Ordinals, Inscriptions, BRC-20 propel Bitcoin scalability solutions

Recent advancements in Bitcoin technology, including Ordinals, Inscriptions, BRC-20 tokens, and Runes, have intensified the discourse around Bitcoin scalability solutions, the report notes.

Meanwhile, Ethereum boasts around $45 billion in total value locked (TVL) across its various Layer-2 (L2) solutions, nearly 10% of its total market cap. In contrast, Bitcoin, valued at $1.4 trillion, has only around $2 billion of L2 TVL, which constitutes a mere 0.13% of Bitcoin’s total value.

Key factors in evaluating Bitcoin scalability solutions include how they address the trustless two-way bridge issue, their relationship and alignment with the Bitcoin base layer, potential fork requirements, and the level of incentive alignment among users, developers, and newcomers to the space.

The development of Bitcoin technologies at the infrastructure level, such as Taproot and BitVM, has broadened the scope of protocols that can be built on Bitcoin. Although many of these implementations are still in their early stages, this has not deterred projects from creating innovative solutions to Bitcoin’s scaling challenges.

“Bitcoin-native projects like the Lightning Network and RGB are designed to enhance Bitcoin’s peer-to-peer transaction capabilities and introduce smart contract functionalities while maintaining the core integrity of Bitcoin,” Binance Research noted. The Lightning Network has achieved relative success, whereas RGB is still under development.

Additionally, other scaling solutions are emerging, including sidechains and EVM Layer 1s that using bridged BTC as the staked asset to secure their chains. Despite somewhat leveraging Bitcoin’s economic security, bridged versions of Bitcoin often involve centralized components and cannot genuinely claim to inherit much of Bitcoin’s security.

Zero-knowledge rollups have recently entered the Bitcoin Layer 2 scene, employing BitVM technology to more securely verify rollup data compared to other scaling solutions that merely post a hash of their block data into Bitcoin blocks. These rollups are considered to inherit the most Bitcoin security at the current stage.

Demand for Bitcoin’s block space surged, with fees skyrocketing as the mempool became crowded. This was followed by the introduction of BRC-20s, which allowed for fungible tokens on Bitcoin, continuing the frenzy and impacting Bitcoin’s key metrics.

This Bitcoin renaissance has attracted a new group of users, builders, traders, and even enthusiasts, leading to an unprecedented rate of project funding and development. Some builders are transitioning from alternative Layer-1s to Bitcoin, focusing on scalability solutions.