Bitcoin is the world's first successful encrypted digital currency system since its birth in 2009. Its market value has reached an astonishing trillion-dollar level. Its unique peer-to-peer distributed network structure and decentralized consensus mechanism enable it to break free from the restrictions of traditional financial infrastructure and achieve cross-border payments and prevention of double spending.

In 2023, Bitcoin is no longer just a simple payment network. The emergence of inscriptions gives the Bitcoin ecosystem more possibilities. From supporting layer2 to various trading markets, games, DEXs to the metaverse, a new Bitcoin economy is taking shape.

This article aims to comprehensively analyze the Bitcoin ecosystem from the dimensions of technical theory, ecological protocols, and market ecology. It parses the principles and strengths and weaknesses of different ecological protocols. We will also analyze the development status and prospects of different ecological projects.

1. Ecological Protocols

Before introducing the ecological protocols, we will understand the basis for creating these protocols.

Ordinals Theory

Number each satoshi and assign them individual identities, allowing them to be tracked, transferred and given meaning. Ordinals theory gives collectible value to satoshis, allowing them to be collected as collectibles, and each satoshi can be inscribed with arbitrary content by users, forming inscriptions, as native digital artifacts of Bitcoin. Inscriptions can be as lasting, eternal, secure and decentralized as Bitcoin itself.

Protocols implemented based on Ordinals Theory include Ordinals, Runes, Atomicals, TTP, etc.

Bitmap Theory

Bitmap theory uses the data in Bitcoin blocks as the basis for generating a new virtual world. Each transaction input in the Bitcoin block is mapped to a block, and since the transaction input size of each transaction is different, the mapped block size is also different.

Protocols implemented based on Bitmap Theory include Bitmap and BRC-420.

1.1 Ordinals Protocol

The Ordinals protocol was proposed by Bitcoin Core contributor Casey Rodarmor in January 2023. This protocol allows users to engrave inscriptions on the Bitcoin blockchain. The Ordinals protocol assigns a specific ordinal to each satoshi (Sats) and can arrange these satoshis in a certain order, giving each satoshi uniqueness. Each unique satoshi also supports users to add specific information such as text, code, pictures, etc., thus becoming NFTs on the Bitcoin chain. This additional information is called the "inscription".

Since its launch, the Ordinals protocol has received widespread community attention. As of December, the total number of minted inscriptions reached 476 million.

BRC-20 Standard

Inspired by the Ordinals protocol, @domodata proposed the BRC-20 token standard in March 2023. @domodata believes that Ordinals can not only be used to issue non-fungible tokens (NFTs), but also to issue fungible tokens. The BRC-20 token standard allows users to write JSON-formatted data that conforms to a unified protocol standard as an inscription into the Bitcoin blockchain, which then becomes a fungible token BRC-20. Developers can complete the creation and distribution of BRC-20 tokens through deployment, minting, and transfer according to these three execution standards.

After @domodata created the BRC-20 token standard, he launched the first experimental BRC-20 token ORDI with a supply of 21 million. Users only need to pay gas fees to mint it. Subsequently, BRC-20 tokens sprang up like mushrooms.

The fair launch method and early FOMO sentiment drove BRC-20 to become the inscription-based protocol with the highest market value in the Bitcoin ecosystem. However, BRC-20 is still being criticized for some issues currently:

BRC-20 is restricted by the inherent constraints of the Bitcoin network, such as slow transaction speed, high transaction fees, lack of smart contract support, etc. In the past few months, network congestion on Bitcoin has become more severe due to the surge in BRC-20 tokens.
Most BRC-20s do not have actual capabilities and can only be regarded as memes.
Dependence on centralized servers to retrieve Bitcoin block data can lead to different query results for the balance of a particular token on different platforms, posing potential centralization risks like BRC-20.

1.2 Runes Inscription Ordinals Protocol

Following the emergence of the BRC-20 token standard, the founder of Ordinals Casey reaffirmed that BRC-20 brought in a lot of junk inscriptions and that the Bitcoin network also needed an efficient fungible token protocol. So in September 2023, Casey Rodarmor proposed the Runes Inscription Ordinals protocol. He believes that most FT protocols on the market today are very complex and difficult to provide good user experience. And "junk" UTXOs would occupy Bitcoin's space. He hopes to establish a simple, UTXO-based protocol that can provide Bitcoin users with a good experience for fungible tokens.

