State of Bitcoin: 2023

Thesis's photo Thesis

December 13, 2023

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<a href="https://thesis.co/reports/state-of-bitcoin-2023.pdf">Click to download a copy of the report</a>.
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When the world thinks of blockchains, the first thing that comes to mind
is Bitcoin. While the past decade has seen countless developments and
innovations in decentralized technology, from GameFi to DeFi to NFTs,
Bitcoin remains the world’s preeminent digital asset. Assessing its
health, recent developments, and future indicators is therefore crucial
to understanding the blockchain space as a whole. This report analyzes
Bitcoin’s activity over the past year using granular data and industry
insights to closely examine where the network is today and where it is
likely to be headed in the future.

A year that started in the grip of a long winter has seen prices surge
above $40,000 – and still climbing. Underlying dynamics were positive,
too, with first-time buyers entering the market in increasing numbers
while veteran holders increased their positions. On the technical side,
the year saw steps forward in scalability, usability, and mainstream
adoption – albeit with important challenges remaining unsolved. Looking
ahead, the likely approval of the first Bitcoin ETF stands to unleash a
flood of new investment – meaning 2024 could be a crucial year in the
long-term development of the decentralized economy.

Are ordinals intentionally breaking Bitcoin? Will DeFi exist on Bitcoin
via protocols like Taproot Assets and BitVM, or are they just different
implementations of things that have already been tried and haven’t
worked? Will there ever be a successful scaling solution for BTC? Read
on for the answers and in-depth analysis, data, and insights into the
State of Bitcoin in 2023.

## Table of Contents

```toc
### This will get replaced.
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## Overview

Bitcoin continued to demonstrate its fundamental value in 2023. In a
tough year for digital and traditional assets, the past twelve months
have marked significant milestones in Bitcoin's steady rise, enhancing
its functionalities and proving its legitimacy as a globally relevant
asset and network.

Bitcoin can no longer be written off as a speculative vehicle for
digital nonconformists. This year, builders and investors of all stripes
worked to realize their visions atop its immutable foundation. The
result has been a flowering of innovation that pushes Bitcoin's
capabilities while aligning with its core ethos of decentralization and
permissionless access.

Innovations like the Lightning Network and novel token standards
demonstrate Bitcoin’s evolving capabilities, which increasingly offer
functionality that matches other popular networks without the
centralized patches and workarounds that underpin many blockchain
projects. Lightning enables instant, scalable transactions without
ceding control to intermediaries. New asset protocols fuse Bitcoin's
scarcity with versatile embedded metadata while avoiding congestion.

The Nostr integration merges Bitcoin's censorship resistance with a
decentralized social sphere. Ordinals transform individual satoshis into
unique programmable artifacts that confer ownership. Recursive scripts
allow Bitcoin to host advanced logic and perpetually evolving structures
rivaling decentralized application platforms. Taproot unlocks
multi-asset transactions, mixing fungible value transfers with provable
custody and issuance events. By matching feature sets without
compromising core tenets, Bitcoin has proven itself more versatile than
critics acknowledge without sacrificing its core ethos.

The developments stretch far beyond technical feats. River Financial and
other services reimagine Bitcoin as an intuitive financial instrument
while emphasizing security and self-custody. Gaming platforms like
Zebedee pioneer new monetization models rewarding players and
illuminating Bitcoin's benefits. Mainstream apps like Lolli and Fold
offer cashback rewards in satoshis to normalize everyday usage. Finally,
the likely approval of spot ETFs stands to unleash a flood of
institutional capital as mainstream investors finally grasp Bitcoin's
staying power.

The themes are clear – more builders, more use cases, strengthened
legitimacy. This is a key time in the evolution of Bitcoin, which
represents the frontier for open financial rails without centralized
intermediaries. While innovations facilitate wider participation,
Bitcoin cannot compromise on its commitment to decentralization, the
ultimate hedge in a digital future where control, censorship, and
manipulation are constant threats. As investment grows, the principles
upholding trustlessness must endure.

Now more than ever, the world needs sound, decentralized money. There
are many challenges on the path ahead – technical, legal, socioeconomic
– but with so much talent now striving to achieve this future, they are
surmountable. Another cycle passes with Bitcoin in a stronger position
both functionally and philosophically. The stage is set for exponential
progress come 2024.

## Confidence in Bitcoin Grew Across the Board in 2023

Price tends to dominate headlines when it comes to the health of
Bitcoin. But behind the market’s ups and downs, on-chain data reveals a
compelling tale of expanding mainstream adoption and the resolute
conviction of long-term holders.

### Broader Participation from Mainstream Investors

The number of addresses holding balances between 0.1 BTC and 0.01 BTC
has gradually increased over the past year, indicating growing retail
interest in Bitcoin as an attractive investment asset. With the
performance of traditional markets uncertain amid continued high
interest rates, mainstream investors have sought robust alternatives.
Bitcoin's scarcity and programmatic monetary policy have always been
prime ingredients for storing value securely. Now, adding retail-sized
participants lays the foundation for the next wave of significant
adoption.

<img src="/images/state-of-bitcoin/image2.png" style="width:6.5in;height:3.65278in" />

### Long-Term Holders Demonstrate Deep Conviction

At the same time as more and more new investors have entered the market,
seasoned Bitcoiners have added to their positions during price dips and
consolidations; their net position change correlates with market
movements. As prices peaked, profit-taking also emerged. This divergence
between holder behavior and market prices signals genuine, battle-tested
conviction. Sustained accumulation often anticipates upward price
trends, suggesting holders anticipate impending shifts.

Large holders – those with more than 100 BTC – drive shorter-term
volatility, their trading activity reflected in fluctuating address
counts. But this cohort regained yearly highs by Q4, hinting at renewed
institutional interest even after mid-year uncertainty. The data
illustrates Bitcoin's gravitational pull and staying power for those
with experience.

<img src="/images/state-of-bitcoin/image3.png" style="width:6.5in;height:3.65278in" />

### Exchanges Hemorrhage Assets While Investors Embrace Self-Custody

The contrast between declining exchange balances and rising self-custody
paints a telling picture. Investors increasingly choose to take direct
control of their coins rather than rely on intermediary platforms,
undeterred by bearish macro winds. This accelerating migration squeezes
exchange liquidity while enhancing the asymmetric upside of Bitcoin's
supply dynamics' inelasticity.

Notably, the number of addresses withdrawing to self-custody continues
to rise while exchange balances continue to decline[^1]. This
divergence, along with the net accumulation of long-term holders during
price consolidations, signals enduring confidence in Bitcoin as an
investment and store of value. Periods of heavy accumulation often
precede significant price increases. The data illustrates two important
concepts - the gravitas of holder conviction during volatile markets,
and the merit of Bitcoin’s inelastic supply curve. As larger entities
consolidate Bitcoin supplies, the incentive to sell even at higher
prices diminishes. This supply squeeze and heightening mainstream and
institutional interest create the precursors necessary to propel
periodic bull runs.

The wallet data constructs a compelling narrative: Increasing
self-custody migration, accumulation by holders with high conviction,
and demand from larger investors pave the road for the next wave of
significant adoption. This macro backdrop offers a positive prognosis
for Bitcoin’s long-term investment thesis.

With robust demand intact despite downturns, the incentive to sell even
at higher prices evaporates. Only high-conviction assets win mindshare
through full market cycles. And nothing provokes conviction quite like
self-custody - a pure signal of intent to allocate for the long term.

<img src="/images/state-of-bitcoin/image4.png" style="width:6.5in;height:3.65278in" />

### Gathering Momentum for The Next Bull Cycle

If blockchain trails are leading indicators, Bitcoin stands poised to
embark on its next major growth cycle. The key ingredients are there -
expanding mainstream and institutional participation, long-time holders
relentlessly accumulating, and an inexorable path to self-custody
sparking inelasticity. Investor composition and holder behavior suggest
momentum is building to propel Bitcoin through its next leg of adoption.

For long-term believers, Bitcoin’s emerging narratives represent an
early-stage opportunity. The foundations continue to grow stronger,
edging closer to the asymptotic vision of decentralized money.

## Scaling Bitcoin

In 2023, scaling Bitcoin to meet increasing demands remains a pivotal
focus. While innovations like Lightning Network already push
capabilities forward, 2023 sees new layer 2 protocols poised to unlock
functionality without tradeoffs. These include sidechains parallel to
Bitcoin with interoperable assets and features.

Bitcoin layers extend functionality and improve performance without
changing the base layer, much like higher-level internet protocols
augmenting TCP/IP. Examples range from fast payments via Lightning to
sophisticated smart contracts in Stacks and RSK. Bitcoin emphasizes
stability as a settlement base layer while encouraging innovation in the
upper layers. The layers enable applications requiring fully expressive
smart contracts, high throughput, and privacy by building on top of
Bitcoin’s durability.

This modularity mirrors Bitcoin’s ethos — extending capabilities while
minimizing trust. By keeping the base layer simple, permissionless
access is preserved as the network becomes more versatile for different
needs. Numerous layered protocols now strive to realize Bitcoin’s
versatility without compromising decentralization.

### Technical Overview

At the core of ZK Rollups is the principle of transaction bundling,
where multiple transactions are aggregated into a single transaction on
the Bitcoin blockchain. This process is underpinned by the innovative
use of zero-knowledge proofs, a cryptographic method that allows these
bundled transactions to be validated without revealing their details.
The essence of zero-knowledge proofs lies in their ability to establish
the truthfulness of a statement while maintaining the confidentiality of
the underlying data.

Sovereign and Starkware have emerged as leaders pushing zk rollup
innovation on Bitcoin. Sovereign takes an opinionated full-stack
approach with its SDK, compilers, and modular components for quickly
building rollups. Starkware leverages its industry-tested Cairo language
and STARK prover from deployment on Ethereum to enable programmability.
Teams like Chainway and Kasar Labs have focused on crafting data
availability solutions to anchor rollups to Bitcoin without protocol
changes. They leverage Ordinals' inscription envelopes to graft rollup
data into Bitcoin blocks while avoiding new opcodes.

### Centralization Concerns and Decentralization Initiatives

Current iterations of zk rollups have given rise to concerns regarding
centralization, primarily due to reliance on centralized sequencers. In
many present implementations, a singular entity aggregates transactions,
generates the validity proof, and submits the batched data to Bitcoin.
This places considerable trust in the sequencer. Hybrid models may
emerge long-term, combining multiple prover types based on use case
needs.

Recognizing this as incompatible with Bitcoin's ethos, there is a
concerted effort toward decentralizing the sequencer role. The objective
is distributing transaction gathering, proof generation and blocking
submission responsibilities across multiple entities. This dilution of
trusts aligns more closely with Bitcoin's decentralized architecture.

Several approaches have been proposed:

- Threshold schemes can divide power among a dynamic group of sequencer
nodes based on stake or rotation.

- Computational proofs-of-work similar to Bitcoin mining determine
participation.

For full decentralization, an eventual opcode could enable two-way
movement of Sats and assets between Bitcoin’s base layer and zk rollups
using validity proofs. This requires BTC mining nodes to parse the
proofs directly, elevating functionality considerably without scaling
back decentralization.

## Bitcoin’s Layer 2 Landscape

<img src="/images/state-of-bitcoin/image5.png" style="width:6.5in;height:3.65278in" />

Beyond zk rollups, other layer 2 technologies continue maturing. Two
prominent examples are Stacks and Rootstock (RSK).

### Rootstock

Rootstock leverages merged mining to achieve Bitcoin-level security
assurances despite throughput exceeding the capacity of Bitcoin’s base
layer.

Merged mining allows Bitcoin miners to simultaneously process and
validate BTC and RSK transactions within the same block. In merged
mining, a miner mines both the parent chain (larger blockchain, like
Bitcoin) and the child chain (smaller blockchain, like RSK) at the same
time. The miner assembles a block for both chains and performs valid
work on both networks.

Rather than introduce redundant hash power, RSK transactions piggyback
on Bitcoin's vast mining infrastructure. This is possible because both
networks share the same proof-of-work algorithm - SHA-256. By extension,
the collective hash power protecting Bitcoin protects RSK, preventing
double spending or fraudulent manipulations.

The primary benefit of merged mining is its enhanced security to the
child chain. By leveraging the computational power of a more robust
parent chain, the smaller chain gains additional security against
double-spending and 51% attacks. By harnessing Bitcoin’s security, RSK
achieves scaling, efficiency, and advanced functionality that would be
impossible for Bitcoin natively while avoiding recourse to alternative
consensus models with vague security tradeoffs.

In 2023, the RSK Infrastructure Framework (RIF) experienced significant
advancements, including launching product development workshops and
unveiling a new visual identity. These initiatives, alongside enhanced
integrations with the Ethereum ecosystem, have played a key role in
attracting more entrepreneurs to the RSK platform, which benefits from
Bitcoin’s robust security. Additionally, the project focused intently on
elevating community comprehension of the network's security foundations.
