Bit Native Economics: A Roadmap for Understanding Investment in the Bitcoin Ecosystem

Every bull market has its new narratives, and in this cycle, Bitcoin is undoubtedly the "brightest star," with its price repeatedly reaching new all-time-highs.

Apart from the price rise due to the approval of Bitcoin ETFs, which opens a channel for traditional financial institutions to invest and hold positions, and the upcoming halving in April, we also need to focus on a larger trend. A revolution centered around the Bitcoin ecosystem is rapidly progressing: Technological advancements and innovations are enabling it to transcend the singular narrative of "store of value" and significantly expand its application scenarios — Make Bitcoin More Useful and Fun Again!

Imagine all the innovations that have evolved on Ethereum being replicated on Bitcoin, and even more innovations. This implies that the possibilities created by the Bitcoin ecosystem are nearly limitless.

To help everyone broaden their perspective and approach to investing in the Bitcoin ecosystem, NavigatorLabs and Crypto Kitchen are launching the "Bit Native Economics" framework.

by NavigatorLabs, Crypto Kitchen, Rebbeca Ren from BIT FM

What is Bit Native Economy?

With its strictly limited supply of 21 million coins, Bitcoin has long been regarded as digital gold, a scarce and valuable asset akin to precious metals.

However, the Bitcoin network grapples with scalability limitations, as each block can process only a finite number of transactions. What transactional demand surpasses the available block space leads to prolonged confirmation times and elevated fees, posing significant challenges for application development on the Bitcoin network.

The introduction of the Lightning Network in 2018 partially alleviated these constraints by reducing the cost of building applications on Bitcoin. Furthermore, the emergence of protocols like Ordinals in 2023 revolutionized the creation of NFTs on the Bitcoin blockchain, enabling effortless minting and allowing Bitcoin to transcend its singular narrative as a store of value. Consequently, Bitcoin is poised to embrace a thriving ecosystem and a novel economic pattern.

The Bitcoin Native Economy revolves around native elements like Blocks and Sats, pivoting from the "Code is Law" ethos to a "Block as Ledger" methodology that emphasizes the blockchain's role as a fundamental ledger, aligning with Bitcoin's minimalist philosophy.

Currently, nearly all protocols, standards, infrastructure, applications, and projects center around Bitcoin's 6 native elements:

Element One - Sats (Satoshis)

Sat is a smallest divisible unit of Bitcoin, with each BTC comprising 100 million Sats.

Use Cases - Ordinals and Rare Sats

Ordinals, proposed by Casey Rodarmor, is a Sats-based protocol for creating digital artifact assets. This protocol allows individual Sats to inscribe arbitrary data, generating unique, Bitcoin-native digital artifacts or NFTs.

Remarkably, a single Bitcoin can potentially create up to 100 million NFTs. These NFTs are traceable, transferable, and operate directly on the Bitcoin blockchain without relying on second-layer solutions, offering enhanced security compared to most externally-hosted NFTs.

The Ordinals protocol has significantly boosted miners' income through increased on-chain fee, bolstering support for BRC-20 assets and the broader Bitcoin ecosystem.

As of March 20th, NodeMonkes and Runestone rank as the fourth and sixth largest on-chain NFT projects by market capitalization, highlighting their popularity within the Ordinals protocol.

Then, there are Rare Sats. Not all Sats are equally valued, with some being rarer than others, creating a market for these scarce digital assets.

For instance, the first Sat mined after a Bitcoin halving event is considered rarer than other Sats from the same block, earning the "Epic Sat" status. The Rodarmor Rarity Index categorizes Sats into several levels, such as Common, Uncommon, Rare, Epic, Legendary, and Mythic. Rare and uncommon Sats are highly coveted and have emerged as popular collectibles within the Bitcoin ecosystem.

