author:@YBBCapitalResearcher Ac-Core

Preface

The concept of Bitcoin was first proposed by Satoshi Nakamoto on November 1, 2008, and Bitcoin was officially born on January 3, 2009. After decades of industry development, Bitcoin has been sprinting on the road of value storage and digital gold, and its value has also increased from 10,000 Bitcoins in exchange for a pizza to the current market value of $664.22B. However, from the current development of BTC ecology, these are just some small attempts. In addition to the value of BTC itself, we still need to explore more patiently for the future. This article will analyze other application ecosystems of BTC.

BTC Overview

In 2009, a cryptographer named Satoshi Nakamoto published a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System", which described an electronic currency system implemented through peer-to-peer technology, which enables online payments to be initiated and paid directly from one party to another without going through any financial institutions. Subsequently, Bitcoin gradually spread around the world and received widespread attention. It has at least three attributes: technical, sociological, and financial.

• Technical attributes:

From the perspective of Bitcoin's technical logic, Bitcoin's network protocol is a decentralized, peer-to-peer transmission protocol, which can be simply understood as a huge public accounting system that is not controlled by any third party and cannot be tampered with.BlockchainThe technology records all transactions in the entire network database to ensure that no duplicate or false payments occur;

• Sociological attributes:

Compared to today’s Internet,BlockchainThe distributed ledger technology itself uses digital transaction records shared through the network, which are decentralized, tamper-proof, and unchangeable. The information liberalization trend brought by its Internet attributes is also affecting everyone. Bitcoin, a completely decentralized electronic currency, does not rely on any single authority to issue it, and can achieve value transfer without going through the banking system during cross-border and cross-currency transfers. Its information liberalization and cross-border payment give it more sociological attributes;

• Financial attributes:

From a financial perspective, Bitcoin can be regarded as an investment product of digital gold or a global standardized digital asset. Compared with gold, it has the characteristics of constant total volume, easy to carry, low transaction cost, and young target audience, which makes more and more investors and traditional investment institutions believe in its investment value. Because it relies on the global circulation of the Internet, it can be used as an efficient and low-cost circulation payment tool and circulation means in certain specific scenarios (such as cross-border payment and virtual economic transmission medium). For example, in January 2015, at the New York Stock Exchangeexchange, Nasdaq entered the Bitcoin field for the first time, and recently Grayscale Fund, BlackRock and others have begun to deploy Bitcoin-related ETFs.

Looking at the entire currentBlockchainCompared with Ethereum, Bitcoin has very few ecological projects. The Lightning Network launched in 2019 has shown a new development trend. In addition, Stacks launched in 2021 and the Taproot Assets mainnet released by Lightning Labs not long ago have realized Turing-complete Bitcoin.contractBitVM and others have also become one of the few bright spots in the Bitcoin ecosystem.

BTC Bitcoin New Ecosystem

BitVM:

Image source: BitVM white paper

Recently, Robin Linus, the head of the ZeroSync project, published a white paper titled "BitVM: Compute Anything On Bitcoin", which sparked heated discussions. BitVM is the abbreviation of "Bitcoin Virtual Machine". It proposes a Bitcoin that can achieve Turing completeness without changing the consensus of the Bitcoin network.contract解决方案，使任何可计算的函数都可以在比特币上进行验证，允许开发者在比特币上运行复杂的合约，而无需改变比特币基本规则。

However, we all know that Bitcoin's programmability is very limited.BlockchainThere is a classic impossible triangle problem: decentralization,Safetyscalability, while Bitcoin is designed to take into account only decentralization andSafetyIt has abandoned scalability to a certain extent. Because it only provides three forms of input scripts: Pay to Publish Key,Pay to public key hash (Pay to Publish Key Hash), multi-signature script (Pay to Script Hash).

• Pay to Publish Key：The combinationXiaobai NavigationAbout is used to send Bitcoin to a Bitcoin address;

• Pay to Publish Key Hash: This contract is used to send Bitcoin to a Bitcoin address;

• Multi-signature script (Pay to Script Hash): An application form of multi-signature.

The reason why Bitcoin programming capabilities are very limited is that it only supports simple logic and limited opcodes on the Script script, so it is impossible to develop complex smart contracts on the Bitcoin network. It is also because of the Turing incompleteness of Bitcoin scripts that arbitrary calculations or loops cannot be performed to greatly ensureSafetyUnlike executing calculations directly on Bitcoin, BitVM only verifies calculations (which is similar to many expansion plans that do not destroy the native Bitcoin system), and is mainly implemented through OP-Rollup, fraud proofs, Taproot Leaf, and Bitcoin Script as stated in the white paper.