Monthly hashrate reports offered transparency into the mining industry's
involvement via merged mining - detailing participation proportions of
top Bitcoin mining pools securing
RSK.[^2]

IOV Labs, the entity behind RSK, has been actively working to foster the
growth of the RSK ecosystem. In April 2023, IOV Labs announced
significant advancements for RSK and RIF at a Consensus
event.[^3]
These include launching a program offering product development workshops
and a $2.5 million grant program for startups and developers to build
DeFi applications on Rootstock.

However, despite these advancements, RSK has encountered certain
challenges. RSK has struggled to garner significant user uptake beyond a
small contingent of loyal supporters. The complexity and novelty of its
merged mining mechanism also present risks.

These include the potential reluctance of Bitcoin miners to support the
RSK network if the rewards do not outweigh the costs or if the rewards
for merge mining are inconsistent or unreliable. If returns prove
insufficient or unreliable, participation could falter. This creates a
circular dilemma - miners secure the network, but maintaining a
sufficient number of miners depends upon network usage. Breaking this
feedback loop has stalled progress for previous merge-mined chains.

While network activity persists in raw BTC terms, the total value
secured has deflated sharply from peaks in USD denominations. TVL peaked
in 2021 at ~$229 million USD, though 2023 has seen a notable uptick
relative to the
past.[^4]
This bifurcation indicates that those committed to the network continue
providing baseline support, with interest growing. However, translating
this foundation into exponential growth has proven elusive so far.

RSK must still solve non-trivial incentive alignment puzzles connected
to its pioneering security design. Miners must have enough upside to
actively support RSK despite viewing it as a secondary priority. Solving
these network bootstrapping challenges remains critical for RSK to reach
its potential.

### Stacks

Stacks is a Bitcoin layer-2 for smart contracts designed to bring
decentralized applications and smart contract functionality to the
Bitcoin ecosystem.

2023 marked a year of resurgence and expanded capabilities for Stacks
amid broader excitement in Bitcoin innovation. While the layer-2 network
contends with lingering adoption challenges, big-picture metrics affirm
meaningful progress executing on Stacks’ roadmap and vision.

Notably, Stacks’ native token STX staged a powerful recovery in 2023
after prolonged bearishness. Prices rose over 50% to start Q1 and over
280% year-to-date, significantly outperforming Bitcoin and the wider
market.[^5]
This constituted a remarkable reversal, cementing durable interest
despite crypto winter headwinds.

Several crucial network upgrades shipped this year, including Stacks
2.1, which introduced decentralized mining and bridges to Bitcoin. These
bridges enable protocols like sBTC to port Bitcoin liquidity into
sophisticated Stacks applications incorporating features impossible on
Bitcoin natively. The year also saw new blockchain tooling enter
testing, like Clarity 2.1 and Hiro's contract deployment platform,
priming additional functionality. Workstreams supporting major upgrades
like Nakamoto and sBTC - introducing faster block times and
decentralized bridges enabling Bitcoin liquidity flows, respectively -
remained on track for planned developer releases. Compared to 2022,
renewed sprint processes increased contributor velocity by over 50% on
key
repositories.[^6]
By the end of Q3, developer growth surpassed 1,100+ Stacks Developers, a
30% increase over Q2
‘23.[^7]
These efficiency gains accompanied community growth, with followers
rising by 20%.

Ecosystem traction expanded steadily, albeit from a small base. Assets
under management hit record highs in both USD and STX terms, reflecting
growing DeFi participation. Non-fungible token and gaming projects like
MetaBoy and Force Prime gained traction. BNS registrations exceeded
300,000 cumulative names, signaling persisting end-user interest.

Not all metrics kept pace, however. Daily active addresses, contract
calls, and transaction volumes moderated after spiking earlier in 2023.
The pullback implies fickle user retention beyond speculation.
Bottlenecks like UX frictions, fees, and network effects likely still
obstruct larger adoption.

From security to extensibility, Stacks made strides toward proactive
posturing, anticipating likely inflection points for adoption. Public
seed nodes launched across regions, eliminating centralization risks in
query services while collecting node metrics to inform scaling. Formal
auditing support commenced for projects, adding risk-proportionate
diligence. While lagging adoption metrics moderately tempered
enthusiasm, the year's developments constituted measured progress on
multiple fronts. The still-nascent ecosystem contended with
bootstrapping headwinds familiar to novel networks - incentivizing usage
despite functionality preceding polished end-user experiences.

## Lightning: Bitcoin's Scaling Solution Goes Mainstream

2023 saw over 5,400 BTC worth more than $230 million flowing through
payment channels on the Lightning Network (LN). Capacity rocketed from
August 2018’s 1 BTC to today’s robust liquidity pools. Supporting this
growth were over 70 LN-enabled wallets offered by leading providers like
BlueWallet, Muun, and Phoenix. Adoption ranged from citizens of
inflation-ravaged countries to global corporations.

<img src="/images/state-of-bitcoin/image6.png" style="width:6.5in;height:3.65278in" />

But what are Lightning channels? LN micropayment channels establish a
relationship between two parties, enabling them to continuously update
their balances without broadcasting every transaction to the blockchain.
These channels function by deferring the broadcast of the cumulative
balance between the two parties to a later date, effectively netting out
the total balance in a single transaction.

This approach allows for financial relationships to be trustless without
the risk of counterparty default. Importantly, these micropayment
channels use genuine Bitcoin transactions, but the choice is to delay
broadcasting these transactions to the blockchain. This ensures that
both parties can confirm their current balance on the blockchain while
the actual payments within micropayment channels are exchanged
off-chain.

In October 2023, the Lightning Network experienced a contraction in
channel count and total value, suggesting a potential consolidation
event or response to external market factors. The network's resilience
was demonstrated by the subsequent recovery of both metrics. Over the
year, despite fluctuations, there was an overall increase in channel
value, indicating a growth in network capacity.

The reduction in channel count, without a corresponding long-term
decline in total value, implies a shift towards larger channels. This
trend points to a concentration of liquidity in the network, potentially
indicating a strategic shift in channel management or user behavior.

<img src="/images/state-of-bitcoin/image7.png" style="width:6.5in;height:3.65278in" />

### Infrastructure Hardens for Enterprise

November marked another leap with Taproot Asset Protocol v0.2. Offering
a toolkit to issue assets via LN and Bitcoin, customizable asset burning
provides compliance controls for regulated businesses. Multiverse Trees
enable transparent tracking of assets across sidechains, while
configurable Proof Couriers relay validity records on-demand to prevent
congestion. Load testing and forward-compatible data structures ensure
rigorous functionality as LN steps onto the global stage.

- Costs plunge as issuance, transfer, and redemption are packed into
single transactions.

- LN now cements versatility for enterprises, from tokenized securities
to programmable contracts in restricted jurisdictions.

- Enhanced RPC calls grant detailed monitoring of proof relaying plus
sophisticated asset lifecycle management.

### Nostr Integration Opens P2P Economy

September brought decentralized social protocol Nostr’s “NIP-57”
upgrade. By introducing “Zap” notes representing Lightning invoice
receipts, Nostr merged Bitcoin micropayments with social interactions.
Content creators leveraged Zaps for tipping, while readers funded posts
to unlock additional content and deter spam. The rapid uptake and usage
of Zap payments, exceeding 50,000 by late 2023, demonstrate the
increasing integration of Lightning Network solutions into broader
applications.

This growth spotlighted scalability challenges still facing innovative
Bitcoin infrastructure. Nostr Assets, which facilitates Taproot and
Lightning transactions, paused deposits in late 2023 due to overwhelming
demand. This firsthand encounter with capacity limitations underscores
the tension between rising interest and capacity constraints Bitcoin’s
second layer stretches into uncharted territories.

Nevertheless, for a brief moment, Nostr combined decentralized
networking with real P2P value transmission via Lightning’s seamless
interoperability. Companies like Peach and Noonesapp now leverage Nostr
and cryptography to facilitate peer-to-peer exchange without centralized
escrow reliance. The resulting framework is the antithesis to
surveillance models like Worldcoin - instead emphasizing ethical
information exchange backed by cypherpunks like Jack Dorsey.

The demand trajectory indicates Bitcoin’s decentralized payment channels
is likely to continue permeating communication and community building
applications through relentless refinement.

### Retail Giants Stimulate Adoption

Major retailers expedited LN's consumer reach in 2023. Payment leader
Stripe unlocked Lightning for corporations via its "Pay With Bitcoin"
checkout button. Social giant Twitter integrated the tipping economy,
letting users seamlessly reward quality content. In gaming, Zebedee
brought fast Bitcoin transactions into multiplayer worlds like Minecraft
and Fortnite.

For Bitcoin converts, LN finally actualizes its promise as a scaling
layer to support global adoption. By augmenting speed and reducing fees,
Bitcoin moves from a clunky speculation vehicle to a fluid medium of
exchange. While volatility remains, enhanced real-world functionality
primes Bitcoin as a globally recognized store of value and means of
exchange.

Yet usability is half the battle. LN remains inaccessible without ramps
into the legacy world. Hence, Stripe's checkout button resonates by
easing conversion from bank accounts or cards. Though self-custodial and
non-custodial solutions grew, exchanges still dominate LN access and
liquidity for most users. More integrations across payments, e-commerce,
and social media should steadily dissolve this friction.

<img src="/images/state-of-bitcoin/image8.png" style="width:6.5in;height:3.65278in" />

### The Custody Conundrum

Custodial services facing regulatory crackdowns contrast with
non-custodial wallet breakthroughs on collaborative custody frontiers.
Novel asset designs and scaling protocols signal functionality leaps if
capacity barriers relent. Altogether, a narrative of measured headway
despite setbacks persists across the Bitcoin landscape on both
application and infrastructure planes.
[Miniscript](https://bitcoin.sipa.be/miniscript/) and
[RGB](https://rgb.tech/) constitute particularly promising
extensions of Bitcoin's programmability.

Miniscript refers to a simplified scripting language for writing Bitcoin
transaction logic to unlock funds. It uses readable script building
blocks while remaining highly flexible and customizable. Companies like
[AnchorWatch](https://www.anchorwatch.com/) and
[Revault](https://wizardsardine.com/revault/) now leverage
Miniscript for advanced wallet architectures, allowing collaborative
multi-party custody and policy-based asset control. By expanding
scripting capabilities beyond basic transfers, Miniscript unlocks the
programmability of Bitcoin ownership configurations to match complex
financial activities more seamlessly.

RGB refers to a new Bitcoin layer focused specifically on scalable smart
contract functionality. It enables versatile dApps beyond payments and
ownership like NFTs, tokens, and stablecoins while avoiding base-layer
congestion. The development of RGB wallets like
[BitMask](https://beta.bitmask.app/#/) and
[myCitadel](https://mycitadel.io/) are gaining significant
traction. Exchanges like [Bitfinex](https://www.bitfinex.com/)
now natively support RGB for launching Bitcoin-settled assets using its
extended opcodes for embedding metadata. By moving data off the root
Bitcoin blockchain, RGB constitutes a scaling platform granting
developers leeway to experiment with Bitcoin in new paradigms like DeFi
and digital collectibles

Meanwhile, the emergence of Chaumian E-Cash Protocols, such as
[Fedimint](https://fedimint.org/) and
[Cashu](https://cashu.space/), offer glimpses into potentially
decisive scalability advancements. These protocols are supported by
entities like [Blockstream](https://blockstream.com/) and provide
scalable, instant settlements with minimal fees.

### Looking Ahead with Tempered Optimism

Yet for all its progress, Lightning contends with acute growing pains
belying its outward success. Episodes like exorbitant fees amid
congestion reveal lingering scalability limitations. And core developer
departures underscore ever-present technology risks that give pause.
Additionally, approximately 90% of transactions occur through custodial
wallets, reflecting UX obstacles in non-custodial usage - factors like
continuous node oversight.[^9]
Lightning promises extraordinary potential but does not resemble a
finished product.

Nevertheless, writing off Bitcoin’s most ambitious innovation due to
temporary turbulence proves shortsighted. Lightning has already unlocked
life-changing utility for millions globally. Lightning appears poised to
breach new thresholds with work underway on optimizations like Anyons
and swarm settlements. Bitcoin’s very ethos rests on tireless iteration,
transforming seemingly intractable challenges into catalysts for
progress. Lightning’s setbacks may one day constitute launchpads if
history holds course.

## Ordinals: Artifacts Inscribed on Bitcoin

### Introduction

One technological innovation that has stood out amid Bitcoin’s evolution
has been the emergence of Ordinals, which, turn individual satoshis into
unique digital artifacts capable of holding rich data.Ordinals are
instances of Bitcoin’s smallest subdivision that are inscribed with data
such as text or images. Once inscribed, each satoshi becomes a unique
digital asset.

The Ordinals Protocol, first proposed by protocol creator and developer
Casey Rodarmor, was launched on January 21, 2023. It used the
improvements brought by the 2021 Taproot upgrade, which enhanced
Bitcoin's functionality and allowed for larger data attachments of up to
4MB per transaction. This technical advancement, which leverages
Bitcoin's existing infrastructure, has opened up new possibilities for
embedding richer data onto the blockchain while marking a departure from
traditional digital assets and NFTs.

Growth was fast. In February, Yuga Labs announced the first-ever Bitcoin
NFT collection based on ordinal inscriptions.

