Playing with inscriptions, isn't Arweave as appealing as BTC?
Playing with NFTs, isn't Arweave as appealing as BTC?
Recently, from BRC20 to ORC20, from "The Wizard" to "Pepe the Frog", the memes of the Bitcoin ecosystem have captured people's attention, causing the market to completely FOMO. At the same time, in addition to the Ordinals protocol, the forgotten Bitcoin NFT protocol RGB, and various Bitcoin L2 projects have become new hot topics. There are also new projects entering the game, hoping to participate in building the Bitcoin ecosystem and get a share of the pie from the new narrative.
What is the technical essence of Bitcoin inscriptions? Is it to engrave on the "Satoshi"? What is Bitcoin L2? Can an ecosystem be built on Bitcoin? Let's dig into it.
What are Bitcoin "Inscriptions"?
Bitcoin is a decentralised ledger that records every transaction that occurs within it. When submitting a transaction, in addition to the basic transaction metadata, the Bitcoin network allows for a custom string of characters to be included, which can be thought of as a transaction memo. This transaction memo field was originally primarily in the "op_return" field and, after the Taproot upgrade, can also be in the transaction witness field. Regardless of where it is stored, this part is stored as part of the transaction on the Bitcoin blockchain.
So, what about inscribing on a "satoshi"? In fact, the Ordinals protocol was originally used to issue NFTs. When minting an Ordinal NFT, you will receive 1 satoshi, and the transaction of this 1 satoshi will inscribe the metadata of the NFT, binding it to the NFT. If you are willing to pay a higher cost, you can also inscribe the complete data of the NFT, and the witness field can support inscribing up to 4MB of content.
However, please note that the Bitcoin network does not recognise the binding relationship between Ordinals NFT and Satoshi. When you transfer this one Satoshi to someone else, the Bitcoin network does not differentiate between this special Satoshi with an NFT binding or a regular Satoshi. This means that you may inadvertently pay with this special Satoshi while making a transaction.
As is well known, Bitcoin's ledger is based on the UTXO model, which simulates the accounting of physical cash. Each person's account holds not Bitcoins but individual UTXOs, like piles of paper money. When you need to pay someone, if you have multiple bills in your account, you can choose which one to use (select UTXO). You can use one bill to pay for a transaction, or combine multiple bills to pay for it. If the amount you need to pay is less than the minimum amount of cash you have, you can also split the bill in half, charging one to the other party and one to yourself (this is called "change" in the UTXO model).
Most Bitcoin wallets do not prominently display the option to select UTXO when making payments, but instead hide it in advanced settings. The wallet will automatically select which or how many UTXOs to use for payment based on a random set of rules it has defined.
To avoid accidentally paying with a special Satoshi like it is a regular Satoshi, "client validation" is required. If the wallet supports the Ordinals protocol, it will avoid using the special Satoshi during payments. If you want to transfer this special Satoshi, the wallet will also prompt you that you are transferring an NFT. That is to say, wallet clients that support the Ordinals protocol are responsible for maintaining and identifying the binding relationship between NFTs and special Satoshis.
The RGB protocol is similar to the Ordinals NFT protocol in theory, both of which rely on client validation to verify the binding relationship between NFTs and Satoshis. Essentially, this is an off-chain consensus mechanism.
Is BRC20 Token Inscribed on "Satoshi"?
Both Ordinals NFT and BRC20 tokens are essentially inscribed in Bitcoin transactions, not on "Satoshi." The difference is that Ordinals NFT establishes a binding relationship between the NFT and Satoshi, while BRC20 tokens do not have a binding relationship with Satoshi. BRC20 tokens are deployed, minted, and transferred through inscription. Specifically, this is achieved by writing state transition data in JSON format in Bitcoin transactions. See the following diagram:
Anyone can inscribe on the Bitcoin chain, and it is not necessary to use a specific client. If someone minted already previously minted BRC20 tokens through inscription or transferred BRC20 tokens they do not own, those mint or transfer transactions are invalid. However, the Bitcoin chain itself does not process this code nor verify the validity of BRC20 token mints or transfers.
The task of verifying the validity of inscriptions is completed by wallet clients or browsers that support the Ordinals protocol.
One way to understand this is that the Ordinals protocol actually treats the Bitcoin protocol as a hard drive and records its own ledger on the Bitcoin chain, but the interpretation rules for the ledger are local and not on the Bitcoin chain. Alternatively, we can understand this through the modular blockchain idea: the Bitcoin chain is only the data accessibility layer for BRC20 tokens, the Ordinals protocol is the true consensus layer, and this logic is similar to Celestia's concept of "Sovereign Rollup."
