Original author: Wendy, IOSG Ventures

The Ship of Theseus, also known as the Paradox of Theseus, is a paradox about identity in the field of metaphysics. The 1st century Greek writer Plutarch raised this question: If the wood on Theseus ship was gradually replaced due to age and decay, until all the wood was no longer the original wood, then the ship would still be the same. A ship? If not, when did it start? If so, then all the parts are not original. How to explain it?

Aristotle believed that this problem could be solved by describing the four causes of objects. The constituent materials are material causes, the design and form of matter are formal causes, and formal causes determine what an object is. Based on the formal cause, the ship of Theseus is still the same ship because although the materials have changed, the purpose of the ship has not changed.

TL, DR:

• Macro trend: Bitcoin is the totem of the crypto world, and value storage is its core function. With Bitcoin gaining wider social acceptance, the consensus has strengthened, institutional admissions, ETF expectations, Bitcoin halving, interest rate cut expectations and many other factors have combined to push up the price, and the narrative subject is quietly shifting; we predict that the price will not rise in the long term. There will be a sharp decline, which is a market manifestation of the currencys store-of-value function being more widely recognized;

• Technology Ecology: The explosion of Ordinals has attracted people’s attention to the Bitcoin ecosystem, which is a new narrative for individual retail investors to participate in Bitcoin investment. However, speculation is still the main focus at present. It is undeniable that speculation is one of the driving forces for the development of the industry. However, speculation on the emotional side cannot last long, and the wealth creation effect brings too much bubbles and noise. As a first-level institutional investor, we are aware of the risks of speculation, will maintain a cautious and optimistic focus on new ecological trends, and are willing to support more valuable investors. builder of meaning.

Bitcoin’s value consensus: A single spark can start a prairie fire

In 2008, a user named Satoshi Nakamoto posted a paper in a secretive cryptography discussion group: Bitcoin: A Peer-to-Peer Electronic Cash System. cash system). Since then, the gears of a new world have begun to turn. Later, he developed the earliest Bitcoin issuance, transaction and account management system. Two years later, on May 22, 2010, Laszlo Hanyecz spent 10,000 BTC to buy two pizzas from Papa Johns through the Bitcoin Talk forum. He arranged the deal via the Bitcoin Talk forum, and while it was just two pizzas, it was an iconic Bitcoin value moment.

In 2008, a user named Satoshi Nakamoto posted a paper in a secretive cryptography discussion group: Bitcoin: A Peer-to-Peer Electronic Cash System. cash system). Since then, the gears of a new world have begun to turn. Later, he developed the earliest Bitcoin issuance, transaction and account management system. Two years later, on May 22, 2010, Laszlo Hanyecz spent 10,000 BTC to buy two pizzas from Papa Johns through the Bitcoin Talk forum. He arranged the deal via the Bitcoin Talk forum, and while it was just two pizzas, it was an iconic Bitcoin value moment.

When did Bitcoin have value? Was it when Satoshi Nakamoto just proposed it? Or when you exchanged five hundred Bitcoins for pizza? Just as the ship of Theseus cannot determine when which log changed the ship, we cannot determine the specific moment when Bitcoin has value. In Money and the Mechanism of Exchange (1875), William Stanley Jevons analyzed four functions of money: medium of exchange, unit of account, store of value, and standard of deferred payment . Debates surrounding Bitcoin in the past have tended to focus on the latter two functions, especially storing value, with opponents arguing that Bitcoins violent price fluctuations make it non-currency-like. Today, Bitcoin is at the door of ETFs, and its value has gradually been accepted by mainstream financial institutions. The narrative has changed from a niche geek experiment more than ten years ago to a financial product and currency with consensus value on Blue Star.

From the perspective of macro trends, expectations of halving, ETFs and interest rate cuts have given the market strong confidence; various explorations in the Bitcoin ecosystem, including the recent enthusiasm of retail investors for the Ordinals ecosystem, are also based on the value of Bitcoin itself , and it also shows that the high price of Bitcoin, which is tens of thousands of dollars, makes the pure value storage function no longer the investment purpose of ordinary individuals, and the bargaining power and narrative subject are gradually shifting to institutions.

Ordinals: Carnival on Digital Gold

In this narrative change, the emergence and popularity of the Ordinals ecosystem at the beginning of the year seems to have become an accidental necessity. The high price of Bitcoin has made its value storage function no longer the first demand of ordinary retail investors, and participating in the top narrative of cryptocurrency at extremely low cost seems to be an irresistible temptation. The extremely high-odds speculation frenzy brought about by Meme has caused the gas fee on the chain to soar, and miners have made a lot of money as a result.

