Bitcoin is a complex technology stack: history, current state, and future

Bitcoin is a complex system with a rich past, present, and future.

Original Author: Lao Bai

Source: Twitter

This post was supposed to be about derivatives, NFT, and NFTFI trends, but given the recent popularity of the BTC ecosystem, I’ve also looked at a few primary market BTC projects. So, I’ll first talk about the technical stack and trends that are currently full of contradictions and debates in BTC.

1. History

To understand BRC 20, Ordinal, and other things, you need to have a general understanding of their technical history. Here’s a brief introduction in layman’s terms.

Initially, Satoshi Nakamoto invented Bitcoin as a peer-to-peer cash system. Later, on the forum, he himself said that in the future, Bitcoin could carry more things, such as escrow transactions, bonded contracts, third-party arbitration, etc., once it became more developed.

However, it was later discovered that BTC’s performance was too poor, and its price fluctuations were too high, making it impossible to implement a peer-to-peer cash system. So it gradually moved towards the current “digital gold” route, burying Nakamoto’s original intentions and ideas, and paving the way for the subsequent expansion disputes and the events of the BCH and BSV forks.

There is an OP_Return script opcode in Bitcoin that can hold 80 bytes of miscellaneous stuff. So someone came up with the idea of Colored Coin in 2012, using Op_Return to mark some things, allowing Bitcoin to transform from homogeneity to non-homogeneity. However, it was difficult to implement due to BTC’s performance issues.

Later in 2013, there was MasterCoin (later OmniLayer, where USDT based on BTC was issued), and in 2014, there was CounterBlockingrty, both of which used Op_Return to do things.

The outcome is predictable, they were all failures (even USDT is no longer used on BTC). One of the co-authors of Colored Coin in 2014, who was ignored by Vitalik Buterin when he suggested an upgrade to BTC, created ETH in a fit of anger.

Later, due to the scaling problem, countless disputes arose. The most famous of these is undoubtedly BCH and BSV, both of which followed the big block route. BCH was to gradually increase in size, from 1M to 8M, then to 32M, and so on, while BSV was more extreme, starting at several hundred M or even 1G.

Meanwhile, BTC is quietly making use of Segwit segregated witness technology, which separates signature verification and transactions, turning the 1MB total data into 1MB of transaction data +3MB of witness data, effectively “slightly expanding” it. Note that segregated witness is important! Because later Ordinal, BRC20 and other things are derived from this.

二、Issues and Current Situation

In addition to direct block expansion, BTC’s own technology stack also has many ways, but it is far less popular than ETH. After all, supporting smart contracts and not supporting them are not on the same level of technical complexity and feasibility. However, there is indeed a problem, that is, what happens to BTC’s security after there is no block reward in a hundred years (it will be very rare after more than ten years). Is it possible to convert to POS inflation? How to stimulate enough on-chain TX is a problem.

The current exploration directions are overall:

1. Pure sidechain-Liquid Network, this is a consortium chain created by BlockSteam, which is about 10 times the performance of BTC, mainly for large-scale Bitcoin transfers and transaction settlements of institutions.

2. State channel-Lightning Network, no need to explain it, insiders all know it, it is also the most popular technology stack of BTC at present, designed for fast payment of small or even micro payments, Walmart, McDonald’s and other supporting it, but the data over the years is really general, with only 5,000 BTC locked inside and about 70,000 channels.

3. Indirect sidechain-RSK and Stacks, RSK is EVM compatible, and uses the mechanism of joint mining with Bitcoin to generate blocks. Stacks is not EVM compatible, and has developed a set of Clarity language. It uses a POX transmission proof to generate blocks. Neither of them really inherits BTC’s security or hash power. They just look a bit similar, and have nothing to do with ETH L2.

4. Client verification-RGB and Taro are relatively new paradigms, which bind off-chain assets issuance with on-chain UTXO, but transaction verification and data storage are on the client. When you verify, you only need to verify the UTXO related to your off-chain assets with the client software, without checking the whole network like traditional blockchain to achieve consensus. It’s new, but it’s developing slowly, and it’s been overtaken by Ordinal.

5. Ordinal (including NFT, BRC20, etc.) – This is actually stuffing things into the Segwit 3M witness data. Previously, OP_Return could only hold 80 bytes, but with Segwit, we can now hold 3M. Segwit originally had restrictions on the amount of data that could be placed in the witness data of a single transaction, but the Taproot upgrade at the end of 2021 removed all restrictions. As a result, we are now able to see small BTC NFTs and BRC20s with 3M images and so on.

