Preface
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
——These words engraved in the Bitcoin Genesis Block witnessed the beginning of an era.
And now, as Bitcoin hits new highs, we are also witnessing the end of another once glorious era - Inscriptions and Runes
From the emergence of the Ordinals protocol in early 2023, to the crazy hype of BRC20, to the successive appearances of Runes, Atomical, CAT 20, RGB++, Alkanes and other protocols, the Bitcoin ecosystem has experienced an unprecedented inscription revolution.
They are all trying to transform Bitcoin from a simple value storage tool into an underlying platform that can carry various asset protocols.
However, when the carnival fades and the background gradually emerges, we have to face a cruel reality: the fundamental limitations of the Inscription Protocol doomed this beautiful tulip bubble.
As a practitioner who is deeply involved in the development of the Inscription Protocol from a technical perspective, and has worked on the underlying implementation of each protocol, I have witnessed the development of this ecosystem from its inception to its explosion, and then to its current rational return.
This article will explore why this once-popular track has reached its current end so quickly by connecting the innovations and limitations of multiple inscription protocols.
1. Evolution chain of inscription protocol
1.1. Ordinals Protocol: The Beginning of the Inscription Era
The first key to the Inscription Era of Bitcoin was opened. By numbering each satoshi and using the principle of commit disclosure technology, the on-chain storage of arbitrary data was achieved.
The combination of the UTXO model and the NFT concept uses the serial number of the Satoshi’s birth as a positioning identifier, allowing each Satoshi to carry unique content.
For details, see: Interpretation of Bitcoin Oridinals Protocol and BRC20 Standard Principle Innovation and Limitations
From a technical perspective, Ordinals is elegantly designed, perfectly compatible with the Bitcoin native model, and enables permanent data storage.
However, just writing data is also its limitation, and it cannot meet the markets strong desire for the core demand of issuance of BTC + other assets at that time.
1.2. BRC20 Protocol: Business Breakthrough and Consensus Trap
Based on the technical foundation laid by Ordinals, BRC20 injects soul into the on-chain data through standardized content formats, making the originally static inscriptions come alive.
It defines the complete asset lifecycle of deploy-mint-transfer, converts abstract data into tradable assets, realizes the issuance of homogeneous tokens on Bitcoin for the first time, meets the markets rigid demand for issuance, and ignites the entire inscription ecosystem.
However, its account model is fundamentally in conflict with Bitcoins UTXO model. Users must first engrave the transfer inscription and then make the actual transfer, resulting in multiple transactions to complete a transfer.
More importantly, the fundamental flaw of BRC20 is that it only binds certain data but is completely unable to share its consensus power. Once the off-chain indexer stops supporting it, all the so-called assets will instantly become meaningless garbage data.
This vulnerability was fully exposed in the duplicate satoshi incident - when multiple assets appeared on the same satoshi, the protocol parties collectively modified the standard, which meant that the consensus of the entire ecosystem was actually in the hands of a minority. What is even more confusing is that the optimizations such as single-step transfers subsequently introduced by relevant institutions did not actually touch the core pain points of the market, but brought costs for various platforms to migrate and adapt to the new version.
This reflects a deeper problem: for two years, the designers of the Inscription Protocol have been stuck in the single field of issuance and lack in-depth thinking about the application scenarios after issuance.
1.3 Atomical Protocol: Correction and Disconnection of UTXO Primitives
In response to the UTXO compatibility issue of BRC20, Atomical proposed a more radical solution: let the number of assets directly correspond to the number of satoshis in UTXO, and introduce a proof-of-work mechanism to ensure fair minting.
It achieves native compatibility with the Bitcoin UTXO model, and asset transfer is the transfer of Satoshi, which solves the cost and interaction problems of BRC20 to a certain extent.
However, the iteration of technology also brings the cost of complexity - the transfer rules have become extremely complicated, requiring precise calculation of the splitting and merging of UTXOs, and assets are often burned, which makes inscription players dare not operate easily.
What is even more fatal is that the proof-of-work mechanism exposed serious fairness issues in actual operation. Large households took advantage of their computing power to complete the minting first, which was completely contrary to the mainstream narrative of fair launch of the Inscription Ecosystem at the time.
