Bitcoin Ordinals is completely written on the chain of Bitcoin, like a tattoo, and becomes part of Bitcoin.
Crops can only grow well on fertile land. Bitcoin has been operating successfully for 14 years and is now the 10th largest asset in the world by market capitalization, just behind Nvidia.
CGV argues that Bitcoin has changed many people, allowing us to view the world from a new perspective and making us think about “what is value?” Even if there are still people who doubt Bitcoin, it cannot hide the fact that Bitcoin has become a mature and widely recognized asset.
Top Assets by Market Cap Data source: Global ranking, https://companiesmarketcap.com/
While Bitcoin is changing us, it is undergoing evolution. The innovative projects based on Bitcoin, such as Bitcoin Layer 2 solution, Ordinals protocol, BRC-20, and Nostr protocol, spring up like mushrooms after rain. These innovations provide faster and more convenient trading solutions for Bitcoin, as well as greater potential and imagination for Bitcoin.
Some people may question these innovations, but doesn't Bitcoin thrive on skepticism? Let's put aside our stereotypes for a while and understand the new concepts centered on Bitcoin, which is also the original intention of this article. Let's repeat the first sentence of the opening paragraph, an investment philosophy worth thinking about: Crops can only grow well on fertile land.
Note: When it comes to innovations regarding Bitcoin, we are well aware that there is still much to be done. We warmly welcome your comments and suggestions, and sincerely invite you to join us in the discussion.
I. Ordinals protocol - The era of sats is approaching
As Ethereum is designed to support smart contracts and decentralized applications, it has a natural advantage in the NFT field. Based on Ethereum's ERC-721, developers can easily create, issue, and trade NFTs.
You may wonder, why does not Bitcoin, which has the strongest consensus, issue NFTs. The original intention of Bitcoin was to become a peer-to-peer digital currency. Therefore, its network focuses more on security, stability, and simplicity, which constrain its development of smart contracts and Dapps.
It doesn't mean the Bitcoin network can't support NFTs, or even issue “tokens”. It brings us to the point of discussion: Ordinals, a protocol created by Casey Rodarmor, a former developer of Bitcoin.
1. Origin of Ordinals: Bitcoin NFT
In January 2023, Casey Rodarmor, a core contributor to Bitcoin, released the Ordinals protocol. The emergence of the Ordinals protocol stimulated discussions over Bitcoin NFT. How does the Ordinals protocol make NFT possible on Bitcoin?
The total supply of Bitcoin is 21 million, and its smallest denomination is sats. 1 BTC is equal to 100 million sats.
The Ordinals protocol proposes an innovative design based on “sats”, which allows for embedding various information such as images, text, and videos (also known as inscriptions) in “sats”. The uploaded inscriptions are connected to specific “sats”, which is similar to the minting of Ethereum NFT. The ultimate product is a sats with inscriptions, also known as Bitcoin NFT.
Each sats has a unique tag and code, the corresponding content is also unique, transforming sats from a pricing unit to an NFT unit.
The number of Ordinals inscriptions has exceeded 1.6 million, data source: Dune Analytics
As of April 23, 2023, the number of Ordinals inscriptions had exceeded 1.6 million. It means that the NFTs in the Bitcoin ecosystem are unlikely to disappear.
What value does Ordinals NFT create?
Permanent on-chain. Bitcoin Ordinals NFT is completely written on the chain of Bitcoin, like a tattoo, forever becoming a part of Bitcoin. It makes sense to keep your favorite things permanently on the Bitcoin chain;
Never return to zero. Ordinals NFT will not return to zero, its base value is a sats;
Historical value. The total supply of Bitcoin is limited, and the total number of inscriptions that can be inscribed is also limited. Over time, early inscriptions become precious due to their historical status. In the NFT world, uniqueness and scarcity endow works with high value. The early NFT inscriptions of Bitcoin may become more and more precious.
Partial infrastructure of the Ordinals ecosystem, source: CGV
The Ordinals protocol was created three months ago. Currently, it has already spawned many ecological projects built around its infrastructure, including wallets, trading markets, and tools. Leading exchanges such as OKX and Binance have joined in supporting Ordinals Ecosystem.
Some interesting Ordinals NFTs
TwelveFold is a Bitcoin NFT project launched by Yuga Labs. It is a series of 300-piece generative art collections.
Bitcoin Punks is the first project to successfully upload the original Ethereum CryptoPunks to the Bitcoin blockchain using Ordinals, and all assets have been minted for free by collectors.