At the end of last year, Bitcoin Core contributor Casey Rodarmor created the Ordinals protocol, which introduced the concepts of Ordinals and Inscriptions, giving rise to NFTs on the Bitcoin network chain. On March 8, 2023, Domo proposed using Ordinals inscriptions in JSON data format to deploy token contracts, mint coins, and transfers.

To put it simply, Ordinals numbers the Satoshi, the smallest unit of Bitcoin, and then tracks the Satoshi number, realizing the recording and tracking of Satoshis. Then by burning information in the inscription, the inscription is made. The Cong number corresponding to the inscription is recorded and tracked, and the storage, recording and transaction of the inscription are completed.

BRC-20 specifies a specific information format burned on Satoshi. This format is the rule for the deployment, minting and transfer of BRC-20 tokens. Thus there is the BRC-20 token standard. BRC-20 deployment, minting and transfer can be completed according to a specific format. The deployment and minting of tokens follow the principle of First is First, whichever is deployed first shall prevail and whichever is minted first shall prevail. But this has also resulted in Brc 20’s technical imperfections and operational instability—the index relies on a centralized trading platform, and user transactions require casting transfer inscriptions, making the steps cumbersome and unsmooth. In addition to Brc 20, different protocol standards such as Arc 20, Runes, and Tap have gradually appeared on the market, trying to make more innovations in technology.

As the first brc 20 standard experimental token deployed by Domo, the $ORDI token has become a special meme. Its huge wealth effect has also triggered users’ FOMO emotions towards Brc 20 tokens, leading to a series of The speculative bubble of meme tokens. After all BRC 20 tokens are generated, all users who own BTC only need to pay Gas fees to mint them, which is equivalent to allowing ordinary users to participate fairly in the primary market. This kind of low-cost and potentially high-odds participation This approach triggered huge speculative enthusiasm in the market.

With centralized exchanges such as Binance listing Brc 20 memecoins (ORDI, SATS, etc.), market sentiment and attention have further focused. In the past month, the top three Brc 20 tokens in the OKX Ordinals trading market were all Memecoin, proving that the market is still dominated by emotions and speculative noise, with large bubbles and risks.

For Ordinals NFT, we compare its 30-day transaction data and 7-day transaction data. We can find that the volatility of the project is relatively large. The transactions of the top ten projects within a month are unevenly distributed. During the FOMO period, The hand rate is high, but the liquidity is poor after entering the calm period.

For the miners, as the Bitcoin halving is imminent and the incentives for block rewards are reduced, it is natural for Ordinals to increase on-chain transaction fees in line with their interests. Since Ordinals was launched on the Bitcoin mainnet at the beginning of the year, the inscribed handling fees have exceeded 4,000 Bitcoins.

On the other hand, BRC-20 tokens currently lack practical application value. After a cycle, there will be very few fair sales left, and the remaining long-term development projects are still time-tested old projects with good financing structures. Long-term projects require long-term capital risk investment, and short-term and fast fair sales cannot support long-term ecological development. Hype and memes have brought about wealth effects, but how to not only see these in the encryption market, but also go beyond the hype and memes to support protocols with more value propositions and application prospects will also become an important responsibility and responsibility for industry beneficiaries.

Try: Ecology allows a hundred flowers to bloom, and its value needs to be verified

With the market craze triggered by Ordinals, more Bitcoin technologies and asset issuance protocols have received more attention from the market. At this stage, there are two main trends in the development of the Bitcoin ecosystem: one is trying to create new asset issuance protocols, such as Ordinals, Atomics, Runes, etc.; on the other hand, there are many attempts in the direction of Bitcoin expansion, trying to improve the Bitcoin network Basic performance, such as Lightning Network, Stacks, RGB, BitVM, etc.

• Atomicals：

Atomic protocols, including the fungible token ARC 20 standard, NFT, Realm, and the conceived Atomics Virtual Machine (AVM), etc. The difference between the Atomics protocol and Ordinals in terms of asset transaction ordering is that it does not rely on third-party orderers and can be used to create (mint), transfer and upgrade various digital items, including native NFTs, games, digital identities, domain names and social networks . Currently supported by Unisat Marketplace.

• Runes：

Casey Rodarmor proposed Runes, a new Bitcoin-based fungible token protocol, also known as Runes Protocol, as a potential alternative to the BRC-20 token standard. Casey Rodarmor believes that FT protocols such as BRC-20, RGB, Counterparty and Taproot have appeared in the market. Most of the on-chain protocols are very complex and may be difficult to bring a good experience to Bitcoin users. Although BRC-20 is very simple, it will generate a lot of useless information on the chain and occupy Bitcoins space. Runes is a simple, UTXO-based FT protocol that enables Bitcoin users to have a good experience. It may attract users from other solutions with worse on-chain footprints and turn the attention of developers and users to Bitcoin. coins, encouraging them to adopt Bitcoin itself.

