Is the second spring of BTC ecology a bull market engine or a market death light?

The Bitcoin ecosystem has become popular again this year. On November 7, Binance launched the "BRC 20" token leader Ordi. Two days later, this round of market also reached its climax - Bitcoin broke through US$38,000.

Some people call the Bitcoin ecosystem the engine of the next bull market, while others say it has no technological innovation and is essentially a meme. When memes are flying around, it is usually the end of a cyclical bull market.

In my opinion, the resurgence of Bitcoin ecology is just following one of the most basic logics of the currency circle: speculation. In the eyes of speculators, stories always come first, and real technological innovation and application are not that important.

The foundation of narrative

The story logic of the Bitcoin ecosystem is very simple, which is also what the "evangelists" have been tirelessly explaining: Since the birth of Bitcoin, the ecosystem has been very small and has great potential; the "tokens" of the Bitcoin ecosystem have achieved fair launch, and the founders and teams of ERC-20 tokens often hold a large number of tokens.

Such a narrative does sound very attractive. After all, Bitcoin is the biggest narrative in the entire blockchain world, with huge room for hype.

The story begins with Bitcoin’s implementation of the SegWit and Taproot upgrades, which makes it possible for the Bitcoin network to store large amounts of data.

In particular, the Taproot upgrade in November 2021 allows BTC to engrave data on the smallest unit of Bitcoin, the "Satoshi", through the Ordinals protocol. For example, each Satoshi is numbered, and files, pictures, or audio files up to 4M are inscribed on the "Satoshi" to form an inscription. This process is similar to the mint of NFT.

On this basis. This year, the first protocol to emerge around the Bitcoin ecosystem is the Ordinals protocol. The first use case of this protocol is to store "NFT" on Bitcoin, and then it developed to the BRC 20 standard in March this year. People can deploy "tokens" on BTC themselves, and even the deployers, like other people, need to mint the tokens to obtain them. Therefore, people believe that it has achieved "fair launch". This is also considered to be beyond the ERC-20 part.

First, at the end of April this year, the leading token of the BRC 20 protocol, "ordi", attracted people's attention to the ecosystem with a 100-fold increase. Then in May, the exchange gate listed three BRC 20 tokens including ordi, and the market reached its peak. As the heat faded, the price of the currency also fell all the way.

However, in November, the Bitcoin ecosystem became popular again and attracted public attention. In fact, in the past six months, the Bitcoin ecosystem has developed some new protocols.

For example, the Atomicals protocol was born in September this year. This is a simple and flexible protocol for minting, transferring and updating digital objects (traditionally called non-fungible tokens) for unspent transaction output (UTXO) blockchains such as Bitcoin. Atoms (or "atoms") are a way to organize the creation, transfer and update of digital objects - it is essentially a digital ownership chain defined according to some simple rules.

Compared to Ordinals, Atomcial allows storing one or more files at minting time, defining and updating the application state of basic file types and any complex file types.

The Atomicals protocol solves the long-standing problem of how to represent arbitrary fungible token assets on the Bitcoin blockchain. The ARC-20 fungible token standard will finally introduce colored coins to Bitcoin and use each Satoshi to represent a unit of ownership of a deployed token.

Compared with Ordinals, the special thing about it is that ARC-20, which is built on this protocol, is the first token protocol to mint inscriptions through POW. Participants can mine inscriptions directly just like mining Bitcoin in the past.

Relying on Atomicals, there is not only a "token protocol" like ARC-20, but also the popular NFT project Atommap, which is the first NFT generated by CPU mining on the protocol.

The above are all new things that rely on new protocols. With the popularity of Bitcoin ecology, Bitcoin's "old" ecological projects are also unwilling to be lonely. In fact, before the inscription spring exploded at the beginning of this year, the "Lightning Network" was the most widely used and narratively attractive in the Bitcoin ecology, but its "transfer" function itself actually had no room for hype.

Then the Nostr Assets protocol was born, which can be understood as the first meme coin on the Lightning Network. Nostr Assets is a BTC ecological protocol supported by Twitter founder Jack Dorsey with real money. It introduces Taproot assets and Satoshi into the Nostr ecosystem. The settlement and security of assets still rely on the Lightning Network, and the Nostr Assets protocol itself does not issue assets, but only introduces assets into Nostr through the protocol.

