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Introduction: The Historical Development of the BTC Ecosystem#

Recently, the popularity of Bitcoin's inscriptions has ignited a frenzy among crypto users. Originally considered "digital gold," Bitcoin, which was primarily seen as a store of value, has once again garnered attention due to the emergence of the Ordinals protocol and BRC-20. This has prompted people to focus on the development and possibilities of the Bitcoin ecosystem.

As the earliest blockchain, Bitcoin was created in 2008 by an anonymous entity named Satoshi Nakamoto, marking the birth of a decentralized digital currency that challenges traditional financial systems.

Bitcoin, born as an innovative solution in response to the inherent flaws of centralized financial systems, introduced the concept of a peer-to-peer electronic cash system, eliminating the need for intermediaries and enabling trustless and decentralized transactions. The fundamental technology of Bitcoin, the blockchain, revolutionized the way transaction records are stored, verified, and secured. The Bitcoin whitepaper, released in 2008, laid the foundation for a decentralized, transparent, and tamper-resistant financial system.

After its inception, Bitcoin went through a gradual and stable growth phase. Early adopters primarily consisted of technology enthusiasts and cryptography supporters who engaged in mining and trading Bitcoin. The first recorded real-world transaction occurred in 2010 when programmer Laszlo purchased two pizzas in Florida for 10,000 Bitcoins, marking a historic moment for the adoption of cryptocurrencies.

As Bitcoin gained increasing attention, its related ecosystem infrastructure began to take shape. Exchanges, wallets, and mining pools emerged in large numbers to meet the demands of this new type of digital asset. With the development of blockchain technology and the market, the ecosystem expanded to involve more stakeholders, including developers, entrepreneurial teams, financial institutions, and regulatory bodies, leading to the diversification of the Bitcoin ecosystem.

The market, which had been dormant for a long time in 2023, experienced a renaissance due to the popularity of the Ordinals protocol and BRC-20 tokens, bringing about a summer of inscriptions. This also refocused people's attention on Bitcoin, the oldest and most established public blockchain. What will be the future development of the Bitcoin ecosystem? Will the Bitcoin ecosystem become the engine for the next bull market? This research report will delve into the historical development of the Bitcoin ecosystem, focusing on the three core aspects within the ecosystem: asset issuance protocols, scalability solutions, and infrastructure. It will analyze their current status, advantages, and challenges to explore the future of the Bitcoin ecosystem in depth.

Why the Bitcoin Ecosystem is Needed#

Characteristics and Development History of Bitcoin#

To understand the necessity of the Bitcoin ecosystem, we must first delve into Bitcoin's fundamental characteristics and evolutionary journey.

Bitcoin stands apart from traditional financial models, exhibiting three key features:

1. Decentralized Distributed Ledger: At the heart of Bitcoin's network is blockchain technology, a decentralized ledger that records every transaction. This blockchain comprises blocks linked in a chain, each block referencing the previous one, ensuring transaction transparency and immutability.

2. Proof-of-Work (PoW) System: Bitcoin's network relies on a Proof-of-Work mechanism to validate transactions. Network nodes solve complex mathematical problems to confirm transactions and add them to the blockchain, thus bolstering network security and decentralization.

3. Mining and Bitcoin Issuance: Bitcoin is generated through mining, where miners solve mathematical puzzles to validate transactions and create new blocks, earning Bitcoin as a reward.

In stark contrast to familiar account models like PayPal, Alipay, and WeChat Pay, Bitcoin uses the Unspent Transaction Output (UTXO) model rather than adjusting account balances directly.

The UTXO model is pivotal in understanding the technical underpinnings of the Bitcoin ecosystem. In this model, each Unspent Transaction Output represents a transaction output in the network yet to be utilized. These outputs are the building blocks for future transactions. The UTXO model is characterized by:

1. Generation of New UTXOs with Each Transaction: Bitcoin transactions consume existing UTXOs and create new ones, setting the stage for future transactions.

2. Transaction Verification via UTXOs: The network verifies transactions by confirming the existence and non-use of referenced UTXOs.

3. UTXOs as Inputs and Outputs: Each UTXO has a specific value and owner's address. In transactions, some UTXOs serve as inputs, while others are created as outputs for future use.

The UTXO model enhances security and privacy, as each UTXO is distinct in ownership and value, allowing for precise transaction tracking. Additionally, its design enables parallel processing of transactions, as each UTXO operates independently, avoiding resource conflicts.

Despite these strengths, Bitcoin's block size limitations and the non-Turing complete nature of its scripting language have confined it to being mainly "digital gold," restricting a wider array of applications.

Bitcoin's journey has seen significant developments. Colored coins appeared in 2012, enabling the representation of other assets on the Bitcoin blockchain through metadata. The 2017 block size debate led to forks such as BCH and BSV. Post-forks, BTC focused on scalability improvements, like the 2017 SegWit upgrade which introduced extended blocks and block weight, increasing block capacity. The 2021 Taproot upgrade enhanced transaction privacy and efficiency. These upgrades paved the way for scaling protocols and asset issuance protocols, including the notable Ordinals protocol and BRC-20 tokens.

It's clear that while Bitcoin was initially envisioned as a peer-to-peer electronic cash system, many developers are striving to transcend its "digital gold" status. Their efforts are focused on amplifying Bitcoin's scalability and fostering a diverse array of applications within its ecosystem.

Comparison between the Bitcoin Ecosystem and Ethereum Smart Contracts#

In Bitcoin's developmental journey, Vitalik Buterin proposed a distinct blockchain, Ethereum, in 2013. Co-founded by Buterin, Gavin Wood, Joseph Lubin, and others, Ethereum introduced a programmable blockchain, enabling developers to create diverse applications beyond mere currency transactions. This functionality positioned Ethereum as a smart contract platform, facilitating automated contract execution on the blockchain without third-party trust.

Ethereum's standout feature is smart contracts, allowing developers to craft various applications. Consequently, Ethereum has emerged as a crypto space leader, fostering an expansive ecosystem with Layer 2 solutions, applications, and assets like ERC20 and ERC721 tokens.

Despite Ethereum's capabilities in smart contract and DApp development, there's a persistent pull towards Bitcoin for scaling and application development. The key reasons are:

1. Market Consensus: As the first blockchain and cryptocurrency, Bitcoin holds significant public and investor recognition and trust. Its market capitalization, about $800 billion, accounts for nearly half of the entire crypto market.

2. Bitcoin's High Decentralization: Bitcoin is highly decentralized, with its anonymous creator, Satoshi Nakamoto, and a community-driven development approach. In contrast, Ethereum has visible leadership in Vitalik Buterin and the Ethereum Foundation.

