Crypto News

Ordinals vs Layer 2 Metaprotocols, Part 2: The Final Showdown?

Published

11 months ago

February 20, 2024

Last May, I wrote an article for Bitcoin Magazine predicting that Layer 2 (L2) metaprotocol solutions would resolve the Ordinals controversy. Now that two of the most highly-anticipated Layer 2 solutions, Taproot Assets (TA) and RGB, are either available or imminent, it’s time to revisit this subject. Indeed, it may be past time judging by recent fee spikes driven by a resurgence of interest in BRC-20 tokens…

Following my view that the price, fee, and flexibility advantages offered by L2 metaprotocol solutions over on-chain Ordinals will ultimately prove decisive, I’ve focused my energies on advancing such solutions. Over the last few months, I’ve been deeply involved in both TA and RGB projects. In early September, I established a group in which the developers of L2 metaprotocol wallets, exchanges, and projects – as well as any other interested parties – can collaborate. I traded the first tokens on the new “Tiramisu” and “NostrAssets” TA exchanges and named the now-abandoned “Spank” TapAss (get it?) exchange. Most recently, I founded what will be the first 10,000 piece profile picture (PFP) art collection on RGB, Single-Use-Seal (named for the cryptographic primitive invented by Peter Todd in 2016 which forms the basis of RGB).

Given that creating the artwork for Seals, marketing the project and interacting with its (exceptional) community constitutes the most significant investment of my time into L2 metaprotocol projects, it follows that I believe RGB has greater potential than TA. However, unlike RGB which is currently undergoing a code audit by Blockstream before the gates are thrown wide to user investment, TA is available as a functional alternative to Ordinals right now. From personal experience, I can testify that TA tokens and NFTs are working and trading extremely well, with Lightning support as standard… So why, in the current high- fee environment, is the Ordinals war still raging, as shown by the recent battle over OCEAN mining pool filtering Ordinals transactions?

Image Inscriptions – Here to Stay?

As an artist (or, more accurately, amateur cartoonist), I well understand that limitations often spur creativity. A blank page can be intimidating in its endless possibility, whereas restrictions suggest structure and sometimes present a starting point. The size limitations of Inscriptions have obviously not stopped an explosion of creativity, from charming low-res and pixel art to improved technical efficiencies, like recursive inscriptions. However, the tight restrictions on file size imposed by the on-chain format does exclude certain possibilities.

For example, Single-Use-Seals explores the human artist’s role in a culture increasingly fabricated by AI. To achieve “Proof-of-Art” verification across the PFP collection and to filter AI-generated entries from our various community contests, Seals relies on high-res photographs of handmade art. At a resolution of 3072 by 3072 pixels, it’s possible to conduct a CSI-style enhancement of a Seal, sufficient to confirm the irregular pen strokes, imperfections of the paper, and shifting photographic tones as human made:

For a 10,000 piece collection, achieving this level of fidelity is cost-prohibitive within Inscriptions – if not technically impossible, given that each Seal image is roughly double the maximum size of a Bitcoin block. The same limitations apply even more so to high-quality audio and video content. Nevertheless, the high cost of scarce blocksize is as much a feature as a bug. Placement within the world’s first, costliest, and most secure blockchain confers an undeniable prestige. Those with suitably-small art or deep pockets will therefore continue to raise the perceived value of their work through direct association with Bitcoin. This will inevitably lead to a situation where data-heavy art (or that produced by the archetypal starving artist) finds its natural place on Layer 2 metaprotocols. Thus I still foresee a fee-determined bifurcation of Bitcoin-based art between layers.

BRC-20s – Time to Go!

Whereas image Inscriptions have their place, in my view BRC-20s (and related on-chain tokens) are now obsolete. There are some significant and fundamental drawbacks to these tokens:

BRC-20s are minted on a first-come-first-served-no-refunds (FCFS/FU) basis. If your transaction arrives after all supply has been claimed then your funds are wasted and you get nothing. This leads to the bursts of intense fee competition which are so disruptive to the Bitcoin network – and cause much Ordinals backlash.
BRC-20s rely on centralized indexers, run primarily by exchanges, to keep the ledger of who-owns-what straight. The potential for desynchronization and fraud is high.
BRC-20 transfers and actions require on-chain Bitcoin transactions. This is expensive and relatively slow compared to tokens on competing chains.
BRC-20 tokens are limited in their application. To my knowledge, the basic functions expected of tokens on other chains, such as any kind of decentralized financial applications, have yet to materialize. Certainly nothing like a BRC-20 stablecoin of any repute exists at this time – Stably is not something I’d recommend even to a central banker.
BRC-20s are limited to 4 character tickers – and all the juiciest 4-letter words have long since been taken.