<img src="/images/state-of-bitcoin/image9.png" style="width:6.5in;height:3.65278in" />

By June, over 11 million Ordinals were inscribed on Bitcoin, with the
peak volume occurring in May. The period from July to September saw a
consistent increase in inscription volume, with plain text being the
most popular type. Looking towards the end of 2023, projections indicate
a trading volume of approximately $725 million for
Ordinals.[^10]

<img src="/images/state-of-bitcoin/image10.png" style="width:6.5in;height:3.65278in" />

As ordinals took off, NFT sales fell by 8.7% from $4.2 billion in
September 2021 to $3.8 billion in October 2023. The introduction of
ordinals resulted in a spike in Bitcoin transaction fees and block size,
with a staggering 45,074,477 inscriptions on the chain. November 12th,
2023 saw a daily record high of 505,345 bitcoin ordinal inscriptions.

### Technical Deep Dive: Understanding the Ordinals Protocol

#### The Inscription Process

Several services exist to facilitate the creation of ordinals. To get
started, a user must set up a Taproot-compatible wallet synced with the
core Bitcoin chain and select the type of inscription they intend to
create: either a singular ordinal or a collection. After this, users may
load any image, text, code, document, video, or audio from their
connected device to be inscribed. The recommended size of such uploads
is less than 35kb to maintain optimal results.

Variables such as the uploaded file size and network congestion may
impact fees related to inscription transactions. Finally, an unused
recipient address must be specified for a newly created ordinal to be
received.
This system allows each satoshi in every transaction to be identified
with a unique ordinal number, effectively creating a serial number for
each satoshi, which can track the asset as it circulates.

Each satoshi receives a sequential number based on mining time, creating
a range of ordinal numbers up to 2,100,000,000,000,000. This system
introduces a rarity element based on the timing of mining and
inscription.

Although services exist that allow ordinals to be created, the assets
themselves do not rely on third-party services to store data. Unlike
many NFTs, all information associated with each ordinal is permanently
recorded on-chain. Such properties make it possible to build atop a
foundation of preexisting ordinals via recursive protocols that retrieve
data from existing inscriptions to generate new inscriptions.

#### Wallets That Support Ordinals

[**Ordinals Wallet**](https://ordinalswallet.com/): Launched on
February 16, 2023, the Ordinals Wallet is a Bitcoin wallet designed to
overcome the limitations of previous wallets. It supports holding,
storing, viewing, transferring, sending, inscribing, buying, and selling
Ordinals. Praised for its user-friendly interface, this wallet is a
product of community funding.

[**Xverse Wallet**](https://www.xverse.app/): Xverse, a Bitcoin
Web3 wallet, introduced its Bitcoin Ordinals service a day before the
Ordinals Wallet. Xverse focuses on evolving as an advanced Bitcoin
wallet with robust support for Ordinals. Users can interact with the
blockchain without running a full node, purchase Bitcoin within the app
for transactions, and inscribe Ordinals through Gamma, a Bitcoin Ordinal
marketplace. Ordinals are visible in the user's NFT collection within
about 30 minutes.

[**Hiro Wallet**](https://leather.io/): eLaunching its Ordinal
services on February 14, 2023, Hiro Wallet was a first mover. It enables
secure storage, sending, and receiving of Bitcoin and quick creation and
storage of Ordinal NFT inscriptions. Compatible with platforms like
Gamma and OrdinalsBot, Hiro Wallet facilitates inscriptions directly in
the web browser.

[**MetaMask**](https://metamask.io/): MetaMask can be linked to
[Generative XYZ](https://generative.xyz/) to manage Bitcoin
Taproot keys, which are essential for trades and authority over digital
assets. It requires signature verification for Ordinal addresses and
offers a key vault. Hardware wallets like Ledger and Trezor are
compatible for enhanced security. MetaMask's Generative Marketplace
allows exploration of Ordinals.

[**OKX Wallet**](https://www.okx.com/web3): OKX Wallet,
supporting Bitcoin Ordinals, integrates with the Taproot upgrade for
easy viewing and transferring of ordinals. It offers cross-chain
interoperability across more than 50 chains, simplifying the user
experience. In addition to supporting the purchase of BRC-20 tokens, OKX
Wallet highlights the BRC20-S standard for staking BRC-20 tokens, an
open-source protocol available for developer adoption.

#### Ordinals Markets

Trading volumes across various Bitcoin Ordinals marketplaces, including
OKX, Unisat, Magic Eden, and Gamma, showed substantial growth throughout
the year.

<img src="/images/state-of-bitcoin/image11.png" style="width:6.5in;height:3.65278in" />

Overall Trading Volume: Dune Analytics data indicates an overall
volume of $794,330,265 in the Bitcoin Ordinals marketplace.

Total Number of Trades: 1,173,402 trades across these marketplaces
in 2023.

Unique Users: The cumulative count of unique users engaging with
these platforms was reported to be 253,379.

Individual High-Value Transactions: High-value transactions on
marketplaces like OKX and Ordinals Wallet exceeded $1 million in some
cases.

#### Technical Foundations: SegWit and Taproot

The Segregated Witness (SegWit) upgrade in 2017 laid the foundation for
Ordinals, as it introduced the concept of witness data, which reduced
the block space occupied by each transaction and enhanced the network’s
processing capacity. The 2021 Taproot upgrade further enhanced this
capability by introducing new script features and removing the size
limit on a transaction’s witness data, enabling storing data up to 4MB
on BTC.

#### Impact on Bitcoin’s Architecture

The Ordinals Protocol introduced a new use case for Bitcoin, enabling
the creation of immutable, ownable, permissionless, and uncensorable
digital artifacts that reside fully on the Bitcoin blockchain with no
need for a sidechain or separate token.

This development has led to discussions around the use and scalability
of the Bitcoin blockchain as it introduces new types of data and
transactions, potentially impacting the network's efficiency and
operational costs.

#### Pros of the Ordinals Protocol

Attracts New Users: Ordinals introduce NFT-like assets to Bitcoin,
potentially attracting new users such as collectors and artists
interested in digital assets and NFT trading. Users who previously
ignored Bitcoin due to the lack of collectible offerings may respond to
this and drive demand for Bitcoin as they pay inscription fees and trade
these assets.

Market Demand: The uptake in inscriptions demonstrates market
interest in this new use of block space. If such transactions were
inefficient or valueless, they would likely be priced out, but their
popularity indicates a strong market demand.

Increased Fees for Miners: The Ordinals Protocol generates
additional fees for miners, potentially benefiting Bitcoin's security
model, especially as block subsidies diminish. High-value transactions,
like the sale of Ordinal Punks, illustrate this potential for revenue.

Accelerating Second-Layer Adoption: The increased transaction fees
and block space usage could drive the adoption and development of
second-layer solutions like the Lightning Network, helping scale the
Bitcoin network.

Driving Taproot Adoption: The launch of Ordinals has led to a rise
in Taproot transactions, accelerating the adoption of this upgrade,
which offers more compact transactions and enhanced privacy.

#### Cons of the Ordinals Protocol

Increased Costs for Block Space: Including additional non-financial
data in blocks increases fees and makes it harder for node operators to
run full nodes. This could lead to more demanding technical requirements
and potential centralization of full nodes verifying the chain.

Speculation and Market Distortion: Ordinals could divert capital
into trading these assets rather than storing value in Bitcoin. This
could affect the perception of Bitcoin as a serious investment.

Impact on Satoshi Fungibility: By creating non-fungible attributes
for satoshis, Ordinals could challenge the ethos built around Bitcoin's
use case as ultra-sound money. The differentiation between inscribed and
standard satoshis could create a dual market, potentially impacting the
fungibility of Bitcoin.

Additional Tracking and Privacy Concerns: The data associated with
Ordinals could make on-chain behavior easier to track, raising privacy
concerns. Bitcoin users who value anonymity might find this aspect of
Ordinals contrary to their privacy goals.

Risk of Data Pruning: There's a possibility that Bitcoin nodes could
prune inscription data, raising concerns about the permanence of these
digital assets. Although this case is _extremely unlikely_ it does
introduce a potential vulnerability in an aspect of the decentralized
nature of Bitcoin.

#### Concerns in Ordinals Numbering

Although the Ordinals Protocol introduced a novel system for indexing
digital assets on the Bitcoin blockchain, its indexing of those assets
sparked significant controversy regarding its numbering schema.

Managing the index for Ordinals isn't straightforward, which has led to
improperly indexed inscriptions known as "cursed ordinals." These
instances add complexity and create bugs within the system.

Discrepancies in the indexing process, such as minting multiple
inscriptions in a transaction or committing multiple inscriptions to the
same satoshi, can produce such anomalies. These cursed ordinals are
ascribed negative numbers, complicating the ability to discern the
creation order and adding to the system's complexity.

A strategy that could streamline the Ordinal codebase, proposed by
Rodarmor, would “bless” such cursed ordinals, and fold them back into
the protocol’s main sequence. However, doing so would also re-number all
existing ordinals.

Rodarmor’s plan would make inscription numbers permanently unstable,
departing from the initial intention behind inscription numbers, but
would also retroactively forgive all prior and future cursed ordinals.

Support for the change is not universal. The existing numbering system
underpins several Ordinals projects, and many collectors have made
acquisitions based on the perception of value as attributed to
low-indexed assets. For example, collections like "Hell Raiders" could
lose their iconic positioning due to re-indexing. Still, many support
Rodarmor's plan for its potential to reconcile issues with the
protocol’s current indexing schema and ensure its adaptability.

A potential compromise involves preserving impacted Ordinals via a
snapshot or allowing users to reinscribe their unique numbers. This
could address concerns about renumbering while minimizing the impact on
the system.

### Recursive Ordinals

#### A Solution to Concatenation

June 2023 saw the introduction of Recursive ordinals, marking an
important move towards advanced data interaction for the protocol.

Recursive ordinals take advantage of how ordinal data is stored,
enabling complex on-chain software operations by daisy-chaining data
calls. This method enables developers to circumvent the 4MB limit
imposed by standard ordinals.

With more interconnected on-chain data sources, recursive ordinals allow
for the establishment of more intricately interconnected data sources
with the potential to significantly enhance storage efficiency while
reducing transactional costs.

The recursive ordinal protocol allows developers to host extensive
files, be they applications, or even video games, directly on the
Bitcoin network. This opens up opportunities for more advanced
applications, such as permissionless smart contracts that dwell in the
blockchain’s immutable storage layer.

Recursive ordinals therefore represent a critical step towards enabling
more sophisticated DeFi architectures within the Bitcoin ecosystem.
While the technology initially addresses file concatenation issues, the
potential also extends to more advanced applications and operations
requiring logic, rules, and algorithms.

Developers may use the foundation of recursive ordinals to engineer
immutable decentralized platforms, such as DEXs, or stablecoins, whose
frameworks permanently live on Bitcoin. Such developments align with
ongoing efforts to integrate the Ethereum Virtual Machine and Solidity
into the Bitcoin network, exemplified by developers' deployment of
Uniswap and Optimism contracts, potentially signaling a shift to a more
developer-inclusive Bitcoin ecosystem.

As with the ordinals protocol, community response to recursive ordinals
is somewhat mixed. Some fear that the fact that such protocols are
maintained and altered by a somewhat centralized developer group is in
conflict with the ethos of Bitcoin. Others eager to explore the
possibilities of recursive ordinals have welcomed processes that promise
to reduce storage duplication and transaction costs.

### Ordinals Use Cases

- Collections: Taproot Wizards, ORD Rocks, and Bitcoin Punks are
among the most well-known collections at the time of writing. Yuga
Labs’ forthcoming generative art collection TwelveFold is also poised
to become one of the more popular collections.

- Marketplaces: OpenOrdex is one of the most fascinating
marketplaces, as it is fully open-source and strictly uses
decentralized tools to enable trading. Specifically, OpenOrdex uses
partially-signed bitcoin transactions (PSBTs) to enable the trustless
listing and purchasing of inscriptions.

- Explorers: OpenOrdex, Gamma, and Ordinals.com are research tools
to analyze Ordinal/inscription activity. Explorers also provide data
on transaction ID, address, output value, weight, sat number, and
location.

- Inscriptions as a service: The complexity of minting an Ordinal
introduced inscriptions as a service to help collectors create
collections. OrdinalsBot, OrdSwap, Gamma, Bitcoin Bandits, and Luxor
mining are among some of the popular inscriptions as a service
provider. These services handle every step of Ordinal creation.

- Wallets: Bitcoin wallets currently lack sat selection
functionality, which is an essential feature to send Ordinals to other
addresses. Although sat selection is unavailable, wallets that offer
UTXO selection like Sparrow wallet, Electrum, and Xverse are widely
used by Ordinal collectors.

- Data and Discovery: OrdinalHub and Ordinal Directory are platforms
for collectors to discover trending collections, new collections, and
analyze floor price data.

