Waiting to be fed and eager for diversity, the BTC ecology behind the "inscription" game

Authors: Mu Mu, Weilin

Editor: Wendao

"It is not necessary to eliminate all the inscriptions to benefit the BTC. In the early morning of December 7, Luke Dashjr seemed to leave some space for the inscription to survive when replying to netizens.

On December 6, the core developer of Bitcoin Core bombarded the recently exploded BTC inscriptions on X, arguing that the inscriptions that encode and burn data for the smallest unit of BTC, “Sat”, are “using the Bitcoin Core vulnerability to send spam to the blockchain network” and are a “scam” that will affect the adoption of BTC and indirectly damage the value of BTC.

Bitcoin Core is the software system of the BTC network, and Luke said in a follow-up reply to netizens that the vulnerability will be fixed before the V27 version next year, which means that the inscription will no longer exist in the BTC network.

Luke’s speech and reply immediately caused an uproar. First of all, the price of the hottest token in the inscription market ORDI fluctuated sharply, once falling from around $60 to $40.

The debate over whether Bitcoin Core should and whether it has the power to eradicate the inscription has not only led to the confrontation between BTC miners and core developers, but has even raised concerns about BTC hard forks, and the memories of the “2017 fork incident” have attacked many old people in the cryptocurrency circle.

You must know that the encoding of Sats and the issuance of crypto assets on the BTC network by BRC-20 due to the Ordinals protocol have created a trillion-dollar market since the beginning of the year, with tens of millions of inscriptions circulating in it, hundreds of thousands of people holding them, and a huge amount of fee income for the miner community due to the congestion of the BTC network.

Naturally, the participants in the inscription and some miners stood together to oppose the hasty fixing of the “so-called vulnerability” by the Bitcoin Core represented by Luke.

The controversy subsided with Luke’s remarks in the early hours of December 7, and more solutions to the inscription quickly popped up. BTC inscription is out of the circle again with this “game drama”, behind which there is a BTC ecology that is waiting to be fed and longing for diversity.

“Spam” theory cites the life and death crisis of the inscription

On the morning of December 6, during the period when the price of ORDI rose and fell, the bombardment of Luke Dashjr began.

"Inions are exploiting a vulnerability in the BTC core client, Bitcoin Core, to spam the blockchain. Since 2013, Bitcoin Core has allowed users to set an additional data size limit (‘-datacarriersize’) when forwarding or mining transactions. The inscription bypasses this restriction by disguising its data as program code. ”

This statement by Luke, the core developer of Bitcoin Core, on X quickly attracted the attention of the Web3 world, saying that although the vulnerability was fixed in the recent Knots v25.1, it was not complete, and he hoped to finally fix the vulnerability before next year’s v27 release.

In response, a user asked him: If the “vulnerability” is fixed, the Ordinals and BRC-20 tokens will no longer exist? Luke replied “yes”, and added, “The inscription should not exist, it was a ‘scam’ from the beginning.” ”

In fact, the “inscriptions” that should not exist in Luke’s mouth have actually appeared for almost a year, and now they have brought a trillion dollar market value of inscription tokens to the hype market, with tens of millions of inscriptions with chronological numbers and metadata for entering text/picture/audio/video information, which are recorded on the Sat (satoshi) BTC the smallest divisible unit, and are packaged into the BTC blockchain network.

There are not millions of users who hold these inscription tokens, but hundreds of thousands. Not to mention, the inscriptions also bring huge benefits to the BTC miners who pack them.

Now, why is such a thing being opposed by BTC core developers?

In fact, in May of this year, the BTC network congestion and soaring fees caused by the inscription sparked the attention of the developer community.

On May 7, an email on the BTC developer mailing list titled “Should we, as developers, reject non-standard Taproot transactions from full nodes?” sparked a discussion.

Taproot was implemented on November 14, 2021 as part of the BTC network upgrade, with the goal of changing the way BTC scripts run to improve privacy, scalability, and security, and even improve the ability of BTC networks to handle smart contracts.

Developer’s email against BRC-20 in May of this year

According to Sender Ali Sherief, a side project like BRC-20 is “worthless,” as its creators put it, and threatens the normal use of the BTC network as a “peer-to-peer digital currency payment system,” causing network congestion and rising transaction fees.

