Introduction
January 11 marked a milestone in crypto history with the SEC's approval of BTC ETFs. Eleven Bitcoin ETFs are now officially trading on the U.S. stock market. As the Bitcoin halving cycle approaches, the Bitcoin ecosystem is poised for renewed vitality.
In 2023, the digital asset space witnessed the emergence of a new concept: inscriptions. The rise of inscriptions is largely attributed to a series of protocols within the Bitcoin ecosystem, with Ordinal Protocol's ORDI emerging as a leader in the inscription space.
However, the prominence of inscriptions is more deeply rooted in the ethos of Fair Launch. Taking ORDI as an example, its distribution model eliminated pre-mining and private sales, distributing tokens equally among community members and sparking widespread participation. This fair issuance model played a significant role in popularizing inscriptions.
Market Background of Inscriptions
Market Context
Since January 2023, Bitcoin's Ordinals protocol has ignited a frenzy on the Bitcoin blockchain, with far-reaching impacts. Numerous BRC20 and Ordinals assets emerged, leading to a "retail investor frenzy." BRC20 inscription projects adopted the Fair Launch model, allowing all tokens to be minted by retail investors themselves, eliminating institutions and project teams, and bringing true fairness. For instance, Ordi was minted at a cost of about $1 per inscription. After listing on Gate Exchange, its price surged to $30,000 per inscription. By the end of 2023, as ORDI's value was further recognized, its price approached $90,000 per inscription, enabling some early users to achieve financial freedom.
This staggering price surge not only fueled the popularity of the BRC20 protocol but also attracted numerous Ordinals players to join the BRC20 camp.
Data Overview
However, this also led to a continuous increase in Bitcoin's on-chain Gas fees. According to Mempool.space's 3-year block fee rate data, in May and November 2023, block fee rates skyrocketed, with the minimum confirmation Gas fee peaking at 600 s/vb, the highest level in the past three years.
Source: Mempool.space, January 14, 2024
Similarly, Mempool.space's 3-year total block fee data shows that in May and November 2023, the total daily block fees nearly reached 3.5 BTC, setting a 3-year record high.
Source: Mempool.space, January 14, 2024
From the minting data of inscriptions, the number of inscriptions has stabilized at a high level.
Source: Dune Analytics, January 14, 2024
Analysis of Key Chains and Their Inscription Protocols
This section provides an overview of leading inscription protocols across popular blockchains and their market performance.
Bitcoin Chain
Ordinals
In January 2023, Bitcoin developer Casey Rodarmor released the Ordinals protocol, an asset issuance protocol based on Bitcoin. It consists of two core components: Ordinals theory and Inscription.
Specifically, the Ordinals protocol leverages the unique properties of satoshis (the smallest unit of Bitcoin) by assigning a unique serial number to each satoshi and expanding it to include text, images, videos, and contract data. This transforms each satoshi into a carrier of unique information, storing data directly on the Bitcoin blockchain to ensure immutability.
BRC20 Protocol
On March 8, 2023, anonymous developer Domo introduced BRC-20 based on the Ordinals protocol. BRC-20 is a token issuance protocol similar to ERC-20 but designed for the Bitcoin ecosystem. The unique aspect of BRC-20 is that it consists of a set of JSON text-based inscriptions with fixed rules and formats. $ORDI, the first BRC-20 token deployed by Domo, defines the protocol rules, name, quantity per inscription, and maximum supply. However, BRC-20 relies on third-party indexers to record ledgers off-chain, adding extra workload and creating a potential vulnerability in the system.
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Atomical Protocol
Atomicals is a protocol built on the Bitcoin network aimed at creating, transferring, and upgrading various digital items, including native digital NFTs, gaming NFTs, digital identities, domain names, and social networks. Additionally, the protocol supports the creation of exchangeable tokens, enabling token issuance and trading on the Bitcoin network.
The protocol uses satoshis as the basic unit for tokens, with each satoshi's UTXO representing an independent token (1 token = 1 satoshi). By binding UTXOs to tokens, the Atomicals protocol avoids the complexity of off-chain indexing seen in Ordinals and enhances the system's decentralization.
However, Atomicals currently faces challenges. One significant issue is the introduction of Proof-of-Work (POW) during the minting of ARC20 tokens, requiring participants to run a full Bitcoin node. While this ensures fairness and decentralization, the high technical barrier limits widespread participation. Additionally, underlying technical imperfections can lead to users losing ARC20 tokens during Bitcoin transfers.
Ethereum Inscriptions
Ethscriptions
Ethscriptions is an alternative to smart contracts and Layer 2 solutions, allowing users to share information and execute computations on Ethereum Layer 1 at low costs. It bypasses smart contract storage and execution by applying rules to Ethereum call data, enabling decentralized computation. In August 2023, Ethscriptions introduced a virtual machine (ESC VM) to enhance its functionality, transforming it into a general-purpose computation engine.
Source: Dune Analytics, January 14, 2024
Dune data shows that as of January 14, 2024, Ethscriptions inscription serial numbers exceeded 3.59 million, with over 165,000 users and累计交易笔数超 320,000 transactions. Daily active users and the number of new inscriptions have grown steadily since October 2023.
iERC20
iERC20 is a new token protocol on Ethereum that provides a low-cost token ecosystem, allowing anyone to deploy, mint, and trade tokens on it.
The unique feature of the iERC20 protocol is its development of Swap functionality and integration of EVM cross-chain capabilities, building a bridge between Ethereum inscriptions and traditional Layer 2 solutions. This feature enables the protocol to incorporate more mainstream coins and stablecoins, expanding the inscription ecosystem's TVL and providing greater development potential. Additionally, the iERC20 protocol introduces Proof-of-Work (PoW) and DPOS mining, making it more decentralized and democratic. This strategy is expected to bring new momentum to the Ethereum ecosystem.
