When the world thinks of blockchain, the first thing that comes to mind is Bitcoin. While the past decade has seen countless developments and innovations in decentralized technologies, from GameFi to DeFi to NFTs, Bitcoin remains the world's preeminent digital asset. As a result, its health, near-term developments, and future metrics are crucial.
Looking ahead, the possible approval of the first Bitcoin Exchange Traded Fund (ETF) is expected to unlock significant new investment, meaning that 2024 could be a pivotal year in the long-term development of the decentralized economy.
So, did Bitcoin deliberately shuffle the numbers? Will DeFi exist on top of Bitcoin through protocols such as Taproot Assets and BitVM, or are they just different attempts that haven't worked out? Will Bitcoin have a successful scaling solution? This article will provide an in-depth analysis of these issues and the state of Bitcoin in 2023.
2023 is the year of Bitcoin's giant leap forward. During tough times for digital assets and traditional markets, Bitcoin continues to create historic milestones that solidify its legitimacy as a global asset and network.
Bitcoin is no longer just a digital alternative speculative tool, but a cornerstone for builders and investors of all kinds to realize their visions. This has fueled a wave of innovation that allows Bitcoin to expand its capabilities while aligning with its core philosophy of decentralization and permissionlessness.
New technologies such as the Lightning Network and the new Token standard demonstrate the evolution of Bitcoin, which is increasingly functioning closer to other popular networks, but does not rely on the centralized patching and workarounds that underpin many blockchain projects. Bitcoin's development goes far beyond technological innovation, including innovations in financial services, gaming platforms, and other fields. In 2024, Bitcoin is poised for even greater progress.
1. In 2023, people's confidence in Bitcoin will increase across the board
When assessing the health of Bitcoin, the price often dominates the headlines. However, behind the market's ups and downs, the on-chain data unfolds a compelling story: mainstream adoption continues to expand, while long-term holders remain steadfast in their belief in Bitcoin.
1. Mainstream investors widely participated
Over the past year, there has been a gradual increase in the number of addresses holding balances between 0.01 BTC and 0.1 BTC, showing a growing interest in Bitcoin from retail investors. In the midst of uncertainty in traditional markets, investors seek strong alternatives. Bitcoin's scarcity and monetary policy add to its appeal as a safe store of value. Now, the increase in retail players has laid the groundwork for the next wave of adoption.
2. Long-term holders show deep belief
As new investors flood the market, sophisticated Bitcoin holders have increased their positions amid price fluctuations, correlated with market movements. As the price highs appeared, some people began to take profits. The divergence between the holder's behavior and the market price indicates a strong belief. Continuous accumulation often indicates a rising trend in prices, indicating an imminent change in holders' expectations.
Large accounts with more than 100 bitcoins drive short-term volatility, which is reflected in the number of addresses. In the fourth quarter, these individuals re-reached their annual highs, signaling a resurgence in institutional investment interest. The data proves Bitcoin's appeal and staying power to those with experience.
3. The assets of the trading platform are lost, and investors accept self-custody
There is a stark contrast between the decrease in trading platform assets and the increase in self-custody. Investors prefer to have direct control over the asset and not be affected by the overall market movement. This migration compresses liquidity on trading platforms while enhancing the potential upside presented by the inelastic nature of Bitcoin's supply.
The number of address self-custody continues to rise, while the trading platform assets continue to decrease. This trend, as well as the accumulation of long-term holders as the price consolidates, indicates long-term confidence in Bitcoin as an investment and store of value. Sustained accumulation often signals significant price increases. The data highlights the importance of holders' beliefs in volatile markets and the strength of Bitcoin's inelastic supply curve. As large institutions consolidate the supply of Bitcoin, the incentive to sell wanes even as the price rises. This supply pressure and growing mainstream and institutional investment interest bodes well for an impending bull market.
The self-custody trend, the accumulation of high-confidence holders, and the demand from larger investors have paved the way for the next wave of mass adoption of Bitcoin. This macro backdrop provides an optimistic outlook for long-term investment in Bitcoin. In the market downturn, strong demand remains, and even if the price rises, the motivation to sell is no longer obvious. Only assets with high confidence can stand the test of the market. Self-custody is the best expression of pure intent to hold for the long term.
4. The momentum of ushering in the next round of bull market has increased
If blockchain signs are credible, Bitcoin is poised to kickstart its next major growth cycle. The key conditions are complete: mainstream and institutional participation is expanding, long-term holders continue to accumulate, and self-custody is showing an unshakable trend. Investor composition and holder behavior suggest that momentum is building up that will propel Bitcoin to the next stage of adoption.
For long-time believers, Bitcoin's emerging narrative represents an early opportunity. The foundation continues to be strengthened and gradually moves towards the perfect vision of decentralized currency.
Second, the problem of Bitcoin expansion
In 2023, scaling Bitcoin to meet growing demand remains a top priority. While innovations such as the Lightning Network have boosted capabilities, 2023 will see new Layer 2 protocols that can be unlocked without sacrificing functionality. These include sidechains that are parallel and interoperable with Bitcoin.
The different layers of Bitcoin are able to improve performance without changing the base layer, just as the advanced Internet Protocol enhances TCP/IP. Examples range from lightning network fast payouts to complex smart contracts in Stacks and RSK. Bitcoin emphasizes stability as a settlement base layer while encouraging innovation at the upper layer. These layers are capable of supporting applications that require comprehensive smart contracts, high throughput, and privacy, based on a solid foundation of Bitcoin.
