Original author: Homie

Original source: weiverse

Origin of Inscriptions

Background

In March 2023, Ordinals came into being, defining a set of ordinal protocols running on the Bitcoin network, allowing tokens and NFTs to be implemented and operate stably on the Bitcoin network.

In May 2023, with the emergence of Inscription trading platforms like Unisat and MagicEden, it quickly brought about a booming Bitcoin ecosystem. It also gave birth to several miraculous tokens, such as ORDI, PEPE, OXBT... ORDI and PEPE both achieved thousand-fold increases in a short period of time, with some of the early participants even achieving ten thousand-fold increases, creating a batch of wealth mythologies. The concept of Bitcoin inscriptions also became popular. During the same period, MagicEden, which focuses on NFT trading, also launched a trading market on Bitcoin. Bitcoin Frogs and Bitcoin Punks became popular collections, with Bitcoin Frogs having a trading volume of over 500+ BTC to date.

With the popularity of Bitcoin inscriptions, enthusiasts of other public chains also launched inscription projects based on different chains.

Bitcoin Cash: LTC

Ethereum: Ethscription, IERC Protocol, dumbContract, TERC

Base: Base Protocol

Inscription Mechanism

Bitcoin inscriptions are as durable, immutable, secure, and decentralized as Bitcoin itself.

Any inscription ecosystem is mainly divided into three parts: protocol, index, and ecosystem projects.

Protocol

On the Bitcoin network, the Ordinals protocol assigns a unique sequence number to each "satoshi" based on the order of mining, giving it non-fungible attributes. When transferring "satoshi", it follows the first-in, first-out rule. Because both the numbering scheme and the transfer scheme depend on order, the protocol is named Ordinals.

BRC 20 is a "standard" built on the Ordinal protocol, created by Twitter user @domodata on March 8, 2023. The standard implements token fungibility and free transfer of minting and tokens. The main functions of BRC 20 are: deploying tokens, receiving tokens, and transferring tokens.

BRC 20 has many token restrictions, such as:

• The token name is only allowed to have 4 characters (English punctuation marks, English, digits).

• Each transfer inscription can only be used once.

• Cannot exceed the user's available balance.

• If the transfer occurs in the same block, the block confirmation order is used.

• Each transfer inscription can only be used once.

However, due to the fact that the Bitcoin network had never thought of being able to achieve the functionality that can be achieved with partial smart contracts before, with the emergence of inscription protocols, the Bitcoin network has achieved a breakthrough from zero to one, naturally attracting a lot of users to participate.

Index

Bitcoin's Ordinals protocol records data on Satoshis, which are the smallest units of exchange on the Bitcoin blockchain. Then, it tracks the movement of these Satoshis in the Bitcoin network, which is the indexer. Anyone can build their own indexer, and the indexing rules and programs are open source. As long as the indexing protocols followed are consistent, the results indexed by any number of people will be consistent. This is the basis of decentralized consensus.

Many teams have already created indexing schemes for Bitcoin inscriptions, such as Unisat and OKEX.

Ecosystem Projects

In March, Bitcoin NFTs were clearly hotter than BRC 20 at the same time, occupying the majority of Bitcoin inscription minting. Ethereum blue-chip NFTs such as BAYC and Punk were also moved to the Bitcoin network, especially after Magic Eden's debut.

Due to the increasing hype around Ordinals, Bitcoin has become a new field for digital collectible trading. With the development of Bitcoin NFTs, Magic Eden, a Solana-based NFT marketplace, quickly entered the Bitcoin NFT market and became a new leader.

May's Labor Day completely changed the pattern of the Bitcoin inscription ecosystem. Starting from April 28th, the news of "$ordi thousand times per capita" spread in various WeChat groups, and then in the following days, there were consecutive opportunities for tenfold coins like $nals, $UTXO, $elon. A large number of users FOMO entered the BRC market, and the WeChat groups related to BRC-20, from one group to eight groups, were all full in less than an afternoon. As the only on-chain entrance and exit for buying and selling BRC tokens, UniSat became the name that the whole industry was discussing. Perhaps even the team did not expect that the Bitcoin network would be so congested because of their own product. Afterwards, UniSat even raised funds on the market with a market value of 50 million US dollars.

Exploring the Ethereum Protocol Ecosystem

In the Ethereum network, the current situation of the protocol is blossoming. Due to the existence of the Ethereum smart contract ecosystem, many people have questioned whether there is a need for inscription on Ethereum? Is the existence of the inscription unnecessary?