The difference between BRC20 and Ordinals NFT is that the transfer of Ordinals NFT is not achieved through inscription, it does not require a transfer function, and the transfer of a specific Satoshi is equivalent to transferring the corresponding NFT; this structure naturally supports the Lightning Network. BRC20 tokens are not bound to Satoshi and use inscription to record transaction information, requiring specific compatibility development to support the Lightning Network.
Are "Inscription" Tokens Secure?
Both Ordinals NFT and BRC20 tokens share a ledger on Bitcoin but their consensus rules are off-chain. Therefore, "inscription"-style tokens do not completely share the security of Bitcoin.
As a data accessibility layer, the Bitcoin chain does not validate inscriptions. Both valid and invalid inscriptions can be submitted to the Bitcoin chain, and the Bitcoin chain itself is not capable of distinguishing whether an inscription is valid or not. Therefore, although the Ordinals protocol ledger is stored on Bitcoin, what is stored is a "dirty ledger". All valid data is stored on it, but not all data stored is valid. Filtering this "dirty ledger" is accomplished through "client validation".
The "filtering rules", or the "interpretation rules" for the validity of on-chain data, are the essence of the Ordinals protocol. Only when this set of rules defined by the Ordinals protocol has strong social consensus, can "Inscription" tokens be considered secure.
Can an Ecosystem be Built on Bitcoin?
At present, the Ordinals protocol can only be used to issue tokens, but if Ordinals expands its inscription system, that is, if the system's rule complexity is made sufficient, it could be used for DeFi. Ordinals can make the rule complexity extreme, even to the point of being Turing complete, and can achieve any contract logic.
But I do not think this is the Bitcoin ecosystem! This is only the Ordinals ecosystem. If other inscription systems, such as RGB, also implement such a rule set, it would be the RGB ecosystem, not the Bitcoin ecosystem. The RGB and Ordinals ecosystems do not interconnect, nor can they rely on Bitcoin to provide interoperability. This is like having a contract on Ethereum that cannot access or call another contract.
What is Bitcoin L2?
First, we need to define what L2 is. L2 refers to a chain whose security is dependent on another L1 chain. Bitcoin L2 is a chain that relies on the security of Bitcoin, or in other words, Bitcoin L2 is a chain that shares security with Bitcoin.
If we use this standard, Rootstock, Liquid, and Stack are not Bitcoin L2s, they can only be considered as Bitcoin sidechains. Stack claims that it will implement security sharing with Bitcoin in the next version update, but the specific plan has not been disclosed.
Currently, various fancy proposals that claim to be Bitcoin L2s, mostly raised by sidechain projects, cannot share security with Bitcoin, including:
Writing block headers on the Bitcoin chain (similar to the Plasma scheme that Ethereum has phased out)
Using Bitcoin as a network staking token
Electing block producers on the Bitcoin chain
Syncing block production with the Bitcoin chain
Incentivising Bitcoin miners to be validators for the L2 network.
Invalid Behaviour
There is a way to share security with Bitcoin. We can imagine a scenario where the Ordinals protocol not only stores ledger data through engravings on the Bitcoin chain, but also puts the entire definition data validity rules of the Ordinals protocol (i.e. the source code of the Ordinals protocol) on the Bitcoin chain.
In this case, though "client validation" is still required for the validation of a series of operations, anyone can run a clean ledger and obtain a consistent state transition record and final state by following the "rules" and dirty ledger written on the chain.
This form is not a new idea, but rather a storage consensus paradigm proposed by Arweave called SCP, which is suitable for building heavy applications with high performance requirements but low interoperability requirements. After years of accumulation, Arweave has over 100 SCP applications on its platform.
Building SCP applications based on Bitcoin is technically feasible but economically constrained. Only relatively simple applications can be built because frequent engravings on Bitcoin are prohibitively expensive.
Conclusion
After all, I do not want to completely deny the efforts to build various services on Bitcoin. I understand the dissatisfaction of PoW supporters with Ethereum upgrades, and I also understand the need for Bitcoin miners to increase their income expectations under the halving. The Bitcoin network can of course create some meme tokens and collectibles through engravings, but the story should stop there and we should not waste time on reproducing the Ethereum ecosystem on Bitcoin (whether through engravings or L2), because this cannot create any new value for Web3 as a whole.
In essence, building an ecosystem on Bitcoin is like doing something that Ethereum can already do in a lame and more expensive way. Nothing new can be born in the Bitcoin ecosystem. I do not deny the price miracles and wealth fairy tales that may continue to revolve around the concept of the "Bitcoin ecosystem", but as a long-termist, I am more concerned about creating practical value, expanding Web3 usage scenarios, and creating new narratives to make Web out of the circle.
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Translator: chatGPT @ Contributor of PermaDAO Reviewer: Xiaosong HU @ Contributor of PermaDAO
Author: MiddleX
