Exploring Bitcoin’s platform capabilities 

Bitcoin is renowned for its role as a medium of exchange and safe haven asset, but thanks to a number of exciting new protocol innovations, the leading cryptocurrency is also being increasingly used for its platform capabilities. 

Over the last year, the launch of the Ordinals protocol, the BRC-20 token standard, the Taproot upgrade, and various scalability solutions are allowing its ecosystem to expand its boundaries into sectors like Non-Fungible Tokens (NFTs) and Decentralised Finance (DeFi). These are sectors that are typically dominated by smart contract platforms like Solana and Ethereum.

Bitcoin NFTs, Ordinals and the BRC-20 token standard 

Since the Ordinals protocol was launched in January 2023, the Bitcoin network has seen a strong increase in network activity, with more than 63 million Ordinal inscriptions. These inscriptions (which are essentially Bitcoin NFTs), allow users to inscribe metadata onto the Bitcoin blockchain, offering a greater level of security and lower costs compared to the typical smart contract-based NFTs that use Ethereum and Solana. 

Within a short period of time, the popularity around Ordinal inscriptions saw Bitcoin’s NFT trade volumes surpass that of Ethereum and Solana, while also inspiring other blockchain ecosystems like Matic and Avalanche to implement their own Ordinal-inspired NFTs. 

However, the Bitcoin community remains divided over these innovations, with concerns about Ordinals spamming the network, leading to network congestion and high fees for users, although, these inscriptions have proven lucrative for many miners.

NFT trade volumes by chain

Source: The Block, CryptoSlam

This also led into the BRC-20 token standard in March 2023, an experimental token standard that extends the Ordinal protocol’s capabilities to create, mint and transfer fungible tokens on the Bitcoin network. This was an important step for Bitcoin’s platform utility by introducing the concept of tokenization and a means to create altcoins on its blockchain.  

After the first BRC-20 token, a memecoin called ORDI, was launched, this led to thousands of other BRC-20 tokens being created over the next couple of months. Today, the total market cap of all BRC-20 tokens now sits at more than USD 2.8 billion

Although still highly experimental, the simplicity of the BRC-20 tokens allows for easier tokenization of assets on the Bitcoin network, especially given the fact that it does not rely on complex smart contracts. The popularity of BRC-20 tokens also caught the attention of several platforms and exchanges like Binance and OKX who now support the trading and exchange for these tokens.  

Bitcoin’s ecosystem – DeFi, Layer 2s, sidechains 

The Bitcoin Defi ecosystem comprises several unique protocols and solutions, including various rollups, state channels, sidechains, programming layers and a decentralised exchange. Together, they are able to bring scalability, interoperability and added functionalities, like smart contract support, that cannot be embedded into Bitcoin’s main network.

Total value locked (TVL) in Bitcoin sidechains (USD)

Source: DeFillama 

Here are a few interesting projects below: 

  • Stacks (STX) is a Bitcoin programming layer, allowing smart contracts and decentralised applications to use Bitcoin as a secure base layer, enabling DeFi protocols and NFTs to be backed by Bitcoin. It runs its own consensus algorithm, Proof-of-Transfer (PoX), which connects miners on the Bitcoin blockchain to validate transactions on Stacks and earn rewards in STX tokens. The TVL across DeFi protocols on Stacks is over USD 170 million.  
  • Rootstock is an EVM-compatible Bitcoin sidechain that offers smart contract functionality and interoperability with the Ethereum network. As a sidechain, it leverages merged mining to secure its network by using Bitcoin’s hashing power. The TVL across all DeFi applications on Rootstock network is over USD 190 million.
  • Liquid Network is another Bitcoin sidechain that maintains a 1:1 peg between Bitcoin and Liquid Bitcoin (L-BTC), and is designed to make the activities of traders, market makers and exchanges more efficient than transacting on the Bitcoin mainchain. 
  • SatoshiVM is an EVM-compatible zero-knowledge Bitcoin rollup, granting the Bitcoin ecosystem the capability to issue assets and build decentralised applications. It uses rollups to batch transactions and the Bitcoin network for settlement finality, using Bitcoin as gas.   
  • StakeLayer is a new Layer 2 that introduces restaking for Bitcoin holders, similar to EigenLayer for Ethereum. Restaking allows Bitcoin holders to earn additional rewards on their holdings by participating in Proof-of-Stake activities on various applications build on Bitcoin’s Layer 2. 

The list of new Bitcoin-related protocols is continuously growing, and there are other relevant projects worth mentioning, including the recent launch of PUSD, an over-collateralised Bitcoin-native stablecoin, and Merlin Chain, an EVM-compatible zero-knowledge rollup which can also be accessed via wallets like MetaMask, among others.

Bitcoin’s ecosystem continues to expand

Thanks to these new and exciting innovations to Bitcoin’s infrastructure, its utility as a medium of exchange and store of value has now expanded to a platform that supports a DeFi ecosystem of its own. But more interestingly, these developments have made Bitcoin more compatible with other blockchains and added functionalities that were once considered beyond reach for its ecosystem.

That being said, the trend is still now in its infancy with many limitations yet to be addressed, but the potential seems very promising. 

ENDS

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