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CoinEx Research

CoinEx Research: Exploring the World of Bitcoin — A Review of the BTC Ecosystem

2023-06-27 01:05:28

The BTC ecosystem is a community-based network encompassing complex and rapidly evolving technologies and applications centered around the adoption and development of Bitcoin. This ecosystem covers all kinds of DApps, including infrastructures, wallets, trading markets, NFTs, and Layer 2 solutions. While it faces challenges such as the scalability and maturity of the underlying infrastructure, this infant ecosystem has demonstrated tremendous growth and potential.

Data from Glassnode suggests that the number of active Bitcoin addresses has been on the rise since the beginning of 2023. Meanwhile, the network has also seen strong growth in transaction volumes. Despite the price swings of ORDI, on-chain activities continued to thrive, which is an indicator of a vibrant ecosystem.

the number of active Bitcoin addresses
Bitcoin transaction volumes grow

Source:

https://studio.glassnode.com/metrics?a=BTC&category=Transactions&m=transactions.Count&resolution=1w&s=1230508800&u=1684800000&zoom=

1. Ordinals NFTs

Ordinals NFTs are unique non-fungible tokens inscribed on the Bitcoin blockchain in a specific order. Unlike traditional NFTs minted via smart contracts on blockchains like Ethereum, Ordinals NFTs are directly inscribed on satoshis, the smallest unit of Bitcoin. Here are a few Ordinals NFT projects that have gained traction in the crypto community, each utilizing the Ordinals protocol to create unique and valuable NFTs on the Bitcoin blockchain. 

  • Ordinal Punks: A PFP (Profile Picture) collection with a total supply of 100 NFTs on the Bitcoin blockchain minted within the first 650 inscriptions.
  • Bitcoin Frogs: Another popular Ordinals NFT collection. Each frog NFT represents a unique inscription on the Bitcoin blockchain, which showcases the value and collectability of every frog.
  • DogePunks: The project combines the popularity of Dogecoin with the uniqueness of the Ordinals protocol in an NFT collection. Each DogePunk NFT represents a specific inscription on the Bitcoin blockchain.

TwelveFold: An Ordinals NFT project focusing on scarcity and uniqueness, with each NFT being a unique inscription on Bitcoin.

It should be noted that, however, the Ordinals protocol has sparked different viewpoints in the crypto community. Some see it as an innovative way to expand Bitcoin’s use cases and create valuable crypto assets, while others are concerned about its scalability and potential impact on transaction fees. Nonetheless, the boom of Ordinals NFTs has garnered extensive attention to Bitcoin’s Layer 2 network and its potential for fostering more applications.

2. BRC-20

BRC20 (Bitcoin Resource Contract 20), an experimental token standard developed for Bitcoin, allows for the issuance, minting, and transfer of tokens on the BTC network. Similar to Ethereum’s ERC20, BRC20 specifies the name, supply, transfer, and other functionalities of tokens issued on the blockchain. Compared to other standards like ERC20, BRC20 offers the advantage of minimal technical barriers. Since the BRC protocol platform has already been coded, developers can easily deploy additional tokens by adjusting the code parameters.

BRC-20 Tokens Ordinals

Despite that, it is important to note that BRC20, an experimental format, comes with an unfinished design. Nevertheless, thanks to its fair token distribution mechanism, BRC20 has become quite popular with crypto users. With BRC20, all users are treated equally in terms of minting, and project teams cannot reserve or issue additional tokens, which creates a level playing field. It is noteworthy, however, BRC20 tokens offer no intrinsic value and are often considered speculative commodities. 

As for implementation, BRC20 tokens are inscribed on satoshis, the smallest unit of Bitcoin, and unlike ERC20 tokens, they cannot interact with smart contracts. Yet, the BRC20 protocol provides a new way for the Bitcoin community to implement tokens, which facilitates innovation in the ecosystem and attracts more developers and users to the community.

3. L2/DeFi Projects

As Bitcoin’s transaction volume continues to rise, a key development trend is to figure out how to maintain the underlying security of Bitcoin while enabling it to process more transactions. At the same time, the issue of miner rewards has become more prominent, as the Bitcoin halving approaches, which has triggered the appearance of L2 and sidechain solutions that focus on Bitcoin’s block size limitation. Today, let’s dive into several L2 solutions and DeFi projects built on Bitcoin’s Layer 2 network. 

