ownership, creativity, and community development. As the inscription craze continues, this represents tremendous potential for those seeking to establish a presence in the digital realm.

Those interested can also visit the official browser to view various Bitmaps: https://bitmap.game/

"5" BRC-100 Protocol

Protocol Proposal

As is well known, protocols based on Bitcoin such as Ordinals, BRC-20, through the "on-chain declaration, off-chain resolution" mechanism, have brought great imagination to the development of the Bitcoin ecosystem. A large number of Bitcoin NFTs and tokens have been issued, but the development of decentralized applications such as DeFi still lags behind. Therefore, Mikael.btc released a protocol supporting decentralized computing on September 2, 2023: BRC-100.

Protocol Introduction

BRC-100 is an extension protocol based on Ordinals theory, designed specifically to implement various decentralized applications on Bitcoin Layer 1. This protocol not only inherits the basic functions of BRC-20 on Bitcoin, such as creation, minting, and trading, but also introduces the concept of decentralized computing.

This means that, based on the BRC-100 protocol stack, various decentralized applications such as DeFi, SocialFi, and GameFi can be developed, bringing truly decentralized, trustless, censorship-resistant, and permissionless application scenarios to the Bitcoin Layer 1.

One major feature of the BRC-100 protocol is its interoperability. It not only allows all protocols and applications within its protocol stack to be mutually compatible, but also supports interaction with BTC, BRC-20, or other Layer 1 chains such as Ethereum and Stacks. Additionally, the protocol introduces the UTXO model and state machine model, enhancing its security and computational capabilities.

Protocol Features

Because the BRC-100 protocol is an extension of the Ordinals theory, BRC-100 itself has all the features of BRC-20, while also introducing some innovative features:

Savings: Based on the BRC-100 protocol, various extensions such as airdrop protocols, governance protocols, relay protocols, etc., can be understood as Mikael's desire to introduce various DeFi gameplay into BTC.

• Protocol Inheritance

The BRC-100 protocol introduces the concept of inheritance. Protocols directly or indirectly inherited from BRC-100 are called BRC-100 extension protocols. BRC-100 extension protocols must only inherit from one protocol. The extension protocol will inherit the attributes, operations, and computational operations of the parent protocol, and can only extend attributes and computational operations.

This is similar to when making ceramics, initially it's just a clay embryo, gradually, through polishing and shaping, it gradually gains more extended functions such as decoration and storage.

• BRC-100 Protocol Stack

The BRC-100 protocol and all its extension and improvement protocols are collectively referred to as the BRC-100 protocol stack. Based on this protocol stack, all tokens/applications can be mutually compatible, meaning a token/application can be used anywhere with other applications.

• Protocol and Applications

In the BRC-100 protocol stack, the protocol is a standard that describes the attributes, operations, and computational operations of applications. Applications are instances created after the protocol is deployed to the Bitcoin network through inscriptions.

Applications are essentially tokens with computational capabilities and states. The protocol details the computational capabilities of applications. Without adding sub-applications, an application cannot have computational capabilities not described in the protocol. Added sub-applications can only have the computational capabilities of the protocol, otherwise the public indexer cannot verify the state of the application, leading to inconsistency between the user and application states.

• Application Nesting

Applications deployed based on BRC-100 and its extension protocols can be nested, meaning one application can create another application, called a sub-application.

The ticker of the sub-application starts with "parent application ticker:". One application can create multiple applications, completing multiple independent computational logics. For example, in the classic AMM DEX scenario, multiple LP sub-applications/tokens need to be created in a DEX application, such as "ammdex:LPBRC100_BTC".

• Application State and Address

In addition to the UTXO model, the BRC-100 protocol also introduces the state machine model to extend the computational capabilities of the protocol.

Applications, sub-applications, and addresses can all have states. For example, an application can hold tokens, and an address can have a balance in the application. The transition between UTXO and state is completed through the burn2/burn3 and mint2/mint3 instructions.

Computational operations (cop) are used to represent specific computational logic, i.e., the transition of the state of applications and addresses.