Source: Twitter, January 14, 2024
Solana Chain
The first inscription-based token on Solana, SOLS, was created using SPL-20, a protocol similar to BRC20. The total supply is 21,000 inscriptions. SPL-20 also consists of a set of JSON text-based inscriptions with fixed rules and formats. The key difference from BRC20 is the change in the "P" field protocol name to "spl-20".
Source: Libreplex, January 14, 2024
Although the minting process for Sols is relatively complex, it remains highly popular. In addition to innovatively inscribing on NFTs, the process involves multiple steps such as minting, double-locking, and migration to verification, ensuring inscription validity. NFT platform Magic Eden data shows that as of January 14, 2024, Sols ranked third in trading volume, with a floor price of 42.43 SOL (minting cost: 0.1 SOL) and a total trading volume of 590,800 SOL.
Source: Magic Eden, January 14, 2024
Avalanche Chain
AVAL is an inscription based on ASC-20, with a total supply of 21 million inscriptions. It has garnered attention and support from Ava Labs CEO Emin Gün Sirer. ASC-20 also consists of a set of JSON text-based inscriptions with fixed rules and formats. The key difference from BRC20 is the change in the "P" field protocol name to "asc-20".
Source: Avalanche Market Documentation, January 14, 2024
According to DeFiLlama data, on December 20 alone, the Avalanche network generated $9.72 million in revenue, largely from gas fees consumed by the community during inscription minting.
Source: DeFiLlama, January 14, 2024
SUI Chain
ISSP is the first infrastructure project on the SUI Network that integrates an inscription Launchpad, Marketplace, and Swap. Leveraging the unique advantages of Sui Network's object model for inscriptions, it initially launched the Sui-20 standard protocol inscription on Sui Network. By improving infrastructure, it aims to attract more developers and communities to participate in the Sui Network inscription ecosystem and jointly promote its development. ISSP uses Sui's native node indexer to index inscription data, providing the highest performance and most stable inscription experience. Additionally, ISSP supports seamless integration of inscriptions with CEXs without requiring additional development for inscription protocol对接.
Source: ISSP Official Website, January 14, 2024
Polygon Chain
The first Polygon inscription, pols, was minted based on PRC-20, a token protocol derived from the Ordinals protocol. The total supply is 2,100 inscriptions, making it the first inscription on an EVM chain. The off-market price of pols once surged dramatically, even appearing for sale on second-hand trading platforms like Xianyu.
According to DUNE data, the popularity of PRC-20 once caused Polygon network gas fees to spike. On November 16, 2023, daily gas consumption reached a peak of 88,000.
Source: Dune Analytics, January 14, 2024
Other Proof-of-Work Chains
Dogechain
The Drc-20 protocol is an Ordinals-based protocol on the Dogecoin chain, functionally similar to the Bitcoin chain. However, its low transfer fees and strong meme attributes have made it popular.
$UNIX is the first UTXO-based exchange on Dogecoin, supporting trading between inscriptions. It currently has 36,200 holders and a total trading volume of 109,576.
Source: Unielon, January 14, 2024
Summary
In this inscription frenzy, despite the impressive data often promoted by various public chains, many chains that boast high speed, low cost, and high performance have encountered setbacks under the pressure of inscriptions, revealing their true capabilities under extreme stress tests.
Notably, Bitcoin and Ethereum have demonstrated remarkable robustness. Although their mainnets may experience congestion and transaction fees may surge, they have maintained stable operation throughout the process of executing transactions.
Conclusion
Although investors are flocking to the inscription ecosystem driven by wealth effects, the characteristics of fair distribution and first-come-first-served also pose challenges, including high network fees and scripting issues. Furthermore, most inscriptions in the current market still rely on institutional support, community participation, and meme culture to stimulate market sentiment. They also face long-term challenges such as weak application narratives, insufficient infrastructure, and lack of liquidity. While debates about the value of inscriptions continue, innovators are steadily advancing, and the inscription field is poised for broader possibilities.
Frequently Asked Questions
What is an inscription protocol?
Inscription protocols are systems that allow data, such as text, images, or tokens, to be written directly onto a blockchain. They often leverage the smallest units of a native cryptocurrency, like satoshis on Bitcoin, to create unique digital assets or tokens in a decentralized manner.
How does a Fair Launch work in the context of inscriptions?
A Fair Launch means the tokens or assets are distributed without pre-mining or sales to private investors. Instead, they are made available for the community to mint directly, often on a first-come, first-served basis. This model aims to create a more equitable distribution and is a core philosophy behind many inscription projects.
Why did transaction fees on networks like Bitcoin and Ethereum surge during the inscription craze?
The process of minting and transferring inscriptions requires submitting transactions to the blockchain, consuming block space. During periods of high demand, such as a popular inscription mint, many users compete to get their transactions included in the next block, driving up gas fees or transaction costs due to network congestion.
What are the main challenges facing the inscription ecosystem?
Key challenges include high and volatile network fees, technical complexities for users, reliance on off-chain indexers for some protocols (creating potential centralization points), limited utility beyond speculation for many inscribed assets, and overall immature infrastructure for trading and liquidity.
Can inscriptions be created on any blockchain?
While the concept originated on Bitcoin, similar protocols have been adapted for other blockchains, including Ethereum, Solana, Avalanche, and others. Each chain implements its own variation, such as SPL-20 on Solana or ASC-20 on Avalanche, often tailored to the specific technical features of that blockchain.
What is the future potential for inscription protocols?
Beyond creating simple tokens, proponents believe inscription protocols could evolve to support more complex decentralized applications, digital identity systems, or novel asset types directly on layer-1 blockchains. Their development is closely tied to overcoming current technical limitations and finding sustainable utility beyond speculative trading.