C Network (CITEX) 丨 Which directions under the upsurge of Ordinals and BRC-20 can enhance the scalability of Bitcoin?2023-05-09
Recently, BRC-20 tokens have skyrocketed in turn. In a short period of time, dozens of meme coins have been born, and the ten-fold increase has plunged the market into a carnival of wealth creation myths. In addition, the Ordinals market is not inferior, and the total number of inscriptions has exceeded 3 million. Obviously, Ordinals and BRC-20 have become an unstoppable craze, with huge traffic impacting the Bitcoin ecosystem.
Bitcoin is positioned as a peer-to-peer payment system with limited transaction throughput. Therefore, in order to develop the Bitcoin ecosystem, the first problem to be solved is the scalability of the Bitcoin network—reducing the storage and processing burden of the Bitcoin main chain, and improving the transaction throughput and processing capacity of Bitcoin.
So what are the directions that can enhance the scalability of the Bitcoin network?
That is, create a separate chain and link it to the Bitcoin main network through a specific cross-chain technology. Among them, the more famous ones are Liquid (BlockStream) and RSK.
It used to be a popular and relatively easy-to-implement Bitcoin scaling solution, mainly because sidechain projects could issue their own tokens, which could arouse community and market interest as their value increased. However, major players in such schemes have had some problems scaling Bitcoin.
Sidechain nodes are not accessible to everyone, and ledger consensus relies on the management of certain centralized institutions, resulting in a low degree of decentralization. This may be the main reason why sidechain expansion solutions have been tried many times but have not yet been adopted on a large scale.
No-upgrade expansion means that no changes are made to the existing technical system of Bitcoin, and only the existing characteristics of Bitcoin are used to achieve a specific type of expansion. Representative technologies include RGB and Bitcoin Script. RGB is a scalable and encrypted smart contract system that can run directly on the Lightning Network, but all the data it generates exists outside the Bitcoin transaction (off-chain), which means the security of the entire ledger The security of the Bitcoin mainnet cannot be relied upon.
Ordinal is implemented using Bitcoin Script (Bitcoin Script) to add additional data and assign a unique serial number to each of the smallest units of Bitcoin, Satoshis (Sats). This approach offers only minor improvements to Bitcoin’s scalability. There is currently a wave of hype around Bitcoin NFTs and BRC-20 tokens in the market, but the sustainability of their value remains to be seen.Remove the functions given to Sats by the three parties. From the standpoint of the Bitcoin main network, the data attached to various scripts are meaningless garbled characters, which leads to problems such as waste of Bitcoin block space and transaction congestion, and at the same time stimulates some Bitcoin communities. Members are strongly dissatisfied.
Generally speaking, the non-upgradable expansion technology solution is decentralized, and does not require the overall consensus of the Bitcoin community in terms of implementation difficulty, but at the same time, RGB failed to rely on the consensus security of the Bitcoin main network and the implementation of Bitcoin through scripts. Transaction scalability is very limited.
Upgraded expansion refers to the need to upgrade the technical architecture or technical system of the Bitcoin network. A representative example is BIP-300/301 proposed by the LayerTwo Labs team. Its expansion concept is called Drivechain, which essentially uses Rollup to expand capacity.
Currently, LayerTwo Labs’ approach is to directly hard fork a PoW main chain with BIP-300/301. When the Bitcoin community reaches a consensus and approves this main chain, the Bitcoin main network will be upgraded to BIP300/301.
Overall, LayerTwo Labs’ solution can guarantee the decentralization of Bitcoin and solve the problem of expansion. However, its expansion and upgrade requires the consensus of the Bitcoin community, and under the current overall atmosphere of the community, it is extremely difficult to upgrade the Bitcoin mainnet.
Bitcoin’s two-way transfer is a commonly used method in cross-chain and side-chain scenarios. Bitcoin’s one-way transfer expansion scheme was proposed by the Hacash community and the Hacash.com team. The principle is to irreversibly transfer Bitcoin to a new chain that is theoretically more decentralized and more mature in technology, and then adopts a multi-layered approach for scalability.
The first layer of Hacash can realize the one-way transfer of Bitcoin, transferring the BTC on the Bitcoin chain to the Hacash chain. During the transfer process, the user’s private key remains unchanged, and the same private key can be used to directly use the Bitcoin on the Hacash chain, and the control of BTC has not been transferred to any other entity.
Based on the Hacash chain, there are Layer 1 and Layer 2 payment networks, and the Hacash.com team also proposed a Layer 3 multi-chain scalability infrastructure. Bitcoin can be used for instant payments at Layer 2 and for application scaling at Layer 3. The essence of Layer 2 is to use state channels for instant payments, and the essence of Layer 3 is to use multi-rollup and multi-rollup’s customizable scalability methods.
Overall, the Hacash chain that accepts BTC one-way transfers still adopts a pure PoW consensus mechanism, and anyone can run a full node, and its degree of decentralization and security is not weaker than that of the original Bitcoin chain.
On top of this, layers 2 and 3 address scalability issues. Anyone can choose to transfer their BTC to the Hacash mainnet, and it’s up to each Bitcoin holder to decide if they need scalability or not. Compared with other solutions, the difficulty of implementation is relatively low, and the options are strong.
There are four main approaches to scaling the Bitcoin ecosystem: no-upgrade scaling, sidechains, upgradeable scaling, and one-way transfers. Non-upgradable expansion cannot achieve strong scalability and ledger security at the same time. There is a problem of centralization in the side chain. It is difficult to implement upgraded expansion. One-way transfer is relatively good in the four evaluation dimensions, but it has not received widespread attention from the market.
The above information is compiled by the CITEX content group, which is for learning and exchange purposes only, and does not constitute investment advice. For more information, please pay attention to the follow-up content. As the world’s No. 1 mining exchange, CITEX always puts users’ interests first and is committed to providing safe, transparent, open and efficient digital asset services. In the future, CITEX will continue to be oriented by the market and user needs, with multiple depths and multiple innovations, to launch more high-quality products, and to provide users with more investment opportunities and satisfactory services.