Preface

"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

—— This sentence, engraved in the genesis block of Bitcoin, witnesses the beginning of an era.

Now, as Bitcoin continues to reach new heights, we are also witnessing the end of another once-glorious era — inscriptions and runes.

From the emergence of the Ordinals protocol at the beginning of 2023, to the frenzied speculation around BRC20, and the successive appearances of protocols like Runes, Atomical, CAT20, RGB++, and Alkanes, the Bitcoin ecosystem has undergone an unprecedented "inscription revolution."

They all attempt to transform Bitcoin from a mere value storage tool into a foundational platform capable of supporting various asset protocols.

However, as the revelry fades and the underlying reality emerges, we must confront a harsh truth: the fundamental limitations of the inscription protocols destined this beautiful tulip bubble.

As a practitioner deeply involved in the development of inscription protocols from a technical perspective, having manually crafted the underlying implementations of each protocol, I have witnessed this ecosystem evolve from its infancy to its explosion, and now to its rational return.

This article will explore the innovations and limitations of multiple inscription protocols, discussing why this once-promising track has rapidly reached its current endpoint.

1. Evolution Chain of Inscription Protocols

1.1 Ordinals Protocol: The Beginning of the Inscription Era

The first key that opened the "inscription era" of Bitcoin. By numbering each satoshi and utilizing the principle of revealing through submission, it achieved on-chain storage of arbitrary data.

The combination of the UTXO model and the NFT concept uses the serial number of the satoshi as a positioning identifier, allowing each satoshi to carry unique content.

For details, see: Interpretation of Bitcoin Ordinals Protocol and BRC20 Standard: Principles, Innovations, and Limitations

From a technical perspective, Ordinals' design is quite elegant, perfectly compatible with Bitcoin's native model, achieving permanent data storage.

However, merely writing data is also its limitation, failing to meet the market's strong desire for the "issuance" of BTC plus other assets at that time.

1.2 BRC20 Protocol: Commercial Breakthrough and Consensus Trap

Building on the technical foundation laid by Ordinals, BRC20 injected soul into on-chain data through standardized content formats — making the originally static inscriptions "come to life."

It defined the complete asset lifecycle of deploy-mint-transfer, transforming abstract data into tradable assets, and for the first time realized the issuance of fungible tokens on Bitcoin, satisfying the market's urgent need for "issuance" and igniting the entire inscription ecosystem.

However, its account model fundamentally conflicts with Bitcoin's UTXO model, requiring users to first inscribe a transfer inscription before conducting an actual transfer, resulting in multiple transactions to complete a single transfer.

More importantly, BRC20's fundamental flaw lies in its binding of "certain data," yet it completely fails to share its consensus power. Once the off-chain indexer stops supporting it, all so-called "assets" will instantly turn into meaningless garbage data.

This fragility was starkly exposed during repeated satoshi events — when multiple assets appeared on the same satoshi, the protocol parties collectively modified the standards, meaning the consensus of the entire ecosystem was effectively controlled by a minority. Even more confusingly, the subsequent "optimizations" like single-step transfers introduced by related institutions did not address the core pain points of the market, but instead brought high costs for various platforms to adapt to the new version.

This reflects a deeper issue: for the past two years, the designers of the inscription protocols have been trapped in the singular domain of "issuance," lacking in-depth consideration of application scenarios post-issuance.

1.3 Atomical Protocol: Correction and Disconnection of UTXO Nativism

In response to BRC20's UTXO compatibility issues, Atomical proposed a more radical solution: directly correlating the number of assets to the number of satoshis in UTXO, and introducing a proof-of-work mechanism to ensure fair minting.

It achieved native compatibility with Bitcoin's UTXO model, where asset transfer equates to satoshi transfer, somewhat resolving BRC20's cost and interaction issues.

However, the iteration of technology also brought the cost of complexity — transfer rules became extremely complicated, requiring precise calculations of UTXO splits and merges, risking asset destruction and making inscription players hesitant to operate.

More critically, the proof-of-work mechanism exposed severe fairness issues in actual operation, where large holders could leverage their computational power to complete minting first, completely contradicting the mainstream narrative of "fair launches" in the inscription ecosystem at that time.

Subsequent product iterations further reflected the development team's misunderstanding of user needs — complex functions like semi-colored assets consumed vast amounts of resources but offered minimal improvement to user experience, instead incurring high costs for major institutions to reconstruct on-chain tools.

