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Bitcoin inscription protocol: the evolution from frenzy to rationality
The Development History of the Bitcoin Inscription Protocol: From Frenzy to a Rational Return to Calm
The phrase inscribed in the genesis block of Bitcoin witnessed the beginning of an era. Now, with the price of Bitcoin reaching new highs, we are also witnessing the end of another once-glorious era - the era of inscriptions and runes.
Since the Ordinals protocol emerged in early 2023, followed by the frenzied speculation of BRC20, and the successive appearances of Runes, Atomical, CAT20, RGB++, and Alkanes protocols, the Bitcoin ecosystem has experienced an unprecedented "inscription revolution". These protocols all attempt to transform Bitcoin from a mere value storage tool into a foundational platform capable of supporting various asset protocols.
However, when the carnival is over, we must face a cruel reality: the fundamental limitations of the inscription protocol destined this beautiful bubble to eventually burst. As a technical practitioner deeply involved in the development of the inscription protocol, this article will sort out the innovations and limitations of multiple inscription protocols and explore why this once-glorious track has quickly reached its end.
1. The Evolution of the Inscription Protocol
1.1 Ordinals protocol: The beginning of the inscription era
The Ordinals protocol has opened the "inscription era" of Bitcoin. It achieves on-chain storage of arbitrary data by numbering each satoshi and utilizing submission revelation technology. The combination of the UTXO model and the NFT concept allows each satoshi to carry unique content.
From a technical perspective, the design of Ordinals is quite elegant, perfectly compatible with the native Bitcoin model, achieving permanent data storage. However, merely writing data is also its limitation, failing to meet the strong market demand for the "issuance" of BTC + other assets.
1.2 BRC20 protocol: Business Breakthrough and Consensus Trap
BRC20 injects soul into on-chain data through standardized content formats based on the technical foundation of Ordinals. It defines the complete asset lifecycle of deploy-mint-transfer, transforming abstract data into tradable assets, and achieving the issuance of fungible tokens on Bitcoin for the first time, satisfying the market's strong demand for "issuance" and igniting the entire inscription ecosystem.
However, its account model fundamentally conflicts with Bitcoin's UTXO model. Users must first inscribe the transfer inscription before making the actual transfer, resulting in multiple transactions to complete one transfer. More importantly, the fundamental flaw of BRC20 is that it merely binds "certain data" but completely fails to share its consensus power. Once the off-chain indexer stops supporting it, all the so-called "assets" will instantly turn into meaningless garbage data.
This vulnerability was fully exposed during the repeated Satoshi event - when multiple assets appeared on the same Satoshi, the parties to the protocol collectively modified the standards, meaning that the consensus of the entire ecosystem was actually in the hands of a few people. The subsequent "optimizations" such as single-step transfers did not actually address the core pain points of the market, but instead brought costs for various platforms to migrate to adapt to the new version.
This reflects a deeper issue: for the past two years, the designers of the inscription protocol have been stuck in the single area of "issuance," lacking in-depth consideration of application scenarios after issuance.
1.3 Atomical protocol: A correction and disconnection of UTXO nativism
For the UTXO compatibility issues of BRC20, Atomical has proposed a more radical solution: to directly correspond the number of assets to the number of satoshis in the UTXO, and introduce a proof-of-work mechanism to ensure fair minting. This achieves native compatibility with the Bitcoin UTXO model, where asset transfer is equivalent to satoshi transfer, thus addressing the cost and interaction issues of BRC20 to some extent.
However, the iteration of technology has also come at the cost of complexity - transfer rules have become extremely complicated, requiring precise calculations of UTXO splits and merges, with asset burning becoming a frequent occurrence that deters users from operating lightly. More critically, the proof-of-work mechanism has exposed serious fairness issues in actual operation, as large holders leverage their computational power to complete minting first, which is contrary to the mainstream narrative of "fair launch" in the inscription ecosystem at that time.
The subsequent product iterations further reflect the development team's misunderstanding of user needs - complex features like semi-dyed assets consume a lot of resources but have minimal impact on improving user experience, instead leading to high costs for major institutions to restructure on-chain tools. Meanwhile, the highly anticipated AVM has arrived late, and the entire market has already shifted, missing the best development window.
1.4 Runes protocol: the official authoritative elegant compromise and application blank
As the "official" issuance protocol of Ordinals founder Casey, Runes absorbs the lessons learned from the aforementioned protocol. It adopts OP_RETURN data storage to avoid the abuse of witness data, and through clever coding design and the UTXO model, it finds a relative balance between technical complexity and user experience.
Compared to previous protocols, the data storage in Runes is more direct, and the encoding is more efficient, significantly reducing transaction costs. However, the Runes protocol is also trapped in the fundamental dilemma of the inscription ecosystem - aside from issuing coins, this system does not have any special designs.
Why does the market need a token that can be obtained without any barriers? After acquiring it, besides selling it on the secondary market, what practical significance does it have? This purely speculative driven model is destined to limit the vitality of the protocol.
However, the application of opreturn has opened up ideas for subsequent protocols.
1.5 CAT20 protocol: ambitions of on-chain verification and real-world compromises
CAT20 achieves true on-chain verification through Bitcoin scripts. Only the state hash is stored on-chain, ensuring all transactions adhere to the same constraints via recursive scripts, thereby claiming "no indexer needed." This is the holy grail that the inscription protocol has long pursued.
However, the "on-chain verification" of CAT20, although the verification logic is indeed executed on-chain, stores the verifiable state data in hash form within OP_RETURN. A hash alone cannot be reversed, so in actual operation, an off-chain indexer is still needed to maintain the readable state.