Rune balances are held by UTXOs, which can contain any number of runes. The protocol is as simple as possible, does not rely on off-chain data, and is highly suited to Bitcoin's native UTXO model, which can attract developers or users to adopt Bitcoin itself. Runes is still in the development stage, and its actual application remains to be tested.

1.3 Atomicals Protocol (ARC-20)

In September 2023, an anonymous developer proposed the Atomicals protocol to make up for the deficiencies of Ordinals. Atomicals can also achieve on-chain minting, transfer, and update of digital objects on Bitcoin blocks. Its digital objects include tokens, NFTs, digital identities and virtual land blocks. The ARC20 protocol standard defines 1 token = 1 Satoshi, and the minimum unit of tokens in the token information is satoshi, i.e. unlike BRC-20’s inscription minting in Bitcoin's segregated witness data. This can save indexer pressure by directly calculating the number of tokens through unused transaction outputs (UTXO). Atomicals reduces dependence on third-party indexers and hopes to create a centralized, tamper-proof and fair token distribution method on the Bitcoin network.

Atomicals adopts Bitwork proof of work. Bitwork simulates the proof of work mechanism of the Bitcoin network. Users need to mine using CPU/GPU during minting, which has higher technical barriers than BRC-20’s gas-based minting. ARC20 also provides direct minting mode to facilitate project parties to directly create a UTXO containing the total supply and mint all ARC20 tokens at one go.

Atomicals defines the NFT container Container digital object in the protocol, specifically set for NFT collections. The project party can cast the NFT into the container after minting, and continue to add content later. Realm in Atomical can function not only as a digital identity, but also accepts tokens, hosts websites and enables DAO governance. The first ARC-20 token on Atomicals is ATOM, with a total supply of 21 million, which was mined out within 5 hours.

Although Atomicals made some technical improvements based on Ordinals, its infrastructure is relatively less well-established. Atomical market and satsX have also caused users' ATOMs to be stolen due to their own problems. And some wallets have spent ATOMs like normal BTC because they don't support ARC20.

1.4 TTP (Trac-Tap-Pipe)

TTP contains 3 protocols: Trac, Tap and Pipe protocols. TTP is also designed to address the deficiencies of Ordinals mentioned earlier, reliance on centralized third-party indexers, lacking security and decentralization.

The TRAC protocol was deployed by developer Benny in May 2023. It serves as an oracle and decentralized indexer for Bitcoin inscriptions to solve issues such as data indexing, retrieval and pricing of inscription ecosystems. After getting data from external sources, Trac core feeds prices on-chain to lay the infrastructure for building DeFi in the future, further enhancing liquidity and trading efficiency of Ordinals and BRC-20 assets.

The Tap protocol was then deployed in August 2023. It is an extension of the Ordinals protocol that can seamlessly be compatible with BRC-20 to enhance liquidity and efficient trading of BRC-20 and Ordinals ecosystems. The establishment of Tap protocol enables features like swap, staking, liquidity pools and other defi functions. It also enables token distribution, bulk transfers, contract deployment, etc.

The PIPE protocol was then constructed by developer Benn in October 2023 based on the Runes concept. PIPE forked from Ordinals, also based on the UTXO architecture. It solves the blockchain congestion caused by Ordinals, simplifies transfer flows, eliminates double transactions, and can introduce advanced features of digital Art and NFTs into Bitcoin.

The above three protocols form the Trac systems architecture. The TRAC protocol provides decentralized indexer and oracle services. Through the Tap protocol, the liquidity of BRC-20 and NFT assets is released and NFT and DeFi features are introduced. Finally, through the PIPE protocol, the transaction experience of fungible tokens is improved.

Source: https://medium.com/trac-systems/trac-ecosystem-ff99787585d4

1.5 Bitmap Protocol

The Bitmap protocol was proposed by @blockamoto in June 2023. Bitmap is an open source standard built on top of ordinal theory and bitmap theory. It allows anyone to certify ownership of Bitcoin blocks by engraving block numbers on Satoshis in a fair and decentralized process. By mapping these unique blocks into different 3D spaces through indexers, a metaverse and land system can be built on Bitcoin. Each block has different block numbers, transaction amounts and transaction data, so each land parcel is differently rare. The larger the blocks, the higher the rarity. Some blocks also have scarcity determined by specific dates, such as Satoshi Nakamoto's mined blocks and the pizza transaction block.