This modular thinking reflects Bitcoin's philosophy – to expand functionality while minimizing trust. Keep the base layer simple and permissionless access to make the network more adaptable to different needs. Many tiered protocols work to enable Bitcoin's versatility without compromising its decentralized nature.
1. Technical overview
The core idea of ZK Rollups is to bundle multiple transactions into a single transaction on the Bitcoin blockchain. This process uses zero-knowledge proofs to verify bundled transactions without revealing details. Sovereign and Starkware are leaders in driving zk rollup innovation on Bitcoin.
2. Centralization issues and decentralization efforts
The current version of ZK rollups raises concerns about centralization, as they rely heavily on centralized sequencers. In many existing implementations, a single entity is responsible for aggregating transactions, generating validity proofs, and submitting batch data to the Bitcoin network. This has led to considerable trust in the sequencer. In the long term, hybrid models may emerge that combine multiple prover types to accommodate different use cases.
Given that this is not in line with the idea of Bitcoin, people are actively experimenting with the role of a decentralized sequencer. The goal is to spread the responsibility for transaction collection, proof generation, and block submission across multiple entities. This decentralization of trust is more in line with Bitcoin's decentralized design.
Several approaches have been proposed:
Threshold schemes can assign power to a dynamic group of orderers based on stake or rotation.
Similar to Bitcoin mining, proof-of-work is computed to determine which nodes participate in the ordering.
For full decentralization, a future opcode could enable two-way transfer of SATS and assets between the Bitcoin base layer and ZK rollups. This requires Bitcoin mining nodes to parse proofs directly to greatly improve functionality while maintaining decentralization.
3. Bitcoin's L2 landscape
In addition to ZK rollups, other Layer 2 technologies are maturing. Two well-known examples are Stacks and Rootstock (RSK).
1, Whistler (RSK)
Rootstock (RSK) utilizes merge mining to guarantee security comparable to Bitcoin, despite its throughput exceeding the capacity of Bitcoin's base layer.
Merge mining allows Bitcoin miners to process and verify both BTC and RSK transactions within the same block. In this model, miners can mine on both the parent chain (larger blockchains like Bitcoin) and the child chain (smaller blockchains like RSK).
The main advantage of merge mining is that it provides greater security for child chains. By leveraging the computing power of a stronger parent chain, smaller chains gain additional security against double-spend and 51% attacks. This approach allows RSK to achieve scalability, efficiency, and advanced features that would otherwise be impossible with Bitcoin, while avoiding the adoption of other, more secure consensus models.
However, despite the progress, RSK still faces challenges. RSK struggles to attract enough users, and the complexity and novelty of its merge mining mechanism poses risks.
2. Stacking
Stacks is a layer-2 smart contract protocol designed specifically for Bitcoin that aims to bring decentralized applications and smart contract functionality to the Bitcoin ecosystem.
2023 has been a year of recovery and enhancements for Stacks. Despite the adoption challenges, the overall metrics show that Stacks is making substantial progress on its roadmap and vision.
In particular, Stacks' native TokenSTX has shown a strong recovery in 2023 after a period of bear market. The STX price rose by more than 50% in the first quarter and more than 280% over the year, far outpacing Bitcoin and the market as a whole. This contrarian development is a significant turn of events, cementing interest even during a crypto downturn.
Several key network upgrades have been made this year, including Stacks version 2.1, which introduced decentralized mining and bridging with Bitcoin. By the end of the third quarter, Stacks had more than 1,100 developers, a 30% increase from the previous quarter. This productivity gain has been accompanied by a 20% increase in followers in the community.
The attractiveness of the ecosystem has grown steadily, albeit from a low starting point. Assets under management reached all-time highs in both USD and STX, reflecting increased DeFi participation. Non-fungible tokens and gaming projects are also starting to gain traction. BNS has accumulated more than 300,000 registered names, demonstrating continued user interest in the network.
However, not all indicators have maintained growth. Daily active addresses, contract calls, and trading volumes have retreated after a surge in early 2023. This can mean that there is instability in user retention, beyond speculation. Bottlenecks such as user experience, expense, and network effects may remain barriers to wider adoption.
Stacks has made progress in terms of security and scalability, preparing for the expected inflection point for adoption. The global launch of public seed nodes eliminates the risk of concentration in query services. The project began to be formally audited, increasing risk prudence. Despite a slight slowdown in the growth of adoption indicators, this year's development has made cautious progress on several fronts. This still young ecosystem faces start-up hurdles and needs to be encouraged to use it even though the features are not yet fully mature.
4. Lightning Network: Bitcoin's scaling solution becomes mainstream
In 2023, more than 5,400 BTC worth over $230 million were circulated in payment channels on the Lightning Network (LN). Its capacity has grown rapidly from 1 BTC in August 2018 to a robust liquidity pool today. Underpinning this growth are more than 70 LN-enabled wallets from leading vendors such as BlueWallet, Muun, and Phoenix, with adopters ranging from inflation-plagued citizens of countries to global businesses.
But what is a lightning channel? The LN micropayment channel establishes a relationship between the two parties, allowing them to continuously adjust their balances without having to broadcast each transaction to the blockchain. This way delays the broadcast of the total balance between the two parties to a point in the future, effectively processing the total balance in a single transaction.
This approach allows financial relationships to be trustless and free from the risk of default. These micropayment channels use real Bitcoin transactions, but choose to postpone broadcasting these transactions to the blockchain. This allows both parties to confirm the current balance on-chain, while the actual payment is made outside of the channel.