Further to point 1… New BRC-20s deployments are under constant threat by “The Sophon,” a rather aggressive bit of now-public code, developed by Rijndael to stifle new on-chain tokens. Named for the single-proton supercomputers deployed by aliens to block scientific progress on Earth (at least in Cixin Liu’s excellent sci-fi trilogy, “Remembrance of Earth’s Past”), Bitcoin Sophons scan the mempool for any new BRC-20 activity. Upon detection, Sophons pay for a high-fee transaction intended to front-run the original BRC-20 deployment transaction and set its total supply to 1. This effectively occupies the BRC-20’s intended ticker and invalidates any mint transactions from users, incidentally wasting any of their en-route transactions.

Suffice to say, I’m one of many Bitcoiners who believes that BRC-20s, in a word, suck. However, rather than trying to neutralize them via expensive Sophon transactions or censor them at the miner level, my preferred solution is to publicize the superior alternatives. To that end:

AdamCoin (AC) is the first token deployed on the Tiramisu TA wallet and exchange. AC enjoys a bullish and active market and, like all tokens on Tiramisu, can be traded by both Liquidity Pool and Order Book. Many other tokens and NFTs are available for trading on Tiramisu and the process of creating new ones is cheap and reliable (sans menacing multi-dimensional micro-computers). As an added bonus in these trying high fee times, Tiramisu deposits and withdrawals can be made via Lightning.

TRICK and TREAT are twin TA tokens trading on the open-source NostrAssets platform. With a Telegram channel of 13,000+ members, trading is brisk indeed and has the added bonus of integration with the Nostr protocol (despite Fiatjaf’s heated objections). Currently NostrAsset’s only real drawback is that it doesn’t allow the minting of new tokens or NFTs.

PePe-RGB is an RGB-based project in the final stages of launch preparations. PePe has already attracted a massive Twitter following of 28,500+ people and enthusiasm runs high for the PePe’s initial stage; the release of the world’s first popular RGB-20 token. There’s a lot more in PePe’s plan however, already there’s a fully-3D animated avatar, the grandson of the ubiquitous memetic frog, cast as the protagonist in a narrative set to play out across a cyberpunk city. It’s even rumored that a certain Seal may guest star… and even release his own token with utility for a verified-human-art market in future!

So, with such fine L2 tokens available, the question is why anyone still bothers with BRC-20s? As even the most scorchingly laser-eyed Bitcoin Maxi must admit, shitcoins ON Bitcoin are a damn site better than shitcoins IN Bitcoin!

Stealthy Stablecoins in the Colourful Dark

Speaking of tokens, it’s understandable that many Bitcoiners have little interest in them. However, stablecoins are – like it or not – major players in our space. The third largest coin by market cap, Tether, is particularly noteworthy for regularly having the highest daily trading volumes across the market. It seems that fiat and BRC-20 enjoy a similarly persistent demand, despite the existence of vastly superior alternatives… And while a cryptocurrency bound to fiat may be far from the cypherpunk ideal, that doesn’t mean it can’t be improved. For example, a digital Dollar invisible to chainanalysts and regulators alike (24:30) offers some interesting new possibilities in a world of increasing monetary sanctions and surveillance. Perhaps with such possibilities in mind, Tether’s CEO and Bifinex’s CTO, Paolo Ardoino, has named RGB as the rightful successor to the stablecoin’s original platform, and the best opportunity for issuing stablecoins on BTC.

TA forked from RGB, leading to contention between the projects, but both benefit Bitcoin!