Meanwhile, the anticipated AVM arrived late, as the entire market had already shifted, missing the optimal development window.

1.4 Runes Protocol: Elegant Compromise of Official Authority and Application Void

As the "official" issuance protocol of Ordinals founder Casey, Runes absorbed the lessons from the aforementioned protocols. By using OP_RETURN data storage to avoid misuse of witness data, it found a relative balance between technical complexity and user experience through clever coding design and the UTXO model.

Compared to previous protocols, Runes' data storage is more direct, and its encoding is more efficient, significantly reducing transaction costs.

For details, see: With Bitcoin Halving Approaching, Analyzing the Underlying Design Mechanism and Limitations of Runes Protocol

However, the Runes protocol also falls into the fundamental dilemma of the inscription ecosystem — aside from issuing tokens, this system has no particularly unique design.

Why would the market need a token that can be obtained without any barriers?

Once obtained, aside from selling it on the secondary market, what practical significance does it have? This purely speculative-driven model inevitably limits the protocol's vitality.

However, the application of OP_RETURN opened up ideas for subsequent protocols.

1.5 CAT20 Protocol: Ambition for On-Chain Verification and Realistic Compromise

It indeed achieved true on-chain verification through Bitcoin scripts. Only state hashes are stored on-chain, ensuring that all transactions adhere to the same constraints through recursive scripts, thus claiming "no need for an indexer." This has been the long-sought holy grail of inscription protocols.

However, CAT20's "on-chain verification," while the verification logic is indeed executed on-chain, can only verify its state data stored in hash form in OP_RETURN. With only hashes, reverse resolution is impossible, so in actual operation, it still requires off-chain indexers to maintain readable states.

From a design perspective, the protocol allows for non-unique token name symbols, leading to confusion with similarly named assets, and the UTXO contention issues during early development in high-concurrency scenarios resulted in a very poor initial minting experience for users.

Later, following a hacking incident, the underlying principle was that internal data lacked delimiters when connecting two numerical values, causing 1 and 234, as well as 12 and 34, to yield the same hash result. The attack necessitated a protocol upgrade, but the prolonged delay in the upgrade plan caused the market to forget its initial enthusiasm.

The CAT20 case illustrates that even if partial breakthroughs are achieved at the technical level, one cannot be too ahead of the user’s understanding; otherwise, market recognition becomes difficult.

Moreover, the threat of hackers always looms like the sword of Damocles over the project team, reminding everyone to be cautious.

1.6 RGB++ Protocol: Technological Idealism and Ecological Dilemma

CKB attempts to solve Bitcoin's functional limitations through a dual-chain architecture with a homomorphic binding scheme. Utilizing CKB's Turing completeness to verify Bitcoin UTXO transactions, it is the most advanced technically, achieving verification of smart contracts in a richer sense, and its technical architecture is the most complete, making it a "pearl of technology" among inscription protocols.

However, the gap between ideals and reality is vividly reflected here — the complexity of the dual-chain architecture, high learning costs, and institutional access barriers.

More critically, the project team itself is relatively weak, facing the dual challenge of advancing both the chain (CKB) and the new protocol (RGB++), unable to attract sufficient market attention.

In this field, which heavily relies on network effects and community consensus, it has become a "well-received but unprofitable" technical solution.

1.7 Alkanes Protocol: The Final Sprint and Resource Scarcity

Based on off-chain indexing + smart contract protocol, it integrates the design concepts of Ordinals and Runes, attempting to realize any smart contract functionality on Bitcoin. It represents the last sprint of inscription protocols towards traditional smart contract platforms.

Theoretically, it can indeed achieve any complex contract logic. Moreover, it seized the opportunity of Bitcoin's upgrade to lift the 80-byte OP_RETURN limit.

However, the harsh reality of cost considerations ruthlessly shattered this technical ideal. Not to mention the significant performance bottlenecks brought by complex contract operations off-chain, even the self-built indexers in the project's early stages were repeatedly overwhelmed. Additionally, deploying custom contracts requires nearly 100KB of data on-chain, far exceeding the deployment costs of traditional public chains. Furthermore, contract operations remain uncontrolled, still relying on indexer consensus, and high costs are destined to serve only a very small number of high-value scenarios. High-value scenarios also do not trust public indexers; even with Unisat's strong backing, the market does not pay for it. If proposed a year ago, the timing and conditions might have been entirely different.