Source: Ordinals Wallet

BRC-420 Protocol

BRC-420 is an asset protocol based on Bitmap, created by the Recursiverse team. Through recursive inscriptions that define more complex asset formats such as games, animations, effects, game modules in the metaverse, more than 200 teams have currently issued assets and games on this protocol. BRC-420 also adds royalty functionality that can direct all revenue directly to creators to facilitate the creator economy, on-chain copyright and metaverse economy on the Bitcoin network.

The team is actively participating in building the Bitcoin ecosystem, having launched the on-chain social platform BBS based on the Ordinals network, built the Bitmap.game resource manager, and is trying out Bitcoin’s Layer2.

1.6 BitVM

BitVM was proposed by Robin Linus, founder of ZeroSync project, in October 2023. He believes BitVM can enable Turing-complete Bitcoin contracts on Bitcoin blockchains that can perform almost any computation and use that computation to execute Bitcoin transactions on-chain. By combining rollups, BitVM can speed up transactions on the Bitcoin network and reduce congestion.

Read more: BitVM: The Potential of Smart Contracts on the Bitcoin Mainnet

1.7 Bitstream

In November 2023, Robin Linus published BitStream, a decentralized file hosting incentive protocol. Bitstream allows servers to charge by download count, proposing an incentive system similar to traditional data hosting for decentralized file hosting instead of relying on cryptographic replication. Bitstream is still at the theoretical stage and its actual application remains to be seen.

1.8 Layer2/Sidechains

Lightning Network

The Lightning Network was introduced in 2016. The Lightning Network consists of a network of point-to-point state channels that accelerate transfers on the Bitcoin network. By constructing state channels point-to-point, the transfer speed of the Bitcoin network can be accelerated. Simply put, this state channel can be imagined as a prepaid card that you get when you go out for a meal. When consuming, you can make direct transfers from the card, and your friends can also use this prepaid card to consume. When everyone establishes point-to-point state channels, a ubiquitous Bitcoin P2P transfer network is formed, which can greatly improve the transaction transfer speed of the Bitcoin network.

The security of the Lightning Network comes from Bitcoin, while transactions use smart contracts to achieve instant off-chain settlement. However, the Lightning Network relies on nodes. If nodes are offline or under attack, the state channel cannot be used.

Read more: Analysis of replacement cycle attacks on the Lightning Network

Taproot Assets

Taproot is a protocol released by Lightning labs. It achieves asset recording by writing various information into the UTXO script of the Bitcoin network. Taproot can also be used to issue tokens, NFTs and other assets. Integrated with the Lightning Network, Taproot can expand the distribution and circulation channels of assets.

Compared with BRC-20 and ARC-20, tokens need to be minted first and then distributed when issued via Taproot. And users must run their own full Bitcoin node and Taproot assets client, relying on third-party indexers, with potential centralization risks like BRC-20.

Nostr Assets

Nostr Assets brings Taproot assets and Satoshis into the Nostr ecosystem, allowing users to send and receive them using Nostr's public and private keys at the Nostr protocol layer. Settlement and security of assets rely on the Lightning Network. The Nostr asset protocol itself does not issue assets, it just introduces assets into Nostr through the protocol. So assets like BRC-20 can be introduced into Nostr, improving transaction speed. Nostr also gives project parties certain rights, allowing them to reserve some token rewards. This can strengthen liquidity and asset management, achieving the same effect as deploying contracts on ERC20.

RootStock (RSK)

RootStock (RSK) is a sidechain of the Bitcoin blockchain. It supports the Ethereum Virtual Machine (EVM) and leverages Bitcoin network security through merge mining. In RSK, the native token RBTC is pegged 1:1 to BTC and used to pay fees for executing Ethereum smart contracts. All ERC20 tokens on Ethereum can also be seamlessly ported over to the RSK network.

RGB

Launched in 2016, RGB is a client validation system for state and smart contracts on Bitcoin’s layer2 and layer3. RGB is not a token protocol. It is compatible with the Lightning Network, zero knowledge proofs and rollups, and can use smart contracts. It enables issuance and management of highly scalable, programmable and private assets of different types.

