Since the BTC network does not support Turing’s complete smart contracts, since the birth of BTC, it has not been used in many scenarios other than point-to-point transfers and value storage for a long time.
On December 20, 2022, Casey Rodarmor created the new concepts of Bitcoin Ordinals and Inscriptions (ordinal numbers and inscriptions). Ordinals are a way to put NFT on the Bitcoin chain, which has driven the rapid rise of Bitcoin’s ecological activity.
On February 28, the NFT giant YUGA LABS entered BTC NFT and announced that it would use the Ordianals protocol to release a series of NFTs called TwelveFold, further promoting the popularity of the Bitcoin ecology to rise sharply again.
After BTC NFT received widespread attention, @domodata started an experiment for the issuance of homogeneous tokens on BTC based on the Ordinals protocol, called brc-20. In addition, BTC will usher in another halving in 2024. After the halving, the block reward will be 3.125, which also promotes the recent activity and development of the Bitcoin ecosystem.
1. An overview of Bitcoin ecosystem projects
Since the development of the BTC ecosystem, projects on the BTC L2-based chain have gradually increased and begun to prosper, but the ecology based on L1 is relatively insignificant. We sort out the Bitcoin native ecolosystem projects as follows:
We have sorted out the three mainstream Bitcoin ecological projects of Layer2 network, cross-chain assets, and BTC Ordinnals NFT as follows:
1.1 Layer 2 network
1) Lightning Network
The Lightning Network (also known as Lightning or LN) is a scalability solution built on the Bitcoin network for instant, large and small payments while reducing transaction fees and eliminating the risk of entrusting funds to third-party platforms. The Lightning Network was originally envisioned in a 2015 white paper by Joseph Poon and Tadge Dryja, its testnet was launched in May 2016, and the first real transaction occurred in December 2017. To put it simply, the core of the Lightning Network is to place the transaction link off-chain, and only the final transaction result is confirmed on the chain to improve the transaction efficiency of Bitcoin. According to 1ML statistics, as of May 9, 2023, the capacity of the Bitcoin Lightning Network (the number of BTC supported) has reached 5,386.17, worth 148 million US dollars. The number of Lightning Network nodes is 16,364 and the number of channels is 73,385.
The “impossible triangle” has always been the most difficult technical problem for the blockchain to solve, that is, decentralization, security and high performance cannot be taken into account at the same time. The success of Stacks is mainly due to the fact that it has found a balance between Bitcoin fundamentalism (the Bitcoin public chain is perfect enough and does not need to be expanded to increase speed) and expansionism. Stacks is an independent blockchain based on the Bitcoin blockchain, created in 2013 by Muneeb Ali and Ryan Shea. Using the “Proof of Transfer” (PoX) protocol, using the security of Bitcoin and Stacks tokens (STX) to implement smart contracts. In the early days, he focused on DApps development and combined with Bitcoin security to provide a decentralized experience.
The above is the cumulative transaction growth in Stacks. From February 1st to 21st, 2023, the Stacks network has processed 3.36 million transactions, which is a 223% increase from the previous month compared with 1.13 million transactions in the previous month; On March 9, a total of 3.8853 million transactions have been processed.
3) Rootstock (RSK)
The root chain (RootStock, RSK) is a smart contract peer-to-peer platform built on the Bitcoin blockchain and is a side chain of Bitcoin. It joins the new transfer speed certification and BTC smart contract system. The root chain processes 300 transactions per second, almost all transactions can be confirmed within 20 seconds, and RSK uses the same mining mechanism as BTC. When BTC is transferred to the root chain, it will become “Root Coin (RTC)”. Root coins are equivalent to Bitcoins living on the root chain, and they can be transferred back to the Bitcoin chain at any time without adding additional transaction fees . It is worth mentioning that all root coins are converted from BTC equivalents and used to pay transfer fees and contract processing fees to miners.
Liquid is an inter-exchange settlement network that connects cryptocurrency exchanges and institutions around the world, enabling faster bitcoin transactions and issuance of digital assets. The Liquid network is a blockchain for exchanges, brokers, and market makers to conduct fast, private bitcoin transactions with other members of the network. Through Liquid’s asset issuance feature, members can tokenize fiat currencies, securities, and even other cryptocurrencies. Liquid pegs and consensus are governed by a federation of functional institutions. The native token in the Liquid sidechain is LBTC.
1.2 Cross-chain assets
Wrapped Bitcoin (WBTC) is an ERC-20 token jointly initiated by Kyber, Ren and BitGo. It is the first ERC-20 token supported 1:1 with Bitcoin. It brings greater liquidity to the Ethereum ecosystem including decentralized exchanges (DEXs) and financial applications. Currently supports the three major functions of Receive, Mint and Burn. To receive WBTC, the user needs to request tokens from the merchant, and after the merchant performs KYC and other verification procedures, the user exchanges with the merchant. Coin minting is initiated by the merchant and executed by the custodian, and only the merchant can destroy it.
Since its issuance, the market value of WBTC has been as high as 16.02 billion US dollars, and the current market value is 4.485 billion US dollars. Its supply reached a maximum of 285,004 on May 13, 2022, and has gradually decreased since then. The current supply is 154,410.
Similar to WBTC, renBTC is a BTC 1:1 anchor currency issued by RenProtocol and circulated on the Ethereum network. As of May 8, its daily supply was 304.49, and the supply is rapidly decreasing. renBTC used to be one of the mainstream BTC cross-chain assets. Due to the impact of the Alameda thunderstorm (its development team announced to join Alameda in February 2021), the current market share of renBTC is less than 1%.
