The carnival belongs to BTC, the tombstone is left for inscription.

Original Title: “BTC Hits New High, The End of the Inscription Era”

Written by: Shijun

Foreword

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” — This sentence inscribed in the genesis block of Bitcoin witnesses the beginning of an era.

And now, as Bitcoin continues to reach new highs, we are also witnessing the end of another once-glorious era - inscription and runes.

Since the emergence of the Ordinals protocol at the beginning of 2023, the frenzy of BRC20 speculation, and the successive appearances of protocols such as Runes, Atomical, CAT20, RGB++, and Alkanes, the Bitcoin ecosystem has undergone an unprecedented “inscription revolution.”

They are all trying to turn Bitcoin from a mere value storage tool into an underlying platform capable of supporting various asset protocols.

However, as the revelry fades and the underlying reality emerges, we must confront a cruel truth: the fundamental limitations of the inscription protocol destined this beautiful tulip bubble.

As a practitioner who has deeply participated in the development of the inscription protocol from a technical perspective and has manually worked through the underlying implementation of each protocol, the author has witnessed this ecosystem evolve from its infancy to an explosion and now to a rational return.

This article will explore the innovations and limitations of connecting multiple inscription protocols, discussing why this once-glorious track has rapidly moved towards its current endpoint.

1. The evolution chain of the inscription protocol

1.1, Ordinals Protocol: The Beginning of the Inscription Era

Opened the first key to the Bitcoin “inscription era”. By numbering each satoshi and utilizing the principles of submission revelation technology, it has achieved on-chain storage of arbitrary data.

The combination of the UTXO model and the concept of NFT uses the serial number generated by Satoshi as a positioning identifier, allowing each Satoshi to carry unique content.

See details: Interpretation of Bitcoin Oridinals protocol and BRC20 standard, principle innovations and limitations.

From a technical perspective, the design of Ordinals is quite elegant and perfectly compatible with the native model of Bitcoin, achieving permanent data storage.

However, just writing data is also its limitation, unable to meet the strong desire of the market at that time for the “issuance” of BTC + other assets.

1.2, BRC20 Protocol: Commercial Breakthrough and Consensus Trap

Built on the technological foundation laid by Ordinals, BRC20 injects soul into on-chain data through a standardized content format - bringing the originally static inscriptions “to life”.

It defines the complete asset lifecycle of deploy-mint-transfer, transforming abstract data into tradable assets, and achieves the issuance of fungible tokens on Bitcoin for the first time, meeting the market’s urgent demand for ‘issuance’ and igniting the entire inscription ecosystem.

However, its account model fundamentally conflicts with Bitcoin’s UTXO model, where users must first inscribe the transfer inscription before proceeding with the actual transfer, resulting in multiple transactions to complete a single transfer.

More importantly, the fundamental flaw of BRC20 is that it merely binds “certain data” but completely fails to share its consensus power. Once the off-chain indexer stops supporting it, all so-called “assets” will instantly turn into meaningless junk data.

This vulnerability was fully exposed during the repeated Satoshi events - when multiple assets appeared on the same Satoshi, the protocol parties collectively modified the standards, meaning that the consensus of the entire ecosystem was actually in the hands of a minority. Even more confusingly, the subsequent “optimizations” such as single-step transfers introduced by relevant institutions did not actually address the core pain points of the market, but instead brought about costs for various platforms to adapt to the new version.

This reflects a deeper issue: for the past two years, the designers of the inscription protocol have been trapped in the singular domain of “issuance” and lack in-depth considerations for the application scenarios after issuance.

1.3, Atomical Protocol: A Correction and Disconnection of UTXO Nativism

Regarding the UTXO compatibility issue of BRC20, Atomical has proposed a more radical solution: to make the asset quantity directly correspond to the number of satoshis in the UTXO, and to introduce a proof-of-work mechanism to ensure fair minting.

Achieved native compatibility with the Bitcoin UTXO model, where asset transfer is equivalent to the transfer of satoshis, which to some extent solves the cost and interaction issues of BRC20.

However, the iteration of technology has also brought the cost of complexity - the transfer rules have become extremely complicated, requiring precise calculations of UTXO splitting and merging, which can easily lead to asset burning, making inscription players hesitant to operate lightly.

More critically, the proof-of-work mechanism has exposed serious fairness issues in practice, where large holders leverage their computing power advantage to complete minting first, completely contradicting the mainstream narrative of “fair launch” in the inscription ecosystem at that time.

The subsequent product iterations further reflected the development team’s misunderstanding of user needs — complex features such as semi-dyed assets consumed a large amount of manpower and resources, yet contributed very little to improving the user experience, instead leading to high costs for various institutions to restructure on-chain tools.

