Crypto Eco 2023 Full Inventory: new concepts and new products are overwhelming

For the crypto industry, 2023 is both a year of bear-bull transitions and a big year of ecological development.

On Bitcoin: Ordinals, Inscriptions, BRC20, Atomical, ARC20, Bitstamp, SRC20, Rune, Taproot Assets, RGB, and other new concepts are overwhelming;

On Ether: Ether itself finished Shanghai upgrade to completely complete the POS shift, and L2 on Ether is also pushing out new concepts (e.g. zkEVM L2 mainnet, superchain, etc.);Bitcoin mining

On other L1 public chains: there are old public chains that are dying out, and there are new POW public chains that are emerging, and the L1 war is still going on, and according to incomplete statistics, there are more than 400 L1 projects in the crypto industry at present.

New products and concepts are emerging all the time. This is both a great boom for the entire crypto industry and a challenge for crypto users.

This article focuses on Bitcoin, Ether and its L2 and other L public chains in 2023, incompletely summarizing their development in 2023 to facilitate users to better grasp the entire crypto ecosystem in the new year.

The Bitcoin Ecosystem
Since the birth of Bitcoin in 2009 until 2023, countless people in the crypto community have attempted to issue assets on Bitcoin for nearly 15 years. But the majority of the Bitcoin community has chosen to stick to Bitcoin’s original purpose as a currency, so innovation on Bitcoin has been centered around Bitcoin’s core functionality (payments, settlements, stores of value, etc.) and has been very slow, even going so far as to evict members of the community who don’t subscribe to this culture.Whatsminer

For example, early concepts and protocols such as Colored Coins, MasterCoin, Counterparty, Omini, etc. haven’t been able to grow on Bitcoin for years, and one of the main reasons why Vitalik founded Ether, for example, was also due to the fact that the Bitcoin community didn’t accept applications other than cryptocurrency.

But driven by the Ordinals and BRC20 tokens that are on fire, Bitcoin’s growth in 2023 has completely shattered the preconceived notions about it. Multiple protocols on Bitcoin have attracted the attention of many industry players. Innovation and activity on Bitcoin is also at an all-time high. In the words of crypto VC Outlier Ventures, the Slumbering Titan wakes up with a wave of innovation on the Bitcoin network in 2023.

But as we know, the Bitcoin ecosystem is a generalized term with an entirely different category of protocols and tokens. These include the Bitcoin Lightning Network, the Bitcoin Sidechain (Liquid Network, RSK), ICP, the L1 public chain that integrates Bitcoin, Bitcoin L2 (Stacks), Drivechains, Taproot Aseets, the Taro Protocol, the RGB Protocol, BitVM, the Ordinals Protocol, and the BRC20 token, Atomical and ARC20 tokens, Rune and PIPE protocols, BitStamp and SRC20, and so on.

These are described below:

Lightning Network

The Lightning Network is the second layer of Bitcoin, which ensures that off-chain transactions in the payment channel are secure and trustworthy through the RSMC and HTLC mathematical mechanisms, and are only submitted to the Bitcoin chain for settlement at the time of the final settlement, allowing for fast and cost-effective transaction scaling. The Lightning Network is not a blockchain and does not have the ability to handle smart contracts or complex applications. See previous article “Lightning Network Mechanism Explained” by Golden Finance.

In 2023, Coin, OKX, Kraken and other major CEXs will support the Lightning Network.

In addition, the Lightning Network has become the infrastructure for many other protocols on Bitcoin, such as Taproot Assets, RGB, and Taro, which are all built on top of the Lightning Network.

Liquid Network

Liquid Network is a Bitcoin sidechain. It is built on top of the Bitcoin codebase and uses the same UTXO transaction model. In addition to offering L-BTC assets pegged to Bitcoin, Liquid supports the issuance of various digital assets such as tokenized fiat currencies, other cryptocurrencies, and tokenized securities.

One of Liquid’s key value propositions is enhanced privacy, providing faster transactions and increased privacy using confidential transactions. This makes it the best blockchain for DeFi use cases. Due to its multi-asset support, it attracts traders across different digital assets. Hodl Hodl and SideSwap are some of the projects built on top of it.

