Bitcoin Is Evolving

Hey everyone,

Imagine, at the beginning of this year, I made a wild proclamation about a mini-memecoin rally led by none other than a frog-themed token. And then, for good measure, let’s say I added that Bitcoin, our dear old digital gold, was about to get an extreme makeover and become more useful.

You’d probably have told me to quit dreaming and return to reality, right?

Fast forward to today, and surprise, surprise, both prophecies have materialized.

The memecoin saga, with $PEPE leading the charge, was a veritable roller coaster ride. But today, we’re setting our sights on Bitcoin, specifically the intriguing developments shaking its traditional role.

So let’s get this show on the road. We’re about to dive head-first into the latest buzzwords that have been making waves in the Bitcoin universe, namely:

So, let’s get into it and see how these innovations are rewriting the rulebook for Bitcoin’s future.

Bitcoin Is Evolving

It all started with the Taproot upgrade, which went live in November 2021.

It was a game-changer for Bitcoin, bringing more privacy and efficiency to transactions and opening the door for smart contracts (i.e. DeFi and NFTs) on Bitcoin.

It was like Bitcoin went for a routine checkup and came out with a new set of superpowers.

Ordinals

Hot on the heels of Taproot’s launch came the Ordinals protocol, introduced in January 2023.

This clever bit of tech lets us assign numbers to satoshis, which are like the pennies of the Bitcoin world (there are 100 million of them in one bitcoin). The Ordinals protocol made each satoshi unique (which is the crux of creating an NFT) by allowing extra data to be attached to it, a process known as “inscription.” Think of it as writing a secret message on a grain of sand.

Then we have the Ordinals themselves. These are the numbered satoshis, complete with their inscriptions. They’ve opened up a whole new world of possibilities, including creating “NFTs” on Bitcoin.

Ordinals (essentially, Bitcoin NFTs) have surged in popularity this year.

Over 10 million Ordinals have already been inscribed, creating a rush of activity so potent that the Bitcoin network has been straining to keep up.

As a result, network congestion drastically slowed the mempool of pending transactions around mid-May, with over 400,000 transactions waiting in limbo for confirmation. The slowdown was so severe that certain Bitcoin users went as far as to label Ordinals as a DDOS-style attack on the network.

An Ordinals project, Taproot Wizards, has been pioneering the Bitcoin “NFT” landscape since it burst onto the scene in February 2023. With its wizard theme and historical relevance to the Bitcoin community, their unique Ordinals mark a disruptive digital artefact narrative shift.

While seemingly just another profile picture endeavour with over 2,000 distinct Ordinals, it carves a deeper narrative, honouring a piece of Bitcoin history, the Bitcoin Wizard, and fostering Bitcoin awareness.

Its avant-garde approach has not been without controversy, though, with its inaugural event generating a record 4MB Bitcoin block to mint the first Ordinal. As you can imagine, this was met with mixed reactions since a standard Bitcoin transaction uses ~0.003MB of memory.

However, the end goal is to reignite the creative and innovative spirit within the Bitcoin community, with a firm belief that progress is achieved through experimentation and learning from failures.

While the Taproot Wizard Ordinals project gives blockchain collectables a new feel, popular derivative NFT collections in the Ordinals marketplace have accumulated astronomical amounts of volume, highlighting the interest flooding into the space.

For example:

• Bitcoin Punks recently passed 36 BTC in total volume ($1 million+).

• Pixel Pepes, a generative NFT collection, was airdropped to users who had made at least one transaction on the Ordinals Wallet. The collection has a current floor price of 0.15 BTC (~$4,200), accumulating over 123 BTC in total trading volume ($3.4 million).

All of this shows some tangible proof that an opportunity (albeit a speculative one) lies within this emerging Bitcoin ecosystem.

BRC-20

The proliferation of Ordinals has brought us to the dawn of the BRC-20 era — with the underlying Ordinals technology enabling this new token standard to propagate.

• But what does that even mean?

• How does this new kid in the Bitcoin neighbourhood work, and why are people getting so excited about it?

The BRC-20 token standard, the brainchild of an elusive developer named Domo, is a new type of token standard strictly native to Bitcoin. Launched on March 9th, 2023, it’s turned heads as it doesn’t rely on smart contracts like other tokens on Ethereum. Instead, they use Ordinals and their inscriptions to link tokens with specific satoshis.

So now we have a way to create, mint, and move tokens around using a system that’s baked right into Bitcoin itself. And it’s been all the rage within the community.

Even though BRC-20 tokens are still in their experimental stage, they’ve got people’s attention. Folks on the Bitcoin bandwagon are all wired up because of them. We’re already seeing wallets and marketplaces getting in on the act, making room for creating and swapping these tokens.

One of the lovely things about BRC-20 tokens is how they shine a light on the magic of open-source communities. When developers come up with these whiz-bang ideas and throw them out there for everyone to play with, things can get pretty wild. It’s all about a gang of enthusiasts poking at the edges and seeing how far this crazy experiment can fly.