1.3 BTC Ordinnals NFT
1) Daily additions of BTC Ordinnals NFT
The Ordinal protocol assigns a serial number to each satoshi (bitcoin’s smallest unit: Satoshi), after which each satoshi can be engraved with data such as pictures, texts or videos through Bitcoin transactions. Since the issuance of Ordinnals, a total of 3.744 million NFTs have been issued. The generation of NFT was not obvious at the beginning of the launch. Affected by the release of Bitcoin Punks in mid-February, the number of NFT generation gradually increased. The peak period was mainly after late April, with an average daily generation of 365,700.
According to the daily new types of NFT, the text format (green icon) is the main one, accounting for 81.89% of the total. In the initial stage of Ordinnal’s launch, the image format (blue icon) was also one of the main force of BTC NFT, accounting for 17.46% of the total.
2) Casting of inscriptions
As of May 9, the total number of Ordinals inscriptions minted is 5.01 million. On May 7, 400,000 inscriptions were cast, setting a record for the highest single-day casting volume so far. The second-highest casting record in history occurred on May 1, and the single-day casting volume reached 372,800.
2. Data analysis on the BRC-20 chain
BRC-20 is an experimental Bitcoin network homogeneous token standard issued on the Bitcoin network that imitates ERC-20. It leverages JSON data inscribed on the Bitcoin network to deploy token contracts, mint tokens, and transfer tokens.
2.1 Data performance
According to ChainAegis on-chain monitoring statistics, as of May 10, BRC-20 has issued a total of 14,307 tokens, with a total market value of $843,125,123 and a transaction volume of $208,375,043 in the past 24 hours. The following is the BRC-20 Top10 list ranked by market capitalization:
$ordi is the first BRC-20 token issued, with a total of 21 million (a tribute to BTC), the current market value is 619 million US dollars, and the 24-hour trading volume is as high as 197 million, which is about the second-ranked PEPE 24-hour trading volume 318.86 times.
The above is the number of BRC-20 token transactions and related fees (covering minting, transfer and deployment fees). On May 7, the number of BRC-20 transactions reached a record high of 396,700, and the related fees (245.72 BTC) ranked second on the day. On May 9, the related fees reached 255.01 BTC, a record high.
The above is the income of BTC miners (block reward + handling fee). On May 8, the single-day BTC mining fee income hit a record high in the past five years, reaching 683.36 BTC, worth $19.1 million. As of May 10, the BTC miners’ income in May reached 10,685.85 BTC, worth 294 million US dollars. Only part of the income from mining fees has reached 2,260.85 BTC, worth 62.28 million US dollars.
2.2 Popular PEPE
PEPE is a meme coin that has received a lot of attention recently. It was launched secretly without pre-sale, zero tax, LP destruction and contract authority waiver. The initial supply is 420,690,000,000,000, of which 93.1% of tokens are sent to liquidity pools and 6.9% of tokens are held in wallets. PEPE is currently listed on Binance.
On April 15, PEPE officially started trading. The initial price was $0.000000001. As of May 8, the price of PEPE had risen to $0.00000251, an increase of 251 times. On May 6, the price of PEPE rose to $0.0000042, reaching the highest price in history, and its market value also rose to $1.825 billion. On May 8, the market value of PEPE fell back to US$1.06 billion, a drop of 41.92% from the highest market value.
On May 5, PEPE was launched on Binance. In just 3 days, Binance’s hot wallet address has become the largest address holding PEPE, accounting for 10.26% of the total tokens of PEPE, and OKX accounted for 6.56%. There are a total of 107,972 PEPE holders, and the proportion of holders is relatively scattered, with a small degree of concentration.
According to statistics, PEPE holds balances and hourly inflows and outflows on the five exchanges of Huobi, MEXC, OKX, Poioniex, and Gate.io. Combining the following three data, it can be seen that at the beginning of the launch, trading was dominated by the Huobi exchange, and then the trading volume of each exchange gradually increased. Starting from May 2, the PEPE held by OKX has gradually increased, and the holdings have surpassed the other four exchanges, and the inflow and outflow have also gradually increased. The inflow and outflow of Huobi and Poloniex gradually decreased.
There are a total of 166,115 addresses investing in PEPE, of which 125,231 addresses can obtain profits. Divide the investment range according to the figure below. It can be seen that the number of addresses with an investment amount of 100-1k is the largest, and the number of addresses that can obtain profits accounts for 73.47% of the total number of addresses. The addresses where the investment amount can obtain profits in the range of 0-100 account for the largest proportion.
Ranked according to ROI (return on investment: profit/total cost), the following 20 benefits of holding PEPE addresses are listed. Among them, PEPE’s official wallet address ranked first, with a profit of 47.53 million US dollars. The second-ranked address has 1.9T PEPE, with a profit of $5M.
3. Disputes and Risks
After the launch of Ordinals, the number of transactions on the BTC chain increased significantly. Since mid-April 2023, the number of on-chain transactions has surged, from 307,308 daily transactions to 602,792, which is 1.96 times that of the former. On May 8, the number of daily transactions reached 663,113, a record high in the past five years.
Combined with the BTC transaction volume, although the number of transactions has increased significantly, the overall transaction volume is not high. It can be seen that there are small BTC transactions on the chain, and more users may still be on the sidelines.
Ordinals and BRC-20 have been launched one after another, adding a touch of color to the Bitcoin ecosystem, but there are also many controversies and problems. At present, most BRC-20 tokens are essentially meme coins, which do not have much practical value, and there is a risk of excessive FOMO; on April 24, 2023, due to the loopholes in the code library of UniSat Wallet, UniSat Marketplace was attacked by a large number of Double-spending attack; on May 5, 2023, the Ordinals program also revealed that there was an inscription numbering vulnerability. The essence of finance is risk control, and users need to be vigilant at all times to avoid unnecessary losses.