Author：PSE Trading Intern @JohnHol10
This year, the asset issuance protocols on the Bitcoin have become the focus of everyone's discussion. These protocols are all metadata protocols, which define an asset by recording some information in a Bitcoin transaction. The difference lies in the location of the recording, the way of recording, etc. These differences determine the differences in the protocols.
1.What is a metadata protocol?
Blockchain is a linked list with hash pointers, which is essentially a database whose state is maintained by distributed nodes. Satoshi Nakamoto decided to create Bitcoin by recording transaction data encrypted by elliptic curve functions and hash functions on the blockchain. The key point here is that as long as you can think of a way to record somewhere which address transferred an amount of which asset to which address, and you can simply verify that the source of the asset is legitimate, the asset has not been spent, the transaction signature is legitimate, etc., then create A digital asset is possible.
In the early days of Bitcoin, someone thought that this information could be recorded in the op_return output, so that the security of Bitcoin could be inherited and new assets could be issued directly on the Bitcoin chain without the need for a new chain. This is the Colored Coin Protocol, the first metadata protocol in history. But unfortunately, the idea of the colored coin protocol was too advanced at the time, and people were still doubtful about the value of Bitcoin. The more convincing way at the time was to build another blockchain and find a new "ledger" to record the transfer of assets.
2. BRC-20: New paradigm of witness field
In February 2023, the emergence of the Ordinals protocol once again opened up people's imagination of the Bitcoin ecosystem. The Ordinals protocol gives each Satoshi a number in the order in which it is mined, and records arbitrary data in the Segregated Witness field of a Bitcoin transaction, calling it an inscription, and defines the onwner of the first satoshi of the UTXO of this transaction output has the ownership of this inscription.
Since you can put any data in the witness field, you can naturally put text data recording transaction information into the witness field. This is the BRC-20 series of protocols. They put text data including the protocol version number, operation type, name of the issued asset, and transfer amount into the witness field of a Bitcoin transaction input, thereby defining the deployment of a BRC-20 asset、inscription and transfer.
The BRC-20 protocol has aroused enthusiastic responses, and its main assets include $Ordi, $Sats, etc. $Ordi is the first token of the BRC-20 protocol. It was deployed on March 8 this year. It was fully minted within two days, with a total supply of 21 million. Its market value reached US$630 million in May, and its current market value is about US$410 million. The popularity of $Ordi has led to the continuous deployment of various BRC-20 assets, the most representative of which is $Sats, which was deployed on March 9 with a total of 2,100 trillion, and it was not fully engraved until September 24. The market value of $Sats once surpassed $Ordi, and its current market value is about $270 million.
After BRC-20, a series of asset issuance protocols based on Ordinals began to appear, but they are not essentially different. They all put metadata into the witness field. Its greatest advantages are free deployment, fair mint, simplicity and ease of understanding, and high transparency. All information is revaealed on chain, and everyone can check what they are transacting on the chain. Such characteristics have created a popular atmosphere for BRC-20, and "degens" have entered the market one after another, deploying or engraving assets that they believe will increase.
But on the other hand, the BRC-20 series asset issuance protocol makes Bitcoin transaction fees very expensive. This is naturally good news for large miners, but for small nodes that maintain the status of Bitcoin, the BRC-20 series protocol has heavy footprint on chain, and a large amount of UTXO with an amount of 546 satoshis had been generated, which makes their maintenance costs risen.
3. Runestone: retro op_return reappears
Casey Rodarmor, the founder of the Ordinals protocol, tweeted on September 26, 2023, proposing the idea of a new metadata asset issuance protocol Runes (later renamed Runstone). Casey said that the original intention of the Ordinals protocol was to create a beautiful "art gallery" in Bitcoin, but the madness of BRC-20 is endangering Bitcoin, and no one can stop "degens" from participating in gambling, so he proposed the idea of establishing a cleaner metadata asset issuance protocol so that "degens" can continue to "gamble" without creating a large number of UTXOs and increasing the burden on nodes.
Runstone is a replica of the colored coin protocol, which records the metadata of the defined asset into the op_return output of a Bitcoin transaction. op_return is a special Bitcoin script opcode. Any instructions after op_return will not be executed, so the UTXO containing op_return is considered never to be spent, and thus can also be eliminated from the UTXO set to reduce node maintenance costs. Therefore, any information can be recorded in the op_return output (this output does not need to contain Bitcoin), and the footprint on chain is relatively clean, and the burden on the nodes is relatively small.