Rare Sat platform: https://sating.io/

Element Two - UTXO (Unspent Transaction Output)

The UTXO serves as the fundamental unit of Bitcoin transactions, facilitating value transfers through the movement of UTXOs. Each UTXO is an indivisible whole, and a Bitcoin account's balance is not stored centrally like traditional accounts. Instead, it is calculated by scanning the blockchain and aggregating all UTXOs belonging to the same owner.

This concept can be visualized as spending specific coins from a physical wallet rather than withdrawing money from a bank account. For example, if 1 BTC represents a physical coin and you want to spend 0.5 BTC to buy something from A, you would have to give A the 1 BTC worth of physical coin and then A would return a coin worth 0.5 BTC as change. It is not possible to split 0.5 BTC from 1 BTC to pay A directly.

UTXOs offer several advantages: each UTXO can be traced back to its origin, enabling transparent auditing and tracking of all transactions on the Bitcoin blockchain; UTXO transactions do not directly reveal a user's total balance, providing privacy benefits; and it hinders the forgery of transactions or the spending of unconfirmed bitcoins.

Use Cases - Runes Protocol and Pipe Protocol

Recognizing that BRC-20 token transactions constitute a significant portion of the Ordinals protocol, generating a substantial on-chain footprint and occupying valuable Bitcoin space, Casey Rodarmor, the creator of Ordinals, introduced a new UTXO-based protocol called Runes.

This protocol aims to reduce the on-chain footprint while promoting responsible UTXO management. Runes is set to launch on the mainnet in late April, coinciding with Bitcoin's fourth halving. Some rune concepts already live, the most lit ones being RSIC and rune stones.

The Pipe Protocol, also known as the first UTXO Rune protocol, endeavors to introduce digital asset and NFT functionality to the Bitcoin ecosystem while leveraging the security and efficiency of UTXO transactions.

Element Three - Data

Data, encompassing transaction records, signatures, metadata, and more, serves as the fundamental information unit of cryptocurrencies like Bitcoin. It is validated and transmitted through cryptographic algorithms and stored on the blockchain. Data acts as the value carrier for cryptocurrencies such as Bitcoin and underpins consensus mechanisms.

Use Case - Digital Matter Theory (DMT)

DMT proposes a framework for creating brand-new digital assets, focusing on deriving Non-Arbitrary Value from the data within Bitcoin blocks themselves.

DMT attempts to move away from arbitrary value allocation for digital tokens. For example, the value of NFTs is typically subjective and not based on any explicit or objective factors, and is therefore an arbitrary value allocation.

Within the DMT framework, the value and supply of new digital assets is determined by utilizing the inherent properties and data patterns of Bitcoin blocks.

The introduction of DMT has opened up a new frontier for blockchain technology, akin to the impact of smart contracts. It represents an evolution from the "Code is Law" to a "Block as Ledger", returning to Bitcoin's minimalist philosophy. DMT allows us to view what constitutes Bitcoin-native digital matter from a fresh perspective – inherent to the Bitcoin ecosystem and block elements, rather than being arbitrarily created by contracts.

It is worth noting that DMT was initially proposed by physicists who believe that digital information can be viewed as a form of digital matter similar to physical substances (like wood or metal), predicting that the future utilization of digital information may surpass that of atoms.

Just as the real world is composed of elements and the periodic table provides a theoretical basis for discovering new elements, the blockchain technology community has driven the acceptance and continuous development of DMT within the Bitcoin ecosystem.

Building upon DMT, there is also the Non-Arbitrary Token (NAT) issuance mechanism, and the first token, $NAT, issued under the NAT protocol.

Element Four - Block

Blocks form the bedrock of Bitcoin's decentralized and distributed ledger system, ensuring the network's integrity and security by transparently and immutably verifying and recording all transactions.

As each block contains a wealth of information, including timestamps, transaction details, and unique identifiers, the utilization of data within blocks has become a burgeoning trend in the exploration of digital assets. For instance, leveraging different data types can enable the creation of Non-Arbitrary FTs (Fungible Tokens), NFTs (Non-Fungible Tokens), and other asset types.