El Salvador’s planned $1 billion bond issue is scheduled to be issued on the Liquid Network.2023 Bitfinex Securities successfully issued its first tokenized bond on the Liquid Network, raising over $5 million in USDT.

RSK

RSK is a Bitcoin sidechain that introduces smart contract functionality through Ethernet Virtual Machine (EVM) compatibility. This consistency with the EVM ensures that it works seamlessly with popular ETH tools and the Solidity language, simplifying the transition of ETH applications to the Bitcoin platform and allowing developers to utilize existing Solidity resources to accelerate development.

RSK is primarily used for DeFi applications, leveraging its scalability and EVM compatibility. Larger protocols such as Sovryn and RSKswap, which focus on lending and liquidity provision. There are also a number of RSK wallets and stablecoins that contribute to the broader DeFi ecosystem.

Stacks

Formerly known as Blockstack and renamed Stacks in Q4 2020, Stacks is a unique Layer 2 blockchain that enhances the functionality of Bitcoin. Stacks accomplishes this by connecting directly to the Bitcoin blockchain through the Proof-of-Transfer (PoX) consensus mechanism, which allows miners to pay BTC to mint a new Stacks token, STX.

Stacks uses its token STX as the native cryptocurrency of the Stacks Network to fuel smart contracts, reward miners on the Open Stacks Network, and enable holders to earn Bitcoin through Stacking.

With its own native token (STX), consensus mechanism, and Clarity programming language, Stacks enables developers to create comprehensive smart contracts that inherit the security and resilience of the Bitcoin blockchain while regularly settling it.

Stacks has a variety of web3 use cases, such as DeFi projects like Alex and Arkadiko.

Additionally, Stacks is scheduled to undergo a Nakamoto upgrade in conjunction with the Bitcoin Halving Event in April 2024, which will introduce a 1:1 Bitcoin-backed asset, sBTC, and drastically shorten execution times, reducing block times from the current 10 minutes or so to around 5 seconds, making it a true Bitcoin Layer 2.

ICP

ICP announced in December 2022 that the ICP mainnet integrates with Bitcoin and that smart contracts on ICP can natively hold, send, and receive Bitcoin without the need for cross-chain bridges or other third parties.ICP uses Chain-key ECDSA encryption, so smart contracts on ICP can control BTC balances without the need for wrappers or bridges.ICP also uses Bitcoin’s Bitcoin Backed Asset, sBTC, to support the Bitcoin Backed Asset, sBTC. Its direct interface with the Bitcoin main chain allows it to bring smart contract functionality to BTC without the need for wrapped assets (WBTC).

ICP’s BTC implementation is relatively new, but it is already possible to see Dapps on ICP that are utilizing smart contracts to access native BTC. There are currently more than 20 Bitcoin Dapps listed on the ICP website.

Drivechains:

Drivechains are a proposed soft fork that creates sidechains to take advantage of features such as smart contracts and privacy technology.Drivechains do not rely on a centralized entity to be unpegged. Instead, they rely on bitcoin miners to decentralize at the expense of cost and speed. It allows builders who value decentralization to also use the smart contracts and scale provided by sidechains.

The two main BIP protocols are BIP300/301, BIP300, which innovatively hooks BTC back to the main chain through arithmetic escrow, and BIP301, which adds blind merge mining and allows miners to provide security for both the main chain and sidechains.

Taproot Assets

The Taproot Assets protocol is based on Taproot, which was activated in November 2021 as a soft fork upgrade to Bitcoin that introduced more complex but efficient transaction types, primarily through Schnorr signatures and MAST. The upgrade enhances Bitcoin’s privacy by making transactions indistinguishable, promotes fee reduction through efficiency, and paves the way for advanced features such as complex smart contracts and optimized multi-signature wallets.

On October 19, 2023, Lightning Labs, developer of the Lightning Network, announced the availability of the Taproot Assets protocol, a Taproot-native asset layer built on top of Bitcoin.The Taproot Assets protocol supports the use of Taproots in the Bitcoin and the Lightning Network without inflating the Bitcoin network.

