Why Do We Need the Bitcoin Ecosystem?

Kabir903

1. Characteristics and Development History of Bitcoin
Before discussing why we need the Bitcoin ecosystem, let's first take a look at the basic characteristics and development history of Bitcoin.

Bitcoin differs from traditional financial accounting methods and possesses three core characteristics:

Decentralized distributed ledger: The core of the Bitcoin network is blockchain technology. This is a decentralized distributed ledger that records all transactions on the Bitcoin network. The blockchain consists of blocks, each containing the hash value of the previous block, forming a chain-like structure that ensures the transparency and immutability of transactions.
Accounting through Proof of Work (PoW): The Bitcoin network uses a Proof of Work mechanism to verify transactions and maintain accounts. This mechanism requires network nodes to verify transactions by solving mathematical puzzles and record them on the blockchain. This ensures the security and decentralization of the network.
Mining and Bitcoin issuance: Bitcoin issuance is achieved through mining. Miners solve mathematical puzzles to verify transactions and create new blocks. As a reward, miners receive a certain amount of Bitcoin.
It can be seen that unlike common account-based models such as PayPal, Alipay, and WeChat Pay, Bitcoin does not directly transfer funds by adjusting account balances. Instead, it uses the UTXO (Unspent Transaction Output) model.

Here, let's briefly introduce the UTXO model, which helps understand the technical solutions of later ecosystem projects. UTXO is a way of tracking Bitcoin ownership and transaction history. Each unspent output (UTXO) represents a transaction output in the Bitcoin network that has not been spent by previous transactions and can be used to construct new transactions. Its characteristics can be summarized in the following three aspects:

Each transaction generates a new UTXO: When a Bitcoin transaction occurs, it consumes previous UTXOs and generates new ones, which will be used as inputs for future transactions.
Transaction verification relies on UTXO: When verifying transactions, the Bitcoin network checks whether the UTXOs referenced by transaction inputs exist and have not been used to ensure transaction validity.
UTXO as transaction inputs and outputs: Each UTXO has a value and an owner's address. When conducting new transactions, some UTXOs will be used as transaction inputs, while others will be created as outputs of the transaction, which may be used by subsequent transactions.
The UTXO model can provide higher security and privacy because each UTXO has its own owner and value, allowing transactions to be tracked more finely. Additionally, the design of the UTXO model allows for parallel processing of transactions since each UTXO can be used independently without resource contention.

However, due to the limitations of block size and the non-Turing-complete development language, Bitcoin largely serves as "digital gold" and cannot accommodate more projects.

After Bitcoin's birth, colored coins emerged in 2012, allowing certain Bitcoins to represent other assets by adding metadata to the Bitcoin blockchain. In 2017, a hard fork occurred due to the block size debate, resulting in the creation of BCH, BSV, and others. After the fork, BTC continued to explore scalability solutions. The SegWit upgrade introduced in 2017 introduced extended blocks and block weight, expanding block capacity. The Taproot upgrade beginning in 2021 enhanced transaction privacy and efficiency. These key upgrades laid the foundation for various scalability and asset issuance protocols that followed, including the popularity of protocols like Ordinals and BRC-20 Tokens.

It can be seen that although Bitcoin was initially positioned as a peer-to-peer electronic cash system, many developers hope to elevate Bitcoin beyond its role as "digital gold" and strive to improve its scalability and enable more on-chain activities, such as having its own ecosystem applications.

2. Comparison between the Bitcoin Ecosystem and Ethereum Smart Contracts
In the process of Bitcoin development, Vitalik Buterin proposed another blockchain—Ethereum in 2013, followed by the joint establishment of Ethereum by Vitalik Buterin, Gavin Wood, Joseph Lubin, and others. The core concept of Ethereum is to provide a programmable blockchain that allows developers to build various applications on it, not just limited to currency transactions. This programmability makes Ethereum a smart contract platform, allowing people to create and run blockchain-based applications that can execute automated contracts without the need for trust in third parties.

It can be seen that one of Ethereum's most significant features is smart contracts, allowing developers to develop various applications on Ethereum. With this feature, Ethereum gradually became the leader of the entire crypto space, spawning various Layer2 solutions, applications, as well as diverse asset types like ERC20, ERC721, attracting many developers to build and enrich the Ethereum ecosystem.

Since Ethereum can already realize smart contracts and the development of various dApps, why do people need to return to BTC to expand and develop applications? The core reasons can be summarized in the following three aspects:

Market consensus: Bitcoin is the earliest blockchain and cryptocurrency, enjoying the highest awareness and trust among the public and investors. Therefore, it has unique advantages in acceptance and recognition. Currently, Bitcoin's market capitalization has reached $800 billion, accounting for about half of the entire crypto market capitalization.
High decentralization of Bitcoin: Among mainstream blockchains, Bitcoin has the highest degree of decentralization. Its founder, Satoshi Nakamoto, has disappeared, and the entire chain is driven by community development. Ethereum still has control by Vitalik and the Ethereum Foundation.
Retail demand for Fair Launch: The demand in Web3 is inseparable from the issuance of new assets. In traditional project token issuance, whether it is FT or NFT, it is basically the project party acting as the issuer, and retail investors' returns largely depend on the project party and the backing of VCs. In the Bitcoin ecosystem, innovative Fair Launch venues like shibaswap have appeared, giving retail investors more say and thereby attracting more money and wealth to the BTC ecosystem. The renewed attention to the Bitcoin ecosystem this time is largely due to the characteristics of Fair Launch in shibaswap.

This is why, although BTC is weaker than Ethereum in terms of TPS and block generation time, and was originally intended for use as a cryptocurrency transaction, there are still many developers hoping to introduce smart contracts on it to carry out application development.

In summary, just as the rise of BTC originated from value consensus—people generally recognize Bitcoin as a valuable digital asset and medium of exchange, the innovation in the Crypto world is closely related to asset attributes. The current heat of the BTC ecosystem is mainly driven by assets types like Ordinals and BRC-20. This heat also benefits the entire Bitcoin ecosystem, prompting more people to refocus on the Bitcoin ecosystem.

Unlike previous bull markets, the influence of retail investors in this round of the market is growing. Traditionally, VCs and project parties dominate the cryptocurrency market, investing in and promoting the development of many blockchain projects. However, with the increasing interest of retail investors in crypto assets, they hope to play a greater role in the market and participate in the development and decision-making of projects. To some extent, retail investors have also promoted the development and prosperity of the Bitcoin ecosystem in this round.

Therefore, although the Ethereum ecosystem is more flexible in terms of smart contracts and decentralized applications, the Bitcoin ecosystem's role as digital gold and stable value storage, along with its leadership position and market consensus, still gives it an unparalleled importance in the entire cryptocurrency field. Therefore, people continue to pay attention to and strive to develop the Bitcoin ecosystem to continue exploring its potential and possibilities.

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