For example, address A burns 10 token1 to the application through the burn3 inscription. At this point, the application has this UTXO and 10 token1. The application can allocate these 10 token1 by changing the internal state of any address or application through its computational logic. Then the address or application with token1 can mint it through the mint3 instruction.

• Permissions

The BRC-100 protocol introduces two roles: owner and administrator.

The address with the application deployment inscription is called the owner. The owner can track the transfer of UTXO with the deployment inscription. The owners of all sub-applications are the owners of the parent application.

Administrators are managed by the owner, and administrators cannot manage other administrators. The permissions of owners and administrators are strictly limited. They cannot review users, only govern applications that have not started DAO, and complete mint2/burn2 computational operations.

Administrators can be addresses, applications, or sub-applications. Applications and sub-applications are default administrators of each other, without the need for additional settings. The burn2/burn3 inscription needs to be sent to the deployer of the application for proper processing.

The "mint2" instruction requires the portion of tokens to be minted to be allocated by the logic of the application/sub-application, and the application/sub-application needs to be the administrator of the token. The "burn2" instruction has a similar logic.

The burn2/burn3 inscription needs to be sent to the deployer of the application for proper processing based on the logic of the computational operation.

• Decentralized Governance of Applications

The BRC-100 protocol stack introduces the governance protocol: BRC-101, which can govern applications that implement the standards of BRC-100 or its extension protocols. When an application starts a DAO, governance needs to be completed through decentralized voting.

Application governance includes: updating the attributes of applications and sub-applications, deploying sub-applications, and stopping applications. Application governance is on-chain governance. After on-chain voting, the application will automatically execute governance after a time lock through the computational operation: egov notifies the application.

• Deployment of Applications/Tokens

In the BRC-100 protocol, there are two ways to deploy applications: one is to directly deploy using deployment instructions, and the other is to deploy through the governance protocol: BRC-101.

The first is used to deploy parent applications and sub-applications that do not require governance, and the other is used to deploy sub-applications that require governance.

• Token Minting

The BRC-100 protocol provides three minting instructions: mint, mint2, mint3, for minting tokens in different scenarios.

When deploying an application, the quantity of tokens that users can mint needs to be set (using the "mint" instruction). The remaining tokens will also be minted using the "mint" instruction.

"Mint": User minting, fair minting, anyone can mint tokens for users, but the total amount minted by the "mint" operator cannot exceed the "max" and "mma" properties set by the application. After minting, the circulating supply of tokens will increase.

"Mint2": Whitelist minting, the application records the number of users or applications that can mint tokens, and anyone can mint2 tokens for users or applications under the rules of the application. After mint2, the circulating supply of tokens will also increase.

"Mint3": Treasury minting, mint3 for the balance of users or applications in other applications, anyone can mint3 tokens for users or applications under the rules of the application. After mint3, the circulating supply of tokens will not increase.

• Token Burning

Burning is a new operation introduced by the BRC-100 protocol. Users can inscribe the burn operation and then transmit the inscription to the deployer of the application, similar to the semantics of the transfer operation. The inscribed tokens will then be burned or transferred to the balance of the application.

Similar to the definition of the mint operation, the burn operator also has 3 types: burn, burn2, burn3, which logically correspond to mint, mint2, mint3. No additional configuration is needed, and all applications/tokens support these three burn instructions.

"Burn": Public burn, anyone can use the instruction to burn tokens. After successful token burning, the circulation will decrease, and the burned tokens cannot be minted again.

"Burn2": Whitelist burn, according to the preset rules of the application, burning tokens to the application will reduce the user's balance, update the application's state accordingly, and decrease the circulation. In practice, logic such as removing liquidity in AMM DEX can be achieved through burn2.

"Burn3": Treasury burn, burn3 will reduce the user's token balance and increase the balance of the "to" application. In practical applications, it can be used in conjunction with mint3 to complete logic such as exchanging tokens and adding liquidity in AMM DEX.

• Transaction Tax and Monetary Contraction

The BRC-100 protocol introduces a new token transaction mechanism: transaction tax and monetary contraction. Applications can set the percentage of transaction tax, the tax recipient, and the percentage of tokens sent to a black hole. These settings only take effect when trading on decentralized exchanges based on AMM. Normal transfers, minting, and burning operations will not trigger transaction tax and monetary contraction.