Image source: BitVM white paper

Bitcoin has many limitations on complex computing and smart contracts since its inception, and BitVM uses its unique solution to expand this. Its main roles include:

• Provers and Verifiers: The former uses information input from a system to create a proof, and the latter verifies the calculation result of the proof, but cannot know the specific content of the information, so as to ensure the accuracy of the calculation result;

• Off-chain computation and on-chain proof：在不改变比特币共识的情况下BitVM毋庸置疑需要将大量的计算和扩展转移到链下完成，以此提升灵活度。而饱受争议的链上证明，严重者和证明者之间会出现一个类似Optimistic Rollup 采用的一种数据有效性的欺诈证明的验证方式来确保安全。而BitVM特别之处是通过Taproot地址矩阵或Taptree实现了类似二进制电路的各类程序指令，相互组合以完整合约执行【1】。

Image source: BitVM white paper

But the controversial ones are:

BitVM writes a "simple code" in the Script script of the Taproot address and executes it as a UTXO (see explanation below) spending conditional instructions. Script is the basic script supported by the Bitcoin network itself. Although it is also a type of Output, the smart contract mentioned by BitVM is just a customized "script" of Output and then parsed in a centralized manner. The difference is that one is the next block parsing of the Bitcoin network, and the other is who defines who to parse. In order to realize the normal operation of the smart contract, BitVM can only use Output instead of Script. Whether there is a centralized operation mode here is worth thinking about.

Lightning Network Taproot Assets

Taproot Assets:

On October 18, 2023, Lightning Labs released the UTXO-based Taproot Assets mainnet Alpha version. With the completion of the mainnet version, the Bitcoin Lightning Network will become an upright multi-chain asset network, mainly for institutions and asset issuance, and can create instant, low-cost and high-capacity transaction application protocols through the Lightning Network.

Lightning is on the verge of making Bitcoin a legal tender in El Salvador in 2021CommunityAfter experiencing explosive growth, users around the world are enjoying instant settlement, low fees, and peer-to-peer Bitcoin transactions without financial intermediaries. Lightning Labs continues to provide services to users, allowing them to add stablecoins to their applications using Bitcoin infrastructure. In addition, developers are also trying to use real-world assets such as gold, US Treasuries, corporate bonds, etc. for programmatic coupon payments. There are two key factors in Taproot Assets: Lightning Network and Taproot.

Image source: Lightning Labs official website

Lightning Network:

目前，比特币系统中的比特币交易速度上限设定为每10分钟确认一次，每次确认能够处理的交易数量为2500笔。这个数量是由比特币社区和开发者们共同讨论确定的，设定速度上限的主要目的是为了保护比特币系统的去中心化性和安全性，从而一定程度上舍弃了可扩展性。

The Lightning Network was first proposed by Joseph Poon and Thaddeus Dryja in February 2015 and released in March 2018. It is a Layer 2 expansion solution for Bitcoin. It allows relevant participants to create smart contracts off-chain, mainly to solve the scalability and high transaction fee problems of Bitcoin.Make transactions almost free of charge.

The core idea of the Lightning Network is very simple: it allows all participants to deposit funds into a commonwalletThe Lightning Network is a major upgrade to the Bitcoin protocol, but it also brings a new problem, namely the liquidity problem of the recipient of funds among the participants.

Image source: CSDN@mutourend

Taproot

The core reason for Bitcoin's innovation is due toThe Segregated Witness (SegWit) upgrade in 2017 and the Taproot upgrade in 2021. SegWit helped expand Bitcoin’s throughput by introducing a block field to store “proof data,” the signatures and public keys of Bitcoin transactions, but potential vulnerabilities forced developers to limit the size of this data. The Taproot upgrade has two major notable changes:MAST+Schnorr signature,This resolves these security issues and allows the removal of the old SegWit restrictions【5】.

The core features of Taproot Assets:

1.Issuance of stablecoins:Paypal, the world's largest payment application, has issued its own stablecoin PYUSD after becoming a very popular payment channel. The essence of this is to expand from a payment channel to a value transmission carrier itself. Taproot Assets has the same goal, which is to provide users with stablecoins in a borderless financial world by leveraging the value of Bitcoin itself. For example, it can be used to create a new stablecoin taUSD, and a single Bitcoin transaction can be used to transfer BTC and taUSD into the Lightning Network channel to perform DeFi operations. This is also the core of Taproot Assets' operation on the Lightning Network.