In October 2023, the Lightning Network saw a contraction in the number of channels and total value, possibly due to consolidation events or responses to external market factors. However, both of these metrics have since recovered, demonstrating the resilience of the network. Despite the volatility, the overall channel value has increased, indicating an expansion in network capacity.
1. Enterprise infrastructure has become more robust
November marks another leap forward for the Taproot Asset Protocol v0.2. This toolkit provides support for the issuance of assets through LN and Bitcoin, and customizable asset burn capabilities provide compliance controls for regulated industries.
LN has now established a diversity for businesses, from tokenized securities to programmable contracts in restricted jurisdictions.
Enhanced RPC calls provide detailed attestation transfer monitoring and sophisticated asset lifecycle management.
2. Nostr integration opens up the P2P economy
In September, Nostr's "NIP-57" upgrade was introduced, introducing a "Zap" note, which stands for Lightning Invoice Receipt, combining Bitcoin micropayments with social interaction. Content creators tip with Zap, and readers fund posts to unlock more content and avoid spam. By the end of 2023, there were more than 50,000 Zap payments, showing the continued consolidation of Lightning Network solutions across a wider range of applications.
Demand trends suggest that Bitcoin's decentralized payment channels are likely to continue to permeate communication and community-building applications.
3. Retail giants drive adoption
In 2023, major retailers accelerated the penetration of the Lightning Network (LN) in the consumer sector. Stripe's "Pay with Bitcoin" button opens up the Lightning Network for businesses. Twitter and Zebedee have also incorporated LN, making it easy for users to tip premium content and make quick Bitcoin transactions in the game. LN has finally delivered on its promise as an extension layer for global adoption, increasing Bitcoin's transaction speed and lowering fees. However, more payments, e-commerce, and social media integrations are needed to get more people to use LN to reduce barriers to use.
3. Hosting problems
Custodian services are facing regulatory crackdown, in stark contrast to the breakthrough of non-custodial wallets. The new asset design and scaling protocol imply functional enhancements. Despite setbacks in the Bitcoin space for adoption and infrastructure, overall progress has been gradual. Miniscript and RGB are promising extensions to Bitcoin's programmability.
4. Continue to be optimistic
Looking ahead, despite the progress of the Lightning Network, it still faces growing pains that are not in line with external success. High-cost events due to network congestion expose ongoing scalability limitations. The departure of core developers highlights technical risks. Approximately 90% of transactions are completed through custodial wallets, reflecting the user experience barriers of non-custodial use. While lightning promises great potential, it's not yet a mature product.
Temporary volatility should not negate Bitcoin innovation. Lightning has changed the lives of millions of people around the world and seems to be poised to move to the next level with optimizations like Anyons and group settlement. Bitcoin is constantly iterating, turning challenges into progress. History shows that lightning setbacks may be opportunities for development.
5. Ordinals: artifacts engraved on Bitcoin
One of the prominent technological innovations in the development of Bitcoin is the emergence of ordinal numbers. It transforms a single satosher into a unique digital artifact that can carry rich data. Ordinal numbers are the smallest part of Bitcoin and can record data such as text or images. Once recorded, each Satoshi becomes a unique digital asset.
The ordinal protocol was first proposed by founder and developer Casey Rodarmor on January 21, 2023. It takes advantage of the 2021 Taproot upgrade to enhance Bitcoin's functionality, expanding the capacity of data attachments to 4MB per transaction. This technological advancement leverages Bitcoin's existing infrastructure, opening up new possibilities for embedding more rich data on the blockchain and making a distinct difference from traditional digital assets and NFTs.
In February, Yuga Labs announced the first collection of Bitcoin NFTs based on ordinal records.
By June, more than 11 million ordinal numbers had been burned on Bitcoin, with the volume peaking in May. From July to September, the volume of burns continues to increase, with plain text being the most popular type. Looking ahead to the end of 2023, forecasts show that ordinal trading volume will reach approximately $725 million.
With the rise of ordinal, NFT sales fell by 8.7% from $4.2 billion in September 2021 to $3.8 billion in October 2023. The introduction of ordinal numbers led to a spike in Bitcoin transaction fees and block size, with a staggering 45,074,500 burns on-chain. On November 12, 2023, the number of Bitcoin ordinal burns hit an all-time high of 505345.
1. In-depth technical analysis: understand the ordinal protocol
Burning process
There are a variety of services that help create ordinals. First, users need to set up a Taproot-compatible wallet that syncs with the Bitcoin Core chain and choose the burn type: single ordinal or collection. Users can then upload images, text, and other data from the device for burning, and it is recommended that the uploaded file be no more than 35kb.
Upload file size and network congestion can affect burn transaction fees. Finally, you need to specify an unused receiving address to receive the newly created ordinal.
The system enables each satoshi to be identified with a unique ordinal number, thus tracking the movement of assets. Each satoshi gets a serial number based on the mining time, and can create up to 2,100,000,000,000,000,000 ordinal numbers. The ordinal system confers rarity based on mining and burn times.
Unlike many NFTs, all ordinal-related information is permanently recorded on-chain and does not rely on third-party services to store data. This feature allows data to be retrieved from existing burns via a recursive protocol to generate a new burn.
2. Support ordinal wallets
Ordinal Wallet: A Bitcoin wallet that improves on the previous wallet limits and supports various operations of ordinal numbers. User-friendly interface, backed by community funding.
