In addition to the Ordinals and BRC-20 protocols, what are the new asset protocols being developed on the Bitcoin network? What are their principles and advantages? Crypto investment ABCDE has compiled a comprehensive report on this.
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Bitcoin is truly developing an ecosystem
Diversified development of Bitcoin ecosystem asset protocols
Ordinals
BRC-20
Atomicals (ARC-20)
Runes
SRC-20
BRC-420
Taproot Asset
RGB
Bitcoin ecosystem growing through experimentation
Before the introduction of the Ordinals protocol, Bitcoin had no relationship with the “ecosystem” because Bitcoin’s design was inherently unsuitable for supporting Turing-complete computers.
The Ordinals protocol introduced the concept of inscription, making the Bitcoin ecosystem possible. Recently, the market’s enthusiasm for this protocol has surpassed many other smart contract platforms, and even similar inscription projects have begun to appear on other networks. This shows that inscription has become a hot topic in the market.
(Images: Major public chain inscription market frenzy brings real pressure test to the network performance)
Taking advantage of the momentum of the Bitcoin ecosystem, many other protocols (ARC-20) that attempt to create new asset categories based on different principles have emerged recently, or past projects (SRC-20) have resurfaced. What are the differences between these protocols and BRC-20? From a technical perspective, what evaluation can be provided amidst the speculation?
Before understanding other projects, it is important to understand the Ordinals protocol.
Thanks to the Taproot upgrade of the Bitcoin network, which removes the data size limit in Segregated Witness (SegWit), the Ordinals protocol has the opportunity to utilize this space. It allows NFT metadata, such as images, to be directly stored in the signature data (Witness Data), with a maximum capacity of 4MB. It is like being “engraved” on a specific satoshi (the smallest unit of Bitcoin), which is the origin of the term “inscription”.
Of course, the design of Segregated Witness was not originally intended for this purpose, but the Ordinals protocol passively turns the Bitcoin network into an “immutable and permanently stored” cloud space.
Unlike other ecosystems that may store metadata in networks such as IPFS, the Ordinals protocol makes the Bitcoin network more similar to Arweave, allowing for permanent storage of information. Therefore, besides the 4MB size limit, it seems that there is no network more suitable for NFTs as a platform than BTC.
BRC-20 is actually a type of Ordinals protocol. Domo uses the Ordinals protocol as a foundation and has successfully simulated a homogenous token mechanism similar to ERC-20, naming it BRC-20.
The implementation of BRC-20 is also clever. Since Ordinals does not have any restrictions on the file format, JSON file format is also acceptable. Therefore, Domo simplified the implementation of deploy, mint, and transfer operations using the JSON file format and relied on an external indexer to read and execute them, achieving similar minting and transfer functions as the ERC-20 standard.
(Images: BRC-20 Three main operation codes)
The role of the indexer is a temporarily relatively centralized infrastructure that provides BRC-20 lookup on the Bitcoin chain and indexes the amount of BRC-20 tokens held by each wallet based on deploy, mint, and transfer.
However, BRC-20 has obvious drawbacks. Since it relies on an external indexer, the protocol’s security is at great risk and is not protected by the consensus of the Bitcoin network.
Atomicals protocol (ARC-20) adopts a technique similar to colored coins to directly bind tokens with Bitcoin’s UTXO ledger. It truly “engraves” tokens onto satoshis.
Although ARC-20 also requires an indexer to index the existence of ARC-20 inscriptions, its transaction execution relies entirely on the operation of the BTC mainnet UTXO ledger, making it independent of the indexer’s judgment. Furthermore, because the assets within the UTXO ledger can enjoy the composability of most infrastructure in the network, ARC-20 has better programmability. For example, theoretically, a transaction between BTC and ARC-20 only requires the swapping of inputs and outputs of UTXOs.
Compared to BRC-20, which heavily relies on the indexer for both minting and transfer, ARC-20 greatly improves security and avoids the so-called “garbage UTXO” issue.
(Images: BRC-20 records data in the witness data without binding to satoshis and UTXO ledger)
(Images: ARC-20 truly corresponds to each satoshi)
In addition, Atomicals has several unique highlights. For example, it introduces a mining mechanism called Bitwork, which is similar to Proof-of-Work (PoW), making minting fairer, more decentralized, and more in line with Bitcoin’s technical characteristics. There is also the possibility of combining the ARC-20 protocol with AVM design, making Bitcoin-specific (BitVM) possible, although it is currently only a concept.
Of course, everything comes with a cost. While Atomicals achieves greater decentralization, security, and programmability compared to BRC-20, it also brings higher issuance costs and the risk of assets being spent and lost along with UTXOs. Additionally, the infrastructure for Atomicals is still severely lacking compared to the BRC-20 protocol, although UniSat has already started supporting Atomicals. Therefore, Atomicals still has a long way to catch up with Ordinals.
