The Rise and Fall of the Bitcoin Inscription Protocol: From Technological Innovation to Rational Return

Preface

The phrase in the Bitcoin genesis block witnessed the beginning of an era. Today, as Bitcoin continues to reach new heights, we are also witnessing the end of the era of inscriptions and runes.

Since the emergence of the Ordinals protocol at the beginning of 2023, to the boom of BRC20, and then to the subsequent introduction of various protocols, the Bitcoin ecosystem has undergone an unprecedented "inscription revolution". These protocols all attempt to transform Bitcoin from a mere value storage tool into an underlying platform capable of carrying multiple assets.

However, after the carnival, we have to face a cruel reality: the fundamental limitations of the inscription protocol destined this beautiful bubble. As a practitioner deeply involved in the development of the inscription protocol, I have witnessed this ecosystem from its germination to its explosion, and now to its rational return.

This article will connect the innovations and limitations of multiple inscription protocols, exploring why this once-glorious track has quickly reached its end.

1. The evolution chain of the inscription protocol

1.1, Ordinals protocol: The beginning of the inscription era

The Ordinals protocol has ushered in the "inscription era" of Bitcoin. It enables on-chain storage of arbitrary data by numbering each satoshi and utilizing commit-reveal techniques. The combination of the UTXO model and the concept of NFTs allows each satoshi to carry unique content.

From a technical perspective, Ordinals is elegantly designed and perfectly compatible with the native model of Bitcoin, achieving permanent data storage. However, merely writing data is also its limitation, as it cannot meet the strong market demand for issuing other assets on BTC.

1.2, BRC20 protocol: Business Breakthrough and Consensus Trap

BRC20, based on Ordinals, injects soul into on-chain data through standardized content formats. It defines a complete asset lifecycle, transforming abstract data into tradable assets, and for the first time realizes the issuance of fungible tokens on Bitcoin, meeting the market's strong demand for "issuance" and igniting the entire inscription ecosystem.

However, its account model fundamentally conflicts with the UTXO model of Bitcoin. Users must first inscribe the transfer inscription before performing the actual transfer, resulting in multiple transactions to complete a single transfer. More importantly, the fundamental flaw of BRC20 is that it only binds "certain data" and cannot share the consensus power of Bitcoin. Once the off-chain indexer stops supporting it, all "assets" will instantly turn into meaningless garbage data.

This vulnerability was fully exposed during the repeated Satoshi event. When multiple assets appear on the same Satoshi, the protocol parties collectively modified the standards, which means that the consensus of the entire ecosystem is actually held in the hands of a minority. The subsequent "optimizations" such as single-step transfers did not actually address the core pain points of the market, but instead brought the cost of migrating 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 single domain of "issuance", lacking deep consideration of the application scenarios after issuance.

1.3, Atomical protocol: A correction and disconnection of UTXO nativism

Atomical has proposed a more radical solution to the UTXO compatibility issues of BRC20: to directly link the number of assets to the number of satoshis in the UTXO, and to introduce a proof-of-work mechanism to ensure fair minting.

This achieves native compatibility with the Bitcoin UTXO model, where asset transfer equates to the transfer of satoshis, which to some extent resolves the cost and interaction issues of BRC20.

However, technological iteration has also brought the cost of complexity. The transfer rules have become extremely complicated, requiring precise calculations of UTXO splitting and merging, with the risk of asset burn making users hesitant to act lightly.

Even more critically, the proof-of-work mechanism exposed serious fairness issues during its actual operation, as large holders leveraged their computational power advantage to complete minting first, contrary to 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 lot of resources but had little impact on improving user experience, instead triggering high costs for major institutions to rebuild on-chain tools.

The long-awaited AVM has finally arrived, but the entire market has already shifted, missing the best development window.

1.4, Runes protocol: the official authoritative elegant compromise and application blank

As the "official" issuance protocol of the Ordinals founder, Runes has absorbed the lessons learned from the aforementioned protocols. The use of OP_RETURN data storage avoids the abuse of witness data, and through clever coding design and the UTXO model, it has found a relative balance between technical complexity and user experience.

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

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

Why does the market need a token that can be obtained without any barriers? After acquiring it, besides selling it in the secondary market, what practical significance does it have? This purely speculative driven model inevitably limits the vitality of the protocol.

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

1.5, CAT20 protocol: On-chain verification's ambition and realistic compromise

CAT20 achieves true on-chain verification through Bitcoin scripts. Only the state hash is stored on-chain, and a recursive script ensures that all transactions adhere to the same constraints, claiming "no indexer required." This has been the holy grail of the inscription protocol for a long time.

However, the "on-chain verification" of CAT20 has its limitations. Although the verification logic is executed on-chain, the state data is stored in hash form in OP_RETURN and cannot be reverse-engineered, so the actual operation still requires off-chain indexers to maintain a readable state.