Xverse Wallet: A Bitcoin Web3 wallet that supports interaction and provides Bitcoin ordinal services within Gamma. The ordinal number is displayed in the user's NFT collection within about 30 minutes.
Hiro Wallet: Supports the secure storage, transfer, and rapid creation of ordinal NFTs of Bitcoin. Compatible with platforms such as Gamma and OrdinalsBot, burning within the browser.
MetaMask: manages Bitcoin Taproot keys, verifies ordinal addresses, and provides a keystore. Hardware wallets are supported, and there are Generative Marketplaces to explore ordinals.
OKX Wallet: Taproot is integrated with the Taproot upgrade, supports viewing and transferring ordinal numbers, and has cross-chain operations and the BRC20-S standard.
3. The trading volume of the Bitcoin Ordinals market has grown across the board
Various Bitcoin Ordinals markets, including platforms such as OKX, Uniswap, Magic Eden, and Gamma, have shown significant volume growth.
Overall trading volume: Data from Dune Analytics shows that the total trading volume on the Bitcoin Ordinals market is $794,330,265.
Total transactions: 1,173,402 transactions were made on these markets in 2023.
Unique users: The cumulative number of unique users who have interacted with these platforms has been reported to be 253,379.
Individual high-value transactions: On marketplaces such as OKX and Ordinals Wallet, there are instances where high-value transactions exceed $1 million.
4. 技术基础:SegWit Taproot
The Segregated Witness (SegWit) upgrade in 2017 laid the groundwork for Ordinals, introducing the concept of witness data, reducing the block space occupied by each trading platform and enhancing the processing power of the network. The 2021 Taproot upgrade further enhanced this capability by introducing new scripting capabilities and removing the size limit on transaction witness data, making it possible to store up to 4MB of data on Bitcoin.
5. Advantages of Ordinals Protocol:
Attracting new users: The introduction of NFT-like assets has allowed Bitcoin to attract new users interested in digital assets and NFT trading.
Market demand: The increase in inscription transactions indicates the interest and demand for this new type of block space utilization.
Increased miner fee income: Ordinals Protocol brings additional fee income to miners, contributing to Bitcoin's security model.
Drive adoption of Layer 2 solutions: Increased transaction fees and block space usage are likely to drive the adoption and growth of Layer 2 solutions such as the Lightning Network, helping the Bitcoin network to scale.
Driving Taproot Adoption: The launch of Ordinals accelerates the adoption of Taproot upgrades, offering more compact transactions and enhanced privacy.
6. Disadvantages of Ordinals Protocol:
Increased block space cost: Including additional non-financial data in a block increases fees and puts pressure on node operations, potentially leading to the centralization of full nodes.
Speculation and market distortions: The potential shift of capital to trading Ordinals assets instead of storing value in Bitcoin could affect the perception of Bitcoin as an investment.
Impact on Satoshi's Fungibility: By creating non-fungible properties, Ordinals may challenge Bitcoin's use case as an ultrasonic currency, potentially impacting Bitcoin's fungibility.
Additional tracking and privacy concerns: Data associated with Ordinals can make on-chain behavior more easily traceable, raising privacy concerns.
Risk of data pruning: Bitcoin nodes may prune inscribed data, raising concerns about the permanence of digital assets, which could be a potential vulnerability to Bitcoin's decentralization.
7、对 Ordinals 序数的担忧
The Ordinals protocol has sparked controversy over the indexing of digital assets on the Bitcoin chain. Managing these numbers is not easy, resulting in some incorrectly numbered inscriptions (known as "cursed ordinals") that add complexity to the system. These errors can stem from minting multiple inscriptions in a single transaction or assigning multiple to the same satoshi. Proposals to address this issue include renumbering existing ordinals, but this may affect previous data. Some are concerned that this change could hurt the value of the collection. Others support renumbering to resolve the issue, while suggesting options to mitigate the impact by taking snapshots to preserve the affected ordinals or allowing users to re-inscribe.
8. Recursive ordinals
Recursive ordinal numbers are an important advance to solve the connectivity problem in the protocol.
By leveraging the storage of ordinal data, recursive ordinal numbers can enable complex on-chain software operations without the 4MB limit of standard ordinals.
Recursive ordinal numbers allow for more interconnected on-chain data sources, greatly improving storage efficiency and reducing transaction costs.
The protocol enables developers to host large files such as applications, video games, and more directly on the Bitcoin network, opening up the possibility of building more advanced applications and smart contracts.
Recursive ordinal numbers are a critical step towards more complex DeFi architectures, while also dovetailing with efforts to integrate the Ethereum Virtual Machine and Solidity into the Bitcoin network.
While recursive ordinals have caused some controversy, some have expressed concern that they are maintained by a more centralized group of developers, which is contrary to the philosophy of Bitcoin. But others welcomed the progress as it promises to reduce storage redundancy and transaction costs.
9. Application scenarios of ordinal numbers:
Collectibles: The likes of Taproot Wizards, ORD Rocks, and Bitcoin Punks are currently the most well-known collectibles, and the upcoming generative art collectible, TwelveFold, is also poised to be popular.
Marketplace: OpenOrdex is a very interesting marketplace that is completely open-source and strictly uses decentralized tools for trading. It uses Partially Signed Bitcoin Transactions (PSBT) to enable trusted listing and purchase inscriptions.