Casey, the founder of the Ordinals protocol, has always been unhappy with the continuous generation of junk data by BRC-20 but cannot do much about it because the market will not stop speculating on it. Therefore, he has taken a compromise approach by providing a safer and more efficient homogenous token protocol called Runes. He hopes that this will reduce the burden on the Bitcoin network due to speculation.
(Runes protocol: How does it drive market speculation besides inscription?)
Runes and Atomicals are very similar in terms of technology. They both write TokenID, output, and quantity information into the UTXO ledger, and rely on Bitcoin Layer1 to handle transaction execution and security, with less reliance on the indexer.
The difference lies in the fact that Runes write the specific quantity of tokens in the data, rather than the 1 sats = 1 token ratio in ARC-20. The advantage is that Runes have higher precision than ARC-20, but the downside is that it increases complexity and makes it difficult to directly utilize the composability of BTC UTXOs like ARC-20.
(Runes protocol: How does it drive market speculation besides inscription?)
However, the Rune protocol is only a concept, and Casey has not implemented a specific product. Instead, the Trac team has taken advantage of this concept and created the first usable Runes protocol, issuing PIPE runes.
SRC-20 originated from the BTC Stamps protocol, which competes directly with the Ordinals protocol and is used for NFT issuance applications. The difference is that the Ordinals protocol stores data in the segregated witness field, while BTC Stamps stores data in the transaction outputs of BTC UTXOs.
SRC-20 is the homogenous token version of BTC Stamps, corresponding to BRC-20 in the Ordinals protocol. Compared to BRC-20, where the data stored in the segregated witness may be pruned by nodes, SRC-20 uses the Counterparty protocol to disperse the data storage in multiple UTXO outputs, ensuring more certain permanent storage of the data.
(Images: SRC-20 data is more certain and permanently stored)
However, the downside of SRC-20 is the high cost. The minting cost of SRC-20 is approximately ten times that of BRC-20.
Additionally, SRC-20 seems to be more favored and sought after by developers in the West, serving as a weapon to counter the Eastern BRC20 system.
BRC-420 is the Bitcoin Metaverse protocol launched by the Recursiverse team. Unlike the aforementioned asset issuance protocols, BRC-420 leans more towards the application layer and is more complex.
(Bitcoin ecosystem not only has inscription and BRC-20, but also emerging chain game projects)
BRC-420 defines more complex asset formats recursively, combining multiple inscriptions into a complex inscription. Anyone can create their own metaverse inscription, including but not limited to game avatars, game DLCs, HTML, music, videos, etc., ultimately achieving modular inscription on the blockchain. Additionally, BRC-420 supports on-chain royalties as one of its basic application development features.
When discussing BRC-420, it is necessary to mention the Nostr Asset Protocol, which uses the Nostr protocol to control custodial wallets, allowing users to send and receive Taproot Asset assets through public-private key pairs at the Nostr protocol layer.
(Images: Nostr Asset Protocol transmits assets using the Nostr protocol)
RGB protocol missed the current hot trend in the Bitcoin ecosystem, but from a long-term perspective, it is still one of the best scaling solutions for Bitcoin. Its support for smart contracts makes it superior to Taproot Asset in terms of scalability and flexibility, and even Tether intends to issue USDT on the RGB protocol.
However, the integration of RGB with the Lightning Network is currently challenging, so in the short term, integrating with the Liquid sidechain may be a temporary option for RGB. The founder, Maxim, also intends to create a network to support RGB.
Although the Ordinals and BRC-20 protocols, seemingly driven by speculation, affect the normal operation of the Bitcoin network, they have left a historical and influential mark on the Bitcoin network, similar to previous experimental projects on Bitcoin applications such as colored coins or the Counterparty protocol. They are all attempts to add applications to the Bitcoin network and have indeed made an impact, inspiring many projects, including ARC-20, SRC-20, and BRC-420. They have filled the gap before the maturity of the Taproot Asset and RGB protocols and have successfully brought attention back to the controversy surrounding the scalability of the Bitcoin ecosystem. It is evident that the Bitcoin ecosystem is growing through continuous trial and error.
BRC-20 is no longer a toy but a catalyst that brings a diversified perspective and experimentation to the Bitcoin ecosystem.
For those who do not like the impact of these new protocols on the Bitcoin network, perhaps they should give more understanding. However, for those who recognize and invest in inscription, they also need to understand that these are still early-stage projects with many security issues and market risks.
ARC-20
BRC-20
BRC-420
RGB
SRC-20
Taproot Assets
(Images: Further reading)
The truth behind the speculation and technological illusion of BRC20.