## Spotlight on Taproot Wizards: Pioneers of Ordinals

<img src="/images/state-of-bitcoin/image12.png" style="width:6.5in;height:3.65278in" />

Taproot Wizards (TW) is a unique Bitcoin NFT project that has been an
important (and controversial) voice within the ordinal community. Led by
an independent developer and Bitcoin advocate, TW introduced a
collection of 2,121 wizard-themed Ordinals. The project gained attention
for its avant-garde art and paid homage to the iconic Bitcoin Wizard. TW
contributed to the growth of Bitcoin NFT sales and promoted the adoption
of Bitcoin's Lightning Network. It inspired artists, developers, and
collectors to explore new possibilities within the Bitcoin ecosystem,
driving further interest in the Ordinals market.

The Impact of Taproot Wizards

Luxor Mining made headlines by mining the largest Bitcoin block to date
on February 1, reaching 3.96 MB in size, nearly hitting the 4 MB block
size limit of Bitcoin. This block included a non-fungible token (NFT)
named Taproot Wizards, which plays on the "magic internet money" meme.
The transaction fees for this NFT were around $209. This event took
place amidst a heated debate within the Bitcoin community about the
legitimacy and appropriateness of utilizing the blockchain for ordinals,
with some arguing that they are spam and should be removed, while
others, including Luxor, believe they have a place within the Bitcoin
ecosystem.[^11]

## Protocol Overview: Introduction to the BRC-20

The BRC-20 protocol on the Bitcoin blockchain enables the creation and
management of ordinals with enhanced functionality. It also leverages
the Ordinals protocol, however, BRC-20 tokens are a type of ordinal
inscription that includes JSON data, allowing for seamless transfer and
interaction of tokens representing various assets or utilities alongside
Bitcoin.

By supporting ordinals, the BRC-20 protocol enhances the functionality
of tokenization within the Bitcoin network. The BRC-20 standard while
evolving, provides a framework for developers to create arbitrary tokens
on the Bitcoin network, opening up a wide range of possibilities for
programmable assets.

### BRC-20 Trends

The first token contract to be deployed was for the $ORDI token with a
limit of 1K tokens per mint and 21M max supply (paying homage to
Bitcoin’s max supply). In less than a day, all 21M $ORDI tokens had been
minted, and other tokens soon emerged. According to data from brc-20.io,
$ORDI has been the leading the way as the highest valued BRC-20, with a
market cap of $1.4B as of
writing.[^12] The initial pump in
BRC-20s ended with a significant drop from May 9th-11th, going from $990
million to $379 million, representing a 62% decline.

The BRC-20 market is heavily influenced by the capitalization of the
ORDI token, which accounts for over 80% of the trading volumes. The
importance of the ORDI token in this market means that price
fluctuations directly impact the market cap of BRC-20 tokens.

Regardless of the factors driving volatility among BRC-20 tokens, data
indicates that the ecosystem surrounding the inscription of such assets
remains robust, with activity rising after a relative lull between May
and July 2023, and with a more recent spike in activity following a
trough between late September 2023 and to late October 2023. Notably,
the number of BRC-20 tokens inscribed reached a new all time high in
November 2023, with over 492,000 tokens minted.

<img src="/images/state-of-bitcoin/image13.png" style="width:6.5in;height:3.65278in" />

### Key Findings

- Innovative Use of Blockchain Technology: The Ordinals Protocols,
by leveraging the Taproot upgrade, has enabled the embedding of rich
data onto the Bitcoin blockchain, thereby diversifying the kinds of
assets Bitcoin can natively support.

- Enhanced Market Potential: Ordinals have attracted new users and
market demand, showcasing the Bitcoin blockchain’s expanded
capabilities. This has included the creation of unique digital assets,
sparking interest in digital collectibles and artworks across Bitcoin,
and driving increased demand for block space.

- Emergence of Recursive Ordinals: The introduction of recursive
ordinals marks a significant advancement, enabling complex software
operations and circumventing the 4MB limit of standards imposed by
standard ordinals. This opens up the possibilities for more
intricately interconnected data sources, enhancing storage efficiency,
and reducing transaction costs.

- Potential for DeFi Architectures: Recursive ordinals have paved
the way for sophisticated DeFi architectures built on Bitcoin. They
extend the possibilities beyond simple file concatenation, allowing
for the creation of decentralized platforms that require complex logic
and algorithms.

### Future Developments and Impact

Looking forward, ordinals and recursive ordinals are likely to continue
to impact the Bitcoin ecosystem. The potential to host extensive files,
such as applications or video games directly on-chain allows for
numerous innovative use cases. As developers explore the potential to
integrate complex structures on Bitcoin, such as the Ethereum Virtual
Machine and Solidity, it may shift the dynamic of maximalism in the
ecosystem.

However such evolutions do not come without challenges. Controversy over
the numbering schema and the centralization concerns in maintaining and
submitting changes to the protocol settings highlight the delicate
balance between innovation and adherence to the decentralized tenets
upon which Bitcoin, and networks like it, were founded.

Moreover, the impact of Ordinals on transaction fees, block space
utilization, and the overall scalability of the Bitcoin blockchain
remains a topic of ongoing discussion. As the market for ordinals
matures and more platforms emerge to fill that space, we may yet see a
clearer image of how these new entries in the digital artifact pantheon
integrate with the broader Bitcoin ecosystem, and that of interconnected
Web3 platforms.

So, while the full potential and long-term implications of ordinals and
recursive ordinals have yet to unfold, these novel innovations represent
a milestone in the evolution of Bitcoin. As the ecosystem continues to
change and adapt, we can expect to see further developments that
continue to harness the unique capabilities of ordinals, and which may
potentially reshape the very landscape of blockchain technology, and
digital assets.

## Taproot Assets: Making Bitcoin a Multi-Asset Network

Mid-October, Lightning Labs announced the Alpha version of “Taproot
Assets”, a meta-protocol allowing arbitrary assets to be issued and
managed on the Bitcoin
blockchain.[^13]
Through Taproot Assets, fungible and non-fungible tokens can be created,
with the asset’s metadata stored in an existing UTXO. With Taproot v0.3,
builders have all the foundational tools to make Bitcoin a multi-asset
network.

Taproot Assets natively integrates with Lightning Network, enabling
cheap and fast transactions with these arbitrary assets. Ryan Gentry,
head of business development at Lightning Labs, said that this will
start a new era for Bitcoin, where a “myriad of global currencies
\[are\] issued as Taproot Assets, and the world's foreign exchange
transactions \[are\] settled instantly over the Lightning
Network.”[^13]

But how will this affect Bitcoin? As usual, there is a stark divide
between supporters of the development and those with concerns about its
implications. Will there be a similar fee spike as we have seen with
Ordinals and BRC-20s? Will this bring some regulatory scrutiny to
Lightning Network as various assets are brought to the Bitcoin network?

### Under the Hood of Taproot Asset Protocol (TAP)

Taproot Assets is a Taproot-powered protocol, relying on how data is
stored after the Taproot upgrade to the network, just like
BRC-20s.[^14]
However, compared to BRC-20s and other fungible token protocols on
Bitcoin, such as RBG, Taproot Assets rely on “universes” to keep track
of token ownership information. The concept of universes is expanded on
further below.

The process of creating Taproot Assets is technical, but in short, a
specialized merkle tree, known as a ‘Merkle Sum, Sparse Merkle Tree
(MS-SMT)’, and Taptweak, are used to create information for an
asset.[^15] The three important elements in the creation process
are the outpoint spent to mint the asset, an asset tag of the minter’s
choice (e.g., a hash of a brand name), and meta information associated
with the asset--links, images, or documents.

This is stored in a 32-bit asset ID, and the UTXO is the unique
identifier for the newly created asset:

```
asset_id = sha256(genesis_outpoint || asset_tag || asset_meta)
```

### Transacting Taproot Assets

Once created, Taproot Assets can be transferred on the Bitcoin
blockchain or via channels directly on the Lightning Network. Compared
to other fungible tokens on the Bitcoin blockchain, Taproot Assets
improve chain efficiency by enabling multiple asset actions (mint, send,
receive) in a single on-chain transaction, reducing congestion and fees.
This is contrary to BRC-20, which also enables arbitrary asset creation,
but significantly congests the Bitcoin network and spikes fees (which
peaked at an all time high of $30 during the initial ordinal
frenzy.[^16]

The most compelling use for Taproot Assets is its compatibility with
Lightning Network (LN.) Although the assets are issued on the Bitcoin
blockchain, bridging to LN to benefit from the lower transaction cost
and faster transactions will bring expanded utility to the assets. In
the future, direct deployment to Lightning Channels will also be
possible.

At a high level, transacting with Taproot Assets on LN is trivial; there
is no need to opt-in as a routing channel for these payments. Bitcoin
can provide liquidity for payments denominated in various assets. Thus
routing node operators are incentivized to help route Taproot Assets to
earn more routing fees paid in satoshis.

The below example shows a scenario where L-USD transfers (Lightning
Network USD, a Taproots Asset stablecoin) can be paid with BTC and
ultimately settled as Taproot Asset, in this case, L-USD. This is made
possible by edge liquidity: LN nodes willing to swap their value to
BTC and back, allowing you to pay any LN invoice with Taproot Assets or
receive any asset by issuing a standard Lightning invoice.

<img src="/images/state-of-bitcoin/image14.jpg" style="width:6.5in;height:3.65278in" />

Notice that the intermediary transactions do not route the stablecoin
itself – there is no need to opt-in, the transactions can be routed so
long as there is available BTC liquidity. An invoice ultimately settled
in Taproot Assets can be paid by BTC or any other asset, and anyone with
a Taproot Assets balance can pay any Lightning
invoice.[^17]

### Custody and Ownership of Tokens

As mentioned above, the custody and ownership of Taproot Assets differs
from other fungible tokens on Bitcoin.

A Taproot Assets universe is a repository of assets and their proofs,
essentially a full node for specific assets, providing historical data
for validation. The universe will have all relevant information for the
token, such as issuance, recent transfers, quantity, and more, but the
information can only be released at the discretion of the “universe
operator.” Thus, compared to a blockchain explorer, the Taproot universe
is much more private.

The pocket universe is a way to collectively store Taproot Assets and
use TAP (Taproot Assets Protocol,) without giving up ownership of
assets. A pocket universe controls the Taproot key to a UTXO, but not
the keys to the (possibly multiple) Taproot Assets held in that UTXO.
Asset holders can use the pocket universe to batch their transactions
efficiently.

<img src="/images/state-of-bitcoin/image15.png" style="width:6.5in;height:3.65278in" />

### Pros and Cons of Taproot Assets

At a general level, we can look at how Taproot Assets might be
beneficial to Bitcoin, and understand some of the positives and
negatives to the upgrade.

<img src="/images/state-of-bitcoin/image16.png" style="width:6.5in;height:3.65278in" />

#### The Numbers

The current transaction and value data for Taproot Assets on Bitcoin is
minimal. Although there have been nearly 65,000 unique asset mints on
the network, the protocol is in its very first implementation phase, and
thus these are largely experimental.

<img src="/images/state-of-bitcoin/image17.png" style="width:6.5in;height:3.30208in" />

Given the explosion we have seen in BRC-20s this year, it will be
interesting to follow whether Taproot Assets can find similar demand.
Once there is support for direct deployment to lightning channels, we
expect to see more activity and use of the TAP.

### Why Taproot Assets on Bitcoin: Is This Needed?

Everything above sounds great, but how does this solve a problem in
Bitcoin? Swapping between arbitrary assets on bitcoin is currently
price-prohibitive, as seen in BRC-20s. There _is_ a demand to have
non-BTC assets to transact within a secure and trustless way on the
Bitcoin blockchain, this is evident by the fact that DeFi and different
blockchain ecosystems thrive as multi-asset networks.

Bringing Taproot Assets to Lightning Network brings the vision of
bitcoin as a global payment network to life. Imagine an entity that
creates a new stable asset, L-USD, with $1M in USDC in custody. If you
have the L-USD tokens, you can send BTC and L-USD to Lightning Network
in a single transaction and begin trading and swapping your L-USD assets
for minimal cost and at high speeds. Any DeFi-style transaction, which
has processed billions in volume on other networks, is now possible on
Lightning Network thanks to Taproot Assets.

It doesn’t matter if you are simply a spot BTC holder or a dedicated
user of DeFi, Bitcoin is expanding its use-cases via TAP, and with the
expansion in use-cases, new users and demand will flow to the network.
At the end of the day: Bitcoin needs to enable a fair, accessible, and
non-biased financial system, and the TAP is a step in that direction.

## Consumer-Facing Bitcoin Applications

Consumer applications are one of the most important onboarding tools for
newcomers in crypto. Centralized exchanges serve as an entry point for
buying the asset, but the consumer-facing application is what most users
will be using at the end of the day. Regardless of where you land on the
“BTC is money” conversation, there is no doubt that consumer
applications play an important role in engraining bitcoin into our
lives. Simple ways to save, buy, and transact in BTC, available via
mobile phone, is a sure-fire way to increase the adoption of BTC as an
asset and form of money.

2023 saw a significant growth of interest in the diverse uses of BTC.
