In our latest series of Research & Insights reports, we dive into Bitcoin’s expanding ecosystem. In this feature report, we provide an overview of the expanding Bitcoin ecosystem and key projects in Bitcoin-based Layer-2, DeFi, and NFT projects. Check out Bitcoin’s Expanding Ecosystem: Layer-2, DeFi, NFT
Key takeaways:
Compared to Ethereum and other smart contract Layer-1 blockchains, Bitcoin could be seen as somewhat limited in terms of functionality and use cases. However, the durable and decentralised base layer of the Bitcoin network can potentially serve as the foundation of a much wider range of economic activity. Indeed, Bitcoin-based protocols that bring scalability and programmability on top of this base layer are being developed, therefore expanding the Bitcoin ecosystem.
Modifications to Bitcoin’s core protocol could take a long time to implement. Therefore, initiatives to expand the scalability and use cases of Bitcoin are mostly taking place outside of the base layer.
The landscape of the latest projects building on top of Bitcoin is expanding beyond payments and includes Layer-2 scaling solutions and key application categories like DeFi and NFT. Currently, the main Layer-2 solutions are Lightning Network, Rootstock (RSK), Stacks, and Liquid Network. We also highlight some Bitcoin-based projects in DeFi, such as Sovryn, ALEX, Stackswap, and Lend at Hodl Hodl; and in NFT, such as Ordinals, Bitcoin Stamps, and Bitcoin domain names.
Although efforts to expand Bitcoin’s use cases have been continuing since 2012, levels of adoption are still relatively low to date. However, there are some catalysts emerging that could potentially accelerate developments in the Bitcoin ecosystem, including infrastructure progress and developer incentives.
Bitcoin will still face stiff competition from Ethereum and the other multitude of alternative Layer-1 blockchains. These competing platforms were built for general-purpose applications since their inception and their user experience currently remains superior to many Bitcoin-based solutions.
Monthly Feature Article | Bitcoin DeFi and Scaling Solutions
For our latest private report, we dive deeper into the Bitcoin-based protocols that are bringing programmability and scalability to the network, with Lightning Network, RSK, Stacks and Liquid Network leading the pack. It examines how they enable DeFi on Bitcoin, and what the next phase of growth for the network can look like. Read all of this and more in our report, exclusive to our private members. Check out Bitcoin DeFi and Scaling Solutions
Key takeaways:
The design of the Bitcoin network makes it excellent in terms of security and decentralisation, while its weakness in scalability sets it behind other use cases like DeFi. Synthetic BTC, created by bridging BTC from the Bitcoin network to other blockchains, is the main method of bringing BTC to the DeFi space.
A new class of Bitcoin-based protocols is bringing programmability and scalability to the network, with Lightning Network, RSK, Stacks and Liquid Network leading the pack.
Lightning Network was designed as a scalability solution to Bitcoin. In an effort to reduce Bitcoin network congestion, it uses payment channels to handle Bitcoin micropayments off-chain.
RSK is a sidechain of Bitcoin and has a few unique mechanisms compared to other Bitcoin layers; namely, merged mining, Powpeg, and RSK Virtual Machine.
Stacks is a Layer-2 blockchain that introduces smart contracts and decentralised applications to the Bitcoin blockchain. One of its novel ideas is its Proof of Transfer consensus mechanism.
Liquid is a sidechain and federated network run by the Liquid Federation, a group of crypto-native institutions that execute tasks integral to the protocol’s operations.
There are risks that come with any nascent technology, and these Bitcoin-based solutions have their unique set of drawbacks and limitations. While these solutions aim at enhancing Bitcoin’s scalability and interoperability, they also make the case for further unlocking Bitcoin’s market value and sustaining a burgeoning flywheel economy by the network.
Monthly Feature Article | NFTs in the Bitcoin Ecosystem
Bitcoin non-fungible tokens (NFTs) have recently gained considerable popularity and traction since the launch of the Ordinals protocol in January 2023, which has made it possible to mint NFTs directly onto the Bitcoin blockchain. Traditionally, Bitcoin’s main use case was seen as a store of value or medium of exchange akin to gold, while most of the NFT activity was on Ethereum and other blockchains. With the new developments like Ordinals NFTs, the Bitcoin network is now able to better participate in the NFT landscape. In this report, we cover the rise in popularity of Bitcoin NFTs, and the NFT functions in Bitcoin through Bitcoin Ordinals and Bitcoin Stamps. Read all of this and more in our report, exclusive to our private members. Check out: NFTs in the Bitcoin Ecosystem
Key takeaways:
Bitcoin non-fungible tokens (NFTs) have recently gained considerable popularity and traction since the launch of the Ordinals protocol in January 2023, which has made it possible to mint NFTs directly onto the Bitcoin blockchain.
Traditionally, it is more difficult to mint NFTs on Bitcoin compared to other blockchains like Ethereum. This is due to the limited smart contract functionality on Bitcoin, as well as the lack of a token standard for NFTs, such as the ERC-721 token standard on Ethereum.
Currently, there are two technical ways to realise the NFT functions on Bitcoin — Bitcoin Ordinals and Bitcoin Stamps:
Bitcoin Ordinals are based on the Ordinal theory through the Ordinals protocol:
The Ordinals protocol assigns each satoshi a sequential number. To be precise, each satoshi is numbered in the order they are mined.
Subsequently, each satoshi can be inscribed with data, such as pictures, text, or videos, through a Bitcoin transaction. Inscriptions can be up to 4 MB in size.
After the transaction is mined, the inscribed data is part of the Bitcoin blockchain. In addition, it is viewable through Ordinals-enabled Bitcoin wallets and online Ordinals viewers.
Bitcoin Stamps stores image data directly within unspent transaction outputs (UTXOs). This makes the image data impossible to prune from a full node, which helps in preserving the data immutably.
The recent NFT developments in the Bitcoin network demonstrate that the Bitcoin blockchain continues to improve and evolve. The development of Bitcoin NFTs shows the vitality of the Bitcoin community and the innovation of Bitcoin’s use cases beyond the store of value.
This institutional-focused report dives into macro trends, market-neutral pair trades, style-factor screens, and event-driven ideas. Read the full Alpha Navigator report here.
Risk assets were generally flat in April, with crypto outperforming the other asset classes. ETH led with a +6.27% price increase.
BTC’s 3-month correlation with gold is now stronger than with most equity indices.
4. Crypto Conference & Economic Calendar from Market Pulse
In this issue we feature trending market insights, and our latest research reports take a closer look into Bitcoin’s expanding ecosystem specifically Layer 2s, DeFi, and NFTs.
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