The RGB protocol is quite messy, with high development difficulty. No mature RGB protocol-based projects exist at the moment.

Read more: A Brief Analysis of RGB: A Scalable, Confidential Smart Contract Protocol Built on Bitcoin

Stacks

Released in 2021, Stacks is a Bitcoin layer2 that can share security with Bitcoin and settle transactions on the Bitcoin chain, while unlocking Bitcoin’s ability to develop smart contracts and dapps. Based on the Stacks layer, EVM-compatible smart contracts and dapps can be built, using BTC as settlement asset and settling on the Bitcoin blockchain. Users can also directly atomic swap from the Bitcoin chain.

Stacks currently has 58 ecosystem projects deployed, covering DAO, DeFi, NFT and Social aspects.

Summary

The above introduces many protocols and layer2 solutions for the Bitcoin network. We should think about whether Bitcoin really needs so many protocols. In theory, Bitcoin as digital gold does not need complex protocols to enrich functionality, just like gold does not have many "capabilities" but its value remains unchanged. Bitcoin itself does not exist for the purpose of having a prosperous ecosystem. It just needs to be simple, secure, willing to sacrifice speed, and not Turing complete.

However, with the growing demand, or the influence of new narratives and FOMO emotions, the prosperity of the Bitcoin ecosystem was created. The richness of ecological protocols helps Bitcoin to truly become part of the infrastructure for the future digital economy. It provides room for valuation preservation on Bitcoin's public chain, and also brings new application scenarios.

It is undeniable that Bitcoin's ecological protocols are still in an early experimental stage. These protocols are still undergoing functional improvements through practice. Whether they can be widely adopted depends on the recognition from various parties. They need to conform to both Bitcoin's design philosophy and benefit users and developers.

2.Bitcoin Ecosystem Projects

Below introduces Bitcoin's ecological projects. Although these projects are still in early stages of development, it can be seen that they have shifted from MEMEs to ecological empowerment.

2.1 DeFi

DEX: Orders.exchange (RDEX)

Orders.exchange is the first DEX on the Bitcoin network, and also the first exchange with PSBT (partially signed Bitcoin transactions). Order.exchange also supports the Nostr protocol to promote interoperability between DEXs.

PSBT refers to a standard format designed to simplify processing of unconfirmed Bitcoin transactions. Confirmations on the Bitcoin network take about 60 minutes, which cannot provide instant confirmation user experience for transactions. So PSBT is introduced. PSBT can provide off-chain security mechanisms for asset exchanges. When a user places an order, the created PSBT is in a semi-finished state, and only gets confirmed on-chain after the user's requirements are met.

Currently, liquidity on Orders.exchange is still poor. Liquidity mining pools with rewards in platform tokens $RDEX have been opened to attract liquidity. The team is also actively exploring appropriate layer2 solutions to address issues of high costs and low speeds.

DEX: SatSat (STST)

STST was initially regarded as a meme coin when minted, but later pivoted to become a trading platform based on Bitcoin layer2 BRC-20 to empower $STST. SatSat is built on the MAP relay chain and requires MAPO as gas fees, which can greatly reduce transaction fees and waiting times.

SatSat is currently under community-organized development and is at a very early product stage. It currently supports BRC-20 swaps as well as cross-chaining BRC-20 assets to the MAP protocol.

Cross-chain Bridge: MultBit（MUBI）

MultBit is the first cross-chain bridge in the Bitcoin ecosystem that can link BRC-20 and Erc-20. Its principle is also based on mapping, mapping BRC-20 assets to the EVM network. The BRC-20 assets to be transferred will be sent to a locked address, then minted on the Erc-20 network. This solution has the same centralization risks as Ethereum's cross-chain bridge solutions.

Source: Multbit

Stablecoin: BitStable（BSSB）

The MakerDAO on the Bitcoin network provides a unique framework for the creation, trading and management of synthetic assets. It enhances the liquidity of assets on the Bitcoin chain through a dual token system and cross-chain compatible structure. BitStable issues a stablecoin DAII based on the Bitcoin network. Users can obtain DAII by collateralizing BRC-20 assets and use DAII for mining, lending, etc. BSSB is the governance token of the platform. Stakeholders use it to maintain the system and manage DAII. Holding BSSB can obtain platform revenue sharing, voting rights, and some early acceleration rights.