Ali asked if action should be taken to patch the vulnerability in BIP 342, where the Tapoot script is defined, or if all non-standard Taproot transactions should be forcibly reviewed and removed at the node level.

Under the email, Michael Folkson, the organizer of the London BTC Dev Meetup group, replied that BTC should keep the status quo because “the consensus rules are in place and the rest is left to the market,” Michael noted, “You may not like this use case, but let’s say you start playing whack-a-mole, how can you stop a group of people from declaring their opposition to your use case within a year?”

The inscription on the bombardment of the BRC-20, Luke Dashjr, said at the time that “action should have been taken months ago,” he said, “and spam filtering has been a core standard component of BTC from day one.” ”

In fact, in February of this year, Luke created a patch filter called “Ordisrespector” that detects and rejects Ordinals inscription transactions, which he considers spam. But judging by the fact that the inscriptions are flooding the market now, this patch has not worked.

As Ali mentioned in the subject email, if this non-standard Taproot transaction is resolved, it will inevitably affect the interests of the miner community in the BTC community. This time, Luke’s public “crusade” against the inscription was the first to stand up to the opinion leaders of the miners’ circle.

"BTC it’s not a ETH shop, and it doesn’t matter what the developer said. Shenyu, the co-founder of Yuchi, the third largest mining pool operator in the BTC, took the lead after Luke’s speech.

The confrontation between developers and miners quickly led to new concerns about whether the BTC network would have another hard fork due to different consensus.

Last time, the consensus battle between the two parties over the BTC block size lasted for two years from 2015, and finally ended in August 2017 with a miner-led hard fork, giving birth to the Bitcoin Hash chain, which insisted on large blocks, and diverted many BTC miners for a while.

Miners will more or less maintain the inscription market for profit reasons, while other proponents of the inscription argue that if Bitcoin Core adopts Luke’s approach and removes the inscription from the BTC network, it is a direct violation of the BTC’s “censorship-resistant” and “decentralized”, and it is also equivalent to denying the last consensus-based Taproot upgrade.

The debate over the life and death of the inscriptions continued for a day, and on December 7, some users were still asking, “Is it possible for a miner to process inscription transactions on the blockchain as long as that miner does not opt out?” Luke, who sparked the “war”, said, “We don’t have to eliminate all the inscriptions to benefit the BTC.” ”

Such an expression finally put the controversy to a halt for the time being. So, is there a better way for inscriptions to exist on the BTC network?

The proliferation of inscriptions has caused congestion on the BTC network

The concept of “inscriptions” arose from the Ordinals protocol, created by developer Casey Rodarmor, which was born at the beginning of this year. In March, another developer, Domo, created the BRC-20 Inscription (Bitcoin Inion) gameplay based on this protocol.

In simple terms, Ordinals is a protocol that can engrave data on the smallest unit of BTC divisible “sats” (note: 1 BTC equals 100 million satoshims, so 1 Sat = 0.00000001 BTC). The developer did an experiment in which he tracked every 1 SAT of the BTC and numbered them in chronological order.

According to the technical rules of the BTC network, these numbered Sats are also allowed to write some data with capacity limitations.

So, there are protocols, there are rules, and a netizen named Twitter named @domodata couldn’t sit still and created the BRC-20 inscription, which is actually to input metadata into the Sats, and this process is called Inscribe. Small bytes of text, images, audio, video, and other content can be written into Sats in the form of data, and what is written into it is called “BRC-20 inscription”.

In this way, the Sats, which are numbered chronologically and have different inscriptions, become unique. This is very much in line with the concept of non-fungible tokens “NFTs”, and even more than NFTs on the ETH Network, because the content in Sats is actually engraved on the BTC chain. In contrast, NFTs generated on blockchain networks such as ETH Fang are more like certificates with unique numbers, and those pictures, videos, and other content proven by NFT certificates are often not stored or recorded on the chain.

