Inscription Protocol: The Technological Transformation from Prosperity to Fade

The phrase in the Bitcoin genesis block witnessed the beginning of an era. Now, as Bitcoin reaches new heights, we are also witnessing the end of another once glorious era - inscriptions and runes.

Since the emergence of the Ordinals protocol at the beginning of 2023, to the crazy hype around BRC20, and then the successive appearances of protocols like Runes, Atomical, CAT20, RGB++, and Alkanes, the Bitcoin ecosystem has undergone an unprecedented "inscription revolution". These protocols all aim to transform Bitcoin from a mere value storage tool into a foundational platform capable of supporting various asset protocols.

However, as the carnival fades and the underlying reality emerges, we must face a harsh truth: the fundamental limitations of the inscription protocol have doomed this beautiful tulip bubble. As a practitioner deeply involved in the development of the inscription protocol from a technical perspective, having personally implemented the underlying layers of each protocol, I have witnessed this ecosystem evolve from its nascent stages to its explosive growth, and now to a rational return.

The Evolution Chain of Inscription Protocol

Ordinals protocol: the beginning of the inscription era

The Ordinals protocol has opened the curtain on the "inscription era" of Bitcoin. By numbering each satoshi and utilizing the principles of submission revelation technology, it has achieved on-chain storage of arbitrary data. The combination of the UTXO model and the concept of NFTs uses the serial number generated by each satoshi as a positioning identifier, allowing each satoshi to carry unique content.

From a technical perspective, the design of Ordinals is quite elegant and perfectly compatible with Bitcoin's native model, achieving permanent data storage. However, the mere act of writing data also limits it, as it cannot meet the strong desire of the market at that time for the "issuance" of Bitcoin and other assets.

BRC20 protocol: Business Breakthrough and Consensus Trap

BRC20, based on the technical foundation established by Ordinals, injects soul into on-chain data through a standardized content format—making the originally static inscription come to life. It defines the complete asset lifecycle of deploy-mint-transfer, transforming abstract data into tradable assets, and for the first time realizes the issuance of fungible tokens on Bitcoin, meeting the market's urgent need for "issuance" and igniting the entire inscription ecosystem.

However, its account model fundamentally conflicts with Bitcoin's UTXO model. Users must first inscribe the transfer inscription and then perform the actual transfer, resulting in multiple transactions to complete a single transfer. More importantly, the fundamental flaw of BRC20 is that it only binds "certain data" but completely fails to share its consensus power. Once the off-chain indexer stops supporting it, all so-called "assets" will instantly become meaningless junk data.

This vulnerability was fully exposed during the repeated events of the smart contract—when multiple assets appeared on the same smart contract, the parties involved collectively modified the standards, meaning that the consensus of the entire ecosystem was actually controlled by a minority. Even more confusingly, the subsequent "optimizations" such as single-step transfers introduced by the relevant institutions did not actually address the core pain points of the market, but instead brought the cost of adapting to the new version across various platforms.

This reflects a deeper issue: for the past two years, the designers of the inscription protocol have been trapped in the single area of "issuance," lacking in-depth consideration of the application scenarios after issuance.

Atomical protocol: A correction and disconnection of UTXO nativism

In response to the UTXO compatibility issues of BRC20, Atomical proposed a more radical solution: to directly correspond the quantity of assets to the number of satoshis in the UTXO, and introduce a proof-of-work mechanism to ensure fair minting. This achieves native compatibility with the Bitcoin UTXO model, where the transfer of assets is equivalent to the transfer of satoshis, which to some extent addresses the cost and interaction issues of BRC20.

However, the iteration of technology has also brought the cost of complexity—transfer rules have become extremely complicated, requiring precise calculations for UTXO splitting and merging, easily leading to asset burning, which makes inscription players hesitant to operate lightly. More critically, the proof-of-work mechanism has revealed serious fairness issues in actual operation, with large holders completing minting first due to their computational power advantage, completely contradicting the mainstream narrative of "fair launch" in the inscription ecosystem at that time.

The subsequent product iterations further reflect the development team's misunderstanding of user needs—the complex features such as semi-dyed assets consume a lot of human and material resources, yet have minimal improvement on user experience, instead triggering high costs for major institutions to reconstruct on-chain tools. Meanwhile, the long-awaited AVM arrives late, as the entire market has already shifted, missing the best development window.

Runes Protocol: Official authoritative elegant compromise and application blank

As the "official" issuance protocol of Ordinals founder Casey, Runes has absorbed the lessons learned from the aforementioned protocol. The use of OP_RETURN data storage avoids the abuse of witness data and finds a relative balance between technical complexity and user experience through sophisticated encoding design and the UTXO model. Compared to the previous protocol, Runes' data storage is more straightforward, encoding is more efficient, and transaction costs have been significantly reduced.

However, the Runes protocol is also trapped in the fundamental dilemma of the inscription ecosystem—aside from issuing tokens, this system does not have any special design. Why would the market need a token that can be obtained without any barriers? After acquiring it, what practical significance does it have other than selling it on the secondary market? This purely speculative-driven model destined the protocol's vitality to be limited. However, the application of opreturn opened up ideas for subsequent protocols.

CAT20 protocol: The ambition of on-chain verification and the reality of compromise

CAT20 indeed achieves true on-chain verification through Bitcoin scripts. The on-chain only stores the state hash, ensuring all transactions adhere to the same constraints through recursive scripts, thus claiming "no indexer required". This has been the holy grail of the inscription protocol for a long time.

However, although the "on-chain verification" of CAT20 is indeed executed on-chain, it can only verify that its state data is stored in hash form in OP_RETURN. With only the hash, it cannot be reverse-engineered, so in actual operation, it still ultimately requires off-chain indexers to maintain readable states. From a design perspective, the protocol allows token name symbols to be non-unique, leading to confusion with similarly named assets, and the UTXO contention issues in high concurrency scenarios during early development made the initial minting experience extremely poor for users.