See this Golden Finance article, “Taproot Assets in a Nutshell”.

Taro Protocol

Taro is a new protocol developed by Lightning Labs and supported by Taproot. It allows users to create assets on the Bitcoin blockchain and then send them over the Lightning Network for fast, high-volume transactions at minimal cost. It can be used to issue both homogenized assets and non-homogenized tokens.

Taro relies on Bitcoin’s latest upgrade, Taproot, to build its new tree structure, which allows developers to embed arbitrary asset metadata in existing output, uses Schnorr signatures for simplicity and scalability, and can be used with multi-hop transactions on the Lightning Network.

BitVM

In October 2023, ZeroSync developer Robin Linus released a new Bitcoin proposal, BitVM, which introduces arbitrary Turing-complete computation to Bitcoin by verifying “any computable function on Bitcoin”.

BitVM implements a NAND gate in Bitcoin scripts via hash locks and opcodes (OP_BOOLAND, OP_NOT) and moves the computational logic down the chain, allowing verifiers to challenge computations submitted by provers.

There are some problems with BitVM: BitVM utilizes NAND circuitry rather than a high-level language, which is very inefficient, slower, more expensive, and more complex; BitVM is very complex and difficult to implement; and BitVM is limited to two-party participation rather than a full VM that allows for an arbitrary number of users to participate. See Golden Finance’s previous report, “Bitcoin’s New BitVM Proposal Explained”.

RGB Protocol

RGB is a smart contract + privacy extension layer for Bitcoin and the Bitcoin Lightning Network.RGB stands for Really Good Bitcoin. It is motivated by Bitcoin’s limited ability to support a smart contract execution environment, and bringing execution and verification off-chain allows participants to benefit from the security of Bitcoin’s consensus layer while increasing flexibility and scalability.

RGB’s smart contract system is unusual in that it separates the concepts of smart contract issuer, state owner, and state evolution by keeping the smart contract code and data off-chain; using Bitcoin as the state commitment layer and Bitcoin scripts as the ownership control system; and the evolution of the smart contract is defined by the off-chain schema.

While RGB smart contract creation and transactions occur off-chain, smart contract creation and smart contract state changes (e.g., transactions) on the RGB to the Bitcoin blockchain are recorded on the Bitcoin chain via a UTXO form of commit. Each transaction has a corresponding UTXO with corresponding data on the Bitcoin network. Also, validation of RGB transactions is off-chain and requires the user to validate the transaction’s Commitment themselves, which is known as client-side validation.

For more information on the RGB protocol, please refer to Golden Finance’s previous article, “Read the Bitcoin RGB Protocol in One Article.

Released in April 2023, the RGB protocol version 0.10 includes a consensus layer, a standard library (used by wallets/exchanges for integration), and command-line tools, bringing full support for smart contracts to Bitcoin and the Lightning Network.

Some interesting use cases for the RGB protocol can be found here: https://github.com/22388o/awesome-rgb-protocol

Ordinals, Inscriptions and BRC20 tokens

Ordinals: utilizes 2 main ideas, 1. Sorting each satoshi and assigning an ordinal number “Ordinals” between 0 and 2,100,000,000,000,000,000. 2. segwit and Taproot. 2017 implementation of SegWit, implemented in 2017, and Taproot, which builds on SegWit in 2021, are upgrading script-path spend scripts so that Bitcoin transactions themselves can contain metadata. Putting the two together: Inscriptions are placed on the satoshi of the assigned Ordinals, and this Inscriptions data (such as images, text, audio, video, and even game data) is stored in bitcoin taproot script-path spend scripts in Segregated Witnesses so that it can be tracked, transferred, stored, bought, and sold.

BRC20 standard: an Ordinals standard. A standard for experimenting with homogenized tokens on Bitcoin with the help of inscription functionality, created by Twitter user @domodata on March 8, 2023.The BRC20 name is borrowed from the Ether ERC-20 token standard. Unlike other Ordinals inscriptions, BRC20 tokens store JSON code in Bitcoin inscriptions and have only three functions: deployment, minting, and transfer. The Bitcoin blockchain itself