These applications, varying from rewards programs to financial services,
are more than mere functionalities; they represent a crucial shift in
how Bitcoin is integrated into everyday life. Financial services are
solidifying bitcoin as a practical savings vehicle. Gaming platforms are
innovatively incorporating Bitcoin, transforming gameplay into
opportunities for bitcoin acquisition. Privacy-focused wallets emphasize
the importance of security and anonymity in the digital space.

Each of these applications contributes to the unfolding story of Bitcoin
– a narrative of practicality, diversity, and user-centric innovation.
They are leveraging Bitcoin's capabilities and actively broadening its
appeal and usage, making it accessible to a wider audience.

These consumer apps can be broadly categorized into the below sectors,
each representing a unique aspect of Bitcoin's growing influence and
versatility in the digital world. This exploration seeks to delve into
these categories, uncovering how they contribute to Bitcoin's global
adoption, navigate their distinct challenges, and collectively drive the
evolution of Bitcoin in our interconnected digital era.

### Bitcoin Rewards and Cashback

One of Thesis’s portfolio companies, Fold, offers a simple way for users
to buy and earn bitcoin on everyday purchases with their cashback debit
card. Despite a slew of competitors in the space, Fold offers the
_cheapest_ place to buy BTC when looking at fees and spreads, and these
even take into account
Coinbase.[^18]

The product saw several key updates in 2023:

- New Features: Introduction of Bitcoin Buying with Round-Ups, allowing
users to round up purchases to the nearest dollar for bitcoin
purchases, and instant withdrawals from Fold to cold storage.

- Enhanced Gaming Experience: Guarantee of 1% back on every purchase for
Spin+ users, alongside the opportunity to win up to a whole bitcoin on
the new Spinwheel.

- Account Funding Updates: Introduction of a 1.5% fee for instant debit
transfers and forthcoming instant ACH transfers with lower fees.

- Expanded Bitcoin Integration: Implementation of Bitcoin’s Lightning
Network for faster transactions across the Fold ecosystem.

[Lolli](https://www.lolli.com/): Provides Bitcoin rewards for
shopping at partner retailers online. With over 25,000 stores with
eligible rewards, the product has seen rapid adoption.

- Expansion to Retail Locations: Transition from a web-only app to being
available in over 900 retail locations across the U.S., significantly
broadening its user reach.

- Strategic Partnerships: Collaboration with major retailers like
Safeway, a subsidiary of Albertson, marking Lolli's expansion into
retail alongside web services.

- User Rewards: Users receive a 3-5% return on purchases, aligning with
the mission to integrate Bitcoin into daily lives and make it
accessible to the masses.

- Diverse User Base: Approximately 40% of Lolli's users are new to
buying cryptocurrency, indicating its role in introducing Bitcoin to a
wider audience

[SatsBack](https://satsback.com/): A platform offering Bitcoin
rewards for shopping at various online stores.

- Launch of Satsback v2: A relaunch with a new version, connecting to
10,000 online stores offering cashback in bitcoin through the
Lightning Network and a browser extension to enhance the shopping
experience.

- Focus on European Markets: Targeting specific European markets
including The Netherlands, Germany, Poland, the UK, France, and
Belgium, while lowering the barrier of entry to the Bitcoin ecosystem
for beginners.

- Connections with Major Brands: Partnerships with prominent brands like
Booking and Nike.

### Shopping and Services with Bitcoin

[Bitrefill](https://www.bitrefill.com/nl/en/): Allows users to
buy gift cards, mobile phone top-ups, and everyday purchases with BTC.

- Expansion in 2023: Bitrefill, a Swedish startup, expanded its services
to the U.S. in 2023. Known for offering gift cards and mobile top-ups
for cryptocurrency users, it introduced a new service called Pay Bill.

- Pay Bill Features: This service allows users to pay various bills,
including credit card, utilities, auto loans, healthcare, mortgage,
social security, property taxes, and even funeral services using
cryptocurrencies like Bitcoin, Ethereum, Litecoin, Dogecoin, DASH, and
Tether (USDT).

- Growth and Partnerships: Initially launched in El Salvador after
Bitcoin became legal tender there, Pay Bill has grown rapidly.
Bitrefill partnered with Arcus Financial, a regulated payments
platform, for its U.S. launch.

[OpenBazaar](https://github.com/openbazaar/openbazaar3-rust): A
decentralized marketplace where users can buy and sell goods and
services directly with bitcoin.

- Revival in 2023: After shutting down in 2020 due to funding issues,
OpenBazaar announced its comeback in 2023. The decentralized
marketplace platform, previously known for allowing users to buy and
sell goods and services directly with Bitcoin, is being rebuilt.

- Updates and Development: OpenBazaar's website indicates the upcoming
launch of "openbazaar 3.0." The platform's CEO, Brian Hoffman, has
been working on a new implementation of OpenBazaar in the Rust
programming language, which is gaining popularity in the Bitcoin
community.

### Bitcoin-Focused Financial Services

[River Financial](https://river.com/): A financial service
specializing in Bitcoin, offering buying, selling, and managing Bitcoin
investments.

- Significant Funding: Raised $35 million in a Series B round, backed by
Kingsway Capital and Peter Thiel, indicating robust growth and
confidence in their services.

- River Lightning Integration: Launched an API for easier access to the
Lightning Network, enhancing Bitcoin transaction efficiency.

- Comprehensive Services:

- Bitcoin-Only Exchange: Focused approach for heightened security and
ease of use.

- Security: Implements offline cold storage and 2FA, using
military-grade technology.

- Private Client Service: Personalized assistance for larger Bitcoin
transactions.

- River Mining: Offers Bitcoin mining hardware purchase and hosting
services.

- Recurring Bitcoin Purchases: Fee-free, automatic Bitcoin investment
options.

- App Accessibility: iOS app for managing Bitcoin purchases and
mining; no Android app yet.

- Regional Availability: Operational in 48 U.S. states, excluding Nevada
and New York.

[Swan Bitcoin](https://www.swanbitcoin.com/index.html): Focuses
on Bitcoin savings plans, allowing users to buy Bitcoin automatically
and regularly.

- Operational Changes in Texas: Temporarily paused Bitcoin purchasing
due to regulatory processes, with plans to resume in Q1 of 2024.

- Custodian Transition: Switched to BitGo Trust Company and Fortress
Trust for improved client asset management.

[Strike](https://strike.me): A financial app that allows users to
send and receive money globally, with an option to convert payments to
Bitcoin.

- Global Expansion: Extended service to over 65 countries, reaching an
estimated 3 billion people worldwide.

- Enhanced App Features:

- USDT Support: Integrated support for USDT (Tether)【52†source】.

- Lightning Wallet Functionality: Enabled Bitcoin transactions via
dollar-equivalent channels.

### Bitcoin Gaming and Entertainment

[Zebedee](https://zebedee.io): Provides a platform for Bitcoin
gaming, enabling gamers to earn Bitcoin through in-game activities.

- 2023 Developments: Zebedee has introduced a significant feature in its
app, allowing users to instantly send money to various jurisdictions,
including the Philippines and Brazil, at minimal costs using Bitcoin’s
Lightning Network. This feature connects Zebedee accounts to bitcoin
payment firms like Pouch and Bipa, enhancing the gaming and payment
experience.

- Open Source Bitcoin Initiative: Additionally, Zebedee launched the "No
Big Deal" (NBD) nonprofit organization, aiming to advance open-source
Bitcoin development. NBD's launch included several projects dealing
with hosted channels on the Lightning Network, facilitating faster and
cheaper bitcoin transactions.

### Privacy and Security Focused

[Wasabi Wallet](https://www.wasabiwallet.io/): A privacy-focused
Bitcoin wallet that implements CoinJoin for transaction anonymization.

- Latest Developments:

- Version 2.0.4 Release: Wasabi Wallet has released version 2.0.4,
incorporating highly requested features and performance
optimizations. These enhancements notably speed up wallet load times
and resolve transactions stuck in the mempool, significantly
benefiting privacy-focused Bitcoin users.

- Coin Control Reintroduction\*\*: Version 2.0.3 was released earlier
in the year, bringing back the Coin Control feature. This update
provides optional insight and control over the wallet’s Smart Coin
Selection Algorithm, enhancing user control for sending
transactions.

[Samourai Wallet](https://samouraiwallet.com): Another
privacy-enhanced Bitcoin wallet offering robust security features.

- Key Updates:

- Sentinel Update v5.0.0: This significant update introduced a
comprehensive redesign and overhaul of the Sentinel, offering a new
way to interact and manage public keys.

- Wallet Update 0.99.98i: This update laid the foundation for the
Sentinel watch-only app update and introduced several new features,
marking a significant step in the wallet's evolution.

- Dojo 1.21.0 Release: This release featured multiple updates,
including improvements to Tor, BTC-RPC Explorer, MariaDB, Fulcrum,
and Nginx, along with the introduction of a new feature.

- Wallet Update 0.99.98h: Focused on a range of stability improvements
and bug fixes, this update also brought new tools and enhancements
to the wallet, further fortifying its security and functionality.

### Contribution to Bitcoin’s global adoption

Bitcoin has come a long way since its inception in 2009. Over the years,
various companies have contributed to Bitcoin's growth and adoption,
making it more accessible, practical, and versatile than ever before.

Applications like Fold, Lolli, and Bitrefill are democratizing Bitcoin
accessibility, making it more accessible and usable for everyday
consumers. By offering Bitcoin rewards for common activities like
shopping and purchasing gift cards, they integrate Bitcoin into daily
life, encouraging broader adoption among those who may not typically
engage with cryptocurrencies.

Services like River Financial, Swan Bitcoin, and Strike are expanding
Bitcoin's financial utility by transforming it from a speculative
investment to a practical financial tool. They provide platforms for
regular Bitcoin investment, global money transfers, and even bill
payments, showcasing Bitcoin's versatility as both an asset and a
currency.

Lightnite and Zebedee are pioneers in integrating Bitcoin into the
gaming industry. By allowing players to earn Bitcoin through gameplay,
they're creating a new avenue for Bitcoin acquisition and bringing it
into a popular and fast-growing sector, appealing to a younger,
tech-savvy audience.

Privacy-focused wallets like Wasabi Wallet and Samourai Wallet enhance
Bitcoin's privacy and security features. They make Bitcoin safer and
more attractive for users who prioritize data protection and anonymity
by providing robust privacy features.

Tippin.me facilitates microtransactions and tipping by leveraging
Bitcoin's Lightning Network to enable small, instant payments. This
demonstrates Bitcoin's flexibility in transaction sizes and encourages
its use in new, innovative contexts such as online content creation and
social media.

### Navigating the Challenges: The Road Ahead

As novel applications like Fold and Bitrefill grow, they face real-world
hurdles like scalability and network congestion. These challenges can
lead to slower transactions and higher fees during peak times, impacting
the overall user experience.

For financial services such as River Financial and Strike, the evolving
regulatory landscape presents its own complexities. Staying compliant
and adapting to new rules is a constant challenge that could
significantly affect their operation and growth.

Gaming platforms Lightnite and Zebedee are at the forefront of
integrating Bitcoin into the gaming industry. Their challenge lies in
attracting traditional gamers to this new model, requiring a mix of
innovative gaming experiences and effective education about Bitcoin’s
role in gaming.

Privacy-focused wallets like Wasabi and Samourai Wallet are continuously
working to stay ahead of evolving cyber threats. Their ongoing
commitment to maintaining high levels of security and privacy is crucial
in a landscape where data protection is paramount.

Finally, the inherent volatility of Bitcoin presents a unique challenge
for applications that rely on its stability for transactions and
rewards. Fluctuating Bitcoin prices can influence the perceived value of
rewards and affect user trust and long-term engagement with these
applications.

## Fold: A Case Study in Bitcoin Rewards and User Adoption

### User Engagement and Growth

Fold's journey in the Bitcoin rewards space is marked by rapid user
adoption and extensive participation. As the platform approaches a
significant milestone of one million users, it highlights the burgeoning
interest in cryptocurrency rewards and the growth of the Bitcoin
economy. The initial phase saw over 250,000 individuals eagerly joining
the waitlist. Additionally, the early adoption of the Fold Card program
by 20,000 users demonstrated the willingness of consumers to engage with
new financial products, especially those offering innovative rewards in
Bitcoin.

### Transaction Volumes and Bitcoin Rewards

Since its launch in November 2020, Fold has seen high transaction
volumes, with nearly $1.5B transacted on the platform. This substantial
figure signifies users' trust and reliance in Fold for their financial
transactions and Bitcoin investments. The platform’s success in
transaction volumes strongly indicates the increasing normalization of
Bitcoin in everyday financial dealings.

Moreover, the collective earning of over 65 billion satoshis by users
through the app is a testament to the app’s effectiveness in promoting
Bitcoin stacking. The reward structure, offering between 1% to 20%
returns on purchases, not only incentivizes the use of Bitcoin but also
positions it favorably against traditional payment methods. This
rewarding user experience is crucial in driving the adoption of Bitcoin
for regular transactions, making it an attractive alternative to
traditional currencies.