• Computational Operations

Computational operations are the extended computational behaviors of the BRC-100 protocol. They are represented by the "cop" attribute and are the smallest unit of the protocol's computational capabilities. When used with the op operator: burn2/burn3/mint2/mint3, they can be understood as state transition functions, defining how the state of applications and users is updated under the corresponding op operator.

• Oracle Oracle

Oracle is a common requirement for blockchain to interact with off-chain parties, and has been well implemented and applied on blockchains such as Ethereum. If there is no oracle, smart contracts on the blockchain will be completely limited to on-chain data. However, compared to the blockchain, the BRC-100 protocol has very special characteristics.

It not only has the computational capabilities of the blockchain, but also relies on off-chain indexers to complete computations. At the same time, off-chain indexers can directly communicate with other blockchains or meta-protocols, which the blockchain cannot do. This means that indexers can verify any data on-chain or off-chain to meet the requirements of the Oracle BRC-100 protocol through sufficient proof data.

For example: verifying the transfer of BTC or BRC-20 assets, verifying the price of ETH on a certain block in Ethereum, and so on.

In other words, in the BRC-100 protocol, the oracle has a new paradigm: proof and verification, where users submit proof data, and the indexer acts as an Oracle Verifier to verify the protocol-external proof data submitted by the user, without the need for a separate Oracle service.

In the BRC-100 protocol, the burn2/burn3/mint2/mint3 instructions natively support the proof attribute for submitting protocol-external proof data. Indexers can verify the proof data to ensure the consistency and correctness of the state. The proof can be transfer proof, Merkle tree proof, zero-knowledge proof, price proof, etc., and can be used for asset bridging, airdrops, Bitcoin Layer 2, loan liquidation, and more.

• Relay Protocol

Meta-protocols on Bitcoin are heterogeneous and cannot communicate with each other. Different protocols are similar to different blockchains, they share the security of the Bitcoin blockchain and have different computational capabilities. In addition, meta-protocols cannot directly communicate with other blockchains, such as Ethereum, and cannot use assets on other blockchains.

Therefore, the BRC-100 protocol stack needs relay protocols to facilitate communication between Bitcoin, meta-protocols, blockchains, and the BRC-100 protocol, bridging assets from other protocols or blockchains to BRC-100, and participating in decentralized applications such as DeFi. Due to the diversity of protocols and blockchains, BRC-100 will have multiple relay protocols.

First, we will release: BRC-103, responsible for bridging assets between Bitcoin, BRC-20, and BRC-100.

When bridging assets from a meta-protocol or blockchain (source) to the BRC-100 protocol (target), in order for the indexer to verify the correctness of the transfer, "mint2" instructions need to be used to submit proof data, known as transfer proof.

Transfer proof refers to submitting transfer data from the source end (such as Bitcoin, BRC-20, or other blockchains) as proof when anchoring assets on the target protocol (BRC-100), which can be a transaction hash or inscription ID.

This allows all BRC-100 indexers to verify the correctness of the minted anchored assets.

Transfer proof is a very important application of the Oracle BRC-100 protocol.

Protocol Use Cases

Since BRC-100 is an extension of BRC-20, it inherently has all the use cases of BRC-20, but the use cases of BRC-100 go far beyond that. We can still further extend the use cases based on the BRC-100 protocol. The following are some extension protocols officially listed, and some protocols are already in development:

BRC-101 (Released)

Decentralized on-chain governance protocol for the BRC-100 protocol stack, defining how to update the attributes of parent/child applications/tokens, stop applications, and add sub-applications.

Additionally, BRC-101 can also complete off-chain governance through decentralized voting.

BRC-102 (In Development)

Automated liquidity protocol, defining how to exchange tokens in the BRC-100 protocol stack through an automated market maker (AMM) algorithm. The computational logic will be similar to Uniswap on Ethereum.

BRC-103 (In Development)

Relay protocol for BTC, BRC-20, and BRC-100. Meta-protocols on Bitcoin are heterogeneous and cannot communicate with each other. Different protocols are similar to different chains. They share the security of the Bitcoin blockchain and have different computational capabilities.