2. Fundamental Dilemma: Bitcoin's Minimalist Philosophy and Over-Design

Accumulation Effect of Technical Debt

The evolution of these protocols showcases a clear yet contradictory logic: each new protocol attempts to solve the problems of its predecessors, but in doing so, it introduces new complexities.

From the elegant simplicity of Ordinals to the technical piling of subsequent protocols, in the pursuit of novelty, they continuously increase complexity, until every player must learn a plethora of terms while constantly guarding against risks.

Moreover, all attention is focused solely on the logic of issuance platforms. If that is the case, why wouldn’t players choose places with lower costs, easier manipulation, more significant uplifts, and more refined platform mechanisms?

Long-term chewing on the same topic has also led to user fatigue.

Vicious Cycle of Resource Scarcity

The fundamental reason for these project teams' resource scarcity may lie in the centralization of Bitcoin system operations and the very nature of fair launches — institutions lacking incentives will not overly invest in platforms that do not offer advantages.

Compared to miners' block rewards, operating indexers is purely a cost. Without the distribution of "miner" rewards, naturally, no one will address the technical and operational issues.

Speculative Demand vs. Real Demand

In multiple rounds of user education, it has been found that as long as they are off-chain protocols, their security cannot equal the consensus of Bitcoin. The cooling of the market is not coincidental; it reflects the fundamental issues of the inscription protocols: they do not address real needs but rather speculative demands.

In contrast, truly successful blockchain protocols succeed because they solve actual problems: consensus, functionality, and performance are all essential. However, the contribution of inscription protocols in this regard is almost zero, which explains why their popularity cannot be sustained.

3. The Era Transition at the RWA Moment: From Market Dream Rate to Market Share Rate

Maturity of Market Perception

As the market matures, users, having gone through several rounds of bull and bear cycles, have learned to cherish their attention — a precious resource.

They no longer blindly trust information sources monopolized by Twitter KOLs and influential communities, nor do they blindly believe in the "consensus cannon fodder" of white papers.

The barriers to entry for issuance platforms are low, and in the current market environment, these "low-hanging fruits" have already been picked. The industry is shifting from mere token issuance to more practical application scenarios.

However, it is worth noting that if the RWA field also only sees a bunch of issuance platforms, this wave of opportunity will also come and go quickly.

Return to Value Creation

The technological innovations of the inscription protocol era often carry a "show-off" quality, pursuing technical cleverness rather than practicality. The development logic of the new era has shifted from "market dream rate" to "market share rate," placing greater emphasis on forming genuine network effects through user reputation.

Real opportunities belong to teams that pursue product-market fit — creating products that genuinely meet user needs, have cash flow, and possess a business model.

Conclusion: The Return of Rationality and Restraint

In the early days, once everything entered a macro perspective, it would ultimately be correct and just.

Upon reflection, the explorations and setbacks of the inscription era also provide valuable lessons for the healthy development of the entire industry.

When Bitcoin prices reach new highs, we have reason to be proud of this great technological innovation. But we should also recognize that technological development has its inherent laws; not all innovations will succeed, and not all bubbles are without value.

The rise and fall of inscription protocols teach us that technological innovation must be built on a solid technical foundation and real market demand. Speculative enthusiasm and excessive technical showmanship, if they do not align with the current market conditions (the understanding of institutions and players), will lead to fleeting moments. Projects chasing trends may gain attention, but those that create trends can survive long-term.

In this rapidly changing industry, it is more important for builders to maintain rationality and restraint than to hastily release projects just to chase trends.

Moreover, the market does not have that much patience; while you refine and iterate, many traditional internet strategies of small, quick steps do not actually work. The first battle is the decisive battle.

As I wrote in an article two years ago:

"BRC-20 and Ordinals NFT have brought much debate to Bitcoin… Although new things have exploded in price, their technical flaws are also very significant: excessive centralization, lack of credible verification mechanisms, limitations of Bitcoin network performance, lack of infrastructure, and lack of security."

"Although I am not optimistic about the current Ordinals, after all, its application in the blockchain space is still too monotonous… However, as an interesting attempt, such a groundbreaking innovation can also reignite everyone's thinking."

History has proven the importance of maintaining rational thought. The end of the inscription era is not a failure but a growth.

It points us in the direction forward and provides valuable lessons for future generations. In this sense, the historical value of inscription protocols will endure, becoming an important chapter in the history of blockchain technology development.

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