Later, a hacker attack occurred. The underlying principle was that when connecting two numerical values, the internal data lacked a delimiter, resulting in the same hash output for the values 1 and 234 as well as 12 and 34. The attack forced a protocol upgrade, but the prolonged upgrade plan made the market forget the initial enthusiasm.

The CAT20 case illustrates that even if there are some breakthroughs at the technical level, it cannot be too advanced; if it completely surpasses user understanding, it will be difficult to gain market recognition. Moreover, the threat of hackers always hangs like the sword of Damocles over the project team, reminding everyone to be cautious.

RGB++ protocol: Technological Idealism and Ecological Dilemma

A certain project uses a homomorphic binding scheme, attempting to solve the functional limitations of Bitcoin through a dual-chain architecture. By leveraging the Turing completeness of a certain chain to verify Bitcoin UTXO transactions, it is technically the most advanced, achieving a more enriched meaning of smart contract verification, with the most complete technical architecture, regarded as the "gem of the inscription protocol."

However, the gap between ideals and reality is vividly reflected here—the complexity of the dual-chain architecture, the high cost of learning, and the barriers to institutional access. More critically, the project team itself is relatively weak and has to simultaneously tackle the dual challenges of advancing both the chain and the new protocol, which fails to attract enough market attention. In this field, which heavily relies on network effects and community consensus, it has become a "well-received but underperforming" technological solution.

Alkanes protocol: Final Sprint and Resource Scarcity

The smart contract protocol based on off-chain indexing+ integrates the design concepts of Ordinals and Runes, attempting to realize arbitrary smart contract functions on Bitcoin. It represents the final sprint of the inscription protocol towards traditional smart contract platforms. It is indeed theoretically capable of implementing any complex contract logic. Moreover, it has also taken advantage of the opportunity presented by the Bitcoin upgrade that removes the 80-byte opreturn limit.

However, the harsh reality of cost considerations ruthlessly shatters this technological ideal. Not to mention the complex operational bottlenecks of contract chains, which lead to huge performance issues, even the indexers built in the early stages of the project have been overwhelmed multiple times. Furthermore, deploying custom contracts requires nearly 100KB of data to be put on-chain, which far exceeds the deployment costs of traditional public chains. In addition, the operation of contracts is not under control and still relies on indexer consensus. High costs are destined to serve only a very small number of high-value scenarios, and high-value scenarios do not trust ordinary indexers. Even if some institutions strongly take a stance, the market does not pay up. If this had been proposed a year ago, the circumstances might have been completely different.

Fundamental Dilemma: The Minimalist Philosophy of Bitcoin and Over-Design

the cumulative effect of technical debt

The evolution of these protocols demonstrates a clear yet contradictory logic: each new protocol attempts to solve the problems of its predecessors, but in doing so, it introduces new complexities. From the elegant simplicity of Ordinals to the technical piling up of subsequent protocols, the pursuit of distinction continuously adds complexity, until every player has to learn a whole bunch of terms and constantly guard against risks.

Moreover, all the attention is focused solely on the logic of the token issuance platform. If that's the case, why wouldn't players choose options that are cheaper, easier to manipulate, more significant in terms of price increase, and have a more完善 platform mechanism? Long-term chewing on the same topic has also led to user aesthetic fatigue.

vicious cycle of resource scarcity

The fundamental reason for the resource scarcity of these projects may lie in the centralization of the Bitcoin system's operation and the fairness of the launch itself - institutions lacking incentives will not overly invest in platforms where they cannot gain an advantage. Compared to the block rewards for miners, the operation of indexers is purely a cost; without the distribution of "miner" rewards, naturally no one will come to solve the technical and operational issues.

Speculative Demand vs Real Demand

It has been found through multiple user education sessions that as long as it is an off-chain protocol, their security cannot be equated to the consensus of Bitcoin. The cooling of the market is not coincidental, but rather reflects the fundamental issue of inscription protocols: they do not address real needs, but rather speculative needs.

In contrast, truly successful blockchain protocols succeed because they address real-world problems: consensus, functionality, and performance are all essential, but the contribution of the inscription protocol in this regard is almost zero, which also explains why their popularity cannot be sustained.

The Era Transition of RWA: From Market Dream Rate to Market Share Rate

Market awareness maturity

As the market matures, users have gone through several rounds of bull and bear markets and have learned to cherish their attention—what a precious resource it is. They no longer simply trust the information sources monopolized by Twitter KOLs and influential communities, nor do they blindly believe in the "consensus cannon fodder" of white papers.

The threshold for issuance platforms is very low. In the current market environment, this "low-hanging fruit" has already been picked. The industry is shifting from simple token issuance to more practical application scenarios. However, it is worth noting that if the RWA field also only sees a bunch of issuance platforms, then this opportunity will come and go quickly.

The Return of Value Creation

The technological innovations of the inscription protocol era often have a "show-off" quality, pursuing technical cleverness rather than practicality. The development logic of the new era has shifted from "market dream rate" to "market share rate", placing greater emphasis on forming a true network effect through user reputation.

True opportunities belong to teams that pursue product-market fit—creating products that truly meet user needs, have cash flow, and possess a business model.

Conclusion: The Return of Rationality and Restraint

After calming down, the exploration and setbacks of the inscription era have also provided valuable lessons for the healthy development of the entire industry.

When the price of Bitcoin reaches a new high, we have reason to be proud of this great technological innovation. But we should also recognize that the development of technology has its inherent rules; not all innovations will succeed, and not all bubbles are without value.

The rise and fall of the inscription protocol tells us that technological innovation must be based on