And you know what? Most of the time, this sort of open environment leads to some big-time breakthroughs that shake up the tech world.

But remember folks, this is the frontier.

New markets mean lots of shiny, glittery, “try me, try me!” tokens. So, as always, keep your eyes peeled for scams and take baby steps.

Semi-Fungible

Here’s the thing: even though BRC-20 tokens, like ERC-20 tokens on Ethereum, imply fungibility, that’s not the whole truth. They’re more like semi-fungible. You can only swap these tokens in specific increments instead of at any granular unit amount.

Wondering how that works in practice? Let’s break it down:

1. Cook up a JSON (JavaScript Object Notation) NFT that specifies the number of tokens you want to mint.

2. Get into a gas auction. Think of it as a footrace to see who gets to cross the finish line and complete the minting process.

But what if you want to trade these babies directly on Bitcoin? Well, that’s a bit more complicated. First, you’ll need to create a transfer NFT to slice up your original minted tokens into smaller pieces, making it easier to sell off chunks of the token.

And on the flip side, if you’re the buyer? It’s kinda like the old barter system. You’ll have to find a seller with precisely what you want in BRC-20 tokens.

Essentially, it’s old-school Peer-to-Peer (P2P) transfers with a hint of bartering.

The use cases for BRC-20 tokens are pretty narrow, as the functionality is still being hammered out. Currently, users can only mint, deploy, and transfer tokens.

However, Lightning Labs (a company building infrastructure for the Lightning Network) just launched Taproot Assets. This is a brand-spanking new way to create and use tokens on Bitcoin. Taproot Assets are like a high-speed train for Bitcoin transactions, hiding complex scripts behind simple public keys to create tokens that look like regular Bitcoin transactions. It’s a game-changer, especially with all the bottleneck issues and high fees we’ve seen with BRC-20 tokens.

Even the creator of the BRC-20 standard has tipped his hat to Taproot Assets as an “unequivocally” superior solution.

BRC-20 Infrastructure

Now, let’s talk about the early players in the BRC-20 infrastructure.

First, we’ve got the UniSat wallet. This primitive open-source browser extension lets users store and shuffle around their Ordinals and BRC-20 tokens. It’s straightforward in principle, linking your BRC-20 tokens and inscriptions to your private key, working like a regular hot wallet in the crypto world.

But unfortunately, the user-friendliness is just not there at the moment.

Then we’ve got the Ordinals wallet, a Bitcoin wallet that supposedly plays nice with, yes, you guessed it, Ordinals. It’s designed to make it a cinch for users to receive, store, and check out their Ordinals right from their wallets.

While it trumps UniSat for user-friendliness, the reality is a friction-filled experience where the user has to recover the wallet with their seed phrase every time they want to gain access.

Get in Early and Prosper?

User experience kinks aside, these fledgling markets bring a tonne of opportunities to the average investor. For example, just inscribing a .sats or .xbt username in your UniSat or Ordinals wallet could net you an airdrop that’d make ENS blush.

And did you hear? The team behind the Ordinals wallet is teasing a second airdrop after the first went off like a rocket.

Wallets and speculative airdrops aside, the rest of the BRC-20 token ecosystem looks interesting, to say the least. 

Brc-20.io shows that the total market cap of BRC-20 tokens is around $475 million with over $200 million in volume transacted over the last 24 hours.

The top BRC-20 token, ORDI, commands a ~$240 million market cap and has held more than 95% of the total BRC-20 transaction volume. However, ORDI itself, as a project, is a bit odd when looking into it. Per Gate.io, the token essentially describes itself as an inscription, which we’ve done above. So, there seems to be nothing fundamental to this token right now between functioning within a broader DeFi ecosystem and providing some utility to the user.

And this is a similar theme we’ve noticed throughout the other BRC-20 tokens on the market, hitting home the point that they’re in their infancy and their investment potential is still up in the air.

However, let’s not kid ourselves—they’re stirring up the Bitcoin ecosystem and have the potential to turn into something tangible, given the right team and project. Of course, only time will tell whether this token standard will become Bitcoin’s next wave of innovation.

Still, we’re seeing an added bonus for them in their current state — more liquidity in the Bitcoin market.

Our Experience

Playing around with BRC-20 tokens so far has been a mixed bag.

Sure, it’s an exciting space with loads of opportunity. However, the open-source nature and relative obscurity of the Ordinals and BRC-20 space right now contributes massively to a janky user experience. Wrapping your head around this will be challenging, especially if you’re new to the blockchain scene.

But as with any emerging market, things become more user-friendly as the wrinkles get ironed out. While the Ordinals Wallet is a big step towards making things simpler and more accessible, the BRC-20 ecosystem feels like the stone age mixed in with the worst part of The Wild West compared to the “luxury” of some Ethereum dApps.

It’s been a nostalgic learning curve dealing with P2P trading again and navigating complex and unintuitive user interfaces, like in the early days of crypto.

But hey, it’s an exciting space to play in. So why not dive in and see what you can find?