Therefore, the BRC-100 protocol stack will release multiple relay protocols to facilitate communication between meta-protocols, different chains, and BRC-100, and bridge assets from other protocols and blockchains to BRC-100, participating in DApps such as DeFi.

BRC-104

Liquidity mining protocol, defining how to earn token rewards by staking tokens. Staked tokens can be any token based on BRC-100, such as liquidity pool tokens from the BRC-103 protocol, and can also be the same as the reward tokens. Additionally, BRC-104 will support lock-up periods to lock the staked tokens.

BRC-105

Airdrop protocol, defining how to efficiently airdrop tokens to multiple addresses. This protocol will use Merkle Tree to complete airdrops, saving transaction fees, as all original airdrop data does not need to be publicly disclosed on Bitcoin. Users only need to submit a Merkle Proof when minting2 to prove their ownership of the airdrop, and all indexers can verify the correctness to complete the airdrop.

BRC-106

Decentralized stablecoin pool protocol, defining how to generate stablecoins through collateral. The computational logic will be similar to MakerDAO's DAI on Ethereum.

BRC-107

Lending pool protocol, defining how to borrow assets through collateral. The computational logic will be similar to Aave on Ethereum.

BRC-108

Automated liquidity protocol for stablecoins.

BRC-109

Decentralized trading protocol for perpetual futures.

BRC-110

Relay protocol between EVM-compatible blockchains and BRC-100, defining how to bridge assets from EVM-compatible blockchains to BRC-100.

BRC-111

"6" BRC-420 Protocol

Protocol Proposal

After the proposal of the BRC-20 protocol, another new experimental protocol, BRC-420, also known as the Metaverse protocol, appeared on September 19, 2023.

Protocol Concept

BRC-420 is an interesting experiment. It is the first Metaverse protocol in the Ordinals protocol and is an asset protocol based on the Bitmap protocol.

By combining multiple inscriptions into a complex asset, such as game items, animations and effects, or game modules in the Metaverse, it creates various assets from small characters, pets to complete game scripts, and virtual machines.

Due to its on-chain open-source nature, any client can run or verify it, fully embodying the "Client Agnostic" spirit of the whole-chain game.

Source: https://twitter.com/rcsvio/status/1704118288845013117

The BRC-420 protocol consists of two parts: the Metaverse Standard and the Royalty Standard. The former defines the open format for assets in the Metaverse, while the latter sets the on-chain protocol for creator economics.

Source: https://l1f.discourse.group/t/brc-420-introduction-to-brc-420/88

BRC-420 opens up possibilities for Ordinals' on-chain games and modular blockchains. Different creators can contribute different modules, and new creators can innovate on the basis of previous innovations. This has led to a surge of various innovations within the Ordinals ecosystem, benefiting all participants.

Protocol Development

Currently, BRC-420 has released BRC-420 DLC on November 3, 2023, which can integrate thousands of meta-inscriptions into one DLC. After deployment, users can obtain thousands of meta-assets in one minting.

Source: https://twitter.com/rcsvio/status/1720444100124831867

"7" Runes Protocol

Protocol Proposal

After the release of the BRC20 protocol, Casey felt that creating homogeneous tokens on Bitcoin was not a good idea, as 99% of homogeneous tokens are scams and will not disappear in the short term. Creating a good homogeneous token protocol for Bitcoin could bring substantial transaction fee income, developer attention, and users to Bitcoin.

Therefore, Casey proposed the Runes protocol based on UTXO technology on September 26, 2023.

The design of the Runes protocol may also have been influenced by ARC20, choosing to directly write token data into the UTXO script, including the token's ID, output, and quantity.

Obviously, the implementation of Runes is very similar to ARC20, directly handing over token transfers to the BTC mainnet. The difference is that Runes writes the token quantity into the script data, giving it higher precision than ARC20.

However, the complexity also increases, making it difficult to directly utilize the composability of BTC UTXOs like ARC20.

Protocol Development

After the release of the Runes protocol, due to Casey's main development focus still being on the Ordinals protocol, the development of the Runes protocol has been relatively slow. This is also why Benny quickly developed the Pipe protocol after the release of the Runes protocol.