The project has enabled overcollateralization. As of December 14, 2023, 10.14 million DAIIs have been generated with an APR of 313%. Currently supports collateralization of USDT, ORDI, and MUBI. In addition to DeFi mining, social features have also been added where users can chat in real-time.

Source: Bitstable

Liquidity Protocol: Dova Liquidity Protocol

Dova provides staking and lending for BRC-20 tokens. By integrating the Multibit bridge, Dova allows users to transfer BRC-20 tokens to the Ethereum network and use the transferred BRC-20 tokens for collateralized lending. By cross-chaining to Ethereum or other EVM chains, more services and products can be provided.

Dova is still in the early development stage, security and feasibility are yet to be verified.

Most native Bitcoin DeFi projects adopt cross-chaining to Ethereum instead of the Bitcoin blockchain for interoperability. Due to restrictions of the Bitcoin network, it is impossible to run automated smart contract programs as flexible as Ethereum. Cross-chaining also compromises Bitcoin’s native properties and security.

2.2 Launchpad

Bounce Brand（AUCTION）

Bounce Brand is a decentralized auction platform. Users can participate in various auction activities provided by the platform using the AUCTION token. After the emergence of Bitcoin inscriptions and BRC-20 tokens, Bounce Brand shifted its focus to the Bitcoin ecosystem for decentralized auctions of BRC-20 tokens.

Bounce brand products include Bounce Bit (Bitcoin-based application chain), Bounce Box (explore BTC DeFi), Bounce Auction (stake AUCTION to obtain token issuance quotas).

Bounce Brand is one of the more mature applications in the current Bitcoin ecosystem, gaining decent attention based on previous product iterations and timely pivot towards the Bitcoin ecosystem.

TurtSat（TURT）

TurtSat is Gitcoin on Bitcoin, a donation protocol based on Ordinals. Users can make donations to provide support for open source Ordinals projects and earn returns from early project development. Project parties can apply for initial funding through Turtsat and increase their influence.

TurtSat’s public donation protocol is also based on the PSBT protocol, which can reduce gas fees and transaction wait times for users. With one gas fee, multiple mints can be performed simultaneously, reducing congestion on the Bitcoin network.

TurtSat has issued 6 projects, donated a total of 26.135 BTC, with a total of 4511 addresses participating. The projects launched including MUBI, NHUB, DOVA have yielded good returns.

Source: Turtsat2.3. Games

BTC Pixel War

Bitcoin Pixel War uses recursive inscriptions to create the first full-chain Bitcoin game. Users can grab pixel points to render drawings on the canvas, similar to street-style graffiti culture, presenting constantly changing "artworks".

Source: https://btcpixelwar.io/#?x=0&y=0&s=1

Recursive inscriptions is a new concept that emerged in June 2023. Through recursive inscriptions, more complex asset categories can be achieved on the Bitcoin network. For example, there are many NFTs on the Bitcoin network. Every upload incurs gas fees. Recursive inscriptions create something like a directory for all these NFTs. If someone later needs to upload a similar image, they no longer upload the entire image, just the directory of the existing image instead. This reduces the cost and wait time of uploading an image to just uploading a few characters.

Pixel War generates a brand new inscription on every submit to record the latest state. Only the recursive part needs to be indexed to form a new inscription. This helps optimize on-chaining of in-game assets.

Users need to purchase pixel points to draw. The more pixels needed, the more expensive it is. After submitting pixel points, $BPIX token rewards can be obtained. A Bitcoin NFT of the current screenshot can also be obtained after submission.

Ordz Games

Launched in March 2023, Ordz games are similar to web2 mini games such as Tank War, Spaceship, Flappy Bird, Pacman, etc. Ordz games run on the inscription browser. Just open the browser to start playing.

Users can choose to buy NFTs to mint games. Ordinary users can choose any one NFT to play games and obtain a certain amount of game points by passing levels. More game points can be obtained by passing more levels. Game points can be exchanged for $OG tokens. NFT holders can obtain an extra 20% points.

Each season, the project party will optimize different gameplay. The current new season requires holding an Ordz Hero and staking OG tokens in games. The Winner takes all staked tokens.