A Tale of Two Cities

From a cultural standpoint, the extraordinary rise of Ordinals and BRC-20 tokens this year has shaken the unity of the Bitcoin community to the core, effectively separating it into two factions.

On the one hand, we have the purists who feel Ordinals, as intriguing as they may be, put an undue burden on the Bitcoin network, straying from its quintessential purpose as a decentralized digital currency.

On the other hand, a burgeoning faction considers this to be a natural progression of Bitcoin — an exciting evolution that, despite causing current network congestion, reveals the immense potential for innovative use cases that will inevitably pull a more diverse crowd to use Bitcoin.

Nic Carter, Udi Wertheimer, and Eric Wall, the original Taproot Wizards, are the three renegades that are pushing Bitcoin to evolve. All of them are the torchbearers for the faction favouring Ordinals, who are reimagining the use cases for Bitcoin.

Carter, revered by many as a staunch Bitcoin advocate, surprisingly favours the inclusion of Ordinals, indicating a willingness to explore beyond Bitcoin’s primary function.

Wertheimer, a developer with a flair for the unconventional, underscored this by minting the gargantuan ‘Taproot Wizard’ NFT, declaring Bitcoin’s readiness for more than just monetary transactions.

While Wall, a pragmatic explorer, walks a fine line, understanding the purists’ concerns but still appreciating the potential of Ordinals.

A fascinating plot twist in this tale is the interest shown by Michael Saylor, who’s long been seen as the embodiment of Bitcoin purism, towards Ordinals.

His company Microstrategy (which, as of April 2023, owns 140,000 bitcoins valued at around $4 billion), is looking into the potential application development possibilities the Ordinals protocol could bring.

The fact that a figurehead like Saylor is open to exploring these innovations and is even considering how they could introduce a new level of security for businesses speaks volumes about the paradigm shift occurring within the Bitcoin community.

Despite the “silly reasons” Ordinals have been used for, Saylor advocates for non-censorship, emphasizing the core values of Bitcoin and the necessity for “rules without rulers”.

However, these challenges to the consensus aren’t without their controversy. Most of the Bitcoin community worries that the rising transaction fees due to Ordinals’ popularity could impact the accessibility and usability of Bitcoin for everyday transactions.

Yet, Saylor sees these challenges as just a part of the process.

is what he said recently at Bitcoin 2023 in Miami, suggesting that as applications are built on Bitcoin’s functionality, it could further bolster overall adoption.

The emergence of Ordinals has undeniably changed the cultural sentiment around Bitcoin, disrupting its identity from merely being a digital cash system to the possibility of becoming a platform hosting diverse applications. This evolving narrative, with Nic, Udi, and Eric as the main characters, highlights the multi-faceted nature of Bitcoin. It’s a city divided over its identity and future, a riveting tale of evolution, friction, and, potentially, synthesis.

As this debate unfolds, we stand to witness the fascinating journey of a technology that continues redefining itself and a market desperately seeking a new catalyst.

C’mon, do something…

Bitcoin is undeniably at a fascinating crossroads. It’s as if the crypto universe is holding its breath, waiting to see what’s next for the granddaddy of digital currencies. The BRC-20 tokens and Ordinals’ emergence are clear signs that Bitcoin is trying to evolve, change, and, dare we say, mature.

The world’s first cryptocurrency has surprised us, yet again, by showing potential for more than just being a store of value.

The new functionality introduced by Ordinals represents the potential for tangible use cases and unprecedented versatility. From our perspective as investors, we’re not just watching an experiment play out; we’re witnessing the possible genesis of a more fully-fledged smart contract platform akin to Ethereum, but built on the solid bedrock of Bitcoin’s security and decentralization.

If Bitcoin pulls this off, the talk of Ethereum overtaking Bitcoin - the so-called ‘flippening’ - may become a mere footnote in crypto history.

But it’s essential not to get caught up in the euphoria of the moment. As with all promising technologies, there are risks and challenges to navigate. The network congestion and elevated transaction fees plaguing Bitcoin’s ecosystem are significant concerns, especially from a usability perspective.

These challenges underscore the fundamental tension at the heart of Bitcoin’s identity:

Ordinals may even impair Bitcoin’s longevity as the former…

So, as we close this exploration of Bitcoin’s unfolding story, it’s worth contrasting the views of the purists and the pioneers.

While the purists may see Ordinals as straying from Bitcoin’s quintessential purpose, the pioneers are pushing Bitcoin’s boundaries, viewing this new direction as part of a broader, natural progression. To them, it’s not about choosing between a store of value or a platform for innovation; it’s about creating a harmonious blend of the two.

Personally, I like their thinking.

In the spirit of this evolution, it’s only fitting to end with a quote from Saylor himself:

How fitting.

As Bitcoin continues its journey of self-discovery, let’s remember to celebrate this transformative period in its 14-year-old life. It’s a testament to the innovative spirit at the heart of blockchain technology and a signal to us all that the future of Bitcoin is anything but written in stone.

Thanks for reading. Share this with a friend if you found it insightful.

— Luca