### Implications for Bitcoin Adoption

The rapid growth in user numbers and high transaction volumes indicate a
shift in consumer behavior towards embracing Bitcoin in everyday
transactions. This adoption is not limited to seasoned cryptocurrency
enthusiasts but extends to a broader audience, indicating the potential
for Bitcoin to become a more integrated part of the financial system.

In conclusion, Fold’s popularity is only a microcosm of the larger trend
of Bitcoin adoption, which exemplifies how innovative platforms can
leverage the unique qualities of cryptocurrencies to offer novel
solutions and rewards, thereby driving wider acceptance and integration
of digital currencies into everyday life.

## A Cross-Chain BTC: Bringing bitcoin the Asset Beyond Bitcoin the Network

### Staking Bitcoin/Yield on BTC

One of the biggest crypto trends in the past few years has been the
proliferation of staking assets. Initially seen in proof-of-stake
blockchain networks such as Peercoin, the concept has proliferated
through crypto and is popular in DeFi, where users can stake their
assets for a percentage of fee distribution, token emissions, and more.

This concept of staking for an extra yield has become so popularized
that many crypto market participants have difficulty accepting anything
that _does not_ generate a yield for them. While this concept of yield
has resulted in many unsustainable protocol designs and requires giving
up asset custody, specific solutions are being built to bring yield to
BTC in a safe and ethos-aligned manner.

[Babylon](https://twitter.com/babylon_chain%20https://babylonchain.io/)
is creating a way to enable BTC to help secure various POS chains
_without_ requiring BTC to be bridged yet still providing the POS chain
with slashing guarantees. This is done by remote staking, where the
staked bitcoins are locked in a contract on the Bitcoin chain and then
slash the stake when there is a protocol violation on the consumer PoS
chain, similar to shared security solutions such as EigenLayer for
Ethereum or Cosmos’ mesh security.

<img src="/images/state-of-bitcoin/image18.png" style="width:6.5in;height:3.65278in" />

Since Bitcoin does not have smart contract functionality, Babylon can
create a remote staking environment through advanced cryptography,
consensus protocol innovations, and optimized use of the Bitcoin
scripting language. Key features of the Babylon are:

- Bitcoin timestamping helps synchronize the PoS chain with the Bitcoin
network and enables fast unlocking of the staked bitcoins.

- Extractable one-time signature (EOTS) allows the staked bitcoins to be
slashed in the event of a malicious staker.

<img src="/images/state-of-bitcoin/image19.png" style="width:6.5in;height:3.65278in" />

The concept of native BTC staking on Bitcoin to secure other PoS chains
is valuable for various reasons. Firstly, the function to stake BTC is
completely siloed within the Bitcoin network. Not only does this
eliminate the bridging risk of BTC, which often involves custodians and
other trusted third parties, but it also maintains the demand within the
Bitcoin network, which can help boost fees paid to network miners. Of
course, this also generates a new way to earn on BTC, improving its
viability as an asset and store of value. And finally, the PoS chains
that are inheriting security from Bitcoin benefit from the most valuable
and decentralized cryptocurrency in the world. For example, ATOM, which
helps secure the Cosmos network, has a market cap of ~$3B. This means it
would only require 3.5% of BTC to be staked and securing the Cosmos
network to _double_ its economic security. As the PoS chains all have
significantly lower market capitalizations than Bitcoin, the added
economic security is a massive value add for Babylon and native BTC
staking.

### Bitcoin Wrappers:

Helping proliferate BTC in various DeFi ecosystems, we have seen forms
of BTC wrappers become increasingly popular. The architecture varies
significantly between each type of wrapper, but the underlying premise
is that BTC is locked/stored in one location, and minted elsewhere. This
helps transport wealth held on the Bitcoin blockchain into different
ecosystems for various uses. Below, we’ll look at some of the popular
wrapper options today.

### Avalanche’s BTC.b

BTC.b is an ERC-20 representative of Bitcoin Avalanche in the ecosystem,
specifically dwelling on the Avalanche C chain, which is a facet of the
Avalanche blockchain ecosystem devoted to running EVM-compatible smart
contracts.

The Avalanche Bridge employs a highly secure method with its C-Chain,
involving a master key split into parts and distributed among 8 Bridge
Nodes. These nodes use secure communication to verify identities and
encrypt their share of the key, ensuring robust security throughout the
system.

To wrap BTC on the bridge, users must initiate a transfer on the Bitcoin
Network, sending their bitcoin to a specified bridge address controlled
by the enclave. Once the transaction is confirmed on the Bitcoin
Network, the Bridge Nodes indexes it.

Secure hardware in the enclave processes the transaction, and an
equivalent amount of BTC.b, directly representative of what is locked in
the bridge, is minted on the Avalanche C-Chain by the SGX application.

Anytime users want to convert BTC.b back to BTC, they can send a
transaction on the Avalanche C-Chain that burns the specified amount of
BTC.b tokens. The Bridge Nodes index this transaction as in the case of
wrapping, and the enclave processes it to send the equivalent amount of
native BTC back to the user’s wallet on the Bitcoin network.

Demand for BTC.b is reflected by market activity, which shows a current
market cap of $152.4M with a 24-hour trading volume of roughly $14.2M as
of December 4, 2023. In addition, several trading volume spikes occurred
throughout November 2023, BTC.

BTC.b is traded across various decentralized exchanges, such as Uniswap
V3 (Arbitrum One), Dexalot,and Trader Joe V2.1 (Avalanche), which allow
users to swap BTC.b against other cryptocurrencies and stablecoins such
as USDC.

<img src="/images/state-of-bitcoin/image20.png" style="width:6.5in;height:3.65278in" />

### wBTC

Short for wrapped bitcoin, wBTC is an ERC-20 token representing bitcoin
on the Ethereum blockchain. It is another means by which BTC is linked
to Ethereum, backed by a bridging process that pins wBTC and the BTC
backing it as one-to-one pairs,

To create wBTC, users must deposit bitcoin with a designated custodian
responsible for maintaining custody of the bitcoin. The custodians are
typically regulated financial institutions or entities that adhere to
fintech industry best practices but represent an interface with a
centralized institution. Due to this facet of wBTC’s protocol, it is not
a genuinely decentralized form of BTC on Ethereum.

<img src="/images/state-of-bitcoin/image21.png" style="width:6.5in;height:3.65278in" />

Custodians initiate the creation of wBTC upon receiving BTC from a user,
in collaboration with entities and merchants authorized to mint wBTC
tokens that use smart contracts on the Ethereum blockchain that are
configured to issue wBTC tokens at a 1 to 1 ratio with deposited BTC.
wBTC tokens are distributed to a user’s Ethereum wallet address upon
mint.

Merchants similarly facilitate the unwrapping of wBTC, wherein a user
sends the amount of wBTC they wish to convert back to BTC to a merchant
who, in collaboration with the custodian, burns corresponding wBTC
tokens so that the custodian may relinquish the equivalent amount of BTC
back to the user’s Bitcoin address.

System authenticity is maintained via regularly held audits from
third-party firms and analyzing on-chain data.

Demand for wBTC is reflected by market activity, which shows a current
market cap of roughly $6.7B, with a 24-hour trading volume of just under
$239M in the last 24 hours as of Dec 4, 2023. Around October 24, 2023
volume spiked to $639M, and again on Nov 9, 2023, to $560M.

<img src="/images/state-of-bitcoin/image22.png" style="width:6.5in;height:3.65278in" />

### Threshold and tBTC

tBTC, developed by Threshold, is a tokenized version of Bitcoin on the
Ethereum blockchain. It is designed to enable Bitcoin's integration into
other blockchains, including Ethereum and Solana. This integration
facilitates Bitcoin's participation in decentralized finance (DeFi)
applications.

tBTC operates on a decentralized model, utilizing a network of users and
smart contracts. This structure allows it to function without
centralized control, aligning with the decentralized principles of the
Bitcoin network.

Unlike other forms of Bitcoin wrapped bitcoin, tBTC features a
comprehensive SDK that supports its integration into various DeFi
platforms. The SDK is designed to enhance the accessibility of tBTC in
the broader DeFi landscape.

tBTC is designed to maintain user anonymity, operating without the need
for Know Your Customer (KYC) protocols. This approach preserves user
privacy and autonomy, consistent with the core principles of blockchain
technology.

tBTC has been integrated into multiple blockchain networks, such as
Ethereum, Solana, Optimism, Arbitrum, and Polygon. This interoperability
allows Bitcoin holders to engage seamlessly across different blockchain
ecosystems.

Following its introduction, tBTC experienced a resurgence in its total
value locked (TVL), indicating its adoption and utilization in the DeFi
sector. Along with TVL growth, the number of holders of tBTC has been in
a slow and steady uptrend all year, clearly demonstrating its market
demand and value compared to some of the products that exist today.

<img src="/images/state-of-bitcoin/image23.png" style="width:6.5in;height:3.65278in" />

Threshold has formed partnerships to enhance the cross-chain
functionality of tBTC, notably with Wormhole. These collaborations have
expanded tBTC’s presence across over 20 blockchain ecosystems.

Below is a comprehensive list of various BTC DeFi assets that dives into
how exactly these BTC wrappers differentiate from one another. It will
be worth while to keep an eye on which of the other BTC DeFi assets can
begin to disrupt wBTC, which has been the clear first mover and gathered
majority share of the market

<img src="/images/state-of-bitcoin/image24.png" style="width:7.0399in;height:3.46354in" />

## A Bitcoin ETF: What Institutional Adoption Means for Bitcoin and Regulatory Developments for BTC

2023 marks a historic year for bitcoin within U.S. financial markets.
While the year began with a sour taste and leftover fear from the FTX
blow-up, there has been growing confidence that bitcoin is here to stay
and poised to make a serious impact within the traditional equity
markets.

Although regulatory scrutiny regarding crypto from Gary Gensler and the
SEC has been rampant, bitcoin has thrived. Now, with multiple ETF
filings from the largest asset managers in the world, it is all but
certain that approval is imminent and the SEC’s crackdown is over. As
the GBTC discount shrinks and inflows for BTC pick up, the institutional
demand is already showing for BTC. But beyond the conceptual narrative
of “institutional money flowing in,” what does this mean for bitcoin the
asset?

Bitcoin was originally crafted as an idea against power, against those
controlling the financial markets. A way for the common person to free
themselves without permission or oversight from anyone and under any
circumstances. Thus, it is no surprise to see some split decisions about
the impact of an ETF. Doesn’t this go against the ethos of bitcoin? Why
are we celebrating the institutions owning the people’s coin?

While that position is valid, it is important to understand the logical
implications of a BTC ETF, and unanimous acceptance of BTC as an
investible asset. BTC can serve multiple purposes with the launching of
ETFs. Yes, an important value proposition of bitcoin is digital,
borderless money. But another use case, potentially completely separated
from the digital money aspect of BTC, is a store of value. Some people
want to use bitcoin to improve their portfolio risk/return metrics or
add higher beta exposure. ETF approval is not a failure of the original
principles of bitcoin, but instead an enabler of a new narrative, a new
use case. BTC is the millennial's gold, and ETFs will open the door for
anyone in the US to access through their retirement and brokerage
accounts.

Current demand for the ETF can be examined by financial products
available in the equity markets. According to research from Galaxy,
institutional funds currently hold 842k BTC
(~$22B).[^19]
However the investment products today do not provide efficient exposure
to BTC. Take, for example, BITO, the iShares Bitcoin Futures ETF, which
has a [significant performance
drag](https://portfolioslab.com/tools/stock-comparison/BITO/BTC-USD)
compared to vanilla BTC. In addition to tracking error, the current
state of BTC products have downsides such as high fees and lower
liquidity. Despite these downsides, we still see interest and investment
from institutions.

The same report from Galaxy shows an addressable market of $48.3T, based
on current wealth management assets under management by broker-dealers,
banks, and registered investment advisors (also excluding family offices
with a market of
$15T.)[^20]
Rather than pick through the exact details of that number, the bottom
line is that the flows coming in when an ETF is approved will bring a
flow of capital into BTC unlike anything before. YTD fund flows on BTC
just recently eclipsed $1.5B, meaning it only takes .003% of the
addressable market to double the yearly flows into
BTC.[^21]

A significant player in the ‘regulated BTC’ market is Grayscale’s
bitcoin trust, GBTC, which has had a remarkable year, up 240% from $8.