2.Multiple Universe Mode:Universes是存储库，保存了Taproot Asset钱包初始化和同步特定Taproot Asset状态所需的所有信息。所以即使发行商的服务器崩溃，也可以通过多个Universe服务器验证资产的合法有效性，不需过度依赖第三方在链下存储的数据；

3. Asset issuance and redemption API:Similar to corporate bonds, proof of these destruction transactions can be uploaded to the chain, allowing each user to trade various assets on Bitcoin as easily as investing in stocks and bonds in the real world, thereby mapping to the issuance of real-world assets and expanding the imagination of the RWA track. Multiple sets of assets are minted at different times to maintain substitutability, and the asset destruction API facilitates redemption by asset issuers;

4. Asynchronous receiving function:Provide developers with tools to add uniform resource identifiers (URIs) to on-chain addresses;

5. Scalability:The new function build-loadtest command allows developers to stress test the software. Perhaps Lightning is not the ultimate expansion solution for Bitcoin, but direct integration with the Lightning Network to complete fast transactions and provide users with stable currency support in a borderless financial world has a very broad imagination space.

RGB Protocol:

RGB is the LNP/BP Standards Association (Lightning Network Protocol / Bitcoin Protocol), a non-profit organization that oversees the development of all layers of Bitcoin, covering the Bitcoin protocol, Lightning Network protocol, and smart contracts such as RGB. The RGB protocol is suitable for scalable and private Bitcoin and Lightning Network smart contract systems. Its purpose is to run complex smart contracts on UTXO to introduce them into the Bitcoin ecosystem. The official description is: A scalable and confidential smart contract protocol suite for Bitcoin and Lightning Network that can be used to issue and transfer assets and broader rights. The protocol is based on the concepts of client verification and one-time sealing proposed by Peter Todd in 2016, and is a client verification and smart contract system that runs on the second layer or off-chain of Bitcoin. To understand the RGB protocol, you need to understand the following four key contents:

Single-use-seals:

Simply put, as the name implies, it is to add a one-time seal to the object that needs to be protected so that it has only two states, open and closed, to ensure that the content is only used once to prevent double spending. Compared with Ethereum accounts, there are only wallet addresses in the Bitcoin network, among which the unspent transaction output (UTXO) can be used as a seal.

Therefore, before understanding one-time sealing, you need to understand what UTXO is. It is a ledger model that generates input in each transaction.（Input）and output（Output）, where the output of the transfer transaction is the recipient's Bitcoin address and the transfer amount, and these outputs are stored in the UTXO collection to record unspent transaction outputs.An input points to an output of the previous block, so these transactions can be traced, so the Bitcoin transaction output here can be used as a one-time seal.

According to the explanation in the official RGB document, a UTXO can be regarded as a seal: when it is created, the seal is locked; when it is spent, the seal is opened. According to the consensus rules of Bitcoin, an output can only be spent once. Therefore, if we use it as a seal, then the incentive factor that ensures the execution of the Bitcoin consensus rules will also ensure that such a seal can only be opened once [2];

Image source: RGB Docs Chinese official

Client-side verification and deterministic Bitcoin commitments:

Client verification is a paradigm proposed by Peter Todd in 2016. In Bitcoin's PoW consensus, state verification does not require global execution by all parties involved in the decentralized protocol, but requires verification of all aspects of a specific transformation. Instead, it is converted into a short deterministic Bitcoin commitment by using cryptographic hash functions, etc. This commitment requires some kind of "Proof-of-Publication" and has three main features: receipt proof, non-publication proof, and membership proof. In summary, OpenTimeStamps can be regarded as the first protocol in this field, and RGB is the second protocol. Other protocols can also utilize and use these topics and form a client verification protocol family for these protocols [3].

RGB uses the Bitcoin blockchain to prevent the double-spending problem (repeated spending) by committing to the RGB state transition and spending the UTXO that currently holds the rights to be transferred in a specific Bitcoin transaction. This allows multiple state transitions to be committed to a single Bitcoin transaction and each state transition can only be committed to a Bitcoin transaction once (otherwise there will be a double-spending problem);

Image source: RGB Docs Chinese official

Lightning Network compatibility:

When a state transition is committed to a Bitcoin transaction on the RGB website, such a transaction does not need to be settled immediately on the blockchain, because it can become part of a Lightning Network payment channel, and then obtain security from it, while borrowing the Lightning Network payment channel to bring a lot of digital assets to RGB.

Image source: RGB Docs Chinese official

Updates in RGB v0.10:

According to Waterdrip Capital, the upgrades are mainly reflected in the upgrade of flexibility and security, and are summarized as follows:

Image source:Waterdrip Capital

The concept of RGB was proposed as early as 2016, but after several years of development, it has not received widespread attention and application. The main reason may be that the functions of early versions are relatively limited and the learning threshold for developers is high. With the arrival of RGB v0.1, whether RGB can bring us more imagination in the future is worth looking forward to.