3. Fair Launch Demand Among Retail Investors: Web3's growth hinges on new asset issuance. Traditional token issuances, whether fungible or non-fungible, usually involve project teams as issuers, making retail investor returns dependent on these teams and venture capitalists. The Bitcoin ecosystem, however, has seen the rise of fair launch platforms like Ordinals, granting retail investors more influence and attracting capital to Bitcoin.

Despite its lower transaction speed and block time compared to Ethereum, Bitcoin continues to attract developers interested in implementing smart contracts and developing applications on it.

In essence, just as Bitcoin's ascent was anchored in a value consensus—its widespread acceptance as a valuable digital asset and medium of exchange—crypto innovations are intrinsically linked to asset properties. The Bitcoin ecosystem's current buzz mainly stems from the Ordinals protocol and assets like BRC-20 tokens, revitalizing overall interest in Bitcoin.

This cycle differs from previous bull markets, with retail investors gaining more clout. Traditionally, VCs and project teams have steered the crypto market, but as retail interest in crypto assets grows, these investors seek a larger role in project development and decision-making. Their involvement has partly fueled the Bitcoin ecosystem's revival in this cycle.

Therefore, despite Ethereum's adaptability with smart contracts and decentralized applications, the Bitcoin ecosystem, with its status as digital gold, a stable value store, market leadership, and consensus, maintains an unmatched significance in the cryptocurrency domain. This enduring relevance continues to draw attention and efforts towards developing the Bitcoin ecosystem, exploring its potential and possibilities further.

Analysis of the Current Development Status of Bitcoin Ecosystem Projects#

In evolving the Bitcoin ecosystem, two primary challenges are evident:

• Bitcoin Network's Low Scalability: Enhanced scalability is crucial for building applications on Bitcoin.

• Limited Bitcoin Ecosystem Applications: Popular applications/projects are needed to attract more developers and spur innovation.

To tackle these challenges, the focus is on three domains:

1. Protocols for asset issuance

2. Scalability solutions, including on-chain and Layer 2

3. Infrastructure projects like wallets and cross-chain bridges

Given the Bitcoin ecosystem's early developmental stage, with applications like DeFi still emerging, this analysis will center on four aspects: asset issuance, on-chain scalability, Layer 2 solutions, and infrastructure.

Asset Issuance Protocols#

The Bitcoin ecosystem's growth since 2023 owes much to protocols like Ordinals and BRC-20, transforming Bitcoin from a mere value storage medium to an asset issuance platform, thus broadening its utility.

Post-Ordinals, various asset issuance protocols emerged, including Atomicals, Runes, PIPE, etc. These aid users and teams in launching assets on the Bitcoin network.

Ordinals & BRC-20#

First, let's take a look at the Ordinals protocol. Simply put, Ordinals is a protocol that allows people to mint NFTs similar to those on Ethereum on the Bitcoin network. The initial attention was drawn to Bitcoin Punks and Ordinal punks, which were minted based on this protocol. Later on, the popular BRC-20 standard also emerged based on the Ordinals protocol, ushering in the "Summer of Inscriptions."

The birth of the Ordinals protocol can be traced back to early 2023 and was introduced by Casey Rodarmor. Casey has been working in the tech industry since 2010 and has worked at Google, Chaincode Labs, and Bitcoin Core. He currently serves as the co-host of SF Bitcoin BitDevs, a Bitcoin discussion community.

Casey became interested in NFTs in 2017 and was inspired to develop Ethereum smart contracts using Solidity. However, he disliked building NFTs on Ethereum, considering it to be overly complicated for simple tasks. In early 2022, he came up with the idea of implementing NFTs on Bitcoin. During his research on Ordinals, he mentioned being inspired by something called "atomics" referenced by Bitcoin's creator, Satoshi Nakamoto, in the original Bitcoin codebase. This indicates that Casey's motivation was to make Bitcoin interesting again, leading to the birth of Ordinals.

So how does the Ordinals protocol achieve what people commonly refer to as BTC NFTs or Ordinal Inscriptions? There are two key elements:

• The first element is assigning serial numbers to each Satoshi, the smallest unit of Bitcoin. This allows tracking of Satoshis when they are spent, effectively making Satoshis non-fungible. It's an imaginative approach.

• The second element is the ability to attach arbitrary content to individual Satoshis, including text, images, videos, audio, etc., thereby creating unique Bitcoin-native digital items called inscriptions (also known as NFTs).

By numbering Satoshis and attaching content, Ordinals enables Bitcoin to have NFT-like functionality similar to Ethereum.

Now let's dive into the technical details to better understand how Ordinals is implemented. In the allocation of serial numbers, new serial numbers can only be generated in the Coinbase Transaction (the first transaction in each block). By tracing UTXO transfers, we can determine the serial number of the Satoshis in the corresponding Coinbase transaction.

However, it's important to note that this numbering system is not derived from the Bitcoin blockchain itself but is assigned by an off-chain indexer. Essentially, it's the off-chain community that has established a numbering system for Satoshis on the Bitcoin blockchain.

After the introduction of the Ordinals protocol, many interesting NFTs emerged, such as Oridinal punks and TwelveFold, and as of now, Bitcoin inscriptions have exceeded 54 million. Building upon the Ordinals protocol, the BRC-20 standard was developed, paving the way for the subsequent BRC-20 summer.

The BRC-20 protocol is based on the Ordinals protocol and incorporates functionalities similar to ERC-20 tokens into script data, enabling token deployment, minting, and trading processes.

1. Token Deployment: In the script data, indicate "deploy" and specify the token's name, total supply, and quantity limit per token. Once the indexer identifies the token deployment information, it can start recording the corresponding token's minting and transactions.

2. Token Minting: In the script data, indicate "mint" and specify the name and quantity of the minted tokens. After identification by the indexer, the recipient's token balance is increased in the ledger.

3. Token Transfer: In the script data, indicate "transfer" and specify the token's name and quantity. The indexer decreases the sender's balance by the corresponding token quantity and increases the balance of the recipient's address.

From the technical principles of minting, it can be observed that since the balances of BRC-20 tokens are embedded in the script data of segregated witnesses, they cannot be recognized and recorded by the Bitcoin network. Therefore, an indexer is needed to locally record the BRC-20 ledger. Essentially, Ordinals treats the Bitcoin network as storage space, where on-chain metadata and operation instructions are recorded, while the actual computations and state updates of operations are processed off-chain.