Browsers: OpenOrdex, Gamma, and Ordinals.com are research tools for analyzing ordinal/inscription activity. These browsers also provide data on transaction IDs, addresses, output values, weights, satoshi numbers, and locations.
Inscription service: Casting ordinal numbers are complex, so an inscription service was introduced to help collectors create collectibles. OrdinalsBot, OrdSwap, Gamma, Bitcoin Bandits, and Luxor Mining, among others, are some of the popular inscription service providers that take care of the various steps of ordinal number creation.
Wallets: Current Bitcoin wallets lack the satoshi selection feature, which is necessary to send ordinal numbers to other addresses. However, wallets like Sparrow Wallet, Electrum, and Xverse that offer UTXO selection are widely used for ordinal collections.
Data & Discovery: OrdinalHub and Ordinal Directory are platforms for collectors to discover popular collectibles, new collectibles, and analyze floor price data.
6. Taproot Assets: Making Bitcoin a multi-asset network
In mid-October, Lightning Labs announced the alpha version of "Taproot Assets", a meta-protocol that enables the issuance and management of arbitrary assets on the Bitcoin blockchain. With Taproot assets, you can create both fungible and non-fungible tokens and store the asset's metadata in an existing UTXO. This provides a foundational tool for building Bitcoin's multi-asset network.
Taproot assets are tightly integrated with the Lightning Network, enabling cheap and fast transactions using these arbitrary assets. This move is believed to usher in a new era of Bitcoin, allowing various global currencies to become Taproot assets and enabling instantaneous forex trading on the Lightning Network. But how does this affect Bitcoin? There is a clear disagreement among proponents and concerns about its implications, with some of the issues including whether there will be ordinal and BRC-20-like fee spikes, and whether there will be regulatory scrutiny of the Lightning Network as different assets enter the Bitcoin network.
1. The core mechanism of the Taproot Asset Protocol (TAP).
Taproot Assets is a protocol built on top of the upgraded data storage method of the Taproot network, similar to BRC-20. But unlike BRC-20 and other fungible token protocols, Taproot Assets uses the "universe" to track token ownership information. The process of creating a Taproot asset is complex and involves using a special Merkle tree (MS-SMT) and Taptweak to build the asset information. This includes the outpoint used to mint the asset, the asset tag chosen by the minter (such as the hash of the brand name), and meta information related to the asset, such as links, images, or documents. All of this information is stored in a 32-bit asset ID, and the UTXO is a unique identifier for the newly created asset.
Working with Taproot assets:
Once created, Taproot assets can be transferred on the Bitcoin blockchain or directly through the Lightning Network channel. Compared with other fungible tokens, Taproot assets can realize multiple asset operations (such as minting, sending, and receiving) in a single on-chain transaction, improving on-chain efficiency and reducing congestion and fees. In contrast, BRC-20 has caused significant congestion on the Bitcoin network and pushed up fees (up to $30 in ordinal frenzy).
One of the most compelling applications of Taproot assets is its compatibility with the Lightning Network (LN). Although the asset is issued on the Bitcoin blockchain, by bridging with LN, it is possible to enjoy lower costs and faster transactions, increasing the utility of the asset. In the future, it will also be able to deploy directly on the lightning channel.
Trading with Taproot assets on LN is straightforward; There is no need to choose a payment method as a routing channel. Bitcoin provides liquidity for different asset payments, so routing node operators have an incentive to help route Taproot assets to get more routing fees paid in satoshis.
Here's an example scenario: L-USD (Lightning Network USD, a Taproot asset stablecoin) can be paid for in BTC and eventually settled into L-USD thanks to edge liquidity: LN nodes willing to exchange value with BTC allow you to pay any LN invoice with Taproot assets, or collect any asset by issuing a standard lightning invoice.
Note that intermediary transactions do not directly transmit the stablecoin itself – no choice is required, and transactions can be routed as long as there is BTC liquidity available. Invoices that are ultimately settled in Taproot assets can be paid in BTC or any other asset, and anyone with a balance of Taproot assets can pay any lightning invoice.
2. Custody and ownership of Token
As mentioned above, the custody and ownership of Taproot assets is different from other fungible tokens on Bitcoin.
The Taproot Asset Universe is a repository of assets and their proofs, essentially a full node of a particular asset, providing historical data for verification. The universe will contain all relevant information about the Token, such as issuance, recent transfers, amount, etc., but this information can only be made public at the discretion of the "Universe Operator". As a result, the Taproot universe is more private compared to blockchain explorers.
Pocket Universe is a way to collectively store Taproot assets and use TAP (Taproot Asset Protocol) without giving up ownership of the assets. The Pocket Universe controls the Taproot key of a UTXO, but does not control the key of the (possibly multiple) Taproot assets held in that UTXO. Asset holders can use the Pocket Universe to batch their transactions efficiently.
3. Advantages and disadvantages of Taproot assets
Overall, we can take a look at the possible benefits of the Taproot asset for Bitcoin and understand some of the advantages and disadvantages of this upgrade.
Statistics
There is currently very little transaction and value data on the Taproot asset on Bitcoin. Although nearly 65,000 unique assets have already been minted on the network, the protocol is still in its first implementation phase, so these are mostly experimental in nature.
Given the explosion we've seen with BRC-20Token this year, it will be interesting to see if Taproot assets can find similar demand. Once there is support for direct deployment to the Lightning channel, we expect to see more activity and use of TAP.
Taproot assets and consumer-facing Bitcoin applications drive the practical use and adoption of Bitcoin as part of the global financial system.