On November 7, Nostr Assets announced that it would soon launch the function of fair sale of Taproot Assets. The enthusiasm was so great that the official even announced the temporary closure of the website without waiting.

How are bubbles blown?

First of all, the popularity of BRC 20 is inseparable from the support of exchanges and related project parties.

Unisat, a project from Shenzhen, played a very important role in this Spring of Inscriptions. On their platform, users can deploy, mint, transfer and store BRC 20 tokens in one stop, and check the market in real time. This greatly lowers the entry threshold for users.

Then the coin was listed on small exchanges, and then in mid-May, OKX NFT was listed on the Ordinals market, on which the above-mentioned unisat-like functions could also be used, and trading and buying and selling could be carried out.

At this point, the first round of inscription narratives has fallen silent. This is actually the complete logic of a narrative in the cryptocurrency circle: a good narrative is first brewed in a small range, then the threshold of the project is lowered so that the public can access it, and when it is listed on the exchange, the story reaches its climax, which also foreshadows a period of silence and a sharp decline in the wealth-creating effect.

Subsequently, as the market fell, the leader of BRC20, Ordi, also fell from more than 20 US dollars when it was listed to a low of 2.8 US dollars.

Whether the narrative can be renewed actually requires that new things continue to emerge in the ecosystem. As long as there are new stories coming out under the big narrative and can create stories of "getting rich quickly" one after another, then under the big cycle, there will be a chance to become popular again.

This round of rising prices has little to do with the macroeconomic situation. The current macroeconomic situation is still not optimistic. Although the United States has suspended interest rate hikes, this round of interest rate hikes has not ended. In China, the CPI fell in October, and in fact, it has entered a deflationary cycle.

Under such macroeconomic conditions, the independent market trend in the cryptocurrency circle is basically still based on the expectation of "spot Bitcoin ETF approval". It is precisely under the hype of related news, such as "BlackRock is confident that the spot Bitcoin ETF will be approved in January", that the market has been driven up.

The current round of market driven by the expectation of speculating on spot Bitcoin ETFs and the surge in projects related to the Bitcoin ecosystem can be understood. It is relatively easy for projects with small capital to achieve multiple times of market under the impetus of hot spots. With the listing of Ordi on Binance, its price has returned to the high point when it was first listed.

A good project narrative, superimposed with a larger cycle narrative. The reason behind the re-explosion of the Bitcoin ecosystem may be as simple as this.

Will the Bitcoin ecosystem be the engine of the bull market?

The Bitcoin ecosystem can be hyped up time and time again. But if the Bitcoin ecosystem wants to become the cornerstone of the next bull market, it must be able to truly realize the "large computer function" similar to Ethereum after putting aside the hype bubble. At present, Bitcoin is still regarded as "digital gold". If there is no foundation for carrying applications, it will basically not usher in a big explosion of the ecosystem.

At present, these so-called innovations in the Bitcoin ecosystem, such as BRC 20, have brought great negative impacts to the Bitcoin network: for example, network congestion, dust attacks, etc. are completely unsupported by Bitcoin fundamentalists.

In addition, although the issuance of inscriptions is completely on-chain, the core component of inscriptions, the indexer, is centralized, which means that the right to interpret your inscriptions is determined by the agreement. Without the agreement, no one knows what your inscriptions are. Is this what the fans advocate for, "decentralization, fair launch"? The resurgence of inscriptions this time is actually a carnival similar to "meme" coins.

But the good news is that under these bubbles, people have also noticed innovative projects to build Bitcoin "computers". Before this round of market, Bitcoin itself had some second-layer projects, but everyone was playing on Ethereum and they were not very popular. However, there are also people in the ecosystem who have been making innovations in this area, such as the RBG protocol that was launched as early as 2019. This is a scalable and confidential Bitcoin and Lightning Network smart contract system. RGB is designed to run scalable, robust and private smart contracts on UTXO blockchains (such as Bitcoin). There are also similar projects such as Taproot (Taro). However, these projects are still in the early stages.

Only when technology matures can the Bitcoin ecosystem truly explode. Hype is the first step in the development of a track, which can bring in hot money, but after the market heats up, it is still necessary to return to the essence of technology and innovation.