The concept of "Ethereum Protocol Ecosystem" was first proposed by IERC Protocol Labs, the Ethereum Inscription team in July 2023. Recently, Sergey, the founder of IERC Protocol, mentioned the concept of the Ethereum Inscription ecosystem in an AMA session. Those who are interested can refer to the original article: Ethereum Innovation Ecosystem: The IERC Protocol

Market Pain Points

Although the birth of the Bitcoin inscription ecosystem proves the feasibility of the inscription ecosystem route, the mining mechanism and UTXO mechanism of Bitcoin make the threshold for inscription higher. Many mechanisms of Bitcoin are also difficult to understand for many people in the industry. Minting inscription assets in the early stage has hindered many people. At the same time, slow on-chain speed and high gas fees have long been criticized.

• Liquidity Removal: In the vibrant DeFi world, liquidity providers are crucial. They invest funds in liquidity pools to earn rewards, but sudden withdrawals can disrupt balance and harm market stability.

• Token Dumping: Rug pulls are a significant issue in the cryptocurrency field. This happens when project teams suddenly withdraw liquidity from the pool, causing the token price to plummet. Such malicious behavior undermines trust and community morale.

• Hidden Positions (Rat Positions): Project creators hide token holdings, undermining the fairness of token distribution and deceiving investors.

Advantages of Inscription

Ethereum has undoubtedly the largest user base among all public blockchains. The level of wallet support, whether it's browser plugins or mobile wallets, is incomparable to other ecosystems. Moreover, Ethereum has the highest quality user base and its security has been widely recognized. After the EIP-4844 upgrade, the Gas fees on the network are well controlled. So overall, I personally believe that Ethereum mining has the greatest potential and is most likely to succeed compared to other public chains.

In practice, Ethereum mining seamlessly integrates with existing infrastructure such as nodes and wallets.

Compared to smart contracts, mining in Ethereum shifts the execution from contract methods to atomic transactions, persistently storing all contents on the chain through calldata, achieving decentralized storage. The benefit of this approach is the ability to achieve lower gas fees. Taking the IERC protocol as an example:

The above chart describes the gas consumption under the same GasPrice, clearly showing that Ethereum mining, with its minimum atomic transaction being a "Transfer Transaction," has gas fees as low as half of a contract execution. In addition, in the case of batch transactions, the advantages of the mining ecosystem become more apparent with larger batches.

Finally, regarding the launch mechanism and market trading of mining, it can better help retail investors protect against the risks posed by poor-quality project founders withdrawing liquidity and dumping.

Security and Scalability

After discussing the issue of security and scalability with Sergey, the founder of the IERC protocol, it is clear that users have no need to worry. Ethereum mining fundamentally does not add any burden or risks to the existing Ethereum infrastructure. Instead, it leverages the "calldata-carrying information mechanism" and the "atomic transaction mechanism for transfers" to the fullest extent. This gives rise to a new ecosystem while retaining critical on-chain information and indexing cumbersome off-chain information. It can be considered a subsystem of Ethereum and has a sibling relationship with the contract ecosystem, both relying on the stable underlying foundation of Ethereum.

Compared to the currently popular Layer 0 and Layer 2 scaling solutions, the mining protocol can achieve partial scalability and fee reduction with minimal modifications and without compromising decentralization and security.

For scalability, Ethereum Inscription can do a lot. The most basic is to implement a new economic ecosystem, deploy and issue Tokens, launch NFTs, and transfer assets... These are considered the most basic functionalities. Many people are concerned about whether the Inscription ecosystem can achieve more complex operations, such as deploying DEFI, DEX SWAP models, etc. Of course, the scalability of the Inscription ecosystem is definitely not comparable to the contract ecosystem. However, there are already some solutions available on the market for basic DEFI gameplay and AMM models, and a large number of Ethereum enthusiasts are working hard on it. It is believed that with the prosperity of the crypto ecosystem, the presentation of these mechanisms can also be expected, just like before the introduction of the Ordinals protocol, no one believed that token economics could be implemented on Bitcoin.

In addition to the above, Ethereum Inscription can also achieve things like batch buying and selling in a single transaction, cross-chain bridges, batch airdrops, etc., which are more challenging to implement in the contract ecosystem. These are made possible by the fact that Ethereum itself uses the same wallet account system and has a natural advantage in signature cross-validation.

Conclusion

The emergence of Ethereum Inscription is to reduce the gas fee loss caused by the current mainstream Ethereum ecosystem and to counteract the low-cost wrongdoing of low-quality project teams, allowing retail investors to participate more fairly in the primary market. Both reasons are worthy of our attention.

The prosperity of a new technology often requires a long cycle and market testing. We should not easily dismiss the value and significance of something just because the market is barren. The Inscription track is no exception. From a macro perspective, many things are considered reasonable as long as they exist in the market.