Summary
The emergence of the Ordinals protocol has brought a new narrative space to the BTC ecology. Recently, the re-creation of the BRC-20 token standard based on Ordinals has pushed the market FOMO sentiment to a climax. In this research report, Huobi Research discussed the origin of the Ordinals protocol, the opportunities and current data of the BRC-20 token, and the BTC ecology future development.
The Ordinals protocol endows the smallest unit of BTC, Satoshi, with higher transaction and collection value, opening a new door for the ecological development of Bitcoin. The Ordinals NFT market continues to increase in size, and its infrastructure will become an important track.
The attempt at the BRC-20 token standard sparked a new wealth effect, with over 18,279 BRC-20 projects already minted on-chain. The trading market expanded rapidly, and the dark horse of Unisat broke out, accounting for more than 50% of the trading volume.
BRC-20 token risks and opportunities coexist. BRC-20 still has many flaws, but it also creates some possibilities for the future ecological development of BTC. The BTC ecosystem is in a very early stage, requiring developers and the community to constantly tinker with the standard design and establish a sound infrastructure.
The encryption market is never short of hot spots. Recently, the popularity of BRC-20 has gradually increased, which has replaced Arbitrum’s currency issuance and airdrop effects. BRC-20 is an experimental alternative token standard for Bitcoin proposed by domo@domodata based on the Ordinals protocol. Ordinals opens up a new narrative of BTC ecology and decentralization.
Since its inception, the core value of BTC has been decentralization and free trade, and it is also the only cryptocurrency with commodity attributes recognized by the US Securities and Exchange Commission (SEC). The BTC network is not Turing complete, but developers have always wanted to develop the BTC ecosystem and build an ecological empire similar to Ethereum. For example, the BTC two-tier network project and the Web5 network proposed by Jack Dorsey are all ecological projects that hope to develop a more powerful decentralized development based on BTC.
1. Ordinals Protocol: BTC’s Renaissance
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Figure 1. Ordinals-Inscriptions (overtime) (Source: dune, @dgtl_assets)
The BTC NFT minted based on the Ordinals protocol is fundamentally different from the ETH NFT. Users can inscribe information on the chain, including text/pictures/audio/video, but the storage space of each block is only 4 MB, which is the upper limit of Bitcoin inscriptions.
ETHs NFT uses smart contracts to issue and trade based on the ERC-721 or ERC-1155 standard. The only information stored on the chain is the Token ID composed of integers. This string of numbers will be mapped to the URL to retrieve the Metadata (name, description, picture address) about the NFT. NFT Metadata is usually stored in IPFS or a centralized server.
The information in the BTC NFT is completely on the chain, and there is no need to store Metadata off the chain. An NFT includes a number, that is, the mining sequence starts from 0, which ensures the uniqueness of each Satoshi. It is precisely because the NFT is actually stored on the chain, the information contained in the NFT has a size limit and cannot be modified. This is also the reason why BTC enthusiasts are pursuing it.
More and more blue-chip NFT project parties have also joined the BTC NFT ecosystem and achieved success. Yuga Labs Twelvefold won the bid with the highest bid of 7.115 BTC. According to a research report by Galaxy, the market size of Ordinals NFT will reach 4.5 billion US dollars by 2025, and the market infrastructure of Ordinals NFT will tend to be perfected by the second quarter of 2023. Developers will also continue to explore new decentralized software or Bitcoin scaling technologies.
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Figure 2. BTC Network Transaction Volume Category Percentage (Source: dune, @cryptokoryo)
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Figure 3. BRC-20 ordi deployment code (source: twitter, @domodata)
2.1 The price miracle of the Ordi token
Ordi is the first token issued under the BRC-20 standard, with a limit of 1,000 tokens per minting and a total of 21,000,000 tokens. Ordinal wallets such as Unisat quickly deployed tools for the BRC-20 standard, and all 21,000,000 ordi tokens were minted in less than 18 hours. The price of Ordi also rose from $0.1 to $29.04 in just three weeks, achieving a 100-fold increase.
2.2 The rapid expansion of the Ordinals trading market
The BRC-20 token mechanism has some complexity and requires additional steps for storage and transactions. Specifically, when users mint Ordinals, they need to run a full node; in addition, there is no automatic market maker on the chain on Bitcoin, and a secure secondary market transaction is required. The demand of users and the potential huge fee income have dramatically accelerated the emergence of the Ordinals trading market, and even ushered in fierce competition. These infrastructure and auxiliary tools mainly serve Ordinals NFT, BRC-20 tokens and BTC domain names.
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Figure 4. Comparison of the number of transactions in the BTC trading market (source: dune, @domo)
3. Carnival of multi-party support
BRC-20 tokens have more room for hype than BTC NFT. From the perspective of retail investors, exchanges, developers, and miners, this is a carnival of your choice.