Indeed, while nothing prevents the issuance of stablecoins on TA, RGB has some technical advantages which make it an ideal platform. Firstly, TA has the constraint of its universe model, in which each asset issuer creates their own unique and separate universe in which their assets operate. While it’s possible to bridge universes, this requires permission from the original issuer. For assets intended to trade freely across the web – and stablecoins are surely most useful when easily transferable between various exchanges, wallets, etc. – this structure presents some obvious difficulties and centralization issues. RGB has no such constraints. Any two parties using the RGB system can freely exchange any amount of assets. Additionally, due to RGB’s client-side validation model, only those parties would be aware that any such exchange occurred… Might we be looking at “gaining a new territory of freedom for several years,” about 15 years after Satoshi’s original statement?

The RGB rabbit hole goes a lot deeper, to the extreme future prospect of Prime, whereby Bitcoin itself rebases from its blockchain to a client-side validation model – all achievable on a voluntary basis without any soft or hardfork required. Such a prospect is well beyond the scope of this article, so let’s confine ourselves to another exciting feature of RGB – complex smart contracts running on Bitcoin. This opens the door to all the opportunities (and risks) of the DeFi space but hopefully, done privately and in a low-cost, scalable manner atop Bitcoin. While some will have their objections, the prospect of rendering Ethereum and other on-chain smart contract platforms obsolete holds undeniable appeal…

Conclusion: Layer 2 is Bullish for Bitcoin

As the next Bitcoin bull market gets underway, Bitcoiners have the opportunity to make Layer 2 metaprotocol solutions part of the narrative. By failing to do so, more attention will flow to familiar, flawed options like BRC-20s, which will exacerbate the fee pressures usual to hot Bitcoin markets. Even for Bitcoiners without any interest in the possibilities and prospects of L2 metaprotocol assets, understanding and promoting them is a good way to support Bitcoin’s next growth phase.

Bitcoin and Single-Use-Seal (Theme #6) are blasting off soon!

This is a guest post by Steven Hay. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

An analysis of the dichotomy between metaprotocols residing on Layer 1 vs. metaprotocols that lift related asset data off-chain.

Crypto News

What Bitcoin Price History Predicts for February 2025

Published

20 hours ago

January 16, 2025

admin

As the Bitcoin market steps into 2025, investors are keenly analyzing seasonal trends and historical data to predict what February might hold. With Bitcoin’s cyclical nature often tied to its halving events, historical insights provide a valuable roadmap for navigating future performance. By examining historical data—including Bitcoin’s average monthly returns and its post-halving February performance—we aim to provide a clear picture of what February 2025 might look like.

Historical average monthly performance of Bitcoin. Monthly data set is from December 2010 to latest monthly close. Source: Bitcoin Magazine Pro

Understanding Bitcoin’s Seasonality

The first chart, “Bitcoin Seasonality,” highlights average monthly returns from 2010 to the latest monthly close. The data underscores Bitcoin’s best-performing months and its cyclical tendencies. February has historically shown an average return of 13.62%, ranking it as one of the stronger months for Bitcoin performance.

Notably, November stands out with the highest average return at 43.74%, followed by October at 19.46%. Conversely, September has historically been the weakest month with an average return of -1.83%. February’s solid average places it in the upper tier of Bitcoin’s seasonality, offering investors hope for positive returns in early 2025.

Bitcoin percentage monthly returns over the past ten years. Source: Bitcoin Magazine Pro

Historical Performance of February in Post-Halving Years

A deeper dive into Bitcoin’s historical February returns reveals fascinating insights for years that follow a halving event. Bitcoin’s halving mechanism—which occurs roughly every four years—reduces block rewards by half, creating a supply shock that has historically driven price increases. February’s performance in these post-halving years has consistently been positive:

2013 (Post-2012 Halving): 62.71%
2017 (Post-2016 Halving): 22.71%
2021 (Post-2020 Halving): 36.80%

The average return across these three years is an impressive 40.74%. Each of these Februarys reflects the bullish momentum that often follows halving events, driven by reduced Bitcoin supply issuance and increased market demand.

January 2025’s Performance Sets the Stage

While February 2025 is yet to unfold, the year began with a modest 7.28% return to date in January, as shown in the “Monthly Returns Heatmap.” January’s positive performance hints at a continuation of bullish sentiment in the early months of 2025, aligning with historical post-halving patterns. If February 2025 follows the trajectory of past post-halving years, it could see returns in the range of 22% to 63%, with an average expectation around 40%.

