原文标题：Bitcoin Renaissance： The Evolution of the World’s First Public Blockchain
原文作者：Michael Zhao
原文来源：grayscale
编译：Kate, 火星财经
• The launch of Bitcoin spot ETFs in the U.S. market has sparked new interest among traditional investors in the largest public blockchain. For crypto-native investors, interest in Bitcoin has also increased, but for different reasons: a resurgence in developer activity and investment.
• Unlike Ethereum, Bitcoin's programming language does not support complex features. However, the success of Ordinal Inscriptions has spawned a new wave of development aimed at introducing smart contracts to the blockchain and increasing transaction throughput.
• While Bitcoin's primary use at the moment is as a store of valuable assets and a digital alternative to gold, the network can also be used for other purposes, including payments, data storage, and computing. If development activities lead to new use cases and more adoption, we expect it to increase Bitcoin's total potential market value.
• In the future, we expect to see more and more decentralized finance (DeFi) applications on Bitcoin, more Bitcoin miner partnerships to secure these new extended chains, and increased competition as Bitcoin becomes a viable smart contract platform.
Grayscale Research has noticed that much of the excitement over the past few months has been focused on the Bitcoin developer space. Today, the Bitcoin builder community resembles the embryonic stages of Ethereum in early 2017, when decentralized applications were just emerging. As of May 2024, Bitcoin is the largest public chain by market capitalization and the oldest blockchain in existence, and to date, it has served primarily as a transfer platform for its original purpose. Unlike smart contract platforms such as Ethereum, which uses a richer programming language that can facilitate decentralized finance and other advanced applications, Bitcoin Script has traditionally been limited to facilitating direct transactions and does not support complex functions.
Although many efforts have been made to enhance the network in the past, value transfer remained Bitcoin's primary function for more than a decade until the launch of Ordinals in late 2022. Ordinal introduced NFTs (non-fungible tokens) to Bitcoin, marking a significant shift in the perspective of users and developers. With the successful integration of ordinal numbers, more and more users and developers now see Bitcoin as fertile ground for experimentation. This manifests itself in two key ways. First, it broadens the functionality of Bitcoin. The growing ecosystem of Bitcoin's layer-2 solutions has prompted people to explore other possibilities of the Bitcoin network. Second, efforts are being made to increase the transaction throughput of the mainchain given the escalating activity on the main chain and the rising transaction fees.
Figure 1: Bitcoin NFT trading volume continues to dominate
Scaling Bitcoin
The idea that Bitcoin needed an additional scaling solution was known from the beginning, as cryptographer and early Bitcoin adopter Hal Finney emphasized:
"Bitcoin itself cannot be scaled to broadcast every financial transaction in the world to everyone and be included in the blockchain. We need a secondary payment system that is lighter and more efficient. —Hal Finney (December 30, 2010)
We see two main ways to scale Bitcoin:
1. Functional diversity involves expanding the range of viable activities and applications within the Bitcoin network. This includes exploring and implementing new features, protocols, and technologies that extend the utility of Bitcoin beyond simple value transfers, which may include smart contracts, decentralized finance applications, and NFTs.
2. Transaction throughput focuses on increasing the total number of transactions processed on the Bitcoin blockchain. This includes optimizing network protocols, improving block sizes, and implementing scalability solutions to facilitate larger transaction volumes in a given timeframe.
Prior to the introduction of ordinal numbers, several Bitcoin scaling solutions already existed:
• Lightning Network: Seen as one of the most popular Bitcoin scaling solutions in terms of historical adoption and funding, the Lightning Network functions as a protocol designed to facilitate fast and cost-effective peer-to-peer payment transactions.
• Stacks: As a sidechain running parallel to the Bitcoin main chain, Stacks can execute more complex applications such as DeFi and NFTs. With the Nakamoto upgrade expected to be completed in the coming months, Stacks will be secured by Bitcoin's hash rate.
• Rootstock: An Ethereum Virtual Machine (EVM)-compatible sidechain, Rootstock allows developers to use Ethereum-compatible smart contracts on a network secured by Bitcoin's partial hash power through a process called merge mining.