  • Stacks:

Stacks is an L2 solution for Bitcoin that enables the execution of smart contracts and the development of DApps on the Bitcoin blockchain. The project aims to introduce smart contract functionality to Bitcoin without modifying the network itself. Moreover, Stacks has a separate ledger to store data outside Bitcoin’s L1 network, allowing developers to build whatever applications on the blockchain.

A key feature of Stacks is its integration with Bitcoin. Built on top of the Bitcoin blockchain, Stacks adopts the same underlying technology and security features as Bitcoin. In other words, the project inherits the security and decentralization of Bitcoin, making it a reliable and secure platform for building DApps. Transactions on Stacks are more secure and reliable, as they are protected by the Bitcoin network. Stacks also allows applications and smart contracts to use Bitcoin as their asset or currency for settling transactions on Bitcoin’s main chain. 

Stacks ecosystem

The Stacks ecosystem is rapidly growing, with a wide range of projects and applications currently under development. Over 88 projects are listed on its official website, covering DeFi, NFTs, DEXs, and more. Stacks aims to empower people to control their data and wealth by delivering a more accessible internet and decentralized economy. 

  • Rootstock

As a sidechain running on the Bitcoin network, Rootstock (RSK) is designed to execute smart contracts using Ethereum’s Solidity. One key feature of Rootstock is its EVM compatibility, which allows developers to deploy and interact with smart contracts on Rootstock using familiar tools and frameworks. The compatibility also extends to widely used Ethereum wallets like MetaMask, enabling users to access and interact with DApps within the Rootstock ecosystem. Rootstock’s native token is called rBTC, which is pegged to Bitcoin. This means that the value of rBTC is tied to Bitcoin, and users can seamlessly move BTC to the Rootstock sidechain and back to the Bitcoin network. Besides, Rootstock has developed an infrastructure called RIF, which is a platform built on top of Rootstock that provides blockchain facilities and services such as domains, storage, and authentication to facilitate the development and deployment of DApps. Leveraging the security and robustness of the Bitcoin network, Rootstock strives to provide a secure and scalable platform for the development of smart contracts and DApps. 

  • Alex

Alex is a DeFi protocol built on the Stacks blockchain and is one of the most prominent protocols on the network. As of May 29, 2023, the TVL of Stacks stands at $28.31 million, $26.7 million of which is contributed by Alex. Considered the largest DEX in the Stacks ecosystem, the protocol offers a wide range of products and a decent user experience. Alex’s product offerings include a lending LaunchPad, a DEX, an order book, and futures contracts. Alex frequently interacts with other ecosystem developers, including those behind crypto wallets, and has built a vibrant community. In addition, the protocol uses Stacks to implement smart contracts, DeFi, and NFTs on Bitcoin. Alex’s DEX allows users to exchange, stake, and provide liquidity on BTC in a fully decentralized manner. Besides, the project also offers an AMM on the testnet and an off-chain order book, enabling users to engage in margin trading.

  • Arkadiko

Arkadiko, a decentralized liquidity protocol based on Stacks, intends to provide various DeFi solutions to improve the liquidity of assets on Stacks. One of its key features is that users can use their STX tokens as collateral to mint a stablecoin called USDA, which can be used for farming and loan repayment on Arkadiko. Also, the protocol uses a Proof of Transfer (POX) consensus mechanism to generate farming rewards.

According to LD Capital, Arkadiko is the second-largest protocol in the Stacks ecosystem with a TVL of $6.9 million. The Arkadiko team, with strong technical capabilities, works closely with the Stacks team and existing projects in the ecosystem. Despite all that, STX, Arkadiko’s primary collateral, comes with a low market value, and the USDA stablecoin also faces challenges such as limited ecosystem services and use cases. Along with the launch of Stacks SBTC and the enrichment of L2 applications on Stack, USDA is expected to capture a decent market share in the future stablecoin market, particularly within Bitcoin’s Layer 2. Arkadiko plays a crucial role in the BTC network, as it provides a decentralized stablecoin for the ecosystem.

In a nutshell, as standards and protocols like BRC-20 and Ordinals NFT continue to emerge, the BTC ecosystem has seen rapid growth and innovation. Meanwhile, the progress of supporting facilities such as wallets and L2 marketplaces further drives the expansion of the entire ecosystem. Besides, Bitcoin’s integration of DeFi protocols and sidechains is solving the issues of scalability and transaction speed. As the BTC ecosystem continues to evolve, it will offer tremendous momentum in shaping the future of blockchain technology and decentralized finance.

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