At the end of November, Grayscale filed for an amendment to their
current GBTC to make the redemption and creation more efficient and
collect management fees more
frequently.[^22]

<img src="/images/state-of-bitcoin/image25.png" style="width:6.5in;height:3.65278in" />

Demand for this asset being front run by currently available traditional
equity market instruments, like BITO, the iShares BTC futures ETF
reaching an ATH in AUM at the end of
November.[^22]

### Bitcoin's Ascendancy to a Store of Value

Given the scope of activity surrounding the establishment of a spot ETF
fund, the perception of bitcoin has transformed from a speculative
digital asset to a more recognized potential store of value. This is
highlighted by BlackRock CEO Larry Fink, whose remarks surrounding
rallies related to rumors of spot bitcoin ETF approvals signal a growing
consensus that the digital asset sector presents a “flight to quality”
for traditional financial houses amid times of geopolitical and economic
uncertainty.[^23]

This sentiment, adjacent to a surge in institutional appetite for
bitcoin as a modern day equivalent to “digital gold” may be reflective
of a shifting investment paradigm where digital assets are increasingly
considered a part of a diversified investment portfolio. Indeed, Fink’s
advocacy of bitcoin as an alternative to gold to hedge against inflation
is further bolstered by his assertion that bitcoin is mature enough to
serve as a safe haven
asset.[^24][^25]

Analysts at JP Morgan speculate that bitcoin could continue to track
gold higher over the next year, up to $45,000, despite the speculative
nature of the asset, which has pro traders and commodities analysts on
the
fence.[^26]

In turn, the banking crisis and regulator changes continue to reinforce
bitcoin’s position as a refuge outside of traditional finance, say JP
Morgan analysts. Amid bailouts and times of economic stress, bitcoin’s
appeal can be considered somewhat equivalent to that of
gold.[^26]

However even as retail and crypto native investors adopt the narrative
for bitcoin as a digital gold equivalent, institutional investors have
taken a more cautious approach, with some choosing to reduce exposure to
bitcoin as an asset class. So, although it is gaining traction, the
institutional sphere has yet to fully accept the idea of bitcoin as a
form of digital gold.

### Market Impact and Regulatory Environment

Anticipation that a spot bitcoin ETF will receive approval remains high
despite the SEC’s historic caution, with over 30 applications rejected
over concerns surrounding investor protection. Demand for a bitcoin ETF,
which would open up a conduit for retail and institutional investors,
remains high. A Glassnodes study suggests that anticipation of a spot
bitcoin ETF approval contributed to the asset’s 28% month-over-month
increase in October, a recovery generally spread among crypto
assets.[^27]

Meanwhile, the month saw a tightening in the available trading supply of
bitcoin, as long-term holders ascended to a new all-time high of 76%,
indicating that over two-thirds of the circulating supply have not
transacted in at least 5
months.[^27]

Similar to establishing gold ETFs, a spot bitcoin ETF is expected to
lead to a significant appreciation of bitcoin’s price. However, it is of
note that the market size for such instruments remains unknown.

The bullishness that BTC will not go away goes beyond the echo chamber
of crypto Twitter. Data from the block suggest that November marked the
month with the highest count of filings with the SEC that mentioned
“bitcoin,” well above any previous month.

<img src="/images/state-of-bitcoin/image26.png" style="width:6.5in;height:3.65278in" />

Despite this sudden bullishness within the U.S., the global approach to
Bitcoin regulation is far from uniform, with countries adopting
divergent strategies that reflect a spectrum ranging from enthusiastic
acceptance to outright prohibition.

### Jurisdictions with Welcoming Approaches:

#### El Salvador: Pioneering Bitcoin Integration

- In a groundbreaking move, El Salvador embraced Bitcoin as a legal
tender in September 2021, marking a historic moment in the evolution
of cryptocurrency.

- The government mandated businesses to accept Bitcoin as a form of
payment, while citizens were provided with the Chivo wallet, a
government-backed digital wallet, for conducting transactions.

- Notably, El Salvador granted a capital gains tax exemption on
Bitcoin transactions, fostering an environment conducive to
cryptocurrency
adoption.[^28]

#### United States: A Regulatory Landscape in Flux

- In the United States, regulatory developments are underway, with the
Securities and Exchange Commission (SEC) considering Bitcoin as a
commodity, while contemplating the possibility of regulating it as a
security.

- The Commodity Futures Trading Commission (CFTC) oversees Bitcoin
futures contracts, and the Financial Crimes Enforcement Network
(FinCEN) applies anti-money laundering (AML) and know-your-customer
(KYC) regulations to cryptocurrency
transactions.[^29]



#### European Union: Crafting a Unified Framework

- Within the European Union, the European Central Bank (ECB)
recognizes Bitcoin as a currency and is actively exploring
regulatory frameworks.

- The Markets in Crypto Assets (MiCA) regulation is currently in
development, aiming to harmonize crypto regulations across EU member
states.[^30]

### Jurisdictions with Strict Approaches:

#### China: A Forceful Prohibition

- China took a decisive stance in 2021 by banning financial
institutions from dealing in Bitcoin.

- The ban extended to prohibit banks and financial institutions from
offering cryptocurrency services, accompanied by a crackdown on
cryptocurrency mining
operations.[^31]

#### India: Navigating Regulatory Uncertainty

- India has witnessed regulatory uncertainty, with the Reserve Bank of
India (RBI) expressing concerns about cryptocurrencies and imposing
a ban on banks dealing with them.

- The government is currently deliberating on a cryptocurrency bill,
which may lead to a ban or establish a regulatory
framework.[^32]

#### Russia: A Mixed Regulatory Landscape

- Russia has adopted a mixed approach, recognizing cryptocurrencies as
non-legal tender but allowing ownership and trading.

- Both mining and trading activities are subject to registration with
authorities, and the country remains open to potential future
regulatory
measures.[^33]

The divergence in regulatory approaches to Bitcoin across various
nations and jurisdictions underscores the inherent complexities and
challenges associated with the general global adoption of the asset and
decentralized cryptocurrencies. The lack of a unified, standardized
regulatory framework fosters uncertainty for users and businesses
operating in the cryptocurrency space and hampers the potential for a
cohesive and integrated global financial system.

This disparate treatment of Bitcoin can lead to regulatory arbitrage,
wherein users and businesses might seek out jurisdictions with more
favorable regulations, potentially undermining the intent of regulations
put in place by other nations. Moreover, the absence of a common
approach increases the difficulty of international cooperation and
coordination in addressing fraud, money laundering, and market
manipulation. That is not to say that the result will be a cohesive and
ubiquitous treatment of digital currencies, but the closer the world’s
regulatory bodies can get to be on the same page, the more welcoming of
an environment for innovation while still protecting the public from
abuse in the markets.

### Conclusion

As a spot bitcoin ETF is widely anticipated, 2023 marks a seminal moment
in bitcoin’s integration into U.S. financial markets, challenging
pre-existing norms and opening new avenues for institutional investment.
Once set up, a spot bitcoin ETF is expected to signal a paradigm shift
as a step towards acknowledging bitcoin as a mainstream global asset.

The SEC, which has typically held a hard stance on such matters, is
softening its views, potentially paving the way for broader acceptance
of bitcoin, particularly among now sidelined traditional financial
market players.

Involvement by major players such as BlackRock and Grayscale filing for
spot bitcoin ETFs underscores the asset’s capacity to move out of a
niche digital currency to a reputable investment class, a perception
echoed by industry leaders and analysts who increasingly see bitcoin as
a viable alternative to traditional assets.

## BitVM: Computing Anything on Bitcoin

Many of this paper's points have extensively covered the technological
developments surrounding the Bitcoin blockchain. Scalability solutions,
new forms of assets, and metadata stored in bitcoin transactions are all
changing how the Bitcoin network works. Many users likely did not expect
these developments to occur at such a breakneck pace and create the
impact they have in such a short amount of time. While some will
continue to argue that these innovations are disruptive to the core
principles of Bitcoin, the debate is, as usual, nuanced and all angles
should be carefully considered.

Another critical development in this area is the BitVM, proposed by
[Robin Linus](https://robinlinus.com/), a Bitcoin developer
responsible for various projects, such as
[ZeroSync](https://zerosync.org/). BitVM proposes a new way to
process smart contracts on Bitcoin, improving functionality and
providing a way for more complex transactions. This architecture behaves
similarly to a rollup on the Ethereum network, where transaction
computation is completed off-chain and only confirmations are done on
the base layer. While off-chain computation is necessary to have this
level of functionality on Bitcoin, some argue that the transaction load
on the base layer will still be
significant.[^34]

An important distinction of BitVM is that it requires _no soft fork of
the Bitcoin network_, meaning it can be utilized today. Versus something
like the Taproot protocol, which took years of testing and development
to ensure its safety and functionality, BitVM can be tested immediately,
which will likely help lead to a faster adoption cycle.

<img src="/images/state-of-bitcoin/image27.png" style="width:5.15104in;height:4.9942in" />

Anonymous developer Super Testnet believes the project is “the most
exciting discovery in the history of Bitcoin script.” While it may sound
like a hyperbole, BitVM's impact should not be
discounted.[^35]

The important function to understand with BitVM is its prover-verifier
structure, which behaves similarly to an optimistic rollup on the
Ethereum network. Off-chain, some parties can do the computations for a
given transaction and post the proof of those transactions on Bitcoin.
Another party denoted the “verifier”, checks the transaction for
validity. The prover can be penalized for making a false claim if there
is any dispute.

For example, take the above structure of wrapped bitcoin assets, such as
wBTC or tBTC. The application of BitVM can help minimize trust in
creating a wrapper asset. Everyone in the group knows the central party
creating the wrapped bitcoin asset cannot lie when proving a
transaction, or the verifier can earn the bond posted by the prover. A
protocol that helps minimize trust in the Bitcoin ecosystem should
objectively be viewed as a massive win.

The main innovation that BitVM and Robert Linus have discovered to
achieve this type of trust minimization is the trustless transfer the
state from one Bitcoin transaction to another via bit value commitments.
Because of the incentive to not lose their deposit by getting slashed, a
BitVM prover performs every computation step within a given set of rules
to prove the state change.

This same concept of minimized trust in the wrapped bitcoin custodians
can be extended into different applications, such as improving a two-way
bridge's security. To paint it with a broad brush, BitVM can enable
complex applications such as exchanges, derivatives, prediction markets,
games, and more. Any sort of substantial development is still plenty of
time away. And the big innovation needed to cement the positive impact
of BitVM is a 1:N, multi-party scheme, versus what BitVM currently is, a
1:1, two-party scheme. This would make it so anyone could become a
verifier in the prover-verifier construct.

Expectedly, the takes on BitVM are not all positive. Dan Robinson of
Paradigm says the excitement is overblown and should not be getting the
attention it
deserves.[^36]
The main critique is the two-party scheme, and both parties must be able
to inherit significant computation off-chain.

Eric Wall said it well: the fact that this type of transaction
computation can even be possible on Bitcoin is nothing short of
amazing.[^37]
It proves yet again that Bitcoin has many paths yet to be explored.
BitVM can be experimented with today, again, requiring no adjustments to
the network. The practicality of BitVM is currently a big question mark,
but thanks to the fact that it can be developed on and tested today, it
won’t be long until we start to see some examples of applications using
the script.

## Conclusion and Look Ahead to 2024: What’s in Store for the Future of Bitcoin?

Bitcoin’s continued growth has seen a continued trend of increased
participation from both retail and institutional investors, driven by
its scarcity and codified monetary policy. Such factors have
significantly boosted Bitcoin's legitimacy as an investment asset.

Technological advancements in scaling solutions have greatly enhanced
the transaction capabilities of Bitcoin, enabling fast, scalable
transactions, and encouraging broader utility in everyday transactions
and even in gaming platforms.

Likewise, the introduction of Ordinals has altered the nature of Bitcoin
transactions by turning individual satoshis into unique digital assets
via the inscription process, and sparking significant market interest.
Recursive ordinals further enhance Bitcoin’s functionality by enabling
complex on-chain software operations.

Other technical Innovations, like Babylon's remote staking concept, are
creating new avenues for earning yield on BTC in a safe and
ethos-aligned manner, facilitating its viability as both an asset and a
store of value.

There remains a notable shift towards self-custody, observable via
investors increasingly taking direct control over their Bitcoin
holdings, and thereby enhancing the asset's supply dynamics and
asymmetric upside. The shift towards self-custody is significant as it
reflects a maturation of the investor mindset in the Bitcoin ecosystem.
By taking direct control of their assets, investors not only enhance
their security and autonomy but also contribute to a change in the
market dynamics of Bitcoin, potentially influencing its value and
stability.

Growth in consumer applications like Fold, Lolli, and Bitrefill has also
played a significant role in taking fundamental steps towards embedding
Bitcoin into daily life, broadening its appeal and usage among a wider
audience. For the same consumers, privacy-focused wallets like Wasabi
and Samourai Wallet continue to enhance Bitcoin's privacy features,
catering to users who prioritize data protection and anonymity.

With these advancements, Bitcoin still faces obstacles surrounding
scalability, network congestion, regulatory complexities, and inherent
market volatility, all of which pose hurdles for the continuous
integration of Bitcoin into mainstream finance and other sectors.

Although challenges persist, the foundational strength and the diverse
applications of Bitcoin suggest a promising trajectory for its continued
evolution and integration into various facets of global economics and
finance.

