Why We’re Excited About Bitcoin
On January 3rd, 2009, Bitcoin mined its first block. Since then, block production has chugged on, and the oldest blockchain has cultivated a cult following characterized by a deep conviction that Bitcoin is the fix for the financial system—and the catchphrase “have fun staying poor.”
Neither has helped establish Bitcoin as an ecosystem where innovation could flourish among the rest of the crypto crowd, who discovered that it’s more fun to interact on smart contract platforms, which allow for farming and minting of Kevins.
While chains like Ethereum hit their scaling limits and branched out into L2s, the most significant innovation for a long time on Bitcoin was the Lightning Network, which aimed to scale peer-to-peer payments.
This was the status quo until the end of 2022, when the SegWit upgrade on Bitcoin introduced a new signature type and allowed for greater smart contract flexibility.
In the time since, two trends have changed the OG chain's development activity: Ordinals and, more recently, the introduction of the first rollups on Bitcoin.
Are these worth keeping an eye on? Let’s find out.
What’s the deal with Ordinals?
When people tweet about Ordinals, they refer to tokens issued using the Ordinals protocol. Started in 2022 by the developer Casey Rodarmor, the protocol went live on the mainnet in 2023 and–for the first time in a long while–triggered degens to ask, “how do I run a Bitcoin node?” Initially, that’s what was needed to access Ordinals.
Ordinals are a unique system of ordering Satoshi’s (the smallest unit of Bitcoin) that allows users to inscribe any information in the tokens. Ordinals work by adding unique identifiers to Satoshis, assigned based on the chronological order in which they are mined. In the next step, users can then inscribe arbitrary content to individual Satoshis, turning them into something similar to NFTs.
But because it’s on Bitcoin, Ordinals aren’t like NFTs on Ethereum. For one, Bitcoin uses UTXO (unspent transaction outputs) to track if someone still has funds they can transfer, making every Bitcoin unique. This contrasts with the account model in Ethereum, where you just know what balance you have of otherwise fungible tokens.
Add to that any data you like, and you get an NFT where all of the metadata (the data about the NFT, including things like the image, description, and name) is stored on the blockchain. Chances are, if you own NFTs on other chains and check their metadata, it’s either on Arweave, IPFS, or some centralized cloud solution. That’s due to the prohibitively high cost of storing anything large on the blockchain.
Nevertheless, Bitcoin Ordinals fuelled a frenzy of speculation and led to a surge in ecosystem activity. As Ordinals are embedded at the base layer, enthusiasts consider them a more secure, permissionless way to do tokens.
More demand for Bitcoin blockspace should be a positive, right?
Not so fast. You forgot about the existing Bitcoin community that considered Bitcoin’s lack of complexity a feature, not a bug.
The divide
Even though an increase in interest should be a net positive, some have rightly pointed out the challenges of inscribing a bunch of memes in the Bitcoin blockchain.
During the initial days of the Ordinals craze, even Lightning went down as blockspace became scarce. Having immutable cat pics is nice, but bloating a decentralized payment system is a painful side effect. And the more is stored on Bitcoin, the more it increases the requirements for node runners.
For a network that prides itself on decentralization, that’s undesirable as it could drive further centralization.
On the other hand, Ordinals proponents point out that once Bitcoin’s mining rewards run out, there is little to keep miners going—and that at least the increase in transaction fees from Ordinals increases the security budget. Plus, they bring new functionality to Bitcoin and attract talent.
For now the divide doesn’t run deep enough to resolve it the blockchain way: with a fork. If the naysayers were really that upset, they could just go through with one. Except, it’d be hard to convince miners to forgo the potential fee earnings.
For now, it looks like Ordinals are here to stay with marketplaces and DeFi built around them. As the price of Bitcoin increases, so does the overall ecosystem’s liquidity–and the potential interest in putting funds to work.
Yet, as Ordinals are stored right onchain, they can be hard to retrieve. That’s where tools like Subsquid can significantly facilitate access by making onchain data available through a decentralized network–build on Bitcoin without sacrificing your core belief in its values.
After all, we’re chain agnostic.
Moving beyond Ordinals, the latest trend on Bitcoin is one we’re familiar with from the Ethereum ecosystem: rollups.
Bitcoin Rollups
Rollups are a scaling solution that has been tried and tested in EVM. They follow the simple notion of taking transaction load off the mainnet to increase overall throughput and lower costs. On Ethereum, this is beneficial because of the high gas fees on the mainnet and for dApps that have requirements that cannot be fulfilled on Layer-1 without changes to the execution environment.
While optimistic rollups simply assume that transactions have been verified correctly, recently, more rollups have added ZKPs to their tech stack to allow trustless verification of their computing.
Currently, two projects are working on using ZK rollups to scale Bitcoin and add further privacy assurances.
The first is the Chainway team who have recently open-sourced their DA adapter as part of the Sovereign SDK, allowing anyone to use Bitcoin’s security and finality for building their own rollup.
The second team is Kasar Labs, who teamed up with the Taproot Wizards, one of the first Ordinals collections, to allow developers to plug the Madara Stack into Bitcoin and run a Starknet-based rollup.
In addition to these, Merlin protocol enhances Bitcoin with increased DeFi functionality, while Nubit relies on Bitcoin to offer a highly secure Data Availability solution for L2s.
All the infra is great, but it doesn’t answer…
What’s the point of having Bitcoin rollups?
It’s a fair question, considering that Lightning never really took off. One of the reasons it never did is the need for people to be online to receive payments. This is removed when interacting on rollups.
Additionally, lightning required channel operators to deposit funds to provide liquidity for people to interact - which further hampered adoption. On rollups, anyone can just bridge and transfer their own funds.
But maybe the biggest argument for Bitcoin rollups isn’t that they better fulfill the role of payment network than Lightning. It’s that they allow programming on top of Bitcoin. And all of that without requiring any changes on the mainchain.
Now make them sovereign
And Bitcoin rollups aren’t aiming to be just your average rollup. Some of them have taken it upon themselves to become sovereign. Sovereign rollups are blockchains that publish their transactions to another blockchain for ordering and data availability.
This differentiates them from smart contract rollups, which make up the majority of Ethereum layer-2s that rely on the smart contract on L1 as their source of truth.
Since sovereign rollups are entire blockchains, they can only be upgraded via forks, removing the need to deal with the complex question of upgradeable smart contracts and putting decision-making power in the hands of communities instead.
Rollups open up a whole new design space on Bitcoin and provide an alternative lens through which we can experience the oldest chain in the space. While it’s unclear if the momentum will last, at least for now, many smart developers are building on leveraging Bitcoin’s decentralization, security, and censorship resistance to enable people to do more than just HODL.
After all, why wouldn’t you want to use something on the trusted and established chain?
Both ordinals and rollups bring new functionality to Bitcoin, making it more than just digital gold. Building with either requires fast, scalable access to data—something that Subsquid specializes in.
If you’re already developing on the most decentralized blockchain, it’s only consequential that you use a decentralized query layer to do so.
Currently, we’re already working on providing projects in the Bitcoin ecosystem with the access they need. If you want to find out more, get in touch!