III. Debate and Future

The debate surrounding Ordinal is intense, with not only ETH and BTC supporters arguing, but also those within the BTC community. On the one hand, Ordinal does stimulate on-chain TXs and at one point increased transaction fee revenue from 2% to 74%, making Bitcoin expensive and congested, which is good news for miners. On the other hand, many Bitcoin supporters feel that the Bitcoin network is filled with small images or useless “inscription garbage,” which is not what BTC should look like.

So the focus of the debate is actually quite simple – how should this 3M data space be used? What is the most meaningful thing to put in it?

There are currently several ways to use it, but from a technical point of view, they all have their logical flaws (speculative value aside).

1. NFT – BTC NFTs are primarily pure on-chain, while many NFTs on ETH only store a link to Arweave or IPFS on-chain. But when you think about it, is that small image really that important on ETH or BTC chain? At least for the past two years, no one really cares about that in ETH. Is a small image really more valuable in this 3M segregated witness space than on AR or IPFS? That’s a bit of a stretch.

2. BRC20/ORC20/SRC20/BRCXXX – BRC20 has many restrictions and inconveniences, so everyone has come up with ORC20, which has more powerful and flexible functions, and there are BRCXXXs waiting in the wings… but the more functional XRCs are, the more they resemble ERCs, so why bother? Anyway, even if BTC is tinkered with, it is not possible to be more user-friendly than ETH and other smart contract-based public chains.

3. DA – This is what Celestia Rollkit is doing. DA layer technology can be placed in that 3M space, but the problem is that you don’t have any advantages in terms of speed or capacity. ETH will soon upgrade to Cancun, and then every 12 seconds there will be a block, holding 1M data (when the fully upgraded Danksharding is available in two years, it can hold 16M), 5M per minute, and 50M per 10 minutes. BTC is 10 minutes per block and only 3M, and it also has to compete with BRC and other space-consuming tokens, which are small and expensive.

Basically, no matter what you put in, ETH can do it better. As mentioned earlier, there is a difference in the dimension of smart contracts. Even if you insist that BTC is more OG or safer than ETH, it is not impossible, but the question is whether you really need to raise the security level from ETH to BTC? Besides, after ETH transitions to POS, it is debatable whether it is safer than BTC…

Finally, let’s talk about some new BTC applications that have been seen in primary and secondary markets.

1. Timestamp Server – This is being done by Babylon in the Cosmos ecosystem, using BTC as a timestamp server to help POS chains prevent long-range attacks, which is “borrowing” Bitcoin’s security to serve some POS chains. However, this is only strengthening, not completely replacing the POS’s own validation and consensus mechanisms.

2. DA – As mentioned above, no further explanation is needed.

3. EVM Compatibility / Equivalence – In fact, RSK is also EVM compatible, but it hasn’t been done much. Some new projects are exploring this direction in the primary market, using BTC staking as a node to achieve EVM equivalence in a similar way to ETH, and Fork OP to implement “BTC-based Optimistic Rollup” through some form of BVM.

4. Zk+BTC – This is being done by ZeroSync, with a bias towards Public Good style. By using ZK-STARK to generate ZK proofs for the Bitcoin network, the latest state of the blockchain can be verified in real-time, without spending several hours or even days synchronizing all BTC historical data. Currently, proof of block headers and transaction data can be done, and proof of signature information is still under development.

In short, the BTC ecosystem is a particularly confusing one. On the one hand, if something new comes out, it can indeed be hyped up, after all, it is the blockchain pioneer. On the other hand, many things cannot withstand technical scrutiny and the test of time. It’s a bit like the earliest Ford cars. Later, others had turbochargers, hybrid systems, and pure electric technology, while you could only increase the displacement by adding a cylinder. You really couldn’t keep up.

However, decades later, the security and computing power of BTC are indeed a real concern, and it is really necessary to find a direction quickly to make use of this 3M witnessing space to stimulate the generation of on-chain transactions. The most ideal thing is something that is native to BTC, that other ecosystems don’t have, or that is most suitable for BTC to do, but logically, it seems that ETH can do it no matter what direction, and do it better. It’s confusing…