Bitcoin's sidechains Stacks, Liquid, RSK, Drivechain

In 2016, Blockstream proposed pegged sidechains as a possible way to scale Bitcoin. Sidechains often refer to trust-minimized blockchains that allow payments in foreign crypto assets (native assets of another blockchain). The most meaningful benefits that can be achieved through sidechains are user asset issuance, stateful smart contracts that support DeFi solutions, commitment chain expansion, faster settlement finality, and higher privacy.

Stacks:

Image source: Stacks Chinese official

Basic working principle:

First, let’s introduce Stacks. Although it does not directly call itself a sidechain, whether it can be classified as a sidechain is still controversial. It aims to link itself to the Bitcoin chain through its unique “Proof of Transfer” consensus mechanism Proof of Transfer (PoX), thereby achieving high decentralization and scalability without adding additional environmental impact.

Stacks is an open source Bitcoin second-layer blockchain that introduces smart contracts and decentralized applications to Bitcoin. Stacks was originally named Blockstack, and its foundation work began as early as 2013. Stacks' technical architecture includes a core layer and subnets, and developers and users can choose between the two. The difference is that the mainnet is highly decentralized but has low throughput, while the subnet is less decentralized but has higher throughput.

Image source: Stacks white paper

The Stacks core layer interacts with the Bitcoin layer based on the PoX mechanism. PoX is a staking system similar to PoS and a variant of Proof of Burn (PoB). It gives Stacks miners the power to “burn” theirToken(Native assets or othercryptocurrency) to mine blocks. By “burning”, Stacks miners can mine more blocks and earn BTC rewards by helping to ensure network security. Their interaction process is as follows:

在 Stacks 中转账证明要求矿工向其他 Stacks 网络参与者发送比特币（是在比特币网络上，而不是在烧录地址），由于 Stacks 可以读取比特币网络状态，因此可以验证这些比特币交易，随后Stacks 协议会随机选择该区块的获胜矿工，并用 Stacks 的本地代币 STX 进行奖励。

When Stacks interacts with Bitcoin, there is no need to modify its base layer protocol, because Stacks transactions are bundled together, and Bitcoin only acts as the final settlement layer of Stacks, which is then sent to Bitcoin for verification and confirmation. The history of Stacks blocks will be recorded forever on the Bitcoin blockchain.

Image source: Stacks white paper

Clarity Smart Contract:

Stacks creates smart contracts using a coding language called “Clarity” [4], which is designed specifically for Stacks to optimize for predictability and security. Clarity is intentionally designed to be Turing incomplete, thus avoiding “Turing complexity”. Its smart contract code is public and directly accessible on the chain, allowing developers to test the code before running any smart contract, which means that developers can build smart contracts that benefit from Bitcoin.BinanceWhat can we innovate in Stacks with the support of Clarity and what are the advantages and disadvantages?

What can be done:

1. Build decentralized applications on Bitcoin and migrate the DeFi sector;

2. Native assets can be created on Stacks.

Advantage:

1. Security: It integrates the powerful security attributes of Bitcoin and has strong security and anti-attack capabilities;

2. Interoperability: The first-layer smart contracts can communicate with other blockchains;

3. Scalability: The PoX consensus mechanism leverages Bitcoin to achieve faster transaction finality and higher scalability.

Disadvantages:

1. Its unique design architecture has a certain learning cost and threshold for developers. Can it unleash its potential?It is also particularly important to attract more developers to build from the Ethereum ecosystem and the MOVE ecosystem;

2. Will the uncertainty brought by STX mining and stacking affect the development and operation of the second-layer network?Camp is also worth thinking about.

Liquid:

Image source: LBTC official

话题来到Liquid，它不仅是一个比特币的侧链，更是一个交易所的结算网络，可将各地的cryptocurrency交易所和机构联系在一起，其核心功能包括：快速结算、强隐私性、数字资产发行及与比特币锚定，从而实现更快的比特币交易和数字资产发行，让会员可以对法定货币、证券甚至其他加密货币进行代币化。

Liquid and RSK have in common that both rely on federated multi-signatures to lock Bitcoin issued in the sidechain as the sidechain's native currency, but the actual hook design is still quite different. There are currently 15 functionaries in operation for both sidechains, and Liquid requires 11 signatures to issue Bitcoin, while RSK requires 8. Liquid seems to prioritize security over usability, while RSK prioritizes usability over security.

In general, Liquid is a sidechain platform designed to provide shared liquidity for exchanges, focusing on protocol simplicity, security, and privacy.

