Thoughts and judgments on the future development of the BTC ecosystem

Author: cryptoHowe.eth Source: X, @weihaoming

This article mainly describes my personal thoughts on the BTC ecosystem and my judgment on the future development of the ecosystem. In layman's terms, it is the reasons why I am optimistic about the BTC ecosystem and what kind of projects are high-quality projects in my eyes

I have previously talked about what is "correct non-consensus", and this article can also be regarded as my personal non-consensus. However, it should be noted that the correct non-consensus is a judgment on the future that is not based on the current market situation and development, while this article is more based on the existing situation and data to infer, so readers need to be aware of this difference in advance

Statement: This article has a strong personal subjective consciousness, does not contain any investment advice, and is only for communication and sharing. At the same time, this article is based on my personal knowledge and existing data, and will be updated at any time in the future.

My three views on the BTC ecosystem

The BTC ecosystem is unique

As a pioneer in the Crypto world, BTC has unique technical characteristics and ecological composition. From a technical point of view, BTC uses a non-Turing-complete scripting language, so it cannot support many complex calculations, resulting in few projects in the ecosystem and slow progress. At the same time, the consensus of BTC is extremely Maxi-style. The figure below is a chart showing the holding time ratio of BTC holders, which can be divided into the following four parts:

• Hold for more than 10 years (16.6%): A large part of BTC is permanently lost

• Hold for 3 year - 10 year (30.4%): A small part of BTC is permanently lost, the rest are medium and long-term traders, and some are Bitcoin Maxi who firmly hold and do not buy or sell

• Hold for 1 year - 3 year (19.3%): Medium-term traders

• Hold for less than 1 year (34.6%): Short-term traders

Data source: https://studio.glassnode.com/metrics?a=BTCm=supply.HodlWaves

It can be seen that BTC that truly provides liquidity in the entire BTC ecosystem market only accounts for about 35% of the current total tokens, which is the biggest difference from other ecosystems. And because of the existence of Bitcoin Maxi, everyone regards BTC as "digital gold" and holds it for a long time as a safe-haven asset. Therefore, for them, only BTC is their belief.

BTC is sometimes valuable because it is difficult to use and expensive

BTC's high value today is largely due to its consensus value, which is even more true for Bitcoin Maxi. At least we rarely hear about Ethereum Maxi or Solana Maxi. Looking back at the entire development history of Bitcoin, we can find that it did not receive much attention in the first few years, and the price has been extremely flat. It was not until 2013 that it ushered in a wave of big increases that it gradually attracted more and more users to enter. In the five years before that, those OGs who had been preaching became more and more determined and became what everyone now calls Bitcoin Maxi.

Data source: https://www.lookintobitcoin.com/bitcoin-price-live/

With the birth of Ethereum in 2015, which brought the smart contract feature that ignited the market, people gradually discovered the limitations of Bitcoin, and BTC has gradually become everyone's safe-haven asset. As mentioned above, nearly 65% ​​of BTC has been held unchanged.

But I personally think that the reason why BTC can maintain its current high value, in addition to being the first Crypto asset to appear, is inseparable from the entire Bitcoin main network being "expensive and difficult to use". This refers to the fact that the transaction gas fee on Bitcoin is higher than other networks, the transaction throughput is lower, and the development and construction of ecological facilities are extremely slow due to its non-Turing complete characteristics. But sometimes it is because of these "problems" that users regard it as a treasure and do not operate it easily. This is like going to buy something. One way is to pay with simple and portable paper money, and the other way is to cut a small piece from a complete piece of gold to pay. Its portability and price are just like the current relationship between BTC and other networks.

What problems should the BTC ecosystem solve first?

The current BTC ecosystem can be roughly divided into two factions: native technology faction and user-oriented faction.The native technology faction mainly refers to exploring the potential of Bitcoin based on its unique UTXO and scripting language and trying to develop projects; the user-oriented faction mainly refers to the project party using the current mature conditions to quickly develop and create a new product to serve market users when seeing some existing needs of market users.

I personally believe that the BTC ecosystem should first improve and expand the native technology and create emerging protocols/projects to activate the capital utilization rate of BTC.For each cycle, technological innovation is bound to be an indispensable part, and for the BTC ecosystem, technological innovation should be more reflected in constantly breaking through its original limitations. Therefore,I personally think that moving Ethereum's gameplay to the BTC ecosystem is a lazy behavior, and the ceiling is low. Essentially, this approach is to quickly build and launch projects by leveraging Ethereum’s mature technical community, rich developer team, and years of ecological experience. However, after launching, its technical innovation capabilities will become quite limited, and it will not be able to attract the aforementioned Bitcoin Maxi group and other new market users who only believe in BTC.

After talking about technical innovation, let’s talk about another core factor - liquidity. The abundance or scarcity of liquidity determines the bull market and the bear market, so how to improve liquidity is an important direction in the BTC ecosystem. There are two ways to improve liquidity: revitalizing the circulation of funds on the exchange and attracting new off-exchange funds to enter the exchange. On-exchange funds are easy to understand, that is, how to increase everyone's willingness to trade assets. Especially in the BTC ecosystem, there are still about 65% of BTC that are held for a long time and not traded. So how to attract them to participate through some methods/means is a problem we need to think about; and off-exchange funds refer to new funds entering the ecosystem. A typical case is the BTC ETF passed in the first half of this year, which has driven a large number of traditional users to enter the market and brought a considerable amount of liquidity to the BTC ecosystem. However, there are also some problems with these liquidity, that is, the utilization rate of funds is not high. The main reason is that many traditional users only know about BTC in the crypto world, and know little about infrastructure such as wallets and public chains. Therefore, their strategies are often similar to Bitcoin Maxi, buying BTC for long-term holding and not high-frequency trading. So how to attract new funds to enter and revitalize the utilization rate of new and old funds will be the first thing that the BTC ecosystem needs to solve.

How to find a good BTC ecological target

Combined with the three views mentioned above, I personally think that the target screening principles of the BTC ecosystem are mainly the following four points. These four points are not independent of each other, and it would be great if they could be combined with each other:

• Native technological innovation

• Inheriting the security of the Bitcoin main network

• Able to empower BTC itself

• Lower the user's usage threshold

The native technological innovation has been described in the previous article, so I will not go into details here. Inheriting the security of the Bitcoin mainnet and being able to empower BTC itself is mainly because in the current entire ecosystem, everyone believes in BTC and the consensus is BTC, not derivatives other than BTC. Therefore, the only thing that needs to be done now is to empower BTC directly and make everyone's consensus stronger. This approach is also in line with the concept of Bitcoin Maxi. It can not only better attract them to participate in the market, but also make new market users more willing to participate. Lowering the user's usage threshold is essentially to improve the liquidity of the ecosystem.

Just like Babylon's approach, it uses native technical innovations such as Bitcoin timestamps to allow users to obtain additional benefits while keeping BTC in their hands. This BTC interest-bearing method does not increase too many additional asset security risks, but also can obtain additional benefits. Therefore, it will be a very attractive project for market users.