After the birth of the BRC-20 protocol, it ignited the entire inscription market, with BRC-20 occupying the majority of Ordinals asset types. As of January 2024, BRC-20 assets accounted for over 70% of all Ordinals asset types. Furthermore, in terms of market capitalization, BRC-20 tokens currently have a market value of $2.6 billion, with the leading token Ordi valued at $1.1 billion, and Sats at around $1 billion. The emergence of BRC-20 tokens has brought new vitality to the Bitcoin ecosystem.

The popularity of BRC-20 is driven by several factors, which can be summarized into two main aspects:

• Wealth Effect: The success of Web3 protocols and projects is often attributed to the wealth effect, and BRC-20, as a new asset class on the Bitcoin network, naturally possesses an attractive quality that captures the attention and interest of a significant number of users.

• Fair Launch: BRC-20 inscriptions are characterized by fair launches, where no one has a natural advantage. Unlike traditional Web3 projects, fair launches enable individual investors to participate on an equal footing with venture capitalists in token investments. This encourages retail investors to engage with projects that implement a fair launch approach. Even in cases where malicious actors attempt to accumulate large quantities of BRC-20 tokens, there are associated costs involved in the minting process.

Overall, although the Ordinals protocol has faced some controversy within the Bitcoin community since its inception, with concerns about the potential increase in block size due to Bitcoin NFTs and BRC-20, resulting in higher requirements and fewer nodes, thereby reducing decentralization, there are positive perspectives as well. The Ordinals protocol and BRC-20 have showcased a new use case for Bitcoin beyond being digital gold. They have injected new vitality into the ecosystem, attracting developers to refocus on and contribute to the Bitcoin ecosystem by exploring scalability, asset issuance, and infrastructure development.

Atomicals & ARC-20#

Launched in September 2023 by an anonymous Bitcoin community developer, the Atomicals protocol aims for a more intrinsic asset issuance process. It facilitates asset issuance, minting, and trading without external indexing, offering a native alternative to the Ordinals protocol.

Key differences between Atomicals and Ordinals protocols include:

• Indexing: Atomicals does not assign numbers to Satoshis off-chain, unlike Ordinals. It uses Unspent Transaction Outputs (UXTOs) for indexing.

• Content Attachments or 'Inscriptions': Atomicals inscribes content directly into the UXTOs, differing from Ordinals, which attaches content to the script data of individual Satoshis' segregated witnesses.

A unique feature of Atomicals is its Proof-of-Work (PoW) mechanism, which adjusts the length of prefix characters to regulate mining difficulty. This approach requires CPU-based calculations for matching hash values, promoting a fairer distribution method.

Atomicals generate three asset types: NFTs, ARC-20 Tokens, and Realm Names. Realm Names represent a novel domain name system, using domain names as prefixes instead of suffixes, unlike traditional domain naming.

Focusing on ARC-20, the official token standard of Atomicals differs significantly from BRC-20. ARC-20, unlike BRC-20 (which is based on Ordinals), employs a colored coins mechanism. Token registration information is recorded on UXTOs, and transactions are processed entirely by the Bitcoin network, marking a distinct approach from BRC-20.

In summary, Atomicals relies on Bitcoin for transactions, reducing unnecessary transactions and their impact on network costs. It also forgoes off-chain ledgers for transaction recording, enhancing decentralization. Furthermore, ARC-20 transfers require only a single transaction, boosting transfer performance compared to BRC-20.

However, ARC-20's mining mechanism might indirectly lead to market costs covering miner efforts, differing from the fair inscription model that favors retail investor participation. Additionally, ARC-20 tokens face the challenge of preventing accidental spending by users.

Runes & Pipe#

The BRC-20 protocol's creation of numerous redundant UTXOs drew criticism from Casey Rodarmor, the Ordinals developer. In response, he proposed the Runes token protocol in September 2023, utilizing the UTXO model. Runes mirrors the ARC-20 standard in using UTXO scripts for token data and BTC network for transactions. Its distinctive feature is the customizable quantity of Runes tokens, in contrast to ARC-20's fixed minimum precision.

Yet, Runes remains conceptual. A month later, Benny, Trac's founder, introduced the Pipe protocol, akin to Runes. As per Benny's statements, Pipe aims to support various asset types, paralleling Ethereum's ERC-721 and ERC1155.

BTC Stamps & SRC-20#

BTC Stamps, distinct from Ordinals, emerged to address the risk of Ordinals data being pruned or lost during network hard forks, as it's stored in segregated witness script data. Twitter user @mikeinspace developed this protocol, embedding data in BTC's UTXOs for permanent, tamper-proof blockchain storage. This method suits applications requiring immutable records, like legal documents or digital art authentication.

Technically, Stamps embeds base64-encoded image data in transaction outputs, encoding images as base64 strings with the "STAMP:" prefix, broadcasted using the Counterparty protocol. This ensures permanent storage, as full nodes cannot delete data split across multiple transaction outputs.

SRC-20, alongside BTC Stamps, emerged as a counterpart to BRC-20. Unlike BRC-20's segregated witness data storage, SRC-20 embeds data in UTXOs, ensuring permanent blockchain presence.

BTC Stamps supports NFTs and FTs, with SRC-20 being an FT standard. SRC-20's minting cost, initially high at around 80U, decreased to 30U after the SRC-21 upgrade, yet remains costlier than BRC-20's 4-5U mint fee. SRC-20's minting process requires just one transaction, advantageous during network congestion compared to BRC-20's two transactions. SRC-20 supports four BTC address types, while BRC-20 only supports Taproot addresses.

SRC-20's advantages include enhanced security and transaction ease, fitting Bitcoin's security-focused ethos. However, challenges include high transfer costs and file size and type restrictions.

ORC-20#

ORC-20 evolved to optimize BRC-20's limitations, including its secondary market dependence and fixed token supply. BRC-20's reliance on external indexers also raises double-spending concerns, highlighted by the Unisat incident in April 2023.

ORC-20, compatible with BRC-20, enhances adaptability, scalability, security, and addresses double-spending. It differs in naming, coin supply flexibility, UTXO-based transactions, and ID identification, offering a richer economic model than BRC-20. ORC-20's compatibility with BRC-20 facilitates wrapping BRC-20 tokens as ORC-20.

Taproot assets#

Launched by Lightning Labs, Taproot assets integrate with the Lightning Network, built on the UTXO model. They allow customizable token quantities and seamless Lightning Network integration, reducing transaction costs.

Drawbacks include metadata storage off-chain, requiring trust in indexers or Universes for token state maintenance, and not facilitating fair launches. All tokens are project-issued and transferred to the Lightning Network, controlled by the project.

Elizabeth Stark, Lightning Labs' co-founder, envisions leading a Bitcoin renaissance through Taproot assets, leveraging the Lightning Network as a multi-asset platform, enabling users to deposit Taproot assets into Lightning channels for simplified transactions.