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 in early high-concurrency scenarios resulted in a very poor initial minting experience for users.

The subsequent hacker attack exposed a vulnerability in the internal data connection calculation due to the lack of separators, necessitating a protocol upgrade. However, the prolonged delay in the upgrade plan caused the market to lose its initial enthusiasm.

The case of CAT20 illustrates that even if there are some technological breakthroughs, overly advanced designs are difficult to gain market acceptance. Hacker threats remain the Damocles sword hanging over the heads of project teams, warning everyone to maintain a sense of awe.

1.6, RGB++ protocol: technological idealism and ecological dilemma

RGB++ aims to address the functional limitations of Bitcoin through a dual-chain architecture. By leveraging the Turing completeness of CKB to verify Bitcoin UTXO transactions, it is technically the most advanced, achieving a richer meaning of smart contract verification, with the most complete technical architecture, making it a "technical gem" in the inscription protocol.

But the gap between ideals and reality is vividly reflected here. The complexity of the dual-chain architecture, high learning costs, and institutional access barriers have become significant obstacles. More critically, the project's strength is relatively weak, and it has to simultaneously tackle the dual challenges of Chain (CKB) and the new protocol (RGB++), making it difficult to attract enough market attention.

In this field, which heavily relies on network effects and community consensus, RGB++ has become a "well-received but underutilized" technical solution.

1.7, Alkanes protocol: The final sprint and resource scarcity

Alkanes is a smart contract protocol based on off-chain indexing, integrating the design concepts of Ordinals and Runes, and attempting to implement arbitrary smart contract functionality on Bitcoin. This represents the final sprint of the inscription protocol towards traditional smart contract platforms.

In theory, Alkanes can indeed achieve arbitrarily complex contract logic. It also caught up with the opportunity of the Bitcoin upgrade to lift the 80-byte opreturn limit.

However, the harsh reality of cost considerations ruthlessly shatters this technological ideal. Not to mention the huge performance bottlenecks caused by the complex off-chain operations of contracts, the indexers built in the early stages of the project have been overwhelmed multiple times. Deploying custom contracts requires nearly 100KB of data on-chain, with costs far exceeding those of traditional public chains. The operation of contracts still relies on indexer consensus, and the high costs are destined to serve only a very small number of high-value scenarios.

Even with strong support from certain platforms, the market does not buy it. If Alkanes had proposed it a year ago, the result might have been completely different.

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

The cumulative effect of technical debt

The evolution of these protocols reveals a clear yet contradictory logic: each new protocol attempts to solve the problems of its predecessors, but in doing so, it introduces new complexities.

From the elegant simplicity of Ordinals to the technical stack of subsequent protocols, in order to stand out, complexity is continuously increasing, until every player has to learn a whole bunch of terminology and constantly guard against risks.

Moreover, all the attention is focused on the logic of the token issuance platform. If that is 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 brought about user aesthetic fatigue.

vicious cycle of resource scarcity

The fundamental reason for the resource scarcity of these project teams may lie in the centralization of the Bitcoin system's operation and the fairness of its launch itself. Institutions lacking incentives naturally will not overly invest in platforms where they cannot gain an advantage.

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

Speculative Demand vs Real Demand

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

In contrast, truly successful blockchain protocols have succeeded because they solve real problems: consensus, functionality, and performance are all essential, but the contribution of the inscription protocol in this regard is almost zero, which also explains why their popularity cannot be sustained.

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

The maturity of market perception

As the market matures, users who have experienced several rounds of bull and bear cycles have learned to cherish their attention. They no longer simply believe the information sources monopolized by social media KOLs and influential communities, nor do they blindly trust 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 already been picked. The industry is shifting from simple token issuance to more practical application scenarios.

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

The Return of Value Creation

The technological innovations of the inscription protocol era often have a "show-off" quality, pursuing technical cleverness 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 genuine network effect through user reputation.

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

Conclusion: The Return of Rationality and Restraint

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

When the price of Bitcoin reaches new highs, we have reason to be proud of this great technological innovation. However, we should also recognize that the development of technology has its inherent laws; not all innovations will succeed, and not all bubbles are worthless.

The rise and fall of the inscription protocol tells us that technological innovation must be built on a solid technical foundation and real market demand. Speculative enthusiasm and excessive technological flaunting, as long as they do not align with the current market situation (the understanding of institutions and the comprehension of players), will lead to fleeting moments. Projects that chase trends may generate buzz, but only projects that create trends can exist for the long term.

In this rapidly changing industry, it is more important for developers to maintain rationality and restraint than to chase trends. Moreover, the market does not have that much patience to wait for projects to be refined and iterated; many traditional internet strategies of taking small steps quickly do not apply here, and the first battle is the decisive battle.

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