On this day, October 31, 2023, marking the 15th anniversary of the publication of the Bitcoin White Paper, “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto, it’s pertinent to re-examine Bitcoin and its evolution over these years. To many, Bitcoin appears to have remained static, serving primarily as digital gold, a store of value. However, the true Bitcoin ecosystem is far more dynamic. This milestone anniversary provides an opportune moment to delve into the major upgrades and innovative directions that have shaped Bitcoin’s journey.
Many people held the belief prior to 2023 that Bitcoin should primarily serve as digital gold, focusing on its role as a store of value. Proposals to issue assets on the Bitcoin blockchain or to develop applications within the Bitcoin ecosystem seemed far-fetched, not to mention the notion of BTC Layer2.
“Bitcoin should stick to being digital gold. Let Ethereum handle smart contracts and decentralized applications.” This was a common sentiment.
However, the rise of Ordinals in early 2023, alongside protocols like BRC20 for issuing BTC assets, demonstrated that asset issuance on Bitcoin is not only feasible but also a reality. This development raises a crucial question: Is it possible to build decentralized applications on Bitcoin?
Looking back at Ethereum’s early years (2014–2019), its primary function was asset issuance. It wasn’t until the DeFi summer of 2020 that decentralized applications gained widespread recognition. DeFi opened our eyes to Ethereum’s capabilities beyond asset issuance.
With protocols like Ordinals enabling asset issuance on Bitcoin, it’s worth considering whether Bitcoin could follow Ethereum’s footsteps in application development. Could Bitcoin’s ecosystem harbor further innovations, bringing new growth and vitality to this 15-year-old technology?
In revisiting Bitcoin’s history, exploring its major upgrades and transformations, let’s uncover potential innovations and examine whether they could usher in a new era of development for the Bitcoin ecosystem.
In its initial stage, Bitcoin was primarily circulated among cryptography enthusiasts and a niche internet community. Other than some minor tweaks by Satoshi Nakamoto himself, there were no major changes during this period.
Following a surge in value in 2013, Bitcoin garnered substantial attention, leading to a growing community and the emergence of Bitcoin ecosystem developers. This exploratory phase uncovered certain limitations of the Bitcoin blockchain, such as its small block size and inability to store extensive data, as well as its lack of support for smart contracts, which are crucial for complex decentralized applications. Vitalik Buterin, originally a part of the Bitcoin community, identified these issues and, after unsuccessful attempts to address them within the community, opted to create Ethereum. As the Ethereum ecosystem developed, a prevailing belief took hold: Bitcoin was best suited as digital gold, while smart contracts were Ethereum’s domain.
However, subtle changes were taking place within the Bitcoin ecosystem.
During this period, Bitcoin underwent two significant upgrades that we will examine in detail.
The First Major Upgrade: Segregated Witness (SegWit) in 2017
SegWit introduced a separate block field for storing “witness” data, expanding BTC’s storage capacity to 4MB. This space is sufficient for various transaction data types, including text and images. This upgrade laid the technical foundation for the emergence of protocols like Ordinals, making asset issuance on Bitcoin possible. Many BRC20 data are directly stored on the BTC blockchain thanks to the SegWit upgrade. The core significance of this upgrade is that it enhanced Bitcoin’s scalability, providing the “space” needed for potential future developments.
The Second Major Upgrade: Taproot in 2021
The most crucial component brought about by the Taproot upgrade was the Schnorr signature.
The Schnorr signature introduced the Musig2 multisignature aggregation signature technology. This feature’s primary importance lies in its ability to facilitate decentralized multisignature management on BTC, potentially extending to 1000 signatories. This paves the way for native decentralized cross-chain transactions and asset management. For instance, BTC could be transferred to a BTC Layer2 in a decentralized manner, making the construction of various decentralized applications on BTC Layer2 a reality. (It’s worth noting that the Schnorr signature is a cryptographic signature algorithm more suitable for Bitcoin than the Elliptic Curve Digital Signature Algorithm (ECDSA). However, it was not open-sourced when Nakamoto created Bitcoin. It was only officially introduced to BTC in 2021, marking a new chapter in BTC applications.)
These two major upgrades on Bitcoin reveal a clear trajectory. The BTC core developers are actively working on a series of technical iterations to enhance the ecosystem’s scalability, laying the groundwork for subsequent innovations within the BTC ecosystem.
Returning to our initial question: Is Bitcoin’s sole purpose to serve as digital gold? Is application development within the BTC ecosystem really out of reach? Are members of the BTC community resistant to innovation, clinging tightly to BTC and nothing else? The historical evolution and technical iteration direction of BTC prove otherwise. The BTC ecosystem is continually evolving, the community is accumulating innovative strength, and significant changes are quietly taking place within BTC.
To better understand the changes happening in the BTC ecosystem, it’s necessary to examine a series of innovative projects that have been and are currently underway in the BTC ecosystem. For ease of understanding, we have categorized these projects as follows:
Now, let’s briefly discuss the specific projects in these four categories and their pros and cons:
BTC side chains are blockchains that are linked to the BTC network but operate independently, with their own consensus mechanisms. They support the deployment of various complex smart contracts and Dapps. However, the issue with side chains is that they do not share the security of the BTC blockchain, resulting in higher trust costs and difficulties in adoption. This is a significant reason why ecosystems such as RSK, Stacks, and Liquid Network have not been very prominent.
Ordinals:
The essence of issuing assets based on Ordinals is to write the basic rules of token issuance into a JSON data packet, including parameters like Mint and Transfer. The BTC blockchain only serves as a backup for data memorization, without participating in the validation and confirmation of assets. Ordinals have sparked a trend in issuing BRC20 tokens, showing the market that issuing tokens based on BTC is possible. However, due to limitations in the Ordinals protocol itself, most BRC20 tokens remain at the level of meme token speculation and cannot expand into more complex on-chain application scenarios.