Summary of the Current Situation Analysis#

The rise of the Ordinals protocol and the BRC-20 token standard has significantly stirred the Bitcoin community, inciting a surge in tokenization and asset issuance activities. This enthusiasm has led to the creation of various asset issuance protocols like Atomicals, Runes, BTC Stamps, and Taproot assets, along with standards such as ARC-20, SRC-20, and ORC-20.

Beyond these mainstream protocols, there is an array of emerging asset protocols in development. BRC-100, inspired by Ordinals, is a decentralized computing protocol designed to broaden asset use cases and support applications in DeFi and GameFi. BRC-420, akin to ERC-1155, allows for the amalgamation of multiple inscriptions into complex assets, finding utility in gaming and metaverse scenarios. Even meme coin communities are venturing into this space, with the Dogecoin community introducing DRC-20, contributing to a diverse array of possibilities.

The current project landscape reveals a bifurcation in asset issuance protocols: the BRC-20 camp and the UTXO camp. BRC-20 and its evolved counterpart, ORC-20, inscribe data in segregated witness script data and rely on off-chain indexers. The UTXO camp, encompassing ARC-20, SRC-20, Runes, Pipe's targeted assets, and Taproot assets, represents a different approach.

The BRC-20 and ARC-20 camps epitomize two distinct methodologies in Bitcoin ecosystem asset protocols:

• BRC-20: This approach is characterized by its simplicity and minimalism, serving as an effective minimum viable product. It elegantly fulfills basic requirements with innovative, concise code.

• ARC-20: ARC-20 adopts a more reactive, bottom-up development strategy. It evolved through addressing bugs and optimizing solutions as challenges emerged.

BRC-20, benefiting from its first-mover advantage, currently holds a leading position among asset protocols. The future may see standards like SRC-20, ARC-20, or others challenging and potentially surpassing BRC-20's dominance.

In essence, the "inscription" trend has not only introduced a new fair launch model for retail investors but also captivated attention within the Bitcoin ecosystem. Furthermore, as per OKLink's data, the share of mining revenue from transaction fees surpassed 10% since last December, yielding substantial benefits to miners. Driven by the collective interests of the Bitcoin ecosystem, the inscription ecosystem and asset issuance protocols on Bitcoin are set to enter a new phase of exploration and development.

On-chain scalability#

The rise of asset protocols has brought renewed focus to the Bitcoin ecosystem. Addressing Bitcoin's scalability and transaction time challenges is crucial for long-term development. Currently, two main paths are being explored: on-chain scalability (optimizing Bitcoin Layer 1) and off-chain scalability (Layer 2). This section and the next will discuss developments in both areas.

For on-chain scalability, the goal is to enhance TPS (transactions per second) by optimizing block size and data structure. Examples include BSV and BCH, which, despite their scalability solutions, haven't garnered mainstream BTC community consensus. Among the widely accepted on-chain scalability upgrades are the SegWit and Taproot upgrades.

Segwit Upgrade#

mplemented in July 2017, the Segregated Witness (SegWit) upgrade was a significant scalability improvement. It aimed to address transaction capacity limitations and high fees.

Before SegWit, Bitcoin's 1MB block limit led to congestion and high fees. SegWit restructured transaction data by separating witness data (signatures and scripts) from transaction data, storing it in a new "witness area." This separation effectively expanded block capacity.

SegWit introduced "weight units" (wu) as a new block size measure. Non-SegWit blocks have 1 million wu, while SegWit blocks can have up to 4 million wu, allowing block sizes to surpass the 1MB limit. Consequently, Bitcoin's throughput increased, accommodating more transactions per block, reducing congestion and fees.

SegWit's significance extends beyond scalability. It laid the groundwork for subsequent developments, including the Taproot upgrade. For instance, operations of the Ordinals protocol in 2023 and BRC-20 tokens occur within the segregated data, making SegWit a foundation for the "Summer of Inscriptions."

Taproot Upgrade#

Implemented in November 2021, the Taproot upgrade (combining BIP 340, BIP 341, and BIP 342) aimed to improve scalability, privacy, security, and functionality. It introduced new smart contract rules and cryptographic signature schemes.

Taproot's key advantages include:

1. Schnorr Multisignature Aggregation (BIP 340): Schnorr signatures aggregate multiple public keys and signatures into a single key and signature, reducing transaction data size. This aggregation maximizes block space savings, making transactions faster and cheaper.

2. Enhanced Privacy (BIP 341): Introduces P2TR, a new script type combining P2PK and P2SH functionalities, enhancing transaction privacy and authorization mechanisms. P2TR standardizes output appearance, making it harder to identify participants' transaction inputs.

3. Complex Smart Contracts (BIP 342): Tapscript, a new script type, allows for more sophisticated smart contracts, including conditional payments and multi-party consensus, expanding Bitcoin's smart contract capabilities.

In conclusion, SegWit and Taproot have significantly enhanced Bitcoin's scalability, efficiency, privacy, and functionality, forming a solid foundation for future innovation.

Off-Chain Scaling Solutions: Layer 2#

Off-chain scaling solutions, known as Layer 2, have become a focus in the Bitcoin community due to the inherent limitations of Bitcoin's blockchain structure and decentralized consensus. Layer 2 protocols or networks built atop the Bitcoin network offer promising alternatives to on-chain scaling.

Layer 2 solutions within Bitcoin are generally categorized based on data availability and consensus mechanisms, encompassing state channels, sidechains, and rollups. State channels facilitate high-frequency transactions off-chain with final outcomes recorded on the blockchain. Rollups and sidechains differ in their security reliance: rollups depend on the main network's consensus, while sidechains operate independently.

Furthermore, protocols like RGB contribute to off-chain scalability enhancement.

State Channels#

State channels are off-chain communication channels enabling efficient transactions, recorded on the blockchain only upon completion. They offer increased speed, throughput, and reduced costs.

The Lightning Network, launched by Lightning Labs in 2018, is a prime example of state channel implementation on Bitcoin. Proposed in 2015, it's a network of state channels facilitating fast, off-chain transactions. This marked the first state channel project on Bitcoin, laying the groundwork for further developments.

Focusing on the Lightning Network's technical aspects, it's designed for quick transactions between nodes, addressing Bitcoin's scalability issues. It conducts numerous transactions off-chain, recording final transactions on the blockchain only upon channel closure.

Participants open payment channels on the Lightning Network, transferring Bitcoin as collateral. They can perform unlimited off-chain transactions, updating the channel's fund allocation without on-chain recording. Final fund distribution occurs upon channel closure, based on transaction records.