• PIPE:

The PIPE protocol is an asset issuance protocol developed by developer Benny after being inspired by the Runes protocol designed by Casey and the Ordinals-based BRC-20 standard proposed by Domo. It includes: Trac Core, Tap, Pipe (referred to as TTP, collectively known as Trac Systems) .

• SRC-20:

The Bitcoin Stamps system was released by Mike In Space in March 2023 and was originally a proof-of-concept project on Counterparty. Stamps moved fully to Bitcoin last summer due to an update to its underlying protocol, now known as SRC-20. The main difference between Stamps and Ordinals is the architecture. This is because Stamps store their metadata in multi-signature unspent transaction outputs (UTXO), while Ordinals store their metadata in the witness portion of Bitcoin transactions, but this design also makes Stamps Casting costs are more expensive.

• CBRC 20 

v The Ordinals protocol after version 0.10.0 introduces fields for defining metaprotocol and metadata for inscriptions. The most direct effect of these two new fields is to directly greatly shorten the deployment/casting/transfer of the BRC-20 protocol. The number of bytes required at the time, thus achieving the effect of reducing costs and simplifying indexing.

• RGB：

The RGB protocol is suitable for scalable and private Bitcoin and Lightning Network smart contract systems. Its purpose is to run complex smart contracts on UTXO and introduce it into the Bitcoin ecosystem. The official description is: A scalable and confidential smart contract protocol suite for Bitcoin and the Lightning Network that can be used to issue and transfer assets and rights more broadly.

• Lighting：

The Lightning Network is a second-layer scaling solution for the Bitcoin network, designed to solve the scalability and transaction speed issues of the Bitcoin network. It is a payment protocol based on smart contracts. Participants can open a multi-signature payment channel and realize instant low-cost micropayments by conducting transactions directly within the channel.

• BitVM

On October 9, Robin Linus, the leader of the ZeroSync project, published a white paper called BitVM: Compute Anything On Bitcoin, which proposed a Bitcoin that can achieve Turing completeness without changing the consensus of the Bitcoin network. Bitcoin contract solution, BitVM enables any computable function to be verified on Bitcoin, allowing developers to run complex contracts on Bitcoin without changing the basic rules of Bitcoin.

Another interesting finding is the geographical extension of the Bitcoin craze led by Inscription. Led by Asian teams such as Unisat and OKX, we have also seen more European and American teams and developers gradually participate. For example, the Cbrc-20 protocol is mainly led by Western communities and developers, and the Bitcoin one-stop DeFi service platform ALEX Tweeted that the ALEX Bitcoin Oracle will support Stacks Inscription STX 20. At present, many attempts are still in the early stages, and the technology and PMF (Product Market Fit) have yet to be verified. Therefore, it is still unknown which protocols will survive, grow and develop in the long term.

Against: The battle over Bitcoin’s value

For Bitcoin fundamentalist conservatives, the “prosperity” of the Bitcoin ecosystem is not worth celebrating. Ordinals work by embedding data within individual transactions in Bitcoin, which can take up a lot of block space. This will cause the amount of UTXO information that miners need to store on the Bitcoin network to skyrocket, and will affect the networks processing speed and transaction costs. And those meaningless data engraved and transferred will also exist permanently on the Bitcoin chain.

Bitcoin core developer Luke Dashjr even bluntly stated that inscriptions are an attack on Bitcoin, and stated that he would use a fixed version of Bitcoin Knots to filter inscription transactions in the Ocean mining pool he founded. Peter McCormack, founder of the podcast WhatBitcoinDid, also said that these new assets issued on the Bitcoin chain have pushed up transaction fees and have not benefited people who use Bitcoin transactions. The high-fee environment reduces the number of people who can afford to store Bitcoin on-chain and complicates opening channels on Lightning. But Ordinals developer Casey Rodamour sees the Bitcoin inscription asset as a solution to Bitcoin’s security challenges. Through the incentives of Bitcoin transaction fees, even in the future where block rewards continue to decrease or even reach zero, miners will still have the motivation to maintain The normal functioning of the Bitcoin network.

In the eyes of Bitcoin halal supporters, the existing technical defects are not defects. The value of digital gold does not lie in its high TPS and large block space. It has been operating safely for more than ten years. The underlying technology and the gradually accumulated social consensus are its value. Looking back at the dispute over large and small blocks in the history of Bitcoin, from the Segregated Witness of the Hong Kong protocol to the generation of BCH during the hard fork, discussions on the expansion of Bitcoin technology have continued. Supporters of large and small blocks have their own reasons for insisting. At present It seems that the conservative and stable technical route still dominates. As teacher @mindao said, how to balance the tension between technology and desire may be an issue that currency holders, currency speculators, miners, and exchanges all need to consider. Without a stable and unchanging technical base, Bitcoin cannot become the ultimate store of value, and high handling fees are also a short-lived illusion.

