The Bitcoin Renaissance: Addressing Risks, Embracing Change, and Upholding Core Tenets

10 May 2024

While Bitcoin has achieved a formidable status as a store of value, the rise of Ordinals and inscriptions clearly demonstrated users want to use it for more than just that. Beyond simply holding, there’s a massive and rising demand for Bitcoin-based applications, fungible and non-fungible assets, and scalable payments. However, the question is: How does Bitcoin satisfy this desire while preserving the core principles it was based on?

The Risks of Inaction

There has been great progress made gradually in the Bitcoin ecosystem, but the inability to innovate quickly has led to a concerning trend: a significant amount of BTC is continually being siphoned away from its ecosystem. Despite Lightning Network’s relative success, Ethereum now hosts more BTC than all Bitcoin Layer 2s combined. Even worse, an increasing number of BTC are held on centralized exchanges, which reintroduces the same custody risks from the fiat system that Bitcoin was originally built to mitigate.

This is a clear signal that if we, the Bitcoin community, don't offer compelling solutions, others will step in with solutions that may not align with Bitcoin's core values of decentralization and security. If we don’t act, we risk losing control over the direction in which Bitcoin and the broader crypto industry evolve.

To that point, Ethereum’s history provides a cautionary tale. As early as 2016, Bitcoin developers Peter Todd and Greg Maxwell highlighted numerous architectural issues with its design. However, the Bitcoin ecosystem’s progress over the past eight years has been relatively slow, while the broader industry has pursued questionable new solutions like Proof-of-Stake, account-based models, and sharding—all of which can undermine the decentralization and security that Bitcoin stands for.

We can no longer afford to make the same mistakes. The demand for new Bitcoin-based assets and use cases presents a pivotal opportunity. It calls for a Bitcoin Renaissance. Let's seize this moment to redirect the crypto industry towards a path that adheres to Bitcoin's values, principles, and architecture.

The State of Play

At its core, Bitcoin was envisioned as a peer-to-peer electronic cash system, not a peer-to-contract system like most smart contract platforms, or a peer-to-sequencer system like current rollups.

Bitcoin’s brilliance lies in the Proof-of-Work consensus mechanism and the UTXO model, which offers numerous advantages over the now prevalent account-based model. Instead of recording balances, UTXOs track individual currency units, similar to how physical cash works. This enables the creation of genuine bearer assets—assets owned by whoever holds the private key.

Most importantly, Bitcoin’s emphasis is on verification, not computation, which is what blockchains excel at. Computation and complex verification should be pushed off-chain—into protocols that don’t necessarily need to be blockchains. Luckily, the Bitcoin community has proposed many novel ideas for how to do this. Peter Todd’s work on single-use seals is especially notable here, as it paves the way for innovative scaling solutions based on client-side validation, including colored coins, RGB, Ordinals, and Atomicals.

The community has also explored and built various Layer 2 solutions with different consensus mechanisms, bridging solutions, and security assumptions. However, despite the richness of the ideas, the ecosystem growth over the years has been slow. This is primarily due to two reasons: Bitcoin’s lack of programmability, and its conservative ethos. It’s (intentionally) very difficult to reach a social consensus on any protocol-level changes to Bitcoin, which is also why we’re having these conversations today.

Ushering in The Bitcoin Renaissance

If we ought to usher in a Bitcoin renaissance, we should have the following in mind: Our solutions must satisfy user’s needs without sacrificing Bitcoin’s values and without requiring soft or hard forks.

Luckily, this is all possible by leveraging the layered approach. We already have some asset issuance protocols, including Ordinals, Runes, BRC-20, and Taproot Assets on the base chain. These directly benefit and simultaneously contribute to Bitcoin’s unmatched security. However, Bitcoin’s limited programmability means that users can’t do much with these assets beyond simply holding them, which is why we need a fully-expressive programmable layer on top. This layer should serve as the financial hub for assets on the Bitcoin chain.

Then, we need a secure bridge between these two layers. We can use a typical two-way peg, but Cipher Wang’s (author of the RGB++ protocol) new innovative solution, Universal Isomorphic Binding (UIB), is better. It employs point-to-point mapping between the UTXOs of two chains, eliminating the need for third-trusted parties, which is a giant leap compared to current bridging solutions.

Once we’ve established the programmable layer and the bridge, we can build another scalability and privacy-focused layer on top. Solutions for this include client-side-validation-based protocols, Open (partially-signed) Transactions, Nostr, Chaumian e-cash, and peer-to-peer markets. Then, we can use channels to connect all of this, and even connect Web2 and Web3—birthing the new Bitcoin-based Web5 paradigm.

Web5 means using cryptography, peer-to-peer technology, and other Web3-native solutions to fix and incorporate into Web2. It’s an entirely different paradigm than the one we’re operating in today—and there’s no better platform to build it on than Bitcoin.

By Jan Xie, Chief Architect of Nervos, founder of Cryptape.

This article is based on Jan Xie’s talk at Bitcoin Singapore on March 9th, 2024. Click for slides.