Bitcoin Asia: Spot ETFs, numerous second-tier projects, and short-lived projects

Jessy Golden Finance

There was a surge of people.

In May, Hong Kong gathered many Bitcoin ecosystem developers. From core developers, founders of asset issuance methods, Layer2 project parties, to wallets, cross-chain bridges, mining companies, Bitcoin chain games...

At the Bitcoin Asia conference, people talked about Hong Kong's virtual currency spot ETF, the latest asset issuance protocol, and Bitcoin's underlying technological innovation. Various Bitcoin projects promoted themselves at the exhibition. Attending the conference is undoubtedly a good window to peek into the development process of the Bitcoin ecosystem.

From the market point of view, Bitcoin has increased nearly five times from its lowest point to its current highest point. Most of the altcoins, including Ethereum, have failed to outperform Bitcoin, and even continued to bottom out when Bitcoin prices adjusted.

This round of bull market is regarded as a bull market for the Bitcoin ecosystem. This is not only reflected in the price of Bitcoin, but also in the unprecedented prosperity of the Bitcoin ecosystem. Projects and developers flocked to the Bitcoin ecosystem, just like when DeFi on Ethereum became popular, they flocked to the Ethereum ecosystem.

Projects come and go, but what kind of ecological projects does Bitcoin need and are truly in line with the underlying philosophy of Bitcoin? The conference was held in Hong Kong. Does this indicate that Hong Kong and even China will return to the dominant position in the encryption industry?

It's easy to get the heat of Bitcoin

Two days before the opening of Bitcoin Asia, the side event Bitcoin Devcon was held in the Science Park more than 20 kilometers away from the main venue. The most difficult thing to ignore in the two-day agenda is what some old public chains are doing or preparing to do in the Bitcoin ecosystem.

Bitcoin Devcon second day agenda, Han Feng, founder of domestic Layer2 project BeL2, gave a speech on the stage (Photo by Jessy from Golden Finance)

Aisling Connolly, senior research scientist at ICP DFINITY Foundation, described in his speech how the ICP network provides Layer2 support for Bitcoin through Chain Fusion technology. Similarly, Justin, founder of Zeus network, also proposed the idea of ​​using Solana as the Bitcoin Layer. David Kim, ecosystem manager at Bitmain, discussed how ETC can empower the Bitcoin ecosystem in his speech.

From a technical perspective, Ethereum-like expansion technology rollup can also be applied to Bitcoin expansion. Some public chain technologies can indeed provide direction and technical support for the development of Bitcoin's Layer2.

But from another perspective, various projects are actively moving closer to the Bitcoin ecosystem, which is essentially a hot topic. This can attract the attention of investors and retail investors for a certain period of time.

Especially, becoming Bitcoin's Layer2 in the form of a side chain is a low-tech thing. The so-called side chain, one of Bitcoin's layer2 solutions, refers to the design of an independent public chain to achieve asset transfers between the Bitcoin network. The side chain itself has its own unique accounting method, consensus mechanism, smart contract and script support, etc., and is only linked to the Bitcoin main network through specific cross-chain technology. For public chains, the simplest way to join the Bitcoin ecosystem is to build a side chain and connect it to the Bitcoin main network using cross-chain technology.

Of course, public chains with a large number of users and a complete ecosystem can make efforts to build Bitcoin side chains and develop into Bitcoin's Layer2, which can indeed bring benefits to the development of the Bitcoin ecosystem. For example, compared with other Layer2 projects, they have a large user base and can gain more trust from users.

For many public chains that have been silent for a long time in this bull market, joining the Bitcoin ecosystem is also a self-help, similar to the fact that some public chains decisively changed their concepts and joined AI in this bull market.

Differences in the development direction of the East and the West

Back to the main venue of Bitcoin Asia.

Many projects related to the Bitcoin ecosystem from both the East and the West came. After a rough review of the projects and speeches of the speakers from both the East and the West, it can be found that the innovation of Bitcoin's asset issuance methods on Layer1 is mainly done by Western Bitcoin developers. The founders of the Ordinary and Runes protocols and the proposer of Brc-20 all came to the venue. In addition to the main venue of Bitcoin Asia, conferences on the themes of Ordinary and Runes were also held at the same time. Westerners are keen on upgrading some protocols on Layer1 and making some innovations based on the protocol upgrades.

On the second day of Bitcoin Asia, three Bitcoin core developers, including Casey, were conducting a roundtable forum (Photo by Jessy from Jinse Finance)

And Chinese projects are mostly concentrated on Layer 2 and the Bitcoin application layer.

Compared with the differences between the East and the West in the Bitcoin ecology, Elaine Yang of Waterdrop Capital said in her speech at Bitcoin Asia that the East prefers to issue some coins and some ecological applications on the second layer of assets, while the West pays more attention to infrastructure innovation.

UTXO Management's chief analyst Dylan LeClair also said in an interview with Golden Finance that the West is more focused on Bitcoin, and the worship of Bitcoin is a bit like the fanaticism of religion, so it is relatively conservative to start experiments. The East is more tolerant, with many different projects trying, and the pace of various experiments is very fast.

As Dylan LeClair said, the core developers of Bitcoin and the proposers of new protocols are all Westerners. The Orientals focus on various applications related to Bitcoin.