_The State of Bitcoin is a research report on major developments in the
Bitcoin Ecosystem that took place in 2023. This piece was authored by a
team of contributors: Jeremy Nation, Vaish Puri, Joey Campbell, Vanshika Srivastava, Shaurya
Singh, Matt Luongo, Hillary Adler, and Saul Hudson._

_Special thanks to those who offered their expert feedback: Will Reeves,
Gorkem Bereket, Brian Mahoney, Sean Medcalf, Harsharn Singh, Engin Erdogan, Udi
Wertheimer, and Eric Wall._

_We’d love to hear your feedback on our direction via
[Twitter](https://twitter.com/thesis_co), [Email](mailto:[email protected]), or
in person if you see us around!_

_For press outreach please contact Saul Hudson ([email protected])_

_If you’re interested in contributing to Bitcoin or web3 technology,
please get in touch at ([[email protected]](mailto:[email protected]))_

#### Glossary: State of Bitcoin

Bit Value Commitments: Bit Value Commitments are cryptographic
techniques used to commit to a specific value without revealing the
actual value until later, providing privacy and security features within
the Bitcoin protocol.

BRC-20: BRC-20 is a fungible token protocol on Bitcoin, similar to
the well-known ERC-20 standard on Ethereum. It enables arbitrary asset
creation but has been associated with congestion and fee spikes on the
Bitcoin network.

Child Chain: Child Chain refers to a secondary blockchain connected
to the main Bitcoin blockchain, often used to process specific
transactions or smart contracts without directly affecting the main
chain.

Cursed Ordinals: Cursed Ordinals are instances of improperly indexed
inscriptions within the Ordinals Protocol. They result from
discrepancies in the indexing process, adding complexity to the system
and potentially causing bugs.

Double Spend: Double Spend is a potential risk where a user attempts
to spend the same bitcoin in more than one transaction and is one of the
key problems solved by Bitcoin.

ETFs (Exchange-Traded Funds): ETFs are investment funds traded on
stock exchanges, much like stocks. A Bitcoin ETF would allow investors
to gain exposure to Bitcoin without directly owning the cryptocurrency
via a structure of custodians and authorized participants (APs) who can
trade directly with the ETF sponsor.

Hash Power: Hash Power is the computational power of miners
contributing to the Bitcoin network, securing the blockchain and
validating transactions.

Hash Rate: Hash Rate is the speed at which miners collectively
perform calculations to secure and add new blocks to the Bitcoin
blockchain.

Hashed Timelock Contracts (HTLCs): Hashed Timelock Contracts are
smart contracts used in the Lightning Network that enable payments
routed across multiple network participants. Each hop in the payment
route can claim funds by disclosing a cryptographic secret before a
deadline, ensuring secure and trustless transactions.

Inscription Fees: Inscription fees are charges associated with the
process of inscribing data onto satoshis as part of the Ordinals
Protocol. Users pay these fees to cover service and network costs.

Layer 2: Layer 2 refers to second-layer scaling solutions built on
top of the base blockchain to enhance scalability and transaction speed.
Examples include the Lightning Network.

Lightning Network: The Lightning Network is a second-layer scaling
solution for Bitcoin that enables faster and cheaper transactions by
creating off-chain payment channels.

Merged Mining: Merged Mining is a process where miners
simultaneously mine multiple blockchains that share the same hashing
algorithm as Bitcoin, increasing security for smaller chains.

Merkle Tree: A Merkle tree is a tree structure in cryptography,
where each leaf node is a hash of a data block, and each non-leaf node
is a hash of its children nodes. It is used for efficient verification
of large data sets.

Metadata: Metadata refers to additional information attached to
transactions, blocks, or other data, providing details about the content
or context.

Micropayment Channels: Micropayment channels in the Lightning
Network establish a continuous and trustless relationship between two
parties, allowing them to update their balances without broadcasting
every transaction to the blockchain. This approach enables fast and
efficient micropayments.

Neutrino’s LN Implementation: Neutrino’s LN implementation refers to
the Lightning Network implementation by Neutrino, which has played a
role in scaling global digital money. It has contributed to making
Bitcoin more usable for everyday transactions by enhancing speed and
reducing fees.

Node Operators: Node operators are individuals or entities that run
nodes on the Bitcoin network, contributing to the decentralized nature
of the network by validating and propagating transactions.

Non-Fungible Tokens (NFTs): Non-fungible tokens are unique digital
assets representing ownership of a specific item or content. Unlike
fungible tokens, each NFT has distinct characteristics.

Nostr Integration: Nostr Integration refers to integrating the
decentralized social protocol Nostr, introducing features like Zap notes
for Bitcoin micropayments in social interactions.

Off-Chain Transactions: Off-chain transactions refer to transactions
that occur outside the main blockchain, allowing participants to
exchange assets or information quickly without waiting for block
confirmations.

Ordinal Protocol: The Ordinal Protocol represents a technological
innovation in the Bitcoin ecosystem, turning individual satoshis into
unique digital artifacts by inscribing them with data such as text or
images. It was launched in January 2023 and uses the Taproot upgrade.

Payment Channel: A payment channel is a mechanism in the Lightning
Network where two parties open a channel by funding it with a certain
amount of bitcoin. Transactions can occur instantly between the parties
without being recorded on the blockchain until the channel is closed.

Pocket Universe: A pocket universe in Taproot Assets is a way to
collectively store Taproot Assets and use the Taproot Assets Protocol
without giving up ownership of assets. It controls the Taproot key to a
UTXO.

Recursive Scripts: Recursive scripts in Bitcoin refer to the ability
to use scripting language to create more complex and evolving smart
contract-like structures on the Bitcoin blockchain.

Routing Channel: In the context of the Lightning Network, a routing
channel is used for routing payments between participants. It allows the
transfer of funds through a series of interconnected channels.

Routing Fees: Routing fees are fees paid to nodes in the Lightning
Network for facilitating the routing of payments between participants.
Nodes are incentivized to help route Taproot Assets to earn more routing
fees.

Satoshis: Satoshis are the smallest unit of Bitcoin, named after its
pseudonymous creator, Satoshi Nakamoto. One Bitcoin is divisible into
100 million satoshis.

Segregated Witness (SegWit): Segregated Witness is a Bitcoin
protocol upgrade implemented in 2017 that separates witness data from
transaction data, reducing the size of transactions and enabling
additional features.

Sequencers: Sequencers are entities responsible for ordering
transactions in a decentralized network, ensuring a consistent order of
operations on the Bitcoin blockchain.

SHA-256: SHA-256 (Secure Hash Algorithm 256-bit) is the
cryptographic hash function used to secure transactions and create
unique identifiers for blocks and data.

Sidechains: Sidechains are separate blockchains that operate
alongside the main Bitcoin blockchain, allowing experimentation with new
features and functionalities without directly impacting the main chain.

Sparse Merkle Tree (MS-SMT): Sparse Merkle Tree is a specific type
of Merkle tree where only a subset of leaf nodes contains actual data.
It is used for efficient representation and verification of sparse data
sets.

Taproot Assets: Taproot Assets is a meta-protocol allowing arbitrary
assets, both fungible and non-fungible tokens, to be issued and managed
on the Bitcoin blockchain. It integrates with the Lightning Network for
cheap and fast transactions.

Taproot Asset Protocol: Taproot Asset Protocol is an upgrade that
provides a toolkit for issuing assets via the Lightning Network and
Bitcoin. It includes features like customizable asset burning,
Multiverse Trees for transparent tracking of assets, and Proof Couriers
for relaying validity records.

Taproot-Compatible Wallets: Taproot-compatible wallets are
cryptocurrency wallets that support the features and functionalities
introduced by the Taproot upgrade in the Bitcoin network. They are
necessary for managing and trading Taproot Assets.

Taproot Upgrade: The Taproot upgrade is a Bitcoin protocol upgrade
that enhances privacy and efficiency in multi-signature transactions and
enables the creation of Taproot Assets by changing how data is stored on
the blockchain.

Taptweak: Taptweak is a component used in the creation process of
Taproot Assets. It, along with a Merkle Sum, generates information for a
Taproot Asset.

Token Standards: Token standards refer to sets of rules and
specifications that define how tokens, representing assets or utilities,
should be created and behave on a blockchain.

Universes (in Taproot Assets): Universes in Taproot Assets are
repositories of assets and their proofs, acting as full nodes for
specific assets. They provide historical data for validation, and
information can be released at the discretion of the "universe
operator."

UTXO (Unspent Transaction Output): UTXO refers to the output of a
Bitcoin transaction that has not been spent and can be used as input in
a new transaction.

Validity Rollup: Validity Rollup is a layer 2 scaling solution that
aggregates and validates transactions off-chain, submitting only the
summary or validity proofs to the main Bitcoin blockchain.

Witness Data: Witness data, introduced by the Segregated Witness
(SegWit) upgrade, is the data in a Bitcoin transaction that signs the
transaction but is separate from the transaction itself. It allows for
more efficient use of block space.

Zap Notes: Zap notes represent Lightning invoice receipts introduced
by the decentralized social protocol Nostr's "NIP-57" upgrade. They are
used for Bitcoin micropayments in social interactions, such as tipping
content creators and funding posts to unlock additional content.

ZK Rollup: ZK Rollup is a layer 2 scaling solution that leverages
zero-knowledge proofs to bundle and validate multiple transactions
off-chain before submitting a single proof to the main Bitcoin
blockchain.

#### Citations

[^1]: www.coindesk.com/markets/2023/10/26/bitcoin-primed-for-supply-shock-as-exchange-balance-drops-to-5-year-low-analyst-says/#:~:text=The%20level%20of%20available%20bitcoin.
[^2]: https://2784460.fs1.hubspotusercontent-na1.net/hubfs/2784460/Content%20Report/Rootstock%20Bitcoin%20Mining%20Report%20Oct%202023.pdf
[^3]: coincodex.com/article/26289/iovlabs-announces-key-developments-for-rif-and-rootstock-at-consensus-2023/
[^4]: https://defillama.com/chain/RSK?devsCommits=false&developers=false&stables=false&tvl=true
[^5]: https://coinmarketcap.com/currencies/stacks/
[^6]: https://defillama.com/chain/RSK?devsCommits=false&developers=true&stables=false&tvl=true
[^7]: https://stacksfoundation.notion.site/Q3-23-Foundation-OKRS-Published-1c6b4d37ec3a4e48bf282691189bdd8c
[^8]: https://cointelegraph.com/news/bitcoin-core-developer-antoine-riard-steps-back-lightning-network-dilemma
[^9]: https://zapalytics.com/
[^10]: https://dune.com/domo/ordinals-marketplaces
[^11]: https://bitcoinops.org/en/podcast/2023/02/16/
[^12]: http://brc-20.io/
[^13]: https://lightning.engineering/posts/2023-10-18-taproot-assets-v0.3/
[^14]: https://argoblockchain.com/articles/bitcoin-taproot-upgrade-explained
[^15]: https://docs.lightning.engineering/the-lightning-network/taproot-assets/taproot-assets-protocol#asset-proof
[^16]: https://ycharts.com/indicators/bitcoin_average_transaction_fee
[^17]: https://bitcoinops.org/en/podcast/2023/09/14/
[^18]: https://twitter.com/btcpricetool/status/1730646181376823430
[^19]: https://www.galaxy.com/insights/research/sizing-the-market-for-a-bitcoin-etf/
[^20]: https://www.galaxy.com/insights/research/sizing-the-market-for-a-bitcoin-etf/
[^21]: https://jbutterfill.medium.com/volume-159-digital-asset-fund-flows-weekly-report-0103828f4a3d
[^22]: https://www.sec.gov/Archives/edgar/data/1588489/000095017023066760/gbtc_pre_14a_v2.htm
[^22]: https://ycharts.com/companies/BITO/assets_under_management
[^23]: https://www.coindesk.com/business/2023/10/17/blackrock-ceo-larry-fink-seeing-client-demand-for-crypto-around-the-world/
[^24]: https://bitcoinmagazine.com/business/blackrock-ceo-larry-fink-says-bitcoin-is-an-international-asset#
[^25]: https://dailyhodl.com/2023/10/18/blackrock-ceo-larry-fink-says-bitcoin-and-crypto-will-play-a-role-in-investors-flight-to-quality/
[^26]: https://www.dlnews.com/articles/markets/bitcoin-as-digital-gold-narrative-returns-for-crypto-natives/
[^26]: https://studio.glassnode.com/workbench/da038c46-94e7-45e4-63e3-4ecfa5d1b7e9?&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_16_2023
[^27]: https://insights.glassnode.com/finance-bridge-spot-btc-etf-impact/
[^27]: https://studio.glassnode.com/workbench/fc950f4d-fa78-479d-5030-8873c6e6bd5c
[^28]: https://www.ft.com/content/7b5b1cc4-50bb-437f-aa16-f106d2dbc1c7
[^29]: https://www.forbes.com/advisor/investing/cryptocurrency/sec-crypto-regulation/
[^30]: https://www.ft.com/content/50388307-08a8-4330-be8e-ff17f41e8e13
[^31]: https://www.reuters.com/world/china/china-central-bank-vows-crackdown-cryptocurrency-trading-2021-09-24/
[^32]: https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1196
[^33]: https://cryptoslate.com/russia-to-legalize-crypto-as-means-of-payment/
[^34]: https://twitter.com/roasbeef/status/1711455467569020969
[^35]: https://twitter.com/super_testnet/status/1711410131701756023
[^36]: https://twitter.com/danrobinson/status/1711531283212562877
[^37]: https://twitter.com/ercwl/status/1712052792779505925

🔝

State of Bitcoin: 2023

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