Figure 2: Bitcoin's existing layer 2 ecosystem has been growing
While these solutions have been around for years, the introduction of ordinal numbers at the end of 2022 can be seen as a catalyst for the development of the latest generation of Bitcoin. Two upgrades to the Bitcoin Core software have facilitated ordinal numbers: SegWit (July 2017), which increased the theoretical block size from 1MB to 4MB, and Taproot (November 2021), which makes it easier for users to embed arbitrary data into the witness data portion of a Bitcoin block.
Ordinal numbers are essentially a method of introducing non-fungible by assigning a unique number to each Satoshi Nakamoto, the smallest unit of Bitcoin. By referencing these numbers, pictures, music, or other arbitrary data can be linked to the witness portion of the transaction. By the end of 2023, Bitcoin will be the largest NFT platform compared to all other chains (based on Allium's data we use in Table 1).
While the initial user experience lags behind chains such as Ethereum and Solana, users may be attracted to NFTs on Bitcoin, in part due to the scarcity of block space relative to other Layer 1 solutions, which mostly don't store files directly on the main chain. Coupled with the novelty, the popularity of ordinal numbers has prompted participants – both users and developers – to think, "What else can Bitcoin achieve?" ”
The next generation of Bitcoin applications
In the Bitcoin ecosystem, there are currently several innovative projects in development:
• BitVM: One of the most anticipated developments is BitVM, which enables optimistic Bitcoin rollups using only Bitcoin Script, which was previously thought impossible. Similar to Ethereum's optimistic rollup, Bitcoin's rollup moves transaction execution off the chain, allowing for faster and cheaper transactions. While still in its early stages, projects like Build on Bitcoin aim to incorporate BitVM into future settlements.
• Spiderchains (Botanix Labs): Spiderchains refers to a layer 2 chain that uses staked Bitcoin in a decentralized multi-signature wallet, providing a different security standard than solutions such as Stacks and Rootstock. For example, Botanix Labs is developing an EVM-compatible spiderchains to facilitate the bridging of Bitcoin from Bitcoin's first layer to Botanix's second layer.
• Bitcoin Restaking Solution (Babylon): Babylon, similar to Eigenlayer, leverages the security of the underlying Bitcoin network for other proven services. Given Bitcoin's high hash rate as of May 9, 2024, it can provide robust security for applications seeking to capitalize on Bitcoin's security budget.
• Bitcoin-specific applications/DeFi: Projects focused on Bitcoin-backed stablecoins, lending, and other DeFi applications aim to replicate functionality on Ethereum in the Bitcoin ecosystem.
• Taproot Assets: Formerly known as Taro, Taproot Assets is a Bitcoin layer developed by Lightning Labs to issue assets on Bitcoin. Taproot assets use Taproot upgrades to embed metadata into the unspent transaction output of Bitcoin. With major players such as Coinbase activating lightning trading, Taproot Assets is likely to gain traction.
While these developments are promising, it's worth noting that there isn't a clear frontrunner in terms of attention. According to DefiLlama, as of May 9, 2024, the total value locked in these new projects is only 0.2% of Bitcoin's total market capitalization.
With numerous projects competing for attention and liquidity at the same time, the Pareto principle suggests that only a handful of projects will become successful in the coming years, similar to the pattern observed on other smart contract platforms. The Grayscale Research team will continue to closely monitor these developments to understand emerging trends and opportunities in the Bitcoin ecosystem.
Bitcoin's larger addressable market
So, what does all this mean for Bitcoin?
If we take a step back, Bitcoin's total potential market relies on various narratives: stores of value, medium of exchange, settlement layer, alternative monetary systems, etc. This has been discussed in depth through past studies.
We believe that faster transaction speeds and greater programmability are the addition of this potential market equation on top of Bitcoin. The increased transaction throughput will strengthen the settlement layer narrative, while the increased programmability will allow Bitcoin to enter a new market as a smart contract platform layer.
Given that Bitcoin is a relatively new entrant to the smart contract platform market, one way to map the Bitcoin opportunity is to compare Bitcoin's utilization rate and market cap to the ratio of other smart contract platforms. Even though Bitcoin is the largest cryptocurrency by market capitalization, its total value locked (TVL) is still relatively small, and we can use it as a proxy for utilization. When comparing Bitcoin's TVL-to-market cap ratio to smaller chains, it is relatively and absolutely low.