Use Case - Bitmap

Bitmap, a concept proposed by Bitoshi Blockamoto, presents a whole new approach to creating digital assets within the DMT framework by utilizing Bitcoin blocks.

Under this paradigm, the block goes beyond a collection of transactions in the conventional sense and can be viewed as a "Digital District" in the virtual realm. The individual transactions within the block are perceived as "parcels" within this "digital district," with each transaction's specific data points and characteristics determining the nature of the "parcel."

Possessing a Bitmap is akin to holding a deed to land in this digital world.(Imagine what it’s like to hold a real estate deed in the real world). It represents one of the many forms of digital matter within DMT and manifests as an NFT. To draw an analogy, one can envision Bitmap as the digital land in Decentraland, with $NAT serving as the equivalent of MANA.

Element Five - Bit

A bit, an abbreviation of Binary Digit, is the smallest and most fundamental unit of information in computing and digital communications. It can have one of two values, typically represented as either 0 or 1. In computing, bits are crucial as they form the building blocks of all digital data.

The concept was originally proposed by Claude Elwood Shannon, the "father of information theory," in his landmark 1948 paper entitled "A Mathematical Theory of Communication." Shannon introduced a mathematical framework for quantifying information and the idea of measuring information in bits.

The creator of Bitcoin, known by the pseudonym Satoshi Nakamoto, combined the words "bit" and "coin" to create the name "Bitcoin," representing the digital nature of the currency and its reliance on cryptographic principles. It's clear that "Bit" also serves as the foundation for the other five elements.

Use Case - $DMT-BIT

$DMT-BIT is a Non-Arbitrary Asset issued under the DMT framework. It is inextricably linked to Bitcoin blocks, with each block capable of minting one $DMT-BIT. Currently, with over 830,000 blocks, there are over 830,000 $DMT-BITs in existence. However, the value of each $DMT-BIT varies, depending on the mining difficulty associated with the corresponding block. The greater the mining difficulty, the higher the value of the respective $DMT-BIT.

Element Six - PoW (Proof of Work)

PoW is the pioneering consensus mechanism introduced and widely adopted by Bitcoin, where computational resources are harnessed to solve complex mathematical problems, earning new cryptocurrency rewards as an incentive. PoW's low barrier to entry allows both phones and computers to participate, contributing to its high adoption rate.

Use Case - Atomicals Protocol

Built on the Bitcoin network, the Atomicals Protocol facilitates the creation, transfer, and enhancement of digital assets, including native digital NFTs, gaming NFTs, digital identities, and domain names. A key feature of this protocol is the introduction of ARC-20 tokens, which are interchangeable tokens.

The ARC-20 token standard introduced by the Atomicals Protocol provides a decentralized minting mechanism, allowing community participation in the token creation process by leveraging the PoW mechanism to compute and earn the right to mint ARC20 tokens.

What is the Use of the Bit Native Economics?

In a December 2023 report, Bitget predicted that if the Bitcoin ecosystem continues to expand, the surge in demand could propel its price beyond previous highs. Against this backdrop, Bitcoin may reach a valuation of $100,000 during a bull market.

According to data released by Cryptoslam.io on March 20th, the NFT sales volume over the past 7 days reached $327,969,100, a decrease of 7.56% compared to the previous 7 days. Among the NFT sales volumes analyzed across 21 different blockchains, Bitcoin ranked first with sales of $130.91 million, an increase of 25.97%. Ethereum, ranking second, had sales of $97.24 million, down 30.30% during the same period. BRC-20, as an unclassified Ordinals category, became the top-earning NFT series of the week with sales of $70,073,053, closely followed by the Nodemonkes series with a transaction volume of $15,542,910, up 4.65%.

The signs of the Bitcoin ecosystem's thriving growth are now undeniable, and the driving force behind it is the continuous innovation and evolution of Bitcoin-native asset issuance. The introduction of the Bitcoin Native Economics aims to help everyone understand the patterns of Bitcoin-native asset issuance, which is crucial for future investment decisions.

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