Numbering, inscription, the two experiments played a set of “combination punches”. Despite the fact that @domodata made it clear in the BRC-20 whitepaper that “this is just an interesting experimental criterion” and “strongly discouraged any financial decisions based on this design”, players rushed to the plate and began to take advantage of the Ordinals protocol and the BRC-20 approach.

If the Sats are different annotations and different contents, then such Sats are non-fungible NFTs, and if they are played with the same annotations and the same content, they are fungible tokens, which is equivalent to using the Ordinals protocol and BRC-20 to issue homogeneous crypto assets on the BTC blockchain, and the Sats that come out are “numbered banknotes” with an inappropriate analogy.

Picture class BRC-20 inscription

“BTC inscription - the content burned on the world’s most secure blockchain network”, the sense of romance and preciousness does not come out all at once.

Once this kind of “diamond ring” marketing rhetoric appears, it will be difficult to avoid a circulation market with users and traffic support. Soon, a token ORDI commemorating the Ordinals protocol, a wallet dedicated to storing and sending and receiving various BRC-20 inscriptions, and a decentralized exchange all came, and an ecosystem around BTC inscriptions was activated.

BRC-20 Inscription Market Data

According to statistics, as of December 7, 56,300 BRC-20 inscriptions have been generated on the BTC network, with a total of 306,400 holders and a total market capitalization of $1.11 trillion.

The BTC, which has recently surged to around $43,000, has a total market capitalization of $858.8 billion, and the total market capitalization of the entire crypto asset market is $1.65 trillion, which shows the strength of the inscription speculation market. In China, the well-known second-hand trading platform Xianyu has appeared on the “inscription on behalf of the service”, “inscription zero-based introductory tutorial” and other listing information.

BRC-20 information appeared on Xianyu

However, BTC inscriptions have also had a negative impact.

It is important to know that the typed inscription data will be packed into the BTC network in the form of blocks, and the capacity of 1M for each block is fixed. The original capacity and speed of this network are worrying, and the new inscription data increases the block data of the BTC network, and the block generation speed becomes slower, commonly known as “congestion”, which invisibly affects the transaction rate of the BTC, and the transaction fee also soars.

In May and November this year, BTC network-wide fees were abnormal. In particular, on May 9, the network-wide handling fee once reached 3.909 BTC, worth $111,100 at the time.

May 9 BTC network fee data

BTC traders are not happy about the network congestion and high fees, but the miners who are responsible for BTC the network block generation and maintain the network to earn fees must be happy, after all, they have not only suffered a sharp drop in revenue in the past two years of the crypto bear market, but will also have to face the BTC block reward halving rules that will come in April and May next year.

According to Blockchain.com data, in November, when the BRC-20 inscription became popular again, it directly pushed the BTC mining reward on November 12 to $44 million, which is the first time since 2023, and the last time it appeared was in April 2022.

According to Dune data on November 24, the inscriptions of the Ordinals agreement have created a total of 3,061 BTC (about 114 million US dollars) in BTC fees, and the total number of inscriptions minted has reached 43,532,200.

The total number of Ordinals inscriptions has skyrocketed

Seeing this, you will also know why the miners represented by the Divine Fish will support the inscription.

The main reason for Luke’s dislike of inscriptions is that these information and data occupy the capacity of BTC blocks, resulting in poor network transactions and higher costs, thus weakening the function of BTC as a payment network, which is not conducive to its widespread adoption.

This means that if the occupation of the BTC block capacity of the inscription is solved, will it be possible to keep the inscription alive?

BTC Layer 2 opportunity?

In fact, after Luke’s bombardment of the inscription caused spam information on the chain, someone proposed to him to create an “inscription chain”, similar to ETH Fang’s Layer 2, “This chain only needs to regularly submit hashes to the BTC network to run, right?”

“Yes,” Luke agreed, agreeing in the affirmative, "that works, it doesn’t even need to have a block size limit at all, and each node can set its own limit (or no limit). ”

Luke agrees with the Layer 2 solution to the inscription

In fact, this kind of Layer 2 solution has long appeared in BTC ecological communities. The “Taproot Asset Protocol”, which was mentioned by Xu Xingxing, the founder of OKX, in the inscription debate schedule is one of them.