For example, as of May 2024, Ethereum currently has around $50 billion locked in its ecosystem, with another $7.5 billion for Layer 2 solutions, for a total of $57.5 billion. Ethereum's market capitalization is around $360 billion. This means that around 17% of Ethereum's total market capitalization is used for applications. In comparison, Bitcoin has only about $2.4 billion in application locks and a market cap of $1.2 trillion. This means that only 0.2% of Bitcoin's market cap is used in applications.
Figure 3: Bitcoin's existing opportunities remain significant
From an investment perspective, we're very excited about how things will end considering the combination of interested users and developers with a historically untapped market.
Development brings new risks
While greater development activity within the Bitcoin ecosystem creates opportunities, it can also introduce new risks. We see two main challenges. First, an increase in activity can lead to higher fees. One criticism of Bitcoin's development stems from its aversion to high transaction fees. Recently, the increase in Bitcoin transaction fees due to speculative activities has made traditional Bitcoin transaction costs unacceptable to some users. The opposite point is that the fee is always ultimately to supplement the miner's income. The current evolution of Bitcoin scaling solutions should help create new solutions for users, rather than introducing a problem that requires lower transaction fees.
Second, some Bitcoin users have expressed concerns about value dilution. For example, if the Bitcoin network were used for more things, would it be less valuable as a medium of money? Does the influx of new items represent a "graffiti" along the storage value chain, or does it prompt it to evolve into something more akin to jewelry?
In our opinion, the essence of Bitcoin lies in its decentralization, and the freedom it provides users to use Bitcoin in a variety of ways, including incorporating art or implementing stablecoins. This expansion of use cases expands the appeal of Bitcoin and brings new markets and audiences, which is consistent with Bitcoin's fundamental purpose of giving individuals financial sovereignty and choice. Nonetheless, we expect the debate around the expansion of Bitcoin's use cases to continue.
The next 15 years
Bitcoin is only about 15 years old, and users and developers are still digging for its potential applications. Considering the nascent state of Bitcoin's second-layer space, it's too early to look at the trajectory of most projects. However, Grayscale Research has witnessed similar ecosystem expansion on other smart contract platforms and noted the type of project that tends to be primitive.
We've also noticed that for most current solutions, there is a trend in how security is handled. Looking ahead, we have some predictions for these new Bitcoin-based protocols and scaling solutions:
1. Expansion of DeFi primitives: We expect that Bitcoin's first application to gain significant traction may mirror Ethereum's trajectory and provide a set of DeFi primitives in the lending/borrowing and swapping protocol space. If we assume that assets other than Bitcoin will start settling on the Bitcoin network, then there will be a demand to use these assets. As we've seen in the development of other smart contract platforms, these applications typically get most of the early liquidity.
2. Growth of miners' partnerships with layer 2 projects: The security of these scaling solutions may be supported by Bitcoin miners' hash power, providing miners with an additional revenue stream. Given that there is currently no reliable solution on the market to take full advantage of Bitcoin's hash power, we believe that in the medium term, merge mining will continue in these new projects until BitVM is implemented, where scaling solutions utilizing some of the mining power will be more common. We've seen this in past Layer 2 projects like Rootstock, as well as in the current BoB.
3. Competition in the Smart Contract Platform Space: As a result of these developments, we believe Bitcoin will become a significant competitor in the smart contract platform space. Given the high demand for Bitcoin on the EVM chain, we see the potential for potential demand for Bitcoin-based collateral projects such as the Bitcoin stablecoin.
Today, Bitcoin is primarily used as a store of value and a digital alternative to physical gold. Even in this "limited" use case, it seems to us that it has been successful. Its market capitalization has grown to over $1 trillion and has given rise to an entirely new asset class. But Grayscale Research believes that we are still in the early stages of the Bitcoin story.
Developers are only now discovering how to get more out of the first public chain and how to trade Bitcoin most efficiently.
If the latest wave of development leads to more adoption of these use cases, this will mean a larger addressable market and potentially a higher market value over time.