Subsequent product iterations further reflected the development team’s distorted understanding of user needs. Complex functions such as semi-dyed assets consumed a lot of manpower and material resources, but improved the user experience very little. Instead, they caused major institutions to incur high costs in reconstructing on-chain tools.
The long-awaited AVM was late in arriving, and the entire market situation had already changed, missing the best window of development.
1.4. Runes Protocol: Elegant Compromise of Official Authority and Application Gaps
As the official issuance protocol of Casey, the founder of Ordinals, Runes has absorbed the lessons learned from the previous protocols. The use of OP_RETURN data storage avoids the abuse of witness data, and through sophisticated coding design and UTXO model, it finds a relative balance between technical complexity and user experience.
Compared with previous protocols, Runes data storage is more direct, encoding is more efficient, and transaction costs are significantly reduced.
For more details, please see: BTC halving is imminent, interpreting the underlying design mechanism and limitations of the Runes protocol
However, the Runes protocol also falls into 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 threshold?
After obtaining it, what practical significance does it have other than selling it in the secondary market? This purely speculation-driven model is doomed to have limited vitality.
But the application of opreturn opens up ideas for subsequent protocols.
1.5. CAT 20 Protocol: Compromise between the Ambition and Reality of On-Chain Verification
He did achieve true on-chain verification through Bitcoin Script. Only the state hash is stored on the chain, and recursive scripts are used to ensure that all transactions follow the same constraints, thus claiming that no indexer is required. This has long been the holy grail of the Inscription Protocol.
However, CAT 20s on-chain verification. Although the verification logic is indeed executed on the chain, the state data that can verify it is stored in OP_RETURN in the form of a hash, and the hash alone cannot be reversed, so in actual operation, the off-chain indexer is still needed to maintain the readable state.
By design, the protocol allows token name symbols to be non-unique, which leads to confusion among assets with the same name. In addition, the UTXO contention problem in high-concurrency scenarios during early development made the users initial minting experience extremely bad.
Later, a hacker attack occurred. The underlying principle was that when the internal data was connected to calculate two values, there was a lack of separation symbols, resulting in the same hash results for the values 1 and 234 and 12 and 34. The attack forced the protocol to be upgraded, but the long-delayed upgrade plan made the market forget its original enthusiasm.
The case of CAT 20 shows that even if some breakthroughs have been achieved in technology, it cannot be too advanced. If it completely exceeds user understanding, it will be difficult to gain market recognition.
Moreover, the threat from hackers is always like a sword of Damocles hanging over the heads of project parties, telling everyone to be in awe.
1.6. RGB++ Protocol: Technological Idealism and Ecological Dilemma
CKB uses an isomorphic binding solution to try to solve the problem of Bitcoins functional limitations through a dual-chain architecture. Using CKBs Turing completeness to verify Bitcoin UTXO transactions is the most advanced technology, achieving smart contract verification in a richer sense, and has the most complete technical architecture, which can be regarded as the technical pearl in the Inscription Protocol.
But the gap between ideal and reality is vividly reflected here - the complexity of the dual-chain architecture, the high learning cost and the institutional access threshold.
More importantly, the project team itself is relatively weak, and has to face the dual challenges of promoting both the chain (CKB) and the new protocol (RGB++) at the same time, which makes it unable to attract enough market attention.
In this field that is highly dependent on network effects and community consensus, it has become a technical solution that is well-received but not popular.
1.7. Alkanes Protocol: Final Sprint and Resource Scarcity
The smart contract protocol based on off-chain index+ combines the design concepts of Ordinals and Runes, attempting to implement any smart contract function on Bitcoin. It represents the last sprint of the Inscription Protocol towards the traditional smart contract platform.
In theory, it is indeed possible to implement any complex contract logic. And he also took advantage of the opportunity of the BTC upgrade to lift the 80-byte opreturn limit.
However, the reality of cost considerations ruthlessly broke this technical ideal. Not to mention the huge performance bottleneck caused by the operation of complex contracts off-chain, even the indexers built in the early stage of the project were blown up many times. In addition, the deployment of custom contracts requires nearly 100 KB of data on-chain, which costs far more than the deployment cost of traditional public chains. In addition, the operation of contracts is not controlled and still relies on the consensus of indexers. The high cost is destined to serve only a very small number of high-value scenarios. High-value and distrustful general indexers, even if Unisat is strongly in the team, the market will not pay for it. If it was proposed a year ago, the situation might be completely different under the right time and place.