The Lightning Network's closure involves broadcasting the current transaction status to the Bitcoin network, settling funds on-chain. In exceptional closures, such as incorrect status broadcasts, a dispute period allows for contesting and correcting settlements, with dishonest nodes penalized.

Key advantages of the Lightning Network include:

1. Real-time Payments: Transactions occur off-chain, enabling millisecond to second payment speeds.

2. High Scalability: Capable of handling millions to billions of transactions per second, surpassing traditional systems.

3. Low Cost: Minimal fees due to off-chain transactions and settlements.

4. Cross-chain Capabilities: Supports off-chain atomic swaps between blockchains with compatible cryptographic hash functions.

Despite challenges in user education and transaction procedures, the Lightning Network significantly reduces Bitcoin mainnet's transaction load. Its Total Value Locked (TVL) approaches 200 million USD.

State channels' limited scope, mainly transaction-focused, restricts their support for diverse applications, unlike Ethereum's Layer 2 solutions. This has led to efforts in expanding Layer 2 use cases on Bitcoin.

Post-Lightning Network, Elizabeth Stark's initiatives have aimed to evolve it into a multi-asset network, introducing protocols like Taproot Assets. Subsequent scaling solutions have integrated with the Lightning Network, enhancing its adoption and functionality. Thus, the Lightning Network not only serves as a state channel network but also as a base for other Layer 2 solutions on Bitcoin.

Sidechains#

The concept of sidechains, a pivotal addition to blockchain technology, was first introduced in the 2014 paper "Enabling Blockchain Innovations with Pegged Sidechains" by Adam Back and others. The paper underscored the necessity for Bitcoin's evolution to offer enhanced services, proposing sidechains as a solution for asset transfer across various blockchains.

A sidechain is an autonomous blockchain network running parallel to the primary chain, enabling customization of rules and functionalities. This setup facilitates greater scalability and flexibility. However, the security of a sidechain relies on its unique mechanisms and consensus protocols, rendering its security distinct from the main chain. Sidechains are designed to offer higher autonomy and customization, though they might exhibit lower interoperability with the main chain. A crucial feature of sidechains is the capacity to transfer assets from the main chain for utilization, generally involving cross-chain transfers and asset locking mechanisms.

Rootstock (RSK) and Stacks are prime examples of Bitcoin sidechain solutions, each illustrating the current state of these technologies.

Rootstock (RSK): Rootstock is a sidechain solution that enriches the Bitcoin ecosystem with increased functionality and scalability. It aspires to integrate smart contract capabilities into Bitcoin, crafting a potent platform for decentralized application (DApp) development and advanced smart contract functionalities. RSK presently boasts a Total Value Locked (TVL) of 130 million USD. It connects Bitcoin with the RSK network through sidechain technology, enabling smart contract creation and execution on the RSK network while benefiting from Bitcoin's security and decentralization features.

RSK's primary advantages are its compatibility with Ethereum's language and merged mining:

• Ethereum Language Compatibility: RSK's Virtual Machine, an enhanced version of the Ethereum Virtual Machine (EVM), allows developers to utilize Ethereum's smart contract development tools and languages, fostering a familiar development environment and leveraging Bitcoin's robust security.

• Merged Mining for Miner Participation: RSK introduces a consensus mechanism known as "merged mining," harmonizing with the Bitcoin mining process. This dual mining approach enables Bitcoin miners to secure both Bitcoin and RSK networks simultaneously, enhancing RSK's security and incentivizing miner participation. This system allows miners to contribute hash power to RSK without needing additional resources, potentially boosting profitability.

RSK addresses Bitcoin's Layer 1 challenges like prolonged transaction confirmation times and network congestion by hosting smart contracts on the sidechain. It offers a dynamic platform for developers, fostering innovation and broader adoption in the Bitcoin ecosystem. RSK produces blocks approximately every 30 seconds and achieves a TPS of 10-20, surpassing Bitcoin but still lagging behind Ethereum's Layer 2 solutions in terms of high-concurrency application support.

Stacks: Stacks, initially known as Blockstack, is a Bitcoin-based sidechain equipped with its own consensus mechanism and smart contract functionality. It interacts with the Bitcoin blockchain to achieve enhanced security and decentralization, utilizing the Stacks token (STX) as an incentive. Launched in 2013, Stacks' mainnet went live in October 2018, with a significant update, Stacks 2.0, released in January 2020. This update established a native connection with Bitcoin, enabling developers to create decentralized applications.

Stacks utilizes the Proof-of-Transfer (PoX) consensus mechanism, an adaptation of Proof-of-Burn (PoB). In PoX, miners send Bitcoin transactions to predetermined addresses to participate in consensus and generate blocks on the Stacks blockchain. The PoX mechanism mirrors Bitcoin's Proof-of-Work but utilizes Bitcoin transfers instead of energy-intensive mining. Despite the innovative consensus approach and the introduction of its development language, Clarity, Stacks' ecosystem development has been relatively slow, with a current TVL of around $50 million. It is primarily a sidechain, though the upcoming Nakamoto upgrade, planned for the second quarter, is expected to transition it into a true Layer 2 solution. This upgrade promises increased transaction throughput, faster block confirmation times, and alignment of Stacks' security with Bitcoin's network.

Furthermore, Stacks plans to introduce sBTC, a decentralized, programmable Bitcoin-backed asset facilitating smart contract interactions on the Bitcoin blockchain. This development is geared towards ensuring transaction security backed by Bitcoin's hash power.

In addition to RSK and Stacks, other sidechain solutions like the Liquid Network aim to improve Bitcoin's scalability through diverse consensus mechanisms. These sidechains represent significant strides in the evolution of the Bitcoin ecosystem, offering innovative approaches to scalability and functionality while maintaining a degree of separation from the main Bitcoin blockchain. As these solutions continue to develop, they are poised to play a crucial role in broadening the scope of applications and use cases within the Bitcoin landscape.

Rollup#

Rollup is a key Layer 2 solution designed to augment throughput by relocating much of the computation and data storage off the main chain to the Rollup layer. Its security is anchored in the main chain's security, with transaction data typically batched and submitted to the main chain for verification. Rollups are often viewed as a more traditional Layer 2 solution, offering a wider application scope than state channels and inheriting Bitcoin's security more effectively than sidechains. However, Rollup development for Bitcoin is still in its nascent stages.

Key examples of Bitcoin Rollup solutions include Merlin Chain, B² Network, and BitVM.

Merlin Chain, developed by Bitmap Tech (creators of Bitmap and BRC-420), employs ZK-Rollup to enhance Bitcoin's scalability. With its testnet recently launched, Merlin Chain facilitates free cross-chain asset transfers between Layer 1 and Layer 2 and supports the Unisat Bitcoin wallet. Future plans include support for Bitcoin-native assets like BRC-20, Bitmap, BRC-420, Atomicals, SRC20, and Pipe.