During the Taiwan Blockchain Week in December, Casey also announced the time for the Runes protocol to go live on the mainnet at an event in Taipei, at block height 840,000, which is around the next BTC halving, probably at the end of April 2014.

Conclusion

After researching BTC asset issuance solutions, I also fully appreciate their charm, so I will also share some of my subjective opinions.

1. The issuance of assets on BTC has ignited the explosive development of the BTC ecosystem this year, although opinions about them vary. But when we abstractly look at the development of the BTC ecosystem, it all comes down to one important thing - "narrative."

2. As I mentioned in previous reflections, a product needs a good narrative to support it, otherwise it easily faces the awkward situation of having a product but no users. The various asset issuance schemes have also proven this point, such as "first is first," the various imaginations brought by the protocol to the ecosystem, and official endorsements, all of which are specific manifestations of the narrative.

3. Similarly, we cannot deny the contribution of this wave of asset issuance to the BTC ecosystem. Although from a technical perspective, most asset issuance schemes may not have made any substantial breakthroughs for Bitcoin's limitations, they have not only provided a rare stress test for major public chains but also brought some possible development paths for the future of Bitcoin.

4. Through the waves of inscriptions this year, the long-tail effect brought about by inscriptions has gradually expanded from the initial Bitcoin to inscriptions on other public chains. And in the heat of everyone inscribing, we have also felt some shortcomings of the current Bitcoin mainnet, such as high gas fees, slow transaction speeds, etc., indicating the necessity of BTC scaling solutions.

5. Even though scaling solutions have been in the works for a long time, they have been slow to progress. Now, more and more users are paying attention to the BTC ecosystem in the heat of inscriptions, indirectly accelerating the development of BTC scaling solutions.

6. Currently, existing scaling solutions are mainly divided into three categories: sidechains, Lightning Network, and native L2. However, no direction has established a leading advantage, and they are still in a stage of mutual competition. Whether the future will see multiple developments or a remarkable breakthrough in a certain direction, we can look forward to it, and this is also a direction to focus on in the future.

7. In the research of asset issuance schemes, there is a clear trend from the initial appearance of the Ordinals protocol to the later BRC-20, an improved protocol based on Ordinals, and to various others such as BRC-100 decentralized computing protocol (intending to introduce DeFi gameplay into Bitcoin based on this), BRC-420 Metaverse protocol (bringing the possibility of introducing games, music, etc., into Bitcoin), ARC-20 (a new asset issuance scheme parallel to BRC-20), and so on.

8. Asset issuance schemes have evolved from making some basic improvements to existing asset issuance protocols to addressing the needs of the BTC ecosystem (such as oracles, DeFi, games, etc.) based on a certain asset issuance protocol, making large-scale ecological layouts, or even releasing a new type of asset issuance protocol to establish rules.

9. The development of the BTC ecosystem is still in its early stages, whether in Web2 or Web3, there is a phenomenon that whoever first grasps the right to set the rules can have the users. Therefore, there are still many opportunities for wealth at present. We must comprehensively look at the development of the BTC ecosystem. The inscription craze will eventually cool down, and we should not only focus on the tail of asset issuance but also consider how to accelerate the overall development of the BTC ecosystem in other aspects through asset issuance.

10. Of course, there are also some different opinions on this matter, such as NingNing's view on BTC L2: [link to tweet], for rational discussion.

11. Although we are currently in a stage of acting first and studying later, everyone is still making decisions based on their instincts. But I still want to remind everyone to be cautious about risks when investing, and to clearly define your own investment logic, whether it's for short-term gains or long-term prospects. Different logics require different strategies. In terms of investment, it is important to strive for unity of knowledge and action. I firmly believe in the saying, "You can never make money beyond your understanding. Even if you make money now, you will lose it later."

Finally, thank you for reading this far. The original intention of this article is to help everyone better understand the development of the BTC ecosystem, and I welcome everyone to reach out to me for discussions. In the future, I will occasionally share some viewpoints and will also write an article on scaling solutions. Stay tuned.

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