On April 9th, as a co-organizer with Bitcoin Magazine, Nervos CKB held a forum on the theme of "Bitcoin Technology Development and Ecosystem Construction" at the main venue (morning) and sub-venue three (afternoon) of the 2024 Hong Kong Web3 Carnival.
At the main venue in the morning, Jan Xie, the architect of Nervos CKB, delivered a keynote speech titled "The Reasons and Ways of Bitcoin Renaissance". Video link (viewable in the official account article): https://mp.weixin.qq.com/s/vZZj_KRcLsfhXyqnCtF3iQ
Here is the transcript of Jan Xie's speech:
Hello, everyone. Today, I want to talk to you about the renaissance of Bitcoin. I believe you have heard this term many times these days. Many people may think that the concept of Bitcoin renaissance is like this year when the Bitcoin ETF was approved, and the Bitcoin halving is approaching, and the price of Bitcoin is going to rise. This is the renaissance of Bitcoin.
But what I want to say is that the renaissance of Bitcoin actually started a long time ago. It has been quietly developing in the past two years. One of its landmark events is the emergence of Ordinals. Ordinals began to attract the attention of a small group of people to Bitcoin, and then strange creatures like BRC20 appeared on Ordinals, which made people pay more attention to the opportunities on Bitcoin. After that, I think the renaissance of Bitcoin has become inevitable.
What I want to talk about today is why there is such a change in the industry and how we view it. After this renaissance, what kind of scene will we see, and what will this industry become?
First, why. It has been a long time since Bitcoin was born until now. We can see that users want to use Bitcoin, they not only want to buy and hold BTC, but they also want to use it. There is clear evidence that the Bitcoin ecosystem has had many L2 solutions in the past, such as Rootstock, Liquid, and Lightning. There are many BTC on these platforms, which are transferred from BTC's L1 to these chains. The reason why people transfer BTC is because they want to use it there, right? So, there are more than 2,000 and 4,000 BTC on these platforms, respectively.
However, what is the problem? The problem is that there are more BTC on Ethereum. There are 150,000 WBTC on Ethereum, far exceeding the total BTC on Bitcoin L2. What's even more problematic? There are more BTC in centralized exchanges (CEX). As you can see, the BTC in CEX far exceeds the total BTC on Bitcoin L2 and Ethereum.
So, what I want to say is that BTC is like water, it is an asset, and it will flow to various places as long as there is demand. Whether you like it or not, it will flow to other places. If we, as builders of decentralized ecosystems, don't do something, it will flow to other places, whether you like it or not.
Another interesting phenomenon is that since the emergence of Ethereum, many projects have started to issue various new assets on decentralized platforms. If we calculate the total market value of these new assets, as of April 1st, there may be 3 billion on Bitcoin, 6 billion on BSC, and 540 billion on Ethereum. What is the problem? The problem is that the market value of Bitcoin is 1.4 trillion, BSC is 90 billion, and Ethereum is over 400 billion. However, when we look at the ratio of the market value of these platforms to the assets issued on them, we will find that the scale of assets issued on Bitcoin is pitifully small, but at the same time, Bitcoin is the most decentralized, has the highest consensus, and is the most secure platform in the world. This is a waste. What we can see is that there is such a demand for asset issuance, and at the same time, we are wasting the best platform in the world.
So, what do I want to say? It's the same, the demand is there. Whether we are willing to do it or not, if you don't do it, someone else will do it in a way that you don't like, in a bad way. Why? Because a long time ago, in 2016, when Ethereum was still being designed, the Bitcoin community pointed out the problems with Ethereum. The concept of smart contracts has long existed, but there are different paths for how to design smart contracts. Bitcoin has its own path for smart contract design. It is not an Account Model, not an EVM, it is these things mentioned here. But if you only talk about it and don't do it, someone else will do it in a way that you don't like.
So, I think the renaissance of Bitcoin is an opportunity, an opportunity to bring this industry back on track. This industry has been led astray for a long time by concepts like PoS and Account that existed before Bitcoin. The truly innovative things are PoW and UTXO Model. But all the decentralized applications we build today, all the things we talk about, all the dApps we use, are built on top of PoS and Account Model, which is wrong. The renaissance of Bitcoin is an opportunity to fix all these mistakes.
So, how do we fix it? A little bit of history.
Bitcoin is a truly innovative design, and its innovation is rooted in some fundamental values.
What are the values of Bitcoin? First, it is a P2P network that emphasizes peer-to-peer, not peer-to-sequencer or peer-to-validator, which we often see in the design of so-called public chains today.
It emphasizes PoW, which is a permissionless signature algorithm. But today, we often see in the design of PoS that people want to use traditional signature algorithms to replace PoW, which can dynamically change the signer. This is just going back to the old ways. Of course, there are many debates between PoW and PoS, and I won't go into them here.
The UTXO model is a true innovation. It is a peer-to-peer asset, a bearer asset, a holdable asset. That's why people call UTXO coins. It's like the coins in your wallet, not the balance in your bank account. These are two completely different things. The coin in your hand is yours, and the balance in the bank is stored in the bank's server. These are completely different things. So we call the assets of UTXO "First-class Asset". The corresponding asset that you can build on the Account model is called "peer-to-contract asset". You are actually entrusting your assets to a contract, and your assets are just a record in this contract, just like ERC20.
Bitcoin emphasizes "verification over computation". What we should do in consensus, what we should do on the blockchain, is to verify what happens off-chain, rather than moving what happens off-chain to the chain. These two are fundamentally different.
Finally, there is "self-custody", I won't say much about it.
After Bitcoin appeared, people have done a lot of research on it. The Bitcoin community has long realized that Bitcoin is not just coins, it can do more with its chain, with its ledger.