What Drives February’s Strong Post-Halving Performance?

Several factors contribute to February’s historical strength in post-halving years:

Supply Shock: The halving reduces new Bitcoin supply entering circulation, increasing scarcity and driving price appreciation.
Market Momentum: Investors often respond to the halving event with increased enthusiasm, pushing prices higher in the months following the event.
Institutional Interest: In recent cycles, institutional adoption has accelerated post-halving, adding significant capital inflows to the market.

Key Takeaways for February 2025

Investors should approach February 2025 with cautious optimism. Historical and seasonal data suggest the month has strong potential for positive returns, particularly in the context of Bitcoin’s post-halving cycles. With an average return of 40.74% in past post-halving Februarys, investors might expect similar performance this year, barring any significant macroeconomic or regulatory headwinds.

Conclusion

Bitcoin’s history provides a valuable lens through which to view its future performance. February 2025 is shaping up to be another positive month, driven by the same post-halving dynamics that have historically fueled impressive gains. Combining historical data performance with a positive regulatory environment, the incoming pro-Bitcoin administration, and the news that The Financial Accounting Standards Board (FASB) has issued a new guideline (ASU 2023-08) fundamentally changing how Bitcoin is accounted for (Why Hundreds of Companies Will Buy Bitcoin in 2025), 2025 is shaping up to be a transformative year for Bitcoin. As always, investors should combine these insights with broader market analysis and remain prepared for Bitcoin’s inherent volatility.

By leveraging the lessons of history and the patterns of seasonality, Bitcoin investors can make informed decisions as the market navigates this pivotal year.

To explore live data and stay informed on the latest analysis, visit bitcoinmagazinepro.com.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.

What Bitcoin Price History Predicts for February 2025 Discover how Bitcoin’s historical February performance and post-halving trends provide insights into what investors can expect in 2025.

Crypto News

Coinbase’s Bitcoin Loans Are Not What They Seem

Published

21 hours ago

January 16, 2025

admin

Earlier today, Coinbase announced the launch of “Bitcoin-Backed Loans” using Base, its native blockchain. But there’s one problem. (Actually, two.)

These loans are not backed by Bitcoin, nor are they even on the Bitcoin blockchain.

It’s disappointing that, in 2025, companies are still willingly omitting key details to mislead Bitcoin holders into giving up custody of their coins.

Here’s the truth: these loans are collateralized by cbBTC, Coinbase’s Bitcoin-wrapped product designed to compete with wBTC and tBTC. This is not Bitcoin. In fact, cbBTC is arguably the most centralized of these “wrapped” BTC tokens. To understand the trust assumptions associated with wrapped BTC, I recommend this excellent post by the Bitcoin Layers team: Analyzing tBTC Against wBTC and cbBTC.

Here’s the TL;DR:

“The BTC backing the cbBTC token is held in reserve wallets managed by Coinbase, a US-based centralized custodial provider. Coinbase holds funds backing cbBTC in cold storage wallets across a number of geographically distributed locations and additionally has insurance on funds they custody.”

Furthermore, instead of issuing these loans on a blockchain even remotely related to Bitcoin (such as Bitcoin sidechains or Bitcoin L2s), Coinbase is issuing them through Morpho Labs, a DeFi platform best described as an AAVE competitor. While Morpho is a well-established platform—and I don’t doubt its security—it has no connection to Bitcoin.

I, for one, look forward to seeing actual Bitcoin-backed loans issued on the Bitcoin network itself. Many L2 teams are working hard to make this a reality, striving to minimize trust assumptions—or even eliminate the need for bridging altogether (bullish!).

Why do we need native Bitcoin-backed loans in the first place? Consider this: many Bitcoiners today face stringent tax regulations that impose hefty liabilities on long-term holders who sell their Bitcoin to fund significant purchases like a house or a car. Taking out a loan backed by BTC allows individuals to avoid triggering these tax events.