2.4 Metaverse

Various ecosystem projects have attempted development based on the Bitmap protocol:

Bitmap.land: Bitmap.land is the first Bitcoin metaverse project that allows anyone to digitize the geographical space of Bitcoin blocks in the form of "block height.bitmap" to declare digital real estate sovereignty. Each digital collectible is a unique NFT with unique metadata and ownership information. The platform can parse these block data into 3D environments and grant building rights to block owners to build the Bitcoin metaverse.

As shown, this is the bitmap of block #822078. It contains blocks of varying sizes representing transactions in the block. The larger the blocks, the higher the transaction amount.

Source: https://mscribe.io/

Xspectar: Bitmap users can own land in this project, freely build buildings, publish ads, and sell land.

Bitmap Planet: While Earth rotates, virtual bitmap satellites revolve around it. Lands and bitmaps are bound based on the sequence which allocated satellites pass through lands (line connecting land center and satellite). Each bitmap corresponds to one land. For example, the #1000000th land will own the South Pole while the first bitmap of block #0 will own the North Pole. Some special lands with different returns from ordinary lands will also be generated.

Once all lands open, lands from blocks #0-1000 will open to activate the metaverse.

2.5 SocialFi

OrdiBot

A Telegram bot for the Bitcoin ecosystem, still at a relatively early stage. Allows creating BRC-20 wallets, querying BRC-20 tokens via Telegram bot, and cross-chaining BRC-20 tokens to Ethereum.

Summary

The Bitcoin ecosystem has attracted many Ethereum developers. Shadows of Ethereum ecosystem projects can be observed in the current Bitcoin ecosystem.

Many projects attempt to introduce Bitcoin assets into the Ethereum ecosystem for better DeFi utility. However, Bitcoin DeFi projects are not optimally designed. Many merely replicate Ethereum's overplayed cards on Bitcoin, lacking innovation while compromising Bitcoin's decentralization and native properties. Building DeFi on Bitcoin may not be an optimal choice since Ethereum DeFi already satisfies most needs with far superior user experience than the Bitcoin blockchain can provide.

Pixel War represents a commendable attempt at full-chain Bitcoin gaming by showcasing how recursive inscriptions can create more complex in-game assets such as assigning status changes to roles and props. Future full-chain games also need to address interaction smoothness on Bitcoin and incorporate more competitive mechanisms to increase fun.

The Bitcoin metaverse powered by the Bitmap protocol also provides some room for imagination. Unlike metaverses on Ethereum like Decentraland and Sandbox where land scarcity and traits are defined by the project party, Bitmap's land distribution process is fairer, requiring gas fees to claim block ownership in a decentralized manner. However, with many mature metaverse solutions on Ethereum already, building on Bitcoin can easily replicate them and requires community consensus.

Conclusion

Over the past decade, Bitcoin has always been regarded as digital gold for "value storage" while being criticized for slow transactions and high fees. Despite ongoing efforts around Layer2 solutions like Lightning Network and sidechains, none has made huge waves in the Bitcoin ecosystem until the advent of Ordinals. It enlightens that perhaps inscriptions or NFTs can be used to build the Bitcoin ecosystem.

The Bitcoin ecosystem may still have a long way to go. As covered in the ecosystem projects, due to infrastructure constraints, user experience and ecosystem development suffer greatly, making it difficult to build native DeFi projects. However, Bitcoin full-chain games and metaverse can serve as gateways to the Bitcoin ecosystem. Designs based on recursive inscriptions will be more aligned with Bitcoin's design philosophy.

Overall, Ordinals provides the key for Bitcoin to unlock the door to new worlds. Its impact can be more profound than any scaling solution. It transforms Bitcoin from a singular payment network into infrastructure supporting rich application scenarios, providing more room for imagination around Bitcoin's status in the digital economy.

Continued prosperity of applications around concepts like NFT and metaverse can be expected, forming a digital world atop Bitcoin, helping attract younger users, improving brand awareness, and offering entirely new imagination space. The Bitcoin ecosystem will also gradually expand from a singular "digital gold" to a extensive platform servicing the physical economy.

The above does not constitute investment advice. Please note investment risks.

References:

https://medium.com/@Piperazzis/trac-ecosystem-piperazzis-insight-into-bitcoins-next-big-leap-7b04f2460583

https://medium.com/trac-systems/trac-ecosystem-ff99787585d4

A Complete Guide to the Bitcoin Ecosystem