In its implementation, Merlin Chain uses a sequencer in the Rollup layer to process transactions, creating compressed transaction data, ZK state roots, and proofs. This data and proofs are uploaded to a decentralized Oracle, Taproot, on the Bitcoin network, ensuring security. Nodes in this decentralized Oracle system must stake BTC as a security measure, with challenges allowed based on the compressed data, ZK state roots, and proofs. Successful challenges lead to the confiscation of the penalized node's staked BTC. Currently in its testnet phase, Merlin Chain is expected to launch its mainnet soon, with its performance to be evaluated post-launch.

B² Network represents another Rollup solution, focusing on improving transaction speed and diversifying applications without compromising security. It combines zero-knowledge proofs (ZKP) and fraud proofs with Bitcoin's Taproot, offering enhanced transaction privacy and security. B² Network consists of a Rollup Layer for executing transactions and a Data Availability Layer (DA Layer) for storing Rollup data, verifying proofs, and finalizing confirmations on the Bitcoin network.

BitVM, proposed by Robin Linus, aims to alleviate congestion on the Bitcoin blockchain by offloading complex computations, like Turing-complete smart contracts, off-chain. Utilizing Bitcoin's scripting language, BitVM enables Turing-complete smart contracts through NAND logic gates. It involves two roles: Prover and Verifier. The Prover initiates computations, while the Verifier checks their accuracy. Disputes are resolved using a fraud-proof-based challenge-response protocol, with successful challenges recorded on Bitcoin's blockchain.

Currently, BitVM remains in the whitepaper and development stages, indicating that it might take some time before it becomes operational. Overall, the Bitcoin Rollup space, including Merlin Chain, B² Network, and BitVM, is still evolving. The future performance of these networks, particularly their support for Dapps and transaction speed (TPS), will be crucial to observe once they officially launch.

Others#

Beyond the state channels, sidechains, and Rollups, other off-chain scaling solutions like client-side validation are making significant strides, with the RGB protocol being a prominent example.

Developed by the LNP/BP Standards Association, RGB is a client-side validation smart contract system built on Bitcoin and the Lightning Network. Proposed by Giacomo Zucco and Peter Todd in 2016, RGB was conceptualized as an advanced iteration of colored coins.

RGB tackles Bitcoin's scalability and transparency challenges by utilizing smart contracts. These contracts enable two users to establish an agreement that automatically executes upon meeting predefined conditions. Integrated with the Lightning Network, RGB maintains anonymity and privacy without needing KYC, as it operates independently of the Bitcoin main chain.

The protocol is designed to revolutionize Bitcoin's capabilities, introducing NFTs, tokens, fungible assets, decentralized exchange (DEX) functionalities, and smart contracts. While Bitcoin Layer 1 remains the settlement layer, Layer 2 solutions like Lightning Network and RGB facilitate rapid, anonymous transactions.

RGB's two principal features are client-side validation and one-time sealing:

• Client-Side Validation: In RGB, data is stored off-chain, with smart contracts overseeing data integrity and executing logic. Bitcoin transactions or Lightning channels act as anchors for validating data, while clients verify the actual data and logic. This approach enables RGB to build a smart contract system atop Bitcoin and Lightning without altering their underlying protocols.

• One-Time Sealing: RGB tokens are linked to specific UTXOs. Spending a UTXO involves a Bitcoin transaction with a message commitment that indicates RGB inputs, destination UTXO, asset ID, and amount. Although RGB token transfers require a Bitcoin transaction, the output UTXO for RGB transfer can differ from the Bitcoin output UTXO. This process allows tokens to be sent to unrelated UTXOs, obscuring their trail on the Bitcoin network and enhancing user privacy.

Each contract state in RGB is associated with a unique UTXO and governed by Bitcoin scripts for access and usage. This design guarantees the distinctiveness of contract states, with each UTXO corresponding to only one contract state, and they remain separate in transaction history. The validity and singularity of contract states can be verified through Bitcoin transactions and related scripts.

RGB utilizes Bitcoin's script functionality to create a secure model where ownership and access rights are defined and executed by scripts. This allows RGB to construct a smart contract system founded on Bitcoin's security while ensuring the distinctiveness and safety of contract states.

RGB smart contracts thus offer a layered, scalable, private, and secure solution, representing an innovative venture within the Bitcoin ecosystem. RGB aspires to support the development of more varied and complex applications and functionalities, upholding Bitcoin's core attributes of security and decentralization.

Summary of the Current Situation#

Since Bitcoin's inception, the pursuit of scaling and the development of Layer 2 solutions have been a focus for many developers, particularly with the recent surge in NFT popularity drawing renewed attention to Bitcoin's Layer 2 space.

State Channels: Among these, the Lightning Network stands as one of the earliest and most prominent Layer 2 solutions. It alleviates the load and latency on the Bitcoin network by creating bidirectional payment channels. The Lightning Network has seen widespread adoption and development, marked by an increasing number of nodes and channel capacity. It offers rapid transaction speeds and the capability for low-cost micropayments. In terms of Total Value Locked (TVL), the Lightning Network leads with nearly $200 million, significantly outperforming other Layer 2 solutions.

Sidechains: In this domain, projects like Rootstock (RSK) and Stacks are innovating to enhance Bitcoin's scalability. RSK encourages Bitcoin miners' participation in its network through merged mining, offering a platform for decentralized application development. Stacks introduces additional functionality and scalability via proof-of-transfer consensus and smart contracts. Despite its potential, Stacks faces challenges in ecosystem development and developer engagement. The anticipated Nakamoto upgrade could transform Stacks into a more integral Bitcoin Layer 2 solution.

Layer 2 Rollup: Progress in Rollup technology has been slower. The concept revolves around offloading computation off-chain and proving the correctness of smart contract execution on-chain. Projects like Merlin Chain and B² Network have entered the testnet phase, but their performance remains to be fully assessed. BitVM, still in the whitepaper stage, suggests a longer developmental journey ahead.

Scaling Protocols: RGB represents a client-side validation model for enabling smart contracts. Storing data off-chain, RGB utilizes smart contracts to validate data integrity and execute logic, with Bitcoin transactions or Lightning channels as anchors for validation, and clients verifying the data and logic.

In summary, the Bitcoin community is actively exploring various avenues such as state channels, sidechains, scaling protocols, and Layer 2 Rollup. These developments are expanding Bitcoin's functionality and scalability, injecting new possibilities into the Bitcoin ecosystem and the broader cryptocurrency industry. Each approach offers unique benefits and faces distinct challenges, collectively pushing the boundaries of what's achievable within the Bitcoin framework.

