Bitcoin’s ecosystem has evolved significantly over the past two years.
Initially, most of the activity on the Bitcoin blockchain was limited to transactions. However, with the advent of Layer 2 scaling solutions such as the Lightning Network, permissionless communication layers like Solana’s Zeus Network, and the much-hyped Ordinal NFTs and Runes protocol, Bitcoin’s on-chain activity has witnessed a tremendous uptick.
As of writing, the total number of Bitcoin transactions over the past 24 hours stands at 517K, up from an average of 271K at the onset of 2023. What’s more intriguing is that a majority of these transactions are driven by newer innovations on the Bitcoin blockchain. For context, Runes-related transactions currently account for the lion’s share of Bitcoin’s activity, making up close to 80% of the total transaction share.
Source: Dune Analytics
In the next section of this article, we’re going to highlight the key areas of innovation on the Bitcoin blockchain that are expanding the network’s use cases. Of course, most are still in the experimental and development phases, which means they are not void of shortcomings. But more importantly, these nascent Bitcoin niches are setting the stage for a new era of Bitcoin’s value proposition. Let’s dive in:
Bitcoin Layer 2 Networks
Similar to Ethereum’s Layer 2 chains, Bitcoin L2’s were introduced to solve the issue of scalability. Today, the market capitalization of Bitcoin Layer 2 coins is a whooping $2.4 billion; Stack’s native token STX leads the pack with $2.2 billion, having recently surpassed over 122K monthly active users.
So, how are L2’s transforming Bitcoin’s utility? For starters, Bitcoin Layer 2 networks such as the Lightning Network have enabled instant Bitcoin settlements. This is possible through the network’s payment channels infrastructure which is designed to support off-chain micropayment transactions, ultimately reducing the workload on Bitcoin’s main blockchain.
On the other hand, the Stacks Layer 2 chain has made it possible for smart contract DApps to be built on the Bitcoin blockchain, thanks to the novel Proof of Transfer (PoX) consensus. According to DeFi Llama, there is over $115 billion locked in the Stacks protocol; these funds are from different DApps, including the likes of Uwu Protocol (CDP) and Velar Protocol (Dexes).
Bridgeless Networks
Bridgeless networks designed to connect other blockchains with Bitcoin are another area of innovation that is fuelling Bitcoin’s use case expansion. Before the debut of bridging solutions like Wrapped Bitcoin (WBTC) which enabled the use of native BTC on Ethereum DApps, BTC stored on the Bitcoin blockchain was limited to a single blockchain environment.
That’s no longer the case. In fact, Bitcoin’s integration ecosystem has grown beyond WBTC to now feature more advanced chain-agnostic solutions. A good example of a project that is introducing a bridgeless solution for Bitcoin is Zeus Network; this permissionless communication layer is built on the Solana Virtual Machine (SVM). Technically, Zeus Network is designed to make the transfer of Bitcoin to Solana’s growing DeFi ecosystem as seamless as possible.
To enable this integration, Zeus Network has pioneered a pluggable and programmable library dubbed ZPL. This library features a modular and extensible architecture which allows developers to transfer Bitcoin-related assets, including BTC, Ordinals and Runes in the form of ZPL-Assets. Notably, Zeus’ first DApp APOLLO attracted over 40,000 users within the first four days of its testnet launch.
Ordinals
Bitcoin ordinals were the talk of the crypto town hall in Q1 and Q2 2023. As of press time, the total number of Bitcoin ordinal inscriptions since their inception is well over 67 million. But what exactly are ordinals, and how are they enhancing Bitcoin’s value proposition as a blockchain that is capable of storing data?
The concept of ordinals is a built up on the ordinal theory – the ordering system which assigns a unique number to each satoshi in circulation. Every Bitcoin comprises 100 million satoshis which are capable of storing arbitrary data (images, text or other forms of data). This property is what has facilitated the rise of ordinal NFTs as it is now possible to assign unique arbitrary data to a specific satoshi and track it on the Bitcoin blockchain.
Of course, like any new innovation, ordinals have some shortcomings. They have become notorious for causing huge spikes in Bitcoin on-chain fees as was the case in April 2023 and more recently in December. Some Bitcoiners are also arguing they are unwarranted given the blockchain space they are taking up.
That said, it would be ignorant to overlook the fact that ordinals are using Bitcoin’s native blockchain to support a more intriguing area of development (Bitcoin NFTs), which could be huge given the interest in digital collectibles since the DeFi summer of 2021.
Runes
As mentioned in the introduction, Runes-related transactions are currently driving most of the activity on the Bitcoin blockchain. This Bitcoin protocol was launched as a more advanced alternative to the BRC20 token standard.
At the core, the Runes protocol allows developers to issue fungible tokens on the Bitcoin blockchain. What particularly stands out is the protocol’s use of Bitcoin’s Unspent Transaction Output (UTXO) model, enabling the creation and issuance of tokens using a significantly smaller space compared to the BRC20 protocol.
To date, over 2,500 BTC has been collected as fees related to Rune mints, edicts, and etchings; the total number of cumulative Rune wallet users is also well over 6 million with barely two years of existence. A signal that there is a serious interest in this particular niche of Bitcoin development, and given the stats, we could witness more growth in the near future.
Conclusion
While Satoshi’s main goal may have been to launch the most advanced form of money (decentralized) in the modern age, it seems that Bitcoin’s growth beyond its transactional value is inevitable. The surge in on-chain activity through alternative use cases are testimony to this statement, and what’s even more intriguing is the attention that newer Bitcoin developments are getting from all crypto stakeholders, including developers, retail, and investors.