VII. Overview of the RC-20 Agreement
The BRC-20 protocol enables enhanced token creation and management on the Bitcoin network. Through ordinal technology, this protocol allows tokens containing JSON data to be seamlessly transferred and interacted on the Bitcoin network. This standard provides developers with a framework for creating various tokens on the Bitcoin network, opening up a wide range of possibilities for programmable assets.
1. RC-20 Trend and Market Performance:
The initial ORDIToken was minted quickly and reached a market capitalization of $1.4 billion, but then saw a significant decline in market capitalization, from $990 million to $379 million, a decline of 62%. This token accounts for more than 80% of the trading volume of the BRC-20 market, and its price fluctuations directly affect the market capitalization of other BRC-20Tokens.
Although the value of BRC-20Token fluctuates differently, the overall ecosystem shows robustness. Activity was relatively stable between May and July 2023 before rebounding between late September and late October 2023. Of particular note, in November 2023, BRC-20Token hit an all-time high of over 492,000 Tokens minted.
Key findings:
Blockchain Technology Innovation: With the Taproot upgrade, the ordinal protocol embeds rich data on the Bitcoin blockchain, enabling Bitcoin to support a wider variety of assets.
Enhanced market potential: Ordinal protocols attract new users and market demand, driving digital asset creation and interest in Bitcoin digital collectibles and artworks, increasing the demand for block space.
Emergence of recursive ordinals: The introduction of recursive ordinals has led to significant advances in enabling complex software operations and avoiding the 4MB limit of standard ordinals, expanding more complex, interconnected data sources, improving storage efficiency and reducing transaction costs.
The potential of DeFi architectures: Recursive ordinal numbers open up new possibilities for complex DeFi architectures built on Bitcoin, going beyond simple file connections and allowing the creation of decentralized platforms that require complex logic and algorithms.
Future Prospects and Implications:
Ordinal and recursive ordinals will continue to influence the Bitcoin ecosystem. The potential for big-scale files such as on-chain hosted applications or video games will lead to innovative applications. As developers explore the possibility of integrating complex structures on Bitcoin, it is possible to change certain dynamics in the ecosystem.
But this evolution has not been without its challenges. Numbering architecture controversies and concerns about centralization in maintaining and committing protocol settings highlight the delicate balance between innovation and following the principles of decentralization.
The impact of ordinal numbers on transaction fees, block space utilization, and Bitcoin's overall scalability is still being discussed. As the ordinal market matures and more platforms emerge, we may see more clearly how these digital artifacts fit into the Bitcoin ecosystem and the interconnected Web3 platform.
Although the full potential and long-term implications of ordinal and recursive ordinals have not yet been fully revealed, they represent an important stage in the development of Bitcoin. As the ecosystem evolves, we expect to see further developments, continuing to leverage the unique capabilities of ordinal numbers, perhaps reshaping the landscape of blockchain technology and digital assets.
2. Bitcoin shopping and services
Bitrefill: Allows users to use Bitcoin to buy gift cards, mobile top-ups, and everyday purchases. Expanding to the United States in 2023 and launching the Pay Bill service, users can pay various bills using cryptocurrencies such as Bitcoin.
OpenBazaar: A decentralized marketplace where users can buy and sell goods and services directly with Bitcoin. Announced a reboot in 2023 with plans to launch OpenBazaar 3.0.
River Financial, a financial service specializing in the buying, selling, and managing of investments in Bitcoin, has received significant financial support. A comprehensive range of services are available, including a bitcoin trading platform, secure storage, private customer service, and bitcoin mining services.
Swan Bitcoin: A Bitcoin savings plan focused on that allows users to automatically buy Bitcoin on a regular basis.
Strike: A financial app that allows users to send and receive funds worldwide, with the option to convert payments to Bitcoin.
Zebedee: Provides a bitcoin gaming platform where players can earn bitcoins through gaming activities. In 2023, it launched the ability to send funds instantly, and launched the "No Big Deal" (NBD) non-profit organization to advance the development of open-source Bitcoin.
The above is some important information about Bitcoin shopping and services.
3. Privacy and security are paramount
Wasabi Wallet and Samourai Wallet are wallet apps that focus on the privacy and security of Bitcoin. They enhance Bitcoin's privacy and user security by providing anonymized transactions and robust privacy features. These wallets are constantly updated and improved to meet the needs of users and provide better performance and functionality.
In addition to these wallets, there are other apps and services that have driven Bitcoin's global adoption by integrating it into everyday life, the financial sector, and the gaming industry. However, these applications also face some challenges, such as scalability, regulatory environment, and user adoption. Overall, Bitcoin has come a long way, but there are still some challenges to overcome on the road to continue to drive global adoption
8. Fold: Bitcoin Rewards and User Adoption Cases
Fold's growth and user appeal indicate a growing interest in Bitcoin rewards and also highlight the growth of the Bitcoin economy. More than 250,000 people are waiting to join Fold, and 20,000 users have participated in the Fold card program in the early days, showing consumer acceptance of the new Bitcoin rewards financial product.
The high trading volume and cumulative Bitcoin earnings of 65 billion satoshis highlight Fold's success in the financial trading and Bitcoin investment space. This success is a testament to the growing popularity of Bitcoin in everyday financial transactions.
Fold's popularity is indicative of the trend towards consumer acceptance of Bitcoin in their daily transactions, not just for seasoned crypto users, but also for a wider group of people. This bodes well for Bitcoin to become part of the more general financial system.