Infrastructure#

The expansion of the Bitcoin ecosystem isn't just limited to asset issuance protocols and scaling solutions. There's a growing emphasis on infrastructure within the Web3 space. This includes the development of wallets supporting inscriptions, decentralized indexers, cross-chain bridges, and launchpads, many of which are still in early development stages. Here, we'll highlight some noteworthy projects across different infrastructure categories.

Wallets#

Wallets have been instrumental in the rise of the BRC-20 protocol. The market has seen an increase in wallets that support inscriptions, such as Unisat, Xverse, and those recently introduced by OKX and Binance. We'll focus on Unisat to provide a deeper understanding of inscriptions wallets.

Unisat Wallet is an open-source wallet and indexer pivotal for storing and trading Ordinals NFTs and BRC-20 tokens. When Ordinals NFTs first emerged, they were met with skepticism and questions about the necessity of an ecosystem beyond Bitcoin's primary function as digital gold. Initially, Ordinals NFTs transactions were largely off-chain, raising decentralization and trust concerns.

The introduction of the BRC-20 token standard by Domo in March 2023 marked a turning point. Despite initial market skepticism, Unisat chose to concentrate on the Ordinals and BRC-20 tracks, becoming one of the first wallets to support both. It stands as the official wallet for the Ordinal protocol, facilitating relatively seamless trading of Ordinals NFTs and BRC-20 tokens.

Unisat gained significant traction with the popularity of the first inscribed Ordi, drawing a large user base into the BTC ecosystem. As a prominent supporter of the BRC-20 ecosystem, Unisat's main features include:

1. Storing and trading Ordinal NFTs; storing, minting, and transferring BRC-20 tokens.

2. Providing open-source indexing code, enabling more exchanges and projects to participate in the BRC-20 indexing track.

3. Offering instant registration without the necessity of running a full node.

Moreover, Unisat is rapidly broadening its asset support within the Bitcoin asset protocol. Beyond BRC-20 tokens, it swiftly began supporting ARC-20 tokens from the Atomicals protocol, indicating its ambition to be a comprehensive trading platform for BTC ecosystem asset protocols.

(Source: Unisat's official website supporting asset types from the Ordinals and Atomocials protocols)

As one of the early wallets and indexers to back BRC-20, Unisat has played a crucial role in lowering the barrier to entry for users interested in inscriptions, thereby attracting more participants to the BTC ecosystem. The synergy between Unisat's development and the growth of BRC-20 has been mutually reinforcing, contributing significantly to their joint success.

Decentralized Indexers#

The reliance on centralized off-chain indexers for BRC-20 tokens presents risks, as an attack on an indexer could lead to account loss, posing a challenge to asset security. To address this, projects like Trac Core are focusing on decentralized indexing solutions. Developed by Benny, the founder of the asset issuance protocol Pipe, Trac Core aims to solve indexing and oracle issues, providing services like filtering and organizing Bitcoin data.

Trac Core is designed to decentralize indexing, reducing the centralization risks associated with current BRC-20 token indexers. It also plans to function as a Bitcoin oracle, fetching external off-chain data to provide comprehensive services to the Bitcoin ecosystem.

Additionally, Benny has developed the Tap Protocol, intending to enrich the Ordinals ecosystem with DeFi functionalities like lending, staking, and leasing, potentially creating "OrdFi" for Ordinals assets. All these projects in the Trac ecosystem, including Trac Core, Tap Protocol, and Pipe, are in their nascent stages and require ongoing observation.

Projects like Unisat and Atomic.finance are also exploring decentralized indexing, aiming to provide more secure and robust services for BRC-20 tokens in the future.

Cross-Chain Bridge#

Cross-chain asset interoperability is a critical aspect of Bitcoin's infrastructure. Projects like Mubi and Polyhedra are focusing on this area. Polyhedra Network, in particular, provides a cross-chain interoperability infrastructure for secure, efficient, and verifiable data access and sharing between multiple blockchain networks.

In December 2023, Polyhedra Network introduced its zkBridge, supporting Bitcoin's message transmission protocol. This allows Bitcoin to interact with other Layer 1/Layer 2 blockchains, boosting interoperability. zkBridge enables the verification of Bitcoin consensus and transactions on the receiving chain, safeguarding the security of consensus proofs and transaction Merkle proofs.

When Bitcoin functions as the message-receiving chain, zkBridge uses a PoS-like mechanism, where validators from the sending chain stake tokens to write data on the Bitcoin network. Validators use the MPC protocol, with a punishment contract on Ethereum to penalize malicious activity and compensate user losses.

Staking Protocol#

The exploration of utilizing idle Bitcoin for additional returns and empowerment is a growing interest among Bitcoin developers. Projects like Babylon and Stroom are attempting to create Bitcoin staking protocols. Babylon, initiated by researchers and engineers from Stanford University, aims to extend Bitcoin's security to protect the decentralized world.

Babylon's approach differs from other projects; it doesn't build new layers or ecosystems on Bitcoin. Instead, it extends Bitcoin's security to other blockchains, including Cosmos, BSC, Polkadot, and Polygon, enabling them to share security. Its Bitcoin staking protocol allows holders to stake BTC on PoS chains and earn rewards, enhancing the security of PoS chains and applications without the need for bridging, wrapping, or custodying Bitcoin.

Moreover, Babylon uses a Bitcoin timestamping protocol, placing timestamps of events from other blockchains onto Bitcoin, facilitating fast staking and unbonding, reducing security costs, and improving cross-chain security.

In summary, the ongoing development in infrastructure, including decentralized indexers, cross-chain bridges, and staking protocols, is diversifying Bitcoin's use cases. These advancements are transforming Bitcoin from a static asset to an active contributor to network security, potentially leading to broader adoption and a more robust interconnected blockchain network.

Challenges and Limitations in the Development of the Bitcoin Ecosystem#

The issue of decentralized indexing needs to be addressed in BRC-20 Sphere#

The rise of BRC-20 has significantly increased traffic and attention in the Bitcoin ecosystem. This surge has led to the development of various asset protocols like ARC-20, Trac, SRC-20, ORC-20, and Taproot Assets, each addressing BRC-20's issues from different angles. Despite the emergence of these new standards, BRC-20 maintains a notable lead. According to CoinGecko, the market capitalization of BRC-20 tokens has surpassed $2.3 billion, close to RWA's and higher than Perpetuals'.