From a design perspective, the protocol allows token name symbols to be non-unique, leading to confusion with assets of the same name. Additionally, the UTXO competition issues in high-concurrency scenarios during early development resulted in an extremely poor initial minting experience for users.
The subsequent hacker attack revealed that the internal data lacked a separator when connecting two numerical values, which caused different combinations of values to potentially yield the same hash result. This attack forced a protocol upgrade, but the prolonged upgrade plan led the market to forget the initial enthusiasm.
The case study of CAT20 shows that even if partial breakthroughs are achieved at the technical level, it is difficult to gain market recognition if it is too advanced for users to understand. The threat of hackers always hangs over the project team like the sword of Damocles, reminding us to maintain a sense of reverence.
1.6 RGB++ protocol: Technical Idealism and Ecological Dilemma
RGB++ aims to solve the functional limitations of Bitcoin through a dual-chain architecture. It utilizes the Turing completeness of CKB to verify Bitcoin UTXO transactions, being the most advanced technically, achieving a more enriched form of smart contract verification, with the most complete technical architecture, and is hailed as the "pearl of technology" in the inscription protocol.
But the gap between ideals and reality is vividly reflected here - the complexity of the dual-chain architecture, the high learning costs, and the institutional access barriers. More critically, the strength of the project team itself is relatively weak, and they must simultaneously promote the dual challenge of chain (CKB) and the new protocol (RGB++), which fails to attract sufficient market attention.
In this field that heavily relies on network effects and community consensus, RGB++ has become a "well-received but underutilized" technical solution.
1.7 Alkanes protocol: final sprint and resource scarcity
Alkanes is an off-chain index-based smart contract protocol that integrates the design concepts of Ordinals and Runes, aiming to achieve arbitrary smart contract functionalities on Bitcoin. It represents the final sprint of the inscription protocol towards traditional smart contract platforms. In theory, it can indeed implement any complex contract logic and has seized the opportunity presented by the Bitcoin upgrade to lift the 80-byte opreturn limit.
However, the harsh reality of cost considerations ruthlessly shatters this technological ideal. The off-chain operations of complex contracts bring about significant performance bottlenecks, and the self-built indexers in the early stages of the project have been overwhelmed multiple times. Deploying custom contracts requires nearly 100KB of data to be put on-chain, a cost that far exceeds that of traditional public chain deployments. Moreover, the operation of contracts is not under control and still relies on indexer consensus.
High costs are destined to serve only a very small number of high-value scenarios, while high-value scenarios do not trust ordinary indexers. Even if certain platforms strongly back it, the market does not buy it. If it had been proposed a year ago, the result might have been completely different.
2. Fundamental Dilemma: Bitcoin's Minimalist Philosophy and Over-Design
The cumulative effect of technical debt
The evolution of these protocols showcases a clear yet contradictory logic: each new protocol attempts to solve the problems of its predecessors, but in doing so, it introduces new complexities. From the elegant simplicity of Ordinals to the technological layering of subsequent protocols, in the pursuit of distinction, complexity continues to increase, until every player has to learn a bunch of terminology and constantly guard against risks.
Moreover, all attention is focused solely on the logic of the coin issuance platform. If that's the case, why wouldn't players choose other options that have lower costs, easier manipulation, more significant price increases, and better platform mechanisms?
Long-term chewing on the same topic has also led to user aesthetic fatigue.
vicious cycle of resource scarcity
The fundamental reason for the resource scarcity of these projects may lie in the centralization of the Bitcoin system's operation and the fairness of its launch itself - how can institutions lacking incentives invest heavily in platforms that do not offer advantages?
Compared to the block rewards for miners, operating an indexer is purely a cost investment. Without the distribution of "miner" rewards, naturally no one is there to solve the technical and operational issues.
Speculative Demand vs Real Demand
Through multiple user educations, it has been found that as long as it is an off-chain protocol, their security cannot be equated with the consensus of Bitcoin. The cooling of the market is not coincidental; it reflects the fundamental issues of the inscription protocol: they do not address real demand, but speculative demand.
In contrast, truly successful blockchain protocols succeed because they solve real problems: consensus, functionality, and performance are all essential, but the contribution of the inscription protocol in this regard is almost zero, which also explains why their popularity cannot be sustained.
3. Transition to the RWA Era: From Market Dream Rate to Market Share Rate
The maturity of market recognition
As the market matures, users have gone through several rounds of bull and bear cycles and have learned to cherish their attention - what a precious resource it is. They no longer blindly trust the information sources monopolized by social media KOLs and influential communities, nor do they blindly believe in the "consensus cannon fodder" of white papers.
The threshold for issuing platforms is very low. In the current market environment, these "low-hanging fruits" have already been picked. The industry is shifting from mere token issuance to more practical application scenarios.
However, it is worth noting that if the RWA field only sees a bunch of issuance platforms, then this opportunity will come and go quickly.
The Return of Value Creation
The technological innovations of the inscription protocol era often carry a "show-off" quality, pursuing cleverness in technology rather than practicality. The development logic of the new era has shifted from "market dream rate" to "market share", placing greater emphasis on forming genuine network effects through user reputation.
Real opportunities belong to teams that pursue product-market fit - creating products that truly meet user needs, have cash flow, and have a business model.
Conclusion: The Return of Rationality and Restraint
After calm down, the exploration and setbacks of the inscription era have provided valuable lessons for the healthy development of the entire industry.
When the price of Bitcoin reaches new highs, we have reason to be proud of this great technological innovation. However, we should also recognize that the development of technology has its inherent laws; not all innovations will succeed, and not all bubbles are worthless.
The rise and fall of the inscription protocol tells us that technological innovation must be built on a solid technical foundation and real market demand. Speculative enthusiasm and excessive technological showmanship.