2. Fundamental Dilemma: Bitcoin’s Minimalist Philosophy and Over-Design
The cumulative effect of technical debt
The evolution of these protocols exhibits a clear but contradictory logic: each new protocol attempts to solve the problems of its predecessors, but while doing so it introduces new complexities.
From the elegance and simplicity of Ordinals to the technical stacking of subsequent protocols, in order to be different, the complexity is constantly increasing until every player has to learn a bunch of terms and constantly guard against risks.
And all the attention is only on the logic of the coin issuing platform. In this case, why don’t players choose places with lower costs, easier operations, more significant increases, and more complete platform mechanisms?
Chewing on the same topic for a long time will also cause aesthetic fatigue among users.
A vicious cycle of resource scarcity
The fundamental reason why these project parties are short of resources may lie in the centralization and fair launch of the Bitcoin system itself - how can an institution that lacks incentives over-invest in a platform that does not give it an advantage?
Compared with the miners block profits, operating the indexer is a pure cost. Without the distribution of miners profits, naturally there is no one to solve the technical and operational problems.
Speculative demand vs real demand
After multiple user educations, we found that as long as they are off-chain protocols, their security cannot be equal to Bitcoin consensus. The cooling of the market is not accidental, but reflects the fundamental problem of the Inscription Protocol: they solve not real needs, but speculative needs.
In contrast, truly successful blockchain protocols are all because they solve practical problems: consensus, functionality, and performance are all indispensable, but the contribution of inscription protocols in this regard is almost zero, which also explains why their popularity cannot be sustained.
3. The era of RWA: from market share to market share
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 valuable resource it is.
They no longer simply believe in information sources monopolized by Twitter KOLs and discourse communities, and are no longer consensus cannon fodder that blindly believe in white papers.
The threshold for issuing platforms is very low, and in the current market environment, this low-hanging fruit has been picked. The industry is moving from simple token issuance to more practical application scenarios.
But it is worth noting that if only a bunch of issuing platforms appear in the RWA field, then this wave of opportunities will come and go quickly.
The return of value creation
Technological innovations in the era of the Inscription Protocol often have a showy color, pursuing technical ingenuity rather than practicality. The development logic of the new era has shifted from market dream rate to market share, and pays more attention to forming a real network effect through user word of mouth.
The real opportunities belong to those teams that pursue product-market fit - making products that truly meet user needs, have cash flow, and have a business model.
Conclusion: The return of rationality and restraint
In the early days, everything will ultimately be right and therefore just once it is put into a macro perspective.
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 hits a new high, we have reason to be proud of this great technological innovation. But we should also realize that the development of technology has its own 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 based on a solid technical foundation and real market demand. Speculative enthusiasm and excessive technical showmanship, as long as they do not conform to the current market conditions (institutional cognition and player understanding), will lead to short-lived success. Projects that chase hot spots may have a lot of voice, but only projects that create hot spots can live long.
In this rapidly changing industry, it is more important for builders to remain rational and restrained than to hastily release products just to chase hot topics and gain fame.
Moreover, the market does not have that much patience to wait for you to polish and iterate. Many traditional Internet strategies of small steps and fast progress are not feasible. The first battle is the decisive battle.
As I wrote in an article two years ago:
BRC-20 and Ordinals NFT have brought a lot of controversy to Bitcoin... Although the new things are very popular in terms of price, their technical defects are also very significant: too centralized, lack of a trusted verification mechanism, limited Bitcoin network performance, lack of infrastructure, and lack of security.
Although I am not optimistic about Ordinals, after all, its application in the blockchain space is still too monotonous... But as an interesting attempt, such a breakthrough innovation can also re-trigger everyones thinking.
History has proven the importance of maintaining rational thinking. The end of the era of inscriptions is not failure, but growth.
It points out the direction for us to move forward and also provides valuable lessons for those who come after us. In this sense, the historical value of the Inscription Protocol will exist for a long time and become an important page in the history of the development of blockchain technology.