Proposed by Lighting Labs, the developer of the BTC payment network “Lightning Network”, the Taproot Assets Protocol aims to provide developers with a “scalable BTC multi-asset network tool” that supports the issuance of stablecoins and other assets on the BTC network, as well as the ability to complete transactions through the Lightning Network.

Ryan Gentry, Director of Development at Lightning Labs, explained that the Taproot Assets protocol only requires issuers to make a BTC transaction to mint a valid unlimited number of Taproot assets, while all metadata describing those assets is stored off-chain.

In this way, it just solves the occupation of BTC block capacity by assets such as inscriptions, and the issuance and trading of these assets can still make miners profitable. The only problem is that the metadata of those graphics, texts, video and audio will be stored off-chain and cannot continue to be “engraved” on the BTC chain, which is the same way that NFT or other fungible tokens are issued with ETH smart contracts.

In order to still be able to leave inscription tokens in the BTC network, developers of Atomicals protocols such as BRC-20 have proposed a “restriction method”, that is, the introduction of SUBSTANTIATION FACTOR (SF), which redefines the number of satoshi per unit of ARC-20 inscriptions, sets the default proof factor to 1:1, and limits the arbitrary precision to the feasible range, so as to process transfers to less than 546 units of tokens.

In fact, this method is a way to bypass the BTC dust attack defense system. To prevent dust attacks, the BTC network limits the number of BTC transactions in a single UTXO to no less than 546 Sats. This means that the minimum transfer limit for ARC-20 Inscription Tokens is 546, below which transactions will most likely not be packaged.

The Atomicals approach doesn’t solve the block occupancy problem that Luke cares about, while the Layer2 approach seems to be more in line with the core developer’s idea of weeding out non-standard activities that are not conducive to BTC clean operation from the network.

In fact, there are many Layer2 solutions similar to Taproot Assets that scale BTC ecosystem off-chain, including Rootstock, Stacks, Liquid Network, etc., and the hype demand for inscriptions has once again pushed these scaling technologies to the forefront.

Regardless of whether the inscription is valuable or not, behind its popularity is a BTC ecology that needs to be filled. Although the Lightning Network has been adopted in micro-BTC payments, no other use cases have emerged on the BTC mainnet, and the Taproot upgrade has brought this possibility, but due to limited performance, DeFi, GameFi, and other scenarios that require high concurrency in the ETH ecosystem cannot be built on the BTC network.

And this has to do with the positioning of BTC, as developers Ali and Luke insist, in their eyes, BTC should follow Satoshi Nakamoto’s definition of a “peer-to-peer electronic payment system”, pursuing security, decentralization, and privacy protection. It is the insistence on these characteristics that has made BTC network the largest and most secure blockchain network in the world.

However, the solidity of this network needs to be maintained by thousands of miners, and only when the income of this group is guaranteed, they will willingly become workers, that is, the value of BTC can cover or even exceed the cost of maintaining the network, that is, the price of BTC is greater than the cost of mining.

At present, the price of BTC has exceeded $43,000, which is twice the low of the year. According to a mining cost estimation model made by the University of Cambridge based on global BTC electricity consumption and the number of new issuances per day, the average cost of 1 BTC is currently at $42,700, which is not very cost-effective.

In addition to the impact of the BTC block reward halving again next year, the BTC’s current market capitalization has soared, and the greater stimulus comes from the market’s expectation that BTC spot ETFs will be approved in the United States, which means that blockchain asset BTC is becoming the subject of mainstream financial markets.

From this point of view, the rise in the value of this wave of BTC was not caused by the inscription market, but even more so by the past fluctuations. And the reason why the inscription can fire is also because it is engraved on the BTC.

But what about the BTC spot ETF? How will its narrative unfold as the finite supply (21 million) of BTC gets less and less? Can the story around it move out of more plots? These are the real community nerves in the inscription market.

As Hong Shuning, a blockchain expert from the former People’s Bank of China, said, Ordinals is a high-rise building built on the beach, its foundation is very unstable, and it is not possible to develop into a very strong and complete ecology itself, “After more than half a year of development, we have now entered the largest period of bubble, but the biggest benefit that this bubble period brings us is to reawaken people’s confidence in the BTC ecology.” ”