RSK:

Image source: Mt Pelerin official

RSK is also a sidechain whose native token is RBTC, aiming to become the cornerstone of financial inclusion, focusing on decentralized finance (DeFi). RSK is a stateful smart contract platform secured by Bitcoin miners, which enhances the value of the Bitcoin ecosystem by expanding the use of Bitcoin currency. Decentralized applications can be written using the Solidity compiler and Web3 standard library, enabling Ethereum compatibility. In addition, it can also expand Bitcoin payments through more on-chain space and off-chain transactions provided by the RIF Lumino payment channel network.

RSK aims to address a wider set of use cases, increasing openness and programmability by adopting a stateful VM, being compatible with Ethereum to port Ethereum dApps and tools to RSK, while Liquid focuses on being an extremely efficient tool.

Drivechain

Drivechain is an open Bitcoin sidechain protocol that can customize different types of sidechains according to different needs. BIP-300/301 proposes the concept of "allowing developers to add features and functions to the Bitcoin world without actually modifying the Bitcoin core code." By creating a Bitcoin Sidechain that is secured by Bitcoin miners, various scalability use cases of Layer2 are implemented on the Sidechain under the premise of using Bitcoin as the security layer 1. It should be noted that BIP-300 "Hashrate Escrows" compresses 3-6 months of transaction data into 32 bytes through "Container UTXOs", and BIP-301 "Blind Merged Mining" is the same as RSK, and the security of the network is also maintained through joint mining.

passDrivechain uses sidechains to create blockchain applications that meet the needs of their own application scenarios, and regards sidechains as the second layer to complete the expansion, thus avoiding the 1MB size limit of Bitcoin blocks.Currently, there are 7 Sidechains based on BIP-300 under development and continue to attract more Bitcoin communities and enthusiasts to join. They are (for the sake of simplicity, only examples are given, for details, see [6]):

• EVM Sidechain: EthSide

• Digital Assets/Colored Coins/NFT Sidechain: BitAssets

• High transaction throughput sidechain: Thunder Network

• Prediction Market Sidechain: Hivemind

• Privacy Sidechain: zSide

• Distributed DNS Sidechain: BitNames

• Storage Sidechain: Filecoin

Image source: LayerTwo Labs Asia Community

Ordinals Protocol and BRC-20:

UniSat Wallet is a popular Chrome plug-in wallet in the Bitcoin ecosystem that helps users store, mint and transfer BRC-20 tokens. The Bitcoin ecosystem services it provides include buying and selling BTC, NFTs, domain names, etc.

Briefly describe the origin of BRC-20

As explained above, the calculation method of the UTXO part will cause each transaction to generate countless inputs and outputs (changes in balance increase or decrease, because each Bitcoin is composed of the smallest unit: 100 million Satoshis (1 BTC = 10 ^ 8 )Each of these sats has a unique identifier and cannot be divided, so each satoshi is given a specific meaning based on the ordinal of the sat in Bitcoin. For example, 50 BTC can be represented in the network as:4,999,999,999 sats.

Image source: 14jun

Although the Ordinals protocol and the so-called BRC-20 have the characteristics of being too centralized and lacking a verification mechanism, it is undeniable that the hot market has brought more attention to the Bitcoin ecosystem and the second layer, and to a certain extent, it has once again drawn the public's attention back to Bitcoin.

summary:

Bitcoin abandoned the attribute of scalability at the beginning of its design in order to greatly enhance the decentralization and security of its own network. Regarding the related expansion issues, the absolutely crushing security brought by Bitcoin as the most successful blockchain network has also brought huge imagination space for many geek developers.

Therefore, supporters of the Bitcoin ecosystem are roughly divided into two groups: conservatives and radicals.Conservatives believe that Bitcoin must maintain its pure currency nature and be used only as a store of value. It is pure digital gold and does not need other forms of scalability. Radicals believe that Bitcoin needs to be expanded to embrace more native applications and maximize Bitcoin's transaction properties, which is conducive to the long-term development of Bitcoin. Perhaps we can leave this important question to the future, and time will tell us the answer.

Explanation of the literature:

【1】

https://twitter.com/tmel0211/status/1715627595004543032

【2】https://docs.rgb.info/v/zh/she-ji

【3】https://blackpaper.rgb.tech/consensus-layer/3.-client-side-validation

【4】https://clarity-lang.org/

【5】https://www.odaily.news/post/5169725

【6】https://layertwolabsasia.medium.com/seven-sidechains-overview-538e76352e6c

The article comes from the Internet:A new journey for digital gold: Bitcoin ecosystem diversification exploration and protocol innovation

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