Moreover, most Bitcoiners are confident that Bitcoin’s price will be significantly higher in the future than it is today. So why would anyone sell an asset with such promising long-term potential? Bitcoin-backed loans enable holders to retain exposure to Bitcoin’s upside while accessing the liquidity needed to meet life’s financial demands.

In today’s market, the options for Bitcoin-backed lending are limited. You can either rely on centralized companies (like the reputable team at Unchained) or turn to “DeFi” protocols, which are often centralized themselves and, in some cases, riskier than centralized alternatives like Unchained. However, there is currently no truly Bitcoin-native solution—no option for Bitcoiners to maintain custody of their coins while accessing loans.

Some companies, like Lava.xyz, are beginning to address this gap. However, their market share remains a small fraction of the volumes handled by existing DeFi platforms. (Keep an eye on Lava—they’re poised to make waves in 2025!)

One quote from the original announcement stood out to me:

“The integration of Bitcoin-backed loans on Coinbase is ‘TradFi in the front, DeFi in the back,’” said Max Branzburg, Coinbase’s vice president of product, in a statement to The Block.

Let’s call it what it really is: centralized in the front, and centralized in the back.

It’s time to leave these misleading offerings behind and bring true Bitcoin Finance (BTCfi) to users—not just marketing buzzwords and half-truths.

Instead of saying: Bitcoin backed on-chain loans let’s say: multisig-backed derivatives loans on a centralized chain.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Articles I write may discuss topics or companies that are part of my firm’s investment portfolio (UTXO Management). The views expressed are solely my own and do not represent the opinions of my employer or its affiliates. I’m receiving no financial compensation for these takes. Readers should not consider this content as financial advice or an endorsement of any particular company or investment. Always do your own research before making financial decisions.

Coinbase's Bitcoin Loans Are Not What They Seem Not backed by real Bitcoin – not on the Bitcoin blockchain. We can do better.

Crypto News

Bitcoin Miners, Economic Irrationality Can Be Fatal

Published

2 days ago

January 15, 2025

admin

Some miners at OCEAN have started making use of the Coin Age Priority algorithm during block template construction using DATUM. Originally, Bitcoin Core originally selected transactions to include in blocks based on what they had seen first in their mempool. This logic was eventually replaced by prioritizing older coins, i.e. that had been sitting around unspent longer, over other coins. This was eventually only applied to a small portion of the blockspace, and then eventually done away with entirely around the time of Segwit. It’s still maintained in Bitcoin Knots.

I can only speculate as to the motives of the miners doing this, but given OCEAN’s rhetoric I can guess that it has something to do with prioritizing “financial” transactions over others. Even if not, even if it is purely to help small value UTXO owners, it is still every bit as irrational.

You can partition blockspace as a miner however you want, and prioritize ordering of transactions however you wish within those partitions, but it does not change the fact that blockspace is a fungible good being valued on an open market. If criteria other than the feerate are used to decide which transactions to include, you will leave money on the table. The only situation where that would not be true is one where those criteria were 1:1 identical to deciding based on feerate, which would be a meaningless criteria.

Creating a subsection of blockspace selected for by other criteria ultimately accomplishes two things: 1) leaving money on the table as a miner, as definitionally any meaningful non-feerate criteria results in collecting less fees, and 2) create a bucket of blockspace submitted to competitive “fee” pressures according to whatever different criteria is used, without any of that pressure creating direct revenue increases for miners using this new criteria.

The new subsection of blockspace doesn’t ultimately reduce fee pressure, it simply leaves them making less money and users taking advantage of this new transaction selection criteria subjected to different competitive pressures miners do not directly benefit from.

You can’t hide from the reality that blockspace is a fungible good priced on the open market. You can accept that, or you can lose money. The only alternative is to futilely try to censor classes of transactions you don’t like, and if you happen to succeed, you destroy a core property of Bitcoin in the process.

Mining staying decentralized, widely distributed with many small operators, is critical for Bitcoin’s censorship resistance. It’s a shame to see signs like this of such smaller miners being economically irrational, given that it has huge implications for their success long term.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Bitcoin Miners, Economic Irrationality Can Be Fatal Bitcoin’s censorship resistance depends not only on miners’ decentralization, but their economic rationality, and therefore sustainability.