Fold's success represents an overall trend in Bitcoin adoption, demonstrating how innovative platforms can leverage cryptocurrency features to provide new solutions that drive greater integration of digital currencies into everyday life.
9. Cross-chain Bitcoin: An asset that introduces Bitcoin to other networks
Staked assets have gained a lot of attention in the cryptocurrency space in recent years, especially in the DeFi space. Users can obtain income such as fee distribution by staking assets, which has become a mainstream trend in the market. However, many participants are wary of projects that do not have revenue. Despite the unsustainable design of the yield concept, which requires the relinquishment of control of the asset, there are projects that attempt to introduce yield into the Bitcoin network in a secure and ethical manner.
Babylon has created a way for Bitcoin to secure and secure various proof-of-stake chains without being bridged to other chains. Implemented through remote staking, the staked bitcoins are locked in a contract on the Bitcoin chain. When other chains have breaches, similar to Ethereum or Cosmos' shared security solutions, these stakes are slashed.
Since Bitcoin does not have smart contract functionality, Babylon can create a remote staking environment through advanced cryptography, consensus protocol innovations, and optimized use of the Bitcoin scripting language. Key features of Babylon include:
Bitcoin timestamps can help synchronize the proof-of-stake chain with the Bitcoin network and enable fast unlocking of staked Bitcoin.
Extractable One-Time Signatures (EOTS) allow for slashing of staked Bitcoin in the event of a malicious staker.
Native staking on Bitcoin to secure other proof-of-stake chains with multiple values. First of all, this feature is completely independent of the Bitcoin network, eliminating the risk of bridging Bitcoin and increasing the demand for the Bitcoin network, helping to increase the payment fees for miners. Second, it provides a new way to earn on Bitcoin, enhancing its viability as an asset and store of value. Finally, extending Bitcoin's security to other proof-of-stake chains increases the economic security of those chains, which is of great value for Babylon and native Bitcoin staking.
Bitcoin encapsulation is becoming increasingly popular for transferring Bitcoin wealth across different ecosystems. Some of the currently popular wrapping options include Avalanche's BTC.b. BTC.b is an ERC-20Token in the Avalanche ecosystem, designed specifically for the Avalanche C Chain. Its bridge takes a highly secure approach to encapsulating Bitcoin into the Avalanche ecosystem, allowing users to transact and swap with wrapped Bitcoin on the Avalanche C-chain. As of December 4, 2023, BTC.b has a market capitalization of approximately $152.4 million, with trading activity taking place on multiple decentralized exchanges.
1、wBTC 币
wBTC is an ERC-20Token representing Bitcoin on the Ethereum blockchain. It connects wBTC one-to-one with the BTC that supports it through a bridging process. Users need to deposit Bitcoin into a specific custodian to create wBTC. While these custodians are generally regulated and follow industry best practices, wBTC is not fully decentralized due to the interfaces involved with centralized authorities.
wBTC is created through custodians in partnership with authorized entities and merchants, and wBTCToken is issued at a ratio of 1 to 1 after Bitcoin is deposited. Users can transfer wBTC back to Bitcoin, the merchant burns the corresponding wBTCToken, and the custodian returns the equivalent amount of Bitcoin to the user. The system ensures authenticity through third-party audits and on-chain data analysis. As of December 4, 2023, wBTC has a market capitalization of around $6.7 billion, with a 24-hour trading volume of nearly $239 million. On October 24 and November 9, 2023, there was a significant increase in trading volume.
2. Threshold and tBTC
tBTC is a tokenized version of Bitcoin developed by Threshold on the Ethereum blockchain. It aims to integrate Bitcoin into other blockchains and facilitate Bitcoin's participation in DeFi applications. tBTC uses a decentralized model that eliminates the need for KYC protocols and protects user privacy and autonomy. It has been integrated in multiple blockchain networks and has shown market demand and value.
Threshold has partnered with partners such as Wormhole to enhance tBTC's cross-chain capabilities and expand its presence in more than 20 blockchain ecosystems. Other BTC DeFi assets may start to take a hit on wBTC, which is the first mover in the market and holds the lion's share.
10. Bitcoin ETFs: Institutional Adoption of the Significance of Bitcoin and Regulatory Developments for Bitcoin
2023 will be a historic year for Bitcoin in the U.S. financial markets. Despite facing regulatory scrutiny, Bitcoin is still thriving. The world's largest asset manager has submitted multiple Bitcoin ETF applications, and approval is expected to be on the horizon. The launch of the Bitcoin ETF will bring institutional investment and broader Bitcoin acceptance. Despite the controversy, ETFs will bring new uses to Bitcoin as an investable asset, such as a store of value. Institutional interest and investment in Bitcoin is already evident, and the approval of the ETF will attract more capital into the Bitcoin market, creating greater liquidity.
Traditional stock market instruments currently available, such as the iShares Bitcoin Futures ETF (BITO), have preemptively met the demand for Bitcoin as an asset and reached its all-time high AUM at the end of November.
1. The rise of Bitcoin as a store of value
Bitcoin's rise as a store of value is widely recognized, especially among institutional investors. Bitcoin is seen as a digital asset equivalent to gold and can be used as a hedge against inflation and as a safe haven. However, institutional investors remain cautious about Bitcoin and have reduced their investment in Bitcoin to some extent. Still, there is high anticipation for the approval of spot Bitcoin ETFs, which will open up investment channels for retail and institutional investors. It is expected that the price of bitcoin will increase significantly as a result. Overall, Bitcoin's position in the financial markets has been cemented and gaining increasing attention and acceptance around the world.