However, although there are differences between Eastern and Western projects, most entrepreneurial projects in the current Bitcoin ecosystem are concentrated on building infrastructure. The key to these projects is to increase transaction speed, ensure transaction security and expand network capacity. There are fewer projects at the application layer, such as NFT exchanges and games, which are only a few.

The current situation is also in line with the consensus of the industry-the current focus of Bitcoin ecosystem construction should be on infrastructure.

At present, Bitcoin's Layer2 can be roughly divided into five categories: side chain, Layer2 based on UTXO and client verification, Layer2 based on Rollup, Layer2 based on Taproot Consensus, Layer2 in multi-signature + EVM mode, and state channel Layer2 represented by Lightning Network, etc.

The Lightning Network, which is not classified into these five categories, is regarded by Bitcoin fundamentalists as the Layer2 solution that best conforms to the underlying philosophy of Bitcoin. However, it is designed to support only payment. Basic functions such as lending cannot be implemented on the Lightning Network, and only some payment applications are carried on it. Although it is the most popular among fundamentalists, the Lightning Network can do limited things.

The differences between the other five types of Bitcoin layer2 are: the UTXO+client verification method and the Layer2 built by Taproot Consensus have the highest nativeness. The other three have low nativeness. The one with the highest degree of decentralization is Taproot Consensus, while the other four are low. The three models with the highest degree of implementation are Taproot Consensus, Rollup, and multi-signature + EVM. The sidechain solution is easy, but it is difficult to gain recognition. Multi-signature + EVM is the easiest to copy, but it is not decentralized. Rollup borrows Ethereum's expansion solution, but does not solve the fundamental problem of BTClayer2. Overall, the Taproot Consensus solution directly uses Bitcoin's native technology to build a decentralized BTC L2 solution. Therefore, whether in terms of Bitcoin's nativeness or degree of decentralization, including the current degree of implementation, Taproot Consensus is the most noteworthy BTC L2 solution at the moment.

The above various types of Layer2 representative projects all appeared at the bitcoin Asia conference. These Layer2 projects are basically done by Chinese teams. For example, the representative of multi-signature + EVM is Merlin Chain, the representative of Rollup is BL2, B² Network, and the representative of Taproot Consensus model is BEVM.

RGB represented by UTXO+ client verification was first proposed by Westerners, while RGB++ was proposed by Chinese people, and its representative project CKB is also a Chinese project.

Comparing these Bitcoin Layer2s, it can be found that the common problem is that the underlying philosophy of Bitcoin has not been truly implemented, and most of the Layer2s being practiced cannot be regarded as the real Bitcoin second layer.

However, Dylan LeClair believes that Bitcoin Layer2 is still in the experimental stage. It is a good thing to try more in various directions, and it is hard to say who will succeed. In these experiments, 99% of the projects may fail in the end, but there will also be 1% success.

Flash-in-the-pan projects and the eternal bull market brought by spot ETFs

At the conference, everyone will also discuss very serious topics about the development of Bitcoin technology, such as whether to restore "op_cat" in the Bitcoin script language. Technology is constantly changing, and the speed of hot spots changing is fast enough. The most popular developer at the moment is casey, the founder of the Runes protocol. After his speech, a bunch of listeners rushed up to him, asking for a contact method or a photo. On the other hand, Domo, the founder of Brc-20, who is not so popular at present, can shuttle around the venue at will, and few people can recognize him.

The hot spots in the industry change rapidly, and the flourishing projects are dazzling. And people who are familiar with the laws of industry development also know that most projects have a short life. This is also the charm of the industry. Various experiments emerge in an endless stream, and the most suitable path is determined through continuous attempts.

The booths that are most popular with the general public are those that promote applications that are quickly accepted by the public. For example, several trial machines of a Bitcoin chain game were used up by the audience who came to experience it in half a day.

Similarly, the approval of the Bitcoin spot ETF in Hong Kong is also an important narrative of this round of bull market. For Bitcoin, this represents its recognition by traditional finance.

During the conference, a cocktail party hosted by Xinhuo Technology and Hashkey attracted many people from traditional finance (photo by Jessy from Jinse Finance)

Some people are worried that whether Bitcoin will be incorporated into traditional finance will violate its original intention? The strings of code that created Bitcoin have not changed because of the emergence of spot ETFs, and Bitcoin is still decentralized. The passage of spot ETFs will undoubtedly bring in more money, which is undoubtedly a lasting benefit. At the meeting, regarding the prediction of Bitcoin prices, everyone pointed out the small goal of 100,000 by the end of the year.

Hot projects in the Bitcoin ecosystem will keep changing, but what is certain is that Bitcoin will not change, and there will be basically no changes in the Bitcoin spot ETF. In fact, as the mining cost of Bitcoin increases with the halving and traditional finance enters the market, the "bottom" of the Bitcoin price will continue to be raised.

At present, the scale of virtual currency spot ETFs in Hong Kong is still very small, and even Hong Kong institutions are more willing to choose US spot ETFs. A spot ETF-related practitioner told Golden Finance reporters that the reason for this situation is that virtual currency spot ETFs are a global competitive market, and investors will definitely choose products with lower handling fees and better service experience. In this regard, Hong Kong does not have an advantage.

But this is the first step for China to return to its dominant position in the encryption industry. After all, one of the main lines of the industry is compliance. Hong Kong's steps are not too late, but the road needs to be taken little by little.