Macro Trends: Halving, ETFs and Rate Cuts

When miners verify a transaction and successfully submit a block to the Bitcoin blockchain, they will receive a certain number of Bitcoins as a block reward. Every time the Bitcoin blockchain validates 21,000 blocks, the Bitcoin rewards miners receive for packaging new blocks will be halved. The next Bitcoin halving is expected to occur in April 2024, when the number of blocks will reach 740,000. Bitcoin block reward will drop from 6.25 BTC to 3.125 BTC.

Judging from historical data, each halving will cause the price of Bitcoin to increase significantly. Its impact is not limited to the Bitcoin network, but drives the entire encryption market upward and becomes a catalyst for the bull market. From an economic perspective, halving reinforces Bitcoin’s scarcity and solidifies Bitcoin’s status as a store of value.

With the increase in applications for Bitcoin ETFs and the continuous advancement of the process, institutions and compliance have become expected benefits. Huge amounts of funds can bypass wallets, private keys, and complex cryptography principles, and directly become the driving force of the encryption world. strength. Bitcoin ETFs are popping up around the world, including Canada, Brazil, and Dubai. However, so far the U.S. Securities and Exchange Commission (SEC) has rejected all applications for spot Bitcoin ETFs, which offer the opportunity to invest directly in Bitcoin instead of futures contracts. The SEC has repeatedly pointed out possible market manipulation by cryptocurrency traders.

On December 11, 2023, according to Coinglass data, the current CME (CME Group) Bitcoin futures contract positions surpassed all crypto CEXs and ranked first among all online platforms. This is the first time since March 2021, when the CME platform futures contract positions Quantity briefly ranked first. The holdings of Bitcoin futures contracts on the CME platform are 120,500 BTC, worth US$5.226 billion. Founded in 1848, CME Group is the worlds first futures trading platform and began supporting Bitcoin futures trading at the end of 2017.

A number of asset management giants have already applied for Bitcoin ETFs, which has also become an important news indicator to boost market sentiment. This is good news for those on Wall Street who are curious about cryptocurrencies, with Javier Rodriguez-Alarcon, chief commercial officer of digital asset platform XBTO, adding: “BlackRock’s approval could provide Many wealth managers and asset managers are opening the door to taking even small positions in Bitcoin, which could be a game-changer. But that may not be the case for others. Longtime believers in cryptocurrencies, who have followed Bitcoin’s development since its early days, told me that a financial revolution was becoming nothing more than a bid for a spot on Wall Street. This is a crazy betrayal of the basic principles of cryptocurrency, a betrayal of traditional finance, and a capitulation of our ideals, said Charles Story, head of growth at cryptocurrency index platform Future.

Arthur Hayes also said that if the Bitcoin ETF is too successful, it will destroy Bitcoin. The Bitcoin network requires dynamic maintenance by miners, especially after the halving. Miners’ income increasingly relies on transaction verification rewards. If it is just long-term storage, the Bitcoin network will no longer be active, and the motivation for miners to maintain will disappear.

Expectations of interest rate cuts are another important macro factor for good market performance. At the U.S. Federal Open Market Committee (FOMC) meeting on December 13, 2023, the U.S. Federal Reserve (Federal Reserve, FRB) kept the policy interest rate unchanged. This was the third consecutive time that the policy interest rate was unchanged. In the economic outlook released at the same time, participants expected three interest rate cuts in 2024.

It can be seen that the improvement and progress of the macro environment has caused the main narrative of Bitcoin to change unconsciously: it has changed from a decentralized payment and accounting method favored by niche geeks to a mainstream one. and regulatory acceptance of a currency of value.

Conclusion:

At the time of the Bitcoin ecological renaissance, if we look at the overall value narrative of Bitcoin from a higher latitude and a longer time perspective, we will find that after more than ten years of development, the function of Bitcoin’s value storage has It is widely recognized that macroeconomic factors such as regulation, ETFs and interest rate cuts have a significant impact on its market performance, indicating that institutions have become an important part of the Bitcoin world; for Bitcoin, social attributes are as important as technical attributes, and In the process of moving towards a universal currency, its social attributes will become stronger and stronger.

When the currency price rises and the halving is expected, for retail investors, Ordinals become a low-cost opportunity to participate in the Bitcoin narrative. The hot market sentiment is inevitable by accident; but through bubbles and noise, everyone clearly understands Knowing that the inflated prices of most memecoins are supported by low liquidity and sentiment, speculation that spreads rumors must be unsustainable.

As the social attributes of Bitcoins value storage become more widely recognized, its derivative financial products and innovations will become increasingly abundant, and will fluctuate greatly with market sentiment. Real value judgment requires a strong enough network effect and a long enough precipitation.