Victory for BTC miners
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Figure 5. Proportion of bitcoin miners’ fee income (source: glassnode)
The addition of head ecology and institutions
Blue-chip Ethereum NFT projects such as Yuga Labs, Crypto Punks, and BAYC have joined the Bitcoin ecosystem and issued NFTs. NFT markets such as Magic Eden and several leading exchanges are also supporting the Ordinals ecosystem. For exchanges, they can have more asset management opportunities and fee income. In order to enter the BTC ecosystem early and build relationships with communities and developers, many exchanges are more willing to be the first to eat crabs than investment institutions.
Boost from the BSV community
According to observations, a large number of ecological applications of BRC-20 come from the original BSV community developers, including the BRC 20 wallet Unisat, which is the Chinese development team of the previous BSV ecology, and has developed Sensible Contract, a smart contract solution on BSV. BSV community members made fortunes again on the BRC-20 track. The explosion of BRC-20 also provides development opportunities for developers who focus on the POW chain.
4. Risks and opportunities
The current development of BRC-20 tokens is still in the early stage, with strong meme attributes and innovative concepts, and no actual use scenarios. Moreover, the BRC-20 standard is not as comprehensive and strict as the ERC token standard, which is not considered a standard for the substitutability of Bitcoin and ordinal numbers. As founder domo stated, this is just an experiment, and the bitcoin community is encouraged to tinker with standard design and optimizations until there is a general consensus on best practice performance. Afterwards, the ORC-20 and BRC-721 token standard protocols emerged one after another. These token standards have been improved in scalability, adaptability and security.
BRC-20 may be an interesting social experiment, but it has many flaws that cannot be ignored: (1) The ecological infrastructure of BRC-20 tokens is almost zero, and tokens are mostly meme attributes and have no use value; (2) ) The BTC ecology does not provide a liquid exchange, and cannot guarantee the security of token transactions; (3) Since BRC-20 introduces a more complex mechanism for asset management, additional tools or platforms are required, which leads to security and The platform is linked and vulnerable to malicious attacks, which violates the decentralization of BTC; (4) Regulatory risk, BTC is more like a commodity, but BRC-20 tokens may facilitate an unregistered securities market on the Bitcoin blockchain.
In addition, the FOMO sentiment triggered by BRC-20 tokens led to severe congestion on the Bitcoin network. On May 8, there was a rare phenomenon that no block was produced for 1 hour. At the same time, when Bitcoin service fee income continues to exceed block rewards, it may cause Time-Bandit Attacks. Miners will choose to process transactions with higher service fees and ignore transactions with lower service fees. Currently, there are more than 300,000 unconfirmed transactions on the BTC network. Many BTC supporters are dissatisfied with the ecology of Ordinals or BRC-20, and believe that this is an attack and damage to the BTC network.
4.1 Future ecological development of BTC
Any new attempt will cause controversy and bring new thinking. We can see more possibilities of BTC narrative through BRC-20, and prepare for the next wave of wealth encryption. As more and more developers pay attention to the ecological track of BTC, solutions to solve the congestion problem on the chain continue to emerge. I believe that the BTC ecology will gradually prosper.
Better Token Standards and Smart Contract Marketplaces
Today, some exchanges and wallets have joined the discussion of BTC-based alternative token standards. A data structure that replaces JSON is included to reduce block space consumption. The Ordinals protocol, or more, needs better tools for indexing and managing these tokens. All these require industry developers and leaders to participate in the discussion.
Attract more investors
At present, the launch of tokens such as BRC-20 is more fueled by the secondary market, and the interest of investment institutions to participate is not high at present. The main reason is that there are still too many controversies about the emergence of token standards such as BRC-20. However, the innovation brought by the Ordinals protocol is also a new attempt at the future ecological development of BTC. The renaissance of BTC will reshape investors stereotypes of BTC ecology.
The second layer of BTC may usher in the second spring
Under the prosperity of the second layer of Ethereum, BTCs second-tier network has also poured in many developers. The early well-known one is Lightning Network. The use cases of Lightning Network include social platform reward payment, cross-border remittance, merchant payment, transfer transactions, etc., can Meet the needs of diverse payment scenarios. It is also one of the best ways to solve the current network congestion. In addition to Liquid, RSK, and Stacks projects, the BTC ecosystem is still in its early stages.
References
1. https://domo-2.gitbook.io/BRC-20-experiment/
2. https://mythbtc.xyz/BRC-20-token-standard-bitcoin/
3. https://ordspace.org/brc 20
4.https://www.panewslab.com/zh_hk/articledetails/1tkh32vx.html
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Huobi Blockchain Application Research Institute (referred to as Huobi Research Institute) was established in April 2016. Since March 2018, it has been committed to comprehensively expanding research and exploration in various fields of blockchain, with a view to pan-blockchain As a research object, the research objectives are to accelerate the research and development of blockchain technology, promote the implementation of blockchain industry applications, and promote the ecological optimization of the blockchain industry. The main research contents include industry trends, technical paths, application innovations, Pattern Exploration, etc. In line with the principles of public welfare, rigor, and innovation, Huobi Research Institute will carry out extensive and in-depth cooperation with governments, enterprises, universities and other institutions through various forms, and build a research platform covering the complete industrial chain of the blockchain. Industry professionals provide a solid theoretical foundation and trend judgment to promote the healthy and sustainable development of the entire blockchain industry.
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