The concept of Runestone has aroused heated discussions, but unfortunately Runestone has not been implemented until today. However, Benny, the founder of TRAC, soon launched a similar asset issuance protocol——Pipe Protocol, which is also a metadata asset issuance protocol that stores data in the op_return output. The Pipe protocol inherits Casey's desire to create an asset issuance protocol with a clean footprint on the chain. It also inherits the core concept of the BRC-20 protocol, which is free deployment and fair mint. This is not part of Runestone’s plan. Obviously, Casey believes that free deployment and fair mint are the main culprits that cause congestion in the Bitcoin blockchain. Therefore, in Casey’s vision, Runstone will be an asset dominated by project parties in the form of airdrops.But the market obviously prefers the method of free deployment and fair mint.
The first token of the Pipe protocol, $Pipe, was deployed on September 28, with a total supply of 21 million and a current market value of approximately US$30 million. Although $Pipe is publicly engraved, it is one of the few project-owned tokens among the many tokens currently. The TRAC team stated that $Pipe will be governed by $Tap, which is the first token of the TAP protocol, another BRC-20-like asset issuance protocol developed by the TRAC team, and $Tap will be governed by $Trac, the latter one is a BRC-20 token.
The biggest shortcoming of protocols such as Runestone and Pipe is the limited storage space of op_return. This limitation does not have a big impact on homogeneous assets, but it has obvious constraints on non-fungible assets.
4.Taproot Asset Protocol: Achieving Significant Expansion through On-Chain Commitments
Attempts to issue assets on the Bitcoin blockchain have been ongoing. For some idealistic cypherpunks, they do not believe that issuing speculative assets for "degens" and miners to revel in is necessary on the Bitcoin blockchain. They make great efforts to avoid protocols for asset issuance affecting the normal use of the Bitcoin network, they spent more time developing more complex technologies to achieve this.
The Lightning Labs development team for the Bitcoin Lightning Network started developing a stablecoin protocol called Taro in April 2022, which was later renamed Taproot Asset in May 2023. On October 19, 2023, the first mainnet version of Taproot Asset was officially launched. Lightning Labs' vision is to combine the Lightning Network to issue stablecoin assets, thereby facilitating global forex trading and replacing fiat-dominated retail payment systems in local regions.
The Taproot Asset protocol is also a type of metadata asset issuance protocol. However, Taproot Asset does not store data in the witness fields nor in op_return outputs. In fact, Taproot Asset does not directly store data on chain; instead, it commits the data to a P2TR output. Therefore, from the results, the deployment of Taproot Asset and transactions leave almost no trace on chain. To observers, it appears as a routine Bitcoin transaction transferring funds to a Taproot address.
So, is this secure? The answer is affirmative. In each Taproot Asset transfer, the submission of the Merkle proof for metadata is required. If there is any attempt at double-spending or unexpected alterations, the resulting root hash value would differ from the expected one, leading to rejection.
Due to the technical complexity, the number of assets currently issued through the Taproot Asset protocol is not very high. One of the most notable is the Nostr Assets Protocol, which integrates the Nostr protocol, Taproot Asset protocol, and the Lightning Network in the Bitcoin ecosystem. Its initial tokens include two types, $Trick and $Treat, each with 210 million tokens. Currently, only 20% has been released through airdrops, while the rest is retained by the Nostr Assets team. $Trick and $Treat are assets issued through the Taproot Asset protocol, and the Nostr Assets team has stated that they plan to develop a fair mint method for people to freely deploy and mint Taproot Asset protocol tokens on the project platform.
However, Taproot Asset is not a perfect solution. It is overly complex technically, which may hinder user understanding and trust, and there may be unforeseen vulnerabilities. Moreover, the verification cost index of Taproot Asset is increasing, posing a significant cost for both users and third-party institutions. Most importantly, Taproot Asset does not store metadata on the chain, requiring users to locally store this metadata or entrust a third-party entity like Universe to store this data.