However, the long-awaited AVM has arrived late, and the entire market has already shifted, missing the best development window.

1.4, Runes Protocol: Official authoritative elegant compromise and application blank

As the “official” issuance protocol of Ordinals founder Casey, Runes has absorbed the lessons learned from the aforementioned protocol. By adopting OP_RETURN data storage, it avoids the abuse of witness data and finds a relative balance between technical complexity and user experience through clever coding design and the UTXO model.

Compared to the previous protocol, the data storage of Runes is more direct, the encoding is more efficient, and it significantly reduces transaction costs.

For details, see: BTC halving is imminent, interpreting the underlying design mechanisms and limitations of the Runes protocol.

However, the Runes protocol is also caught in the fundamental dilemma of the inscription ecosystem — apart from issuing tokens, this system does not have any special design.

Why does the market need a token that can be obtained without any barriers?

After obtaining it, apart from selling it in the secondary market, what practical significance does it have? This purely speculative driven model determines that the vitality of the protocol is limited.

However, the application of opreturn has opened up ideas for subsequent protocols.

1.5, CAT20 Protocol: The Ambition of On-Chain Verification and the Reality of Compromise

He has indeed achieved true on-chain verification through Bitcoin scripts. Only state hashes are stored on-chain, ensuring that all transactions follow the same constraints through recursive scripts, thus claiming “no need for an indexer.” This is the long-sought holy grail of the inscription protocol.

However, the “on-chain verification” of CAT20. Although the verification logic is indeed executed on-chain, the status data that can be verified is stored in hash form in OP_RETURN. With only the hash, it cannot be reverse-engineered, so in practice, an off-chain indexer is still needed to maintain a readable status.

From a design perspective, the protocol allows for non-unique token name symbols, leading to confusion with assets of the same name, and the UTXO contention issues during high concurrency scenarios in the early development made the initial minting experience extremely poor for users.

Later, accompanied by a hacking incident, the underlying principle was that when connecting two numerical values in internal data, the lack of a delimiter caused the values 1 and 234 as well as 12 and 34 to yield the same hash result. The attack necessitated a protocol upgrade; however, the prolonged delay in the upgrade plan made the market forget the initial enthusiasm.

The case of CAT20 illustrates that even if some breakthroughs are achieved at the technical level, it cannot be too advanced. If it completely surpasses user understanding, it will be difficult to gain market recognition.

And the threat of hackers always hangs the sword of Damocles over the heads of the project team, reminding everyone to be in awe.

1.6, RGB++ Protocol: Technical Idealism and Ecological Dilemma

The CKB attempts to solve the functional limitations of Bitcoin through a dual-chain architecture using a homomorphic binding scheme. It leverages the Turing completeness of CKB to validate Bitcoin UTXO transactions, making it the most advanced technology, achieving a richer meaning of smart contract validation, with the most complete technical architecture, regarded as the “technological pearl” in the inscription protocol.

But the gap between ideals and reality is vividly reflected here - the complexity of the dual-chain architecture, the high learning costs, and the institutional access thresholds.

More importantly, the project’s team itself is relatively weak and has to simultaneously tackle the dual challenges of the chain (CKB) and the new protocol (RGB++), which cannot attract enough market attention.

In this field, which heavily relies on network effects and community consensus, it has become a “well-received but underperforming” technological solution.

1.7, Alkanes Protocol: The Final Sprint and Resource Scarcity

A smart contract protocol based on off-chain indexing + that integrates the design concepts of Ordinals and Runes, aiming to achieve arbitrary smart contract functionality on Bitcoin. It represents the final sprint of the inscription protocol towards traditional smart contract platforms.

Indeed, it is theoretically possible to implement arbitrarily complex contract logic. Moreover, it coincides with the opportunity of the BTC upgrade that removes the 80-byte OP_RETURN limit.

However, the harsh realities of cost considerations ruthlessly shatter this technological ideal. Not to mention the complex off-chain operations of contracts that lead to significant performance bottlenecks, even the indexers built in the early stages of the project have been overwhelmed multiple times. Furthermore, deploying custom contracts requires nearly 100KB of data to be put on-chain, which far exceeds the deployment costs of traditional public chains. Additionally, the operation of contracts is not under control and still relies on indexer consensus. The high costs are destined to serve only a very small number of high-value scenarios, and high-value scenarios do not trust public indexers. Even with unisat’s strong backing, the market does not pay the bill. If this had been proposed a year ago, the circumstances might have been completely different.