Why has Taprot Wizards received so much attention? It is said to be the largest block in Bitcoin's history, with a staggering capacity of 4MB, four times higher than the usual 1MB limit.
“Pepe the Frog” is one of the most viral memes on the Internet. Pixel Pepes was airdropped from Ordinals Wallet and is composed of some of the most active KOLs and eco-developers in the ecosystem.
2. Exploration of Ordinals: BRC-20
CGV holds that the composability of the digital world has brought many interesting experiments to the industry. Two months after the release of the Ordinals protocol, Twitter user @ domodata proposed a Token standard - BRC-20 - on the Ordinals protocol.
Mint and transfer functions of BRC-20, source: https://domo-2.gitbook.io/brc-20-experiment/
BRC-20 utilizes 𝗢𝗿𝗱𝗶𝗻𝗮𝗹 𝗶𝗻𝘀𝗰𝗿𝗶𝗽𝘁𝗶𝗼𝗻𝘀 of JSON to deploy token contracts, mint and transfer tokens. You can perceive BRC-20 as an NFT for Ordinals, which is similar to a check. BRC-20 does not have a smart contract.
“Ordi” is the first BRC-20 token deployed by @domodata, source: https://domo-2.gitbook.io/brc-20-experiment/
More than 30,000 𝗢𝗿𝗱𝗶𝗻𝗮𝗹 𝗶𝗻𝘀𝗰𝗿𝗶𝗽𝘁𝗶𝗼𝗻𝘀 were minted within 24 hours after the release of BRC-20. @domodata also deployed $ordi, the first token of BRC-20, with a total of 21 million. Everyone could mint it for free, and all $ordis were minted in less than 2 days.
Some of BRC-20 tokens, source: https://brc-20.io/
Although @ domodata has repeatedly stated that BRC-20 and $ordi are for experiments only and have no value, some people are trading $ordi and minting more BRC-20 tokens. There have been 3,466 BRC-20 tokens, with a total market value of nearly US$20 million.
The arrival of the era of pricing based on “sats”
Is it necessary to issue cryptocurrency on Bitcoin ordinals? BRC-20 does not have a smart contract, and the inscription can be used as a ledger. However, it is difficult to establish an efficient and stable system with an immutable ledger. Moreover, the 'writing' on the Bitcoin blockchain takes up very valuable resources. It requires paying some sats as gas fees and spending time waiting for transaction confirmation.
BRC-20 is created based on Ordinals, making it very fragile. As BRC-20 does not use Bitcoin UTXO, it is prone to problems in trading. Recently, after Unisat launched the BRC-20 trading marketplace, it was suspended due to related trading attacks.
BRC-20 is still in the experimental stage, why do some people participate in it? Apart from the speculative nature of FOMO, if you deploy and mint some tokens, you will find that the release of tokens via BRC-20 seems to have achieved the original idea of the encryption industry. That is to say, everyone can easily issue tokens, and the biggest value is that it's on Bitcoin. It occupies a portion of sats, and these BRC-20 tokens are like incarnations of Bitcoin, which gives them value.
Unisat's BRC-20 token trading market, source: Unisat
More importantly, in CGV's view, the era of pricing based on "sats" has arrived, with all Ordinals NFT trading platforms starting to use Bitcoin for pricing. After Unisat launched BRC-20 related tokens, these tokens are directly priced using sats. It can be seen that the era of pricing based on "sats" has arrived
Regardless of the success or failure of the Ordinals protocol and BRC-20, their emergence has opened up new possibilities for Bitcoin, making the Bitcoin ecosystem more diverse and vibrant. Most importantly, they have transformed sats, the smallest denomination of Bitcoin, from a concept to a practical unit.
II. Lightning network - Let sats flow
Bitcoin has been plagued by issues such as slow transaction speed, high transaction fees, and difficulty in scalability, constraining its performance and application scenarios.
How to solve these issues? Many developers are attempting to build so-called Layer 2 networks based on Bitcoin. The Layer 2 network is a technical solution built based on the Bitcoin mainnet (Layer 1). By running protocols or platforms on top of the basic layer, the Layer 2 network can fully utilize the security and decentralization characteristics of the Bitcoin mainnet while providing a more efficient trading experience.
There are many Layer 2 solutions, among which the lightning network and side chain (such as the liquid network) are the mainstream, and the former is widely used. Next, let's talk about the lightning network.
What is the lightning network?
Lightning network is one of the Layer 2 solutions. It is mainly used in Bitcoin payment scenarios, helping users save costs and improve efficiency.