5. BRC-20 Wave Unveiled: A Comparison of the Latter Waves Runestone & Taproot Asset
BRC-20 Series vs. Runestone Series
1.The greatest advantage of the Runestone series protocol compared to the BRC-20 series is also the most significant disadvantage of the BRC-20 series——the substantial on-chain footprint. BRC-20 generates a large number of abandoned UTXOs because the protocol adopts an account-based model in maintaining the ledger. It needs to track how much assets each "account" holds, requiring owners to inscribe "Transfer" every time they transfer to clearly specify the quantity to be moved to the target address. In contrast, the Runestone series protocol employs a UTXO model similar to Bitcoin in maintaining the ledger, marking the amount transferred to the target address and the change returned to oneself during the transfer. This design has two benefits: significantly reducing on-chain footprint and minimizing the pollution of the Bitcoin chain by asset issuance protocols. Additionally, it lowers the costs and simplifies operations for off-chain indexers.
2.The Runestone series protocol is more conducive to large-scale airdrop issuance. This may not be what degens want to see, but it might be welcomed by institutional investors. However, this is not absolute; for example, the Pipe protocol also supports the form of public inscription favored by degens.
3.The BRC-20 series has a larger storage space. Based on the Ordinals protocol, the BRC-20 series stores data in the witness field of transaction inputs, and this information can benefit from Segregated Witness discounts. Theoretically, as long as the data placed in the witness field is large enough, it can create a transaction close to 4MB in size (the largest Ordinals NFT is 3.94MB, almost occupying the entire block). By introducing recursive merkle technology, even larger non-fungible assets can be created. In contrast, the Runestone series will face an op_return limit of 80KB, limiting the issuance of non-fungible assets through them and even restricting the issuance of large-scale transactions for fungible assets.
Taproot Asset Protocol Compared to the Previous Two Series
The intricate design of the Taproot Asset protocol is aimed at reducing on-chain footprint and compatibility with the Lightning Network, carrying a completely different mission. However, being an open-source protocol, it is subject to speculation by degens whenever possible. Therefore, here, we only compare the Taproot Asset protocol with the previous two series from this perspective.
1.Similar to the previous two series, Taproot Asset also requires the introduction of third-party trust. While the previous two series require trust in off-chain indexer, Taproot Asset requires trust in the Universe that stores and verifies metadata. However, there are differences. The data structure of Taproot Asset is designed to ensure the simplicity and reliability of Universe verification. Still, considering the complexity of Taproot Asset, which makes it challenging for users to understand and trust, there is uncertainty in the verification cost of Universe. Moreover, considerable large investment has already been made in the construction of off-chain indexes for the BRC-20 series. Therefore, it can be speculated that in the short term, the comprehensive cost of Taproot Asset Universe might be higher due to slow construction and user acceptance. However, in the long run, the comprehensive cost of Taproot Asset Universe may be lower than that of the BRC-20 series.
2.Lightning Labs, during the development, has paved the way for Taproot Asset to integrate with the Lightning Network in technical details. This is the most significant advantage of the Taproot Asset protocol compared to the previous two series. Taproot Asset can trade within the Lightning Network, further reducing its on-chain footprint, not raising Bitcoin network fees, and allowing traders to avoid high transaction fees. Currently, the BRC-20 series, on the one hand, leads to expensive Bitcoin network fees, and on the other hand, users may incur transaction fees exceeding $10 due to fragmented UTXOs in their wallets when trading BRC-20 series assets.
3.Similar to the Runestone series, the Taproot Asset protocol is more conducive to large-scale airdrop issuance. However, it is not absolute, as the Nostr Asset Protocol promises to support public inscriptions.
4. However, in terms of the ability to issue non-fungible assets, the Taproot Asset protocol is not as strong as the previous two series and the Ordinals protocol. As acknowledged by Musk, the previous two series and the Ordinals protocol write data onto the blockchain, with every pixel of each image being recorded on the blockchain. In contrast, non-fungible assets issued through Taproot Asset only commit to the chain, while the specific data is stored locally or by the Universe. If, for any reason, data loss occurs, the hash value committed to the chain through Taproot Asset will lose its meaning.
6. Conclution
In conclusion, the most significant differences between different metadata protocols lie in the location and method of recording data on the blockchain, as well as the method of ledger maintenance. These differences determine the characteristics of different protocols.
Protocols that record data in the witness field, such as the BRC-20 series, provide ample data space but result in a heavy on-chain footprint. Additionally, their account model generates a substantial amount of abandoned UTXOs, imposing a burden on nodes.
Protocols that record data in op_return, such as the Runestone or Pipe protocols, have made improvements in this regard, alleviating the on-chain footprint concern.
The Taproot Asset protocol, which commits data on chain, boasts the cleanest on-chain footprint. However, its technical complexity hinders user understanding and trust, despite the improvement in on-chain cleanliness.