2. Fundamental Dilemma: The Minimalist Philosophy of Bitcoin vs. Over-Design

The cumulative effect of technical debt

The evolution of these protocols shows a clear yet contradictory logic: each new protocol attempts to address the issues of its predecessors, but in solving these problems, it also introduces new complexities.

From the elegance and simplicity of Ordinals to the technical accumulation of subsequent protocols, the constant pursuit of uniqueness has been increasing complexity, until every player has to learn a whole bunch of terminology while also being on guard against risks.

Moreover, all the attention is focused solely on the logic of the token issuance platform. If that’s the case, why wouldn’t players choose a place with lower costs, easier manipulation, more significant price increases, and a more完善 platform mechanism?

Long-term chewing on the same topic has also led to aesthetic fatigue among users.

vicious cycle of resource scarcity

The fundamental reason for the resource scarcity of these projects may lie in the centralization of the Bitcoin system’s operation and the fairness of its launch itself - institutions lacking incentives will not excessively invest in platforms from which they cannot gain an advantage.

Compared to the block rewards for miners, operating an indexer is purely a cost. Without the distribution of miners’ rewards, naturally no one is there to solve the technical and operational issues.

Speculative demand vs Real demand

Through multiple user education sessions, it has been found that as long as it is an off-chain protocol, its security cannot be equated with Bitcoin’s consensus. The cooling of the market is not accidental; rather, it reflects the fundamental issue of inscription protocols: they do not address real needs, but rather speculative demands.

In contrast, truly successful blockchain protocols are those that address real issues: consensus, functionality, and performance are all essential, but the contribution of the inscription protocol in this regard is nearly zero, which also explains why their popularity cannot be sustained.

3. The Era Transition of RWA: From Market Dream Rate to Market Share Rate

Maturity of market awareness

As the market matures, users have gone through several rounds of bull and bear markets and have learned to cherish their attention - what a precious resource it is.

They no longer simply trust the information sources monopolized by Twitter KOLs and influential communities, nor are they superstitious about the “consensus cannon fodder” of white papers.

The threshold for issuing platforms is very low, and in the current market environment, this “low-hanging fruit” has been picked clean. The industry is shifting from purely token issuance to more practical application scenarios.

However, it is worth noting that if the RWA sector only sees a bunch of issuance platforms, then this opportunity will come and go quickly.

The Return of Value Creation

The technical innovations of the inscription protocol era often have a “showy” quality, pursuing cleverness in technology rather than practicality. The development logic of the new era has shifted from “market dream rate” to “market share rate,” placing greater emphasis on forming a true network effect through user reputation.

Real opportunities belong to those teams that pursue product-market fit - creating products that genuinely meet user needs, have cash flow, and possess a business model.

Conclusion: The Return of Rationality and Restraint

In the early stages, once everything enters a macro perspective, it will ultimately be correct and thus just.

After calming down, the exploration and setbacks of the inscription era also provided valuable lessons for the healthy development of the entire industry.

When the price of Bitcoin reaches a new high, we have reason to be proud of this great technological innovation. However, we should also recognize that the development of technology has its inherent rules; not all innovations will succeed, and not all bubbles are without value.

The rise and fall of the inscription protocol tells us that technological innovation must be built on a solid technical foundation and genuine market demand. Speculative enthusiasm and excessive technical showmanship, if they do not align with the current market situation (the understanding of institutions and the comprehension of players), will lead to fleeting moments of success. Projects that chase trends may gain attention, but only those that create trends can survive in the long run.

In this rapidly changing industry, it is more important for builders to remain rational and restrained than to chase trends and hastily release for the sake of gaining attention.

Moreover, the market actually does not have that much patience to wait for you to polish and iterate. Many traditional internet strategies of taking small steps and running fast are actually not feasible; the first battle is the decisive battle.

As the author wrote in an article two years ago:

“BRC-20 and Ordinals NFTs have brought a lot of controversy to Bitcoin… While the new phenomenon has surged in price, its technical flaws are also very significant: excessive centralization, lack of a credible verification mechanism, limitations in Bitcoin network performance, lack of infrastructure, and lack of security.”

“Although I’m not optimistic about the current Ordinals, after all, its application in the blockchain space is still too monotonous… However, as an interesting attempt, such a groundbreaking innovation can also reinvigorate everyone’s thinking.”

History has proven the importance of maintaining rational thinking. The end of the inscription era is not a failure, but a growth.

It points the way forward for us and provides valuable lessons for future generations. In this sense, the historical value of the inscription protocol will endure for a long time, becoming an important chapter in the history of blockchain technology development.