A primary challenge for BRC-20 is decentralized indexing. Since the Bitcoin network itself cannot recognize and record BRC-20 tokens, reliance on third-party indexers for the ledger is necessary. However, these indexers, like Unisat or OKX, currently operate on centralized indexing methods, posing risks of discrepancies and potential irreversible damage from attacks.

Efforts towards decentralized indexing are underway, with projects like Trac Core and Best In Slots experimenting in this direction. However, a mature, feasible, and widely accepted solution is yet to be developed, marking an ongoing area of exploration.

Current scalability is still in the very early stages and cannot support large-scale applications#

Originally designed for peer-to-peer payments, Bitcoin faces technological limitations impacting transaction throughput, block confirmation times, and energy consumption. To build more complex applications, improving TPS and supporting smart contracts within the Bitcoin ecosystem are essential.

Current scalability solutions like the Lightning Network, RGB, Rootstock, Stacks, and BitVM are addressing these issues, but their scale and adoption are limited. For instance, the Lightning Network, with the highest TVL among scalability solutions, mainly supports transactional activities and cannot cater to a broad range of use cases. Other protocols and sidechains, while in their infancy, lag behind Ethereum's Layer 2 solutions in scalability and smart contract capabilities, hindering their ability to support large-scale applications.

The Bitcoin ecosystem needs to find its own native use cases, as directly copying existing applications is challenging to make huge progress#

Post-Ethereum's success, there's been anticipation for breakthrough applications on the Bitcoin network. However, replicating Ethereum's applications on Bitcoin is challenging due to its lack of Turing completeness. Instead, opportunities may lie in leveraging Bitcoin's unique characteristics.

Focusing on Bitcoin's core attributes—asset security, asset issuance, and asset returns—offers potential exploration avenues:

1. Asset Security: Emphasizing user ownership is crucial. For example, unlike Ethereum's staking model, Bitcoin users often prioritize retaining ownership. Solutions that allow income generation without ownership transfer could be a new direction. Additionally, ensuring secure cross-chain asset transfers and scalability protocols is vital for BTC holders.
2. Asset Issuance: The emergence of NFTs in the Bitcoin ecosystem underscores a preference for fair launches, contrasting traditional venture capital methods. Breakthroughs in asset issuance may require incentives beyond fairness to attract broader public participation.
3. Asset Returns: Exploring ways for users to generate income from BTC and BRC-20 tokens through lending, collateralization, derivatives, and liquidity mining is worth pursuing.

The Bitcoin ecosystem faces the challenge of carving out its path, leveraging its strong asset properties, rather than merely emulating existing models. This approach could lead to innovative applications that align with Bitcoin's inherent strengths and market position.

V. Conclusion
Bitcoin has been in existence for 15 years since its inception in 2008 when Satoshi Nakamoto proposed the whitepaper "Bitcoin: A Peer-to-Peer Electronic Cash System," laying the foundation for Bitcoin's development. In 2009, the Bitcoin network was officially launched, becoming the world's first cryptocurrency and leading the wave of cryptocurrency development as the first decentralized digital currency.

In terms of impact, Bitcoin has not only changed the landscape of the financial industry but also had extensive and profound effects on the entire world:

1. Firstly, it provides a convenient way for cross-border transfers and payments without the need for intervention from third-party institutions. This offers opportunities for financial inclusivity on a global scale and improves the accessibility of financial services.
2. Secondly, Bitcoin's decentralized nature allows individuals to have complete control over their funds, enhancing personal financial security and privacy protection.
3. Additionally, Bitcoin has sparked the development of blockchain technology, paving the way for decentralized applications and innovative digital assets.

In terms of financial inclusivity, some countries have started accepting and using cryptocurrencies as legal tender. El Salvador became the first country in the world to adopt Bitcoin as legal tender in 2021, and the Central African Republic followed suit in 2022. Furthermore, other countries are exploring similar initiatives to consider incorporating cryptocurrencies into their legal currency systems. In regions with inadequate financial infrastructure or limited access to financial services, Bitcoin provides a fast and low-cost means of cross-border payments and transfers. It offers financial inclusivity opportunities for those without bank accounts or unable to access traditional financial services. Moreover, the approval of the Bitcoin spot exchange-traded fund (ETF) in the United States on January 10, 2024, represents a significant milestone for Bitcoin in the traditional financial world.

In terms of the development of blockchain technology, after Bitcoin, there have been more blockchain technologies supporting smart contracts, such as Ethereum, Solana, and Polygon. This expansion has extended the use of blockchain beyond value storage and transactions and into various aspects like DeFi, NFTs, Gamefi, Socialfi, and DePIN. It has also attracted a more diverse range of users and builders.

With the development of the blockchain industry, more attention has been focused on Ethereum-like chains that support smart contracts, while Bitcoin has mostly been seen as "digital gold." However, the explosion of BRC-20 scripts has brought people's attention back to Bitcoin, prompting them to consider whether the Bitcoin ecosystem can continue to give rise to different application scenarios. This has led to the creation of many new asset protocols, including BRC-20, ARC-20, SRC-20, ORC-20, and some interesting explorations such as BRC420 and Bitmap. The hope is to better facilitate asset issuance from different perspectives. Unfortunately, after BRC-20, other asset protocols and projects have not been able to generate the same level of excitement.

For builders, the BTC ecosystem is still in its very early stages. The majority of project teams consist of independent developers and small teams. There are many opportunities and spaces for exploration for teams that truly want to make a difference and innovate within the BTC ecosystem.

Regarding scalability, Bitcoin has undergone multiple technological upgrades and improvements over the past 15 years, including reducing transaction confirmation times, discussing scalability solutions, and enhancing privacy protection. Current explorations in the scalability direction include state channels like the Lightning Network, scalability protocol RGB, sidechains like Rootstock and Stacks, and Layer2 Rollup BitVM. However, the overall journey toward supporting diverse applications is still in the very early stages. There is still much exploration and experimentation to be done in terms of scaling Bitcoin, which is not Turing complete.
In conclusion, the explosion of BRC-20 scripts has redirected the attention of users and builders back to the Bitcoin ecosystem. Whether it is the desire for fair asset launches or the belief in Bitcoin as the most orthodox and decentralized public chain, more and more developers are starting to build within the Bitcoin ecosystem. For the future ecological development of Bitcoin, it needs to diverge from the path taken by Ethereum and focus on the asset attributes of Bitcoin to discover native application scenarios. This may lead to a revitalization of the Bitcoin ecosystem.

Lastly, I would like to express sincere thanks to partners such as Constance, Joven, Lorenzo, Rex, KC, Kevin, Justin, Howe, Wingo, and Steven for their assistance, as well as everyone who has been generous in sharing during the exchange process. I genuinely hope that all the builders in this track will continue to thrive!