Despite this sudden bullish sentiment in the US, global attitudes towards Bitcoin regulation are far from unanimous, with countries adopting different strategies, ranging from enthusiastic acceptance to outright bans.
2. Jurisdictions with friendly attitudes:
El Salvador: Groundbreaking Bitcoin integration. In 2021, El Salvador ushered in a new chapter in the history of cryptocurrencies by making Bitcoin legal tender. The government requires businesses to accept Bitcoin payments and also provides citizens with a Chivo digital wallet to transact. El Salvador exempted bitcoin transactions from capital gains tax, boosting the popularity of the cryptocurrency.
United States: Regulatory volatility is volatile. U.S. regulators treat Bitcoin as a commodity and are considering it as a security.
The CFTC regulates Bitcoin futures contracts, while FinCEN applies anti-money laundering and customer identification regulations.
The European Union: Creating a unified framework. The European Central Bank's recognition of Bitcoin as a currency has led to the exploration of a regulatory framework. The Cryptocurrency Market Act (MiCA) plans to unify cryptocurrency regulation in EU member states.
3. Jurisdictions with a strict attitude:
China: Severe ban. China prohibits financial institutions from participating in bitcoin transactions and even restricts cryptocurrency services and mining activities.
India: Regulatory uncertainty. The Reserve Bank of India has expressed concern about cryptocurrencies and banned banks from transacting with them. The government is in discussions on a cryptocurrency bill that could ban or establish a regulatory framework.
Russia: Diverse regulations. Russia admits that cryptocurrencies are not legal tender, but allow them to be owned and traded. Mining and trading activities are required to be registered with the authorities, and more regulatory measures may be introduced in the future.
The different attitudes towards Bitcoin across countries reflect the challenges faced by the globalization of cryptocurrencies. The lack of a unified regulatory framework creates uncertainty for users and businesses, hindering the potential for a complete global financial system. This inconsistency can lead to regulatory arbitrage, with users and businesses likely to seek more lenient jurisdictions, while making international cooperation more difficult.
4. Summary
2023 will be the year of anticipation for spot Bitcoin ETFs in U.S. financial markets, potentially changing conventional wisdom and propagating Bitcoin as a mainstream global asset. The SEC's easing stance is a sign that Bitcoin may gain wider acceptance, especially among traditional financial institutions. The participation of major institutions such as BlackRock and Grayscale in the application of spot bitcoin ETFs highlights the view that Bitcoin is transforming from a niche digital currency to a well-respected investment, a view echoed by industry leaders and analysts.
11. BitVM: Do any computation on Bitcoin
This article covers several aspects of the evolution of Bitcoin blockchain technology, such as scalability solutions and the changes brought about by metadata stored in transactions. These changes are rapid and widespread, and the impact on the Bitcoin network is enormous. BitVM is a new direction of development, proposing a new way to handle smart contracts on Bitcoin, similar to the Rollup of the Ethereum network. In contrast to other protocols, BitVM does not require a soft fork of the Bitcoin network, which allows it to be implemented and tested immediately, potentially accelerating its adoption process. While some may have reservations about the impact of these innovations on Bitcoin principles, these debates need to be taken into account.
Anonymous developer Super Testnet considers BitVM to be one of the most exciting discoveries in the history of Bitcoin Script. One of the important features of BitVM is its provers-validator structure, similar to optimistic rollups on the Ethereum network. This structure works by performing calculations off-chain and then issuing proofs of transactions on Bitcoin. Validators verify the validity of transactions, while certifiers are penalized for making false claims.
This architecture helps to increase the credibility of the wrapped Bitcoin asset. All participants understand that the central party cannot lie when proving a transaction in case the validator obtains the margin issued by the prover. BitVM's latest innovation enables trust-minimization by delivering state in Bitcoin transactions through bit-value commitments. This incentive mechanism allows the prover to perform computational steps under a set of rules to prove state changes, helping to reduce trust in the custodian.
While some have reservations about BitVM, it has significant potential to enhance the security and functionality of the Bitcoin ecosystem, such as increasing trust in wrapped Bitcoin. BitVM can also support complex applications such as trading platforms, derivatives, prediction markets, and gaming, although it will take time to develop. Nonetheless, the advent of BitVM means that there may be more examples of applications based on this script in the future.
12. Conclusion and outlook: How will Bitcoin develop in 2024?
Bitcoin ushered in wider participation, thanks to its scarcity and stable monetary policy. Technological innovations have increased transaction speed and scalability, providing a wider range of applications for everyday trading and gaming platforms. New concepts such as Ordinals have changed Bitcoin transactions, and recursive ordinals have further enhanced their functionality.
Other innovations such as Babylon's remote staking concept have opened up new avenues for BTC yields, reinforcing Bitcoin's legitimacy as an asset and store of value. The self-custody trend highlights investors' desire for control of Bitcoin and could influence market dynamics and increase its value and stability.
The growth of consumer applications, such as Fold, Lolli, and Bitrefill, has deepened the use of Bitcoin in everyday life and expanded its appeal. At the same time, privacy-focused wallets such as Wasabi and Samourai Wallet meet users' needs for data protection and anonymity.
Despite the challenges, Bitcoin continues to evolve due to its fundamental advantages and diverse applications, which bodes well for the global economy and financial sector.