I really like the article written by Peter Todd in this regard. To summarize it simply, we can use Bitcoin for ownership verification. We can reuse the scripts on Bitcoin, we can reuse Bitcoin's lock to verify ownership of assets. Although the programmability of Bitcoin is very limited, this is something that can be done. This is called Single-Use Seal. Another natural idea that comes out of this is Client Side Validation. We can do many things off-chain instead of on-chain.
So, following this train of thought, there are many ideas in the philosophy of Bitcoin, such as we should try to go off-chain, we should try to go off-chain as much as possible, we should put more things off-chain, and then think about how to combine off-chain and on-chain, instead of trying various methods to move everything to the chain, not turning the blockchain into a world computer, not everything has to happen on the blockchain. In fact, in history, the Bitcoin community has had many different ideas. Colored Coins, RGB, MasterCoin, Taproot Assets, Atomicals, etc., these are asset issuance protocols, and there are also things like Channels, Lightning Network, etc. An interesting perspective is that we can think of Channels as a kind of Client Side Validation with two participants.
So what I want to say is that the Bitcoin community has its own set of values, its own set of design concepts, and its own design ideas. These things are different from 99.9% of the projects you see elsewhere.
However, the problem is that the Bitcoin ecosystem has not developed. Why? I think the main reason is that we have good ideas, but we have made very little progress in meeting user needs.
There are two main reasons for this. One reason is that the programmability of Bitcoin itself is too weak, and it is difficult to do anything on it. The second reason is that Bitcoin holds a design principle, or a concept that the whole community has, that we should do everything possible to avoid major changes, which makes it difficult to iterate on it. But this is a feature, not a bug, it is a good thing because Bitcoin is positioned as money, as gold, and you want it to be stable. I don't mean to say that this is a problem, but this feature makes it difficult for us to do anything directly on it.
So, what should we do? It's actually very simple. We need to have a sense of urgency to meet user needs, and at the same time, we need to maintain the values of Bitcoin, maintain its design concepts, and preferably not involve any soft forks or hard forks, because once we do, we will be caught in endless discussions, and it will be difficult to reach a conclusion.
What is our view on the whole thing? Here are our personal opinions.
First, we believe that Bitcoin can become the best asset issuance platform. We say that Bitcoin is not just coins, what else can it do? It may not be able to do various DeFi, various dApps, DSocial, but it can be an asset issuance platform, precisely because of the reasons and the technical accumulation in the past.
This asset issuance platform is peer-to-peer, censorship-resistant, and resistant to censorship. It does not require any soft forks or hard forks. The benefit is that it can bring more transaction fees to the Bitcoin ledger, because asset issuance is done on-chain, and more transaction fees mean that after Bitcoin halving and halving again, it can have enough security budget to ensure the security of this chain.
We can see that there are many asset issuance standards competing on Bitcoin today, and they are competing to become the future standard, maybe two or three will emerge in the end. But I think an important point to become the final standard is that it must have "composability", whether it can be combined with other applications in the Bitcoin ecosystem, whether it can be combined with the Lightning Network, this is very important.
The second important point I think is that we need a "programmable layer", which I call an isomorphic L2 because the programmability of Bitcoin itself is very weak, so we need to build a programmable layer on top of it first, so that we can do more things on it. The role of this layer is to make BTC and all the assets issued on BTC programmable. Programmability is the foundation of everything else, such as scalability, privacy, BiFi, all of which can be built on top of L3 or L2.
Then, between the isomorphic L2 and L1, there is a very important, doable, and recently discovered new idea called "Universal Isomorphic Binding (UIB)". When we apply UIB to RGB, it becomes RGB++, and we can also apply it to other asset issuance protocols on Bitcoin. It is fundamentally different from a bridge, it is not a bridge, it is a one-to-one mapping between L1's UTXO and L2's UTXO. Here I skipped some details, but the most important thing is that you should realize that it is different from a bridge. It is a more decentralized one-to-one mapping between L1 and L2 assets, without a bridge in between.
With a programmable L2, we can solve scalability and privacy issues on L3. We can use CSV, Open Transactions, Nostr, E-Cash, P2P Market... all these things to build L3.
What is important here is that L3 doesn't necessarily have to be on-chain. The concept and definition of Bitcoin's layering and Ethereum's layering are completely different because their basic design concepts are completely different. Why does L3 also have to be on-chain? I think it is not necessary. We can connect everything through Channels.
Finally, I want to show you this picture that brings all these things together. In this picture, we have Bitcoin on L1, which is an asset issuance platform. L2 is a programmable layer, and on top of L2, we can build all the applications we want to build, and it has better scalability and privacy compared to most of the blockchain architectures we see today. This is an architecture that I think is more scalable.
With this architecture, what can we get? We can call it "Web5". Web5 is Web2+Web3, very simple, right? This term was invented by Jack Dorsey, not by me, but I think it's a very good term.
In conclusion:
The demand for new applications and new assets is real, and we need to find ways to meet it. If we don't do something, someone will replace it with a worse solution. If we don't build a censorship-resistant, privacy-protecting, user-friendly solution, someone will build a sensorable, privacy-lacking, but user-friendly solution, and then all users will use that, which is not what we want to see.
Bitcoin needs an L2 to solve the programmability problem. This is the top priority.
Through UIB, we can bind assets between L1 and L2, making all assets issued on Bitcoin programmable, and programmability is the foundation of everything else.
On top of L2, we can build L3 to solve scalability and privacy issues.
We can connect all these subsystems through Channels, which is a liquidity network that can connect everything, and eventually BTC will flow everywhere.
We will build a Web5 network that connects Web2 and Web3, encompassing everything, and not requiring everything to be moved to the chain, making it bigger than Web3.
Thank you all.