Taproot Assets:
Taproot Assets is a more complex and native BTC on-chain asset issuance protocol compared to Ordinals. The essence of issuing assets with Taproot Assets is to “program” operation codes in the Script, which can set more complex parameters, such as the owner’s address for token issuance (similar to a token smart contract address, but here it can be set as a BTC multi-signature address for management), and the ability to direct the issuance and destruction of assets. Moreover, Taproot Assets will integrate with the Lightning Network, providing broader payment and circulation scenarios for assets issued based on Taproot Assets. However, implementing Taproot Assets is relatively complex and costly since it operates on the BTC blockchain. Despite resolving issues related to more decentralized asset issuance and programmability, the challenges of building on-chain applications to circulate these tokens and enhance their value remain for Taproot Assets and other BTC asset issuance protocols like Ordinals.
Understanding Ordinals and Taproot Assets makes it easier to comprehend BitVM. If Ordinals and Taproot Assets involve simple editing within BTC’s Script, BitVM involves stacking these simple edits. It writes different instructions based on the operation codes in the Script and organically combines these instructions into a Tree, creating a “Turing complete smart contract.” However, the cost of running this “smart contract” would be extremely high. BitVM is currently in the white paper stage, and its implementation appears to be highly challenging and costly.
RGB:
RGB is a bit more complex to understand. In summary, it is an off-chain smart contract platform based on BTC. The core of understanding RGB is grasping the essence of BTC’s UTXO. RGB innovatively uses the technical features of UTXO, conducting calculations off-chain and writing only the hash values of each transaction onto the BTC blockchain. This approach ensures efficiency off-chain while leveraging the security of the BTC blockchain for the assets. Asset issuance, transfers, and transactions based on the RGB protocol all occur off-chain, with only the final state confirmation recorded on the BTC blockchain. The challenge for RGB lies in ensuring real-time anchoring between off-chain actions and the BTC blockchain.
In terms of ecosystem expansion, RGB also faces challenges: What kind of applications would choose to use RGB? Given its dependency on UTXO, RGB is inherently limited by UTXO, making it unsuitable for more complex application scenarios. For instance, stablecoins, which have relatively straightforward application scenarios, are well-suited for RGB, but more complex on-chain games might not be deployable on RGB.
Lightning Network:
The Lightning Network is one of the most well-known BTC Layer 2 solutions, primarily aiming to facilitate faster and cheaper BTC payments. However, it doesn’t offer much in terms of other application scenarios; for example, the Lightning Network cannot support the deployment of smart contracts and DApps. Nonetheless, it has continuously strived towards making BTC a peer-to-peer digital cash system, constantly expanding BTC’s applications in the payment domain, which stands as its most significant contribution to BTC.
BEVM:
BEVM is a BTC Layer 2 compatible with EVM (Ethereum Virtual Machine), utilizing BTC as the native GAS. BEVM is built upon the Taproot upgrade, which introduced the Musig2 aggregated multisignature algorithm. This algorithm allows for the multisignature management of BTC by up to 1000 nodes, which can also act as BTC light nodes. Thus, BTC can be decentralized across the BEVM network, a BTC Layer 2, with communication facilitated through BTC light nodes. Since BEVM is compatible with EVM, any decentralized application that can be implemented on EVM, such as DeFi, SocialFi, and GameFi, can run seamlessly on BEVM. Unlike ETH Layer 2, which relies on the ETH network for asset security and uses ETH for GAS, BEVM relies on the BTC network for asset security while utilizing BTC for GAS.
BEVM utilizes BTC’s native Musig2 signature algorithm and BTC light nodes to jointly implement a decentralized BTC Layer 2, additionally offering compatibility with EVM. This makes it easier to inject a wider range of applications into the BTC ecosystem, as scenarios already verified on EVM can be replicated on BEVM at a low cost, without the need for user reeducation. This could potentially lead to wider adoption of this BTC Layer 2 direction.
In summary, these are the four major innovative directions in the Bitcoin ecosystem in recent years. It’s evident that the Bitcoin ecosystem is continuously exploring more possibilities and progressing towards a richer ecosystem.
In 2013, Satoshi Nakamoto once stated on the Bitcointalk forum: “In 30 years, BTC will either disappear or become the settlement layer of the global financial system.”
Half of those 30 years have already passed, and in the past 15 years, we have indeed witnessed BTC evolving in that direction. Whether it’s past Bitcoin side chains, Bitcoin smart contract platforms, or the recent surge in Bitcoin asset issuance protocols and BTC Layer 2 solutions, the explorations of countless innovators are propelling Bitcoin step by step towards this ultimate goal.
On the 15th anniversary of the Bitcoin whitepaper, we have collectively reviewed the development history of Bitcoin, focusing on the SegWit and Taproot upgrades in BTC’s history. These two major upgrades have opened new avenues for innovative development in the BTC ecosystem, providing native technical support. The continuous emergence of innovative projects in the BTC ecosystem also validates our belief: BTC is not just digital gold. Significant changes are quietly taking place in the BTC ecosystem.
Years later, in May 2023, Vitalik Buterin stated: “The recent developments in the Bitcoin ecosystem represent a kind of technological innovation, as well as a shift in the cultural and developmental paradigms of the Bitcoin community.” He also suggested, “Bitcoin should develop its Layer 2 network to address Bitcoin’s scalability issues and enhance the capabilities of the Bitcoin base layer.”
Bitcoin has indeed undergone significant changes, and it is time for us to reassess and recognize Bitcoin anew.
Website: https://www.bevm.io/
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