Why could the lightning network complete peer-to-peer payments at a lower cost and faster speed? Because the lightning network places the transaction process off the chain, only the final transaction results are confirmed on the Bitcoin mainnet.
Advantages of the lightning network
-Smaller transactions are more convenient
Through the lightning network, users can use sats, the smallest denomination of Bitcoin, to make payments, satisfying the needs of daily sporadic consumption.
Bitcoin transaction fees, data source: https://bitinfocharts.com/comparison/bitcoin-transactionfees.html
-Reduce transaction costs
At present, the transaction fee for Bitcoin is approximately US$2. At the peak of the market in 2021, the fee exceeded US$60. With the lightning network, the fee is around 1 cent for US$100 transaction, which is quite cost-effective for daily small payments.
-Accelerate transaction processing speed
Currently, the Bitcoin network can process up to 7 transactions per second, and network congestion may cause the delay in transaction confirmation, affecting the user payment experience. Theoretically speaking, the lightning network can reach a processing speed of millions of transactions per second.
Development of the lightning network
As the technology of the lightning network gradually matures, the payment and social giants are driving its popularization. As of April 25, 2023, the lightning network has a total of 16,000 nodes and nearly 75,000 payment channels, with channel funds of approximately 5,379 Bitcoins (nearly US$152 million).
Real-Time Lightning Network Statistics, source: 1ML
Let's take a look at the current usage scenarios of the lightning network:
Social platform payments and tips
Many people use the lightning network because of the Nostr protocol and the Damus built on top of it. They support payments and tips via the lightning network.
In January 2023, digital payments platform Strike announced a partnership with Send Globally to enable remittances via the lightning network between users in the U.S. and the Philippines. With Send Globally, the US dollar can be converted into Bitcoin, which is sent via the lightning network to a third-party partner in the recipient's country, and then converted into local currency and directly transferred to the recipient's account.
Strike collaborated with Shopify, Blackhawk Network, and NCR to establish a Bitcoin payment system that allows merchants to quickly receive US dollars after clients make payments using cryptocurrency. At present, the merchants that support the payment system include McDonald's Corporation, CVS, Walgreens, Whole Foods, and Walmart.
The lightning network has been trying to realize the original intention of Bitcoin - to become a point-to-point electronic cash system. In addition to large transactions, sats in small transactions can flow very easily through the lightning network.
Although the lightning network faces many challenges on its way to popularity, as the technology matures and usage scenarios continue to enrich, it will definitely become a powerful assistant to Bitcoin.
CGV deems that whether you are a developer or a speculator, as long as you involve in Bitcoin, you promote the prosperity and development of Bitcoin and its community.
Whether it is the Ordinals protocol, BRC-20 experiment, or Layer 2 solution such as the lightning network, they have expanded the application range of the Bitcoin network, allowing for the use of “sats” and the pricing based on “sats”, thus reducing the psychological pressure and lowering the threshold for entry. There is nothing wrong with the open development and multifaceted attempts of the Bitcoin network. With the accumulation of wealth effect and the increase in the number of users, the competition among ecological products will gradually promote overall improvement.
At present, many projects centered on Bitcoin are still in a state of chaos, with varying levels of quality. The only thing you need to pay attention to is to protect your Bitcoin.
The information and materials presented herein are from public sources and the Company makes no warranty as to their accuracy or completeness. Any descriptions or projections of future conditions are forward-looking statements, any recommendations and opinions are for reference only and do not constitute investment advice or implication to anyone. The strategies that the Company may adopt may be the same, opposite, or unrelated to those that readers speculate based on this report.
About Cryptogram Venture (CGV): Cryptogram Venture (CGV) is a Japan-based, fully compliant crypto industry research and investment institution. With a business orientation of “research-driven investment,” it has participated in early investments in FTX, Republic, CasperLabs, AlchemyPay, The Graph, Bitkeep, Pocket, and Powerpool, as well as the Japanese government-regulated yen stablecoin JPYW. At the same time, CGV FoF is an LP for funds such as Huobi Venture, Rocktree Capital, and Kirin Fund. It has established Web3 hackathons and industry summits as brand events under its umbrella. From July to October 2022, it initiated Japan’s first Web3 Hackathon (TWSH), which received joint support from the Japanese Ministry of Education, Culture, Sports, Science and Technology, Keio University, SONY, SoftBank, and other institutions and experts. CGV has branches in Singapore, Canada, and Hong Kong.