Bitcoin’s dominance of the crypto world is due to its effectiveness as a store of value and a limited functionality approach that makes it incredibly secure. However, more than 14 years after its birth, we’re still scratching the surface of Bitcoin’s potential. If the capital deployed in Bitcoin can be leveraged to drive the innovation we’re seeing in other areas of the crypto space, such as DeFi and NFTs, it can promote more rapid adoption of the decentralized economy.
The good news is there are a number of different projects working to make that happen, by scaling Bitcoin transactions, leveraging its security model to boost other blockchains, adding smart contract functionality and more.
The Case For Building On Bitcoin
Most people see Bitcoin as a form of decentralized digital money, but it can be so much more than that. The vast majority of Bitcoin’s users either see it as an investment, or use it to send payments now and again, but that’s about as far as it goes.
Bitcoin has a market cap of more than $506 billion, but the vast majority of that liquidity is not doing much at all. Instead, most users just “hodl” their Bitcoin in the hope that its value will increase. This was illustrated in a May 2022 study by Hiro, which found that just $550 million of BTC was locked into the top four projects building on Bitcoin.
That’s in sharp contrast to Ethereum, where $25.3 billion of its $210 billion market cap is currently deployed into various DeFi projects. In other smart contract blockchains, we see a similarly large chunk of capital being put to work in various use cases. Bitcoin is the odd man out, yet there is almost $5 billion worth of BTC that has been bridged onto Ethereum so it can be put to use in DeFi, NFTs and other applications, indicating that there is strong demand for Bitcoin to become more versatile.
By developing on Bitcoin, users will be able to put their BTC holdings to work in a native, and therefore much safer environment. Various projects are aiming to solve Bitcoin’s limitations to enable this, including the limited processing capability of its network, its fully-transparent nature, which prevents private transactions, and its limited scripting language, which makes it difficult to create smart contracts. Still, other projects are aiming to take advantage of Bitcoin’s biggest strengths, most notably its security, which is widely considered to be the strongest of any blockchain.
Ordinals
More of a “thing” than a specific project, Ordinals refers to a new kind of non-fungible token created by developer Casey Rodarmor that’s native to Bitcoin itself.
Ordinals have been making headlines in the crypto space since January 2023, and they’ve been gaining popularity ever since. In April, it was reported that the daily record for inscriptions using Ordinals was broken on four occasions, as users overwhelmed the Bitcoin network with new images, games and other kinds of content.
Ordinal inscriptions can be likened to NFTs on blockchains such as Ethereum. They’re digital assets that can be inscribed onto a single satoshi, which is the lowest denomination of BTC. The ability to inscribe on Satoshis was enabled by the Taproot upgrade to Bitcoin’s underlying code, which was introduced in November 2021.
By using ordinal inscriptions, it’s possible to create digital artifacts that act much the same as NFTs. However, because they live on-chain, it’s arguable that ordinals are more complex than traditional NFTs. Some have criticized the rise of ordinals for adding to Bitcoin’s network congestion, but at the same time, they show there is a lot of demand for BTC to do more than just act as a store of value.
Babylon: Bridging Bitcoin’s Security To Proof-of-Stake Chains
The Babylon project seeks to encourage BTC holders to improve the security of independent networks by allowing them to stake BTC on PoS Blockchains in return for rewards, similar to how users stake other tokens like ETH.
Babylon takes advantage of Bitcoin’s scripting language to connect the slashing mechanisms of various proof-of-stake chains to the core Bitcoin blockchain. By doing this, it can mimic the functionality of smart contracts to enable BTC staking.
In an interview with Cointelegraph, Babylon co-founder David Tse explained that the project uses cryptographic methods to translate the slashing conditions of other chains and transform them into spendable Bitcoin transactions. In this way, it enables Bitcoin holders to stake BTC and secure third-party proof-of-stake chains. In return, BTC holders can earn rewards paid out in the native token of Babylon and those third-party chains.
Not only do proof-of-stake chains benefit from Bitcoin’s security, but BTC holders get a way to use their crypto without resorting to risky cross-chain bridges that are prime targets for hackers.
“We aim to scale Bitcoin’s security in a way similar to Ethereum’s scaling efforts, effectively sharing Bitcoin’s robust security with the rest of the decentralized world,” Tse told Cointelegraph.
Stacks: A Bitcoin Layer For Smart Contracts and dApps
Like Rootstock, Stacks is a project that’s working to enable smart contracts, DeFi and NFTs on Bitcoin. Unlike Rootstock though, Stacks is not a sidechain but rather a Layer-1 blockchain in its own right, similar to Ethereum, Cardano or Solana. However, it’s associated with Bitcoin because its goal is to enhance the capabilities of the world’s primary cryptocurrency.
Stacks has created a unique method to achieve its goals. While the Stacks blockchain has its own network, nodes, miners and native tokens, it is also deeply connected to Bitcoin, using its base layer as a reliable broadcast and storage medium. In other words, all Stacks transactions are settled and recorded onto the Bitcoin blockchain. It’s a unique model that makes it possible for both smart contracts and decentralized applications to trustlessly use Bitcoin as an asset, meaning developers can use its architecture to build dApps that work with native BTC.
Liquid Network: Scaling Bitcoin For Rapid Payments
The Liquid Network is another sidechain for Bitcoin that’s already become very popular with traders, exchanges and some users. The project facilitates extremely fast and private BTC transactions by offloading them onto a sidechain where they can be processed almost instantly.
Using the Liquid Network, transactions can be processed in a series of signed blocks that are confirmed in under two minutes, compared to the average 10 minutes of the Bitcoin blockchain. Another benefit is privacy, with Liquid Network able to conceal data such as wallet addresses and the amounts sent, making them visible only to the participants of each transaction. It’s an ideal solution for those who need greater privacy when interacting with Bitcoin.
Liquid Network also reduces the fees of Bitcoin transactions. Because it offloads multiple transactions and bundles them together to be settled at once on the main Bitcoin chain, the fees can be split across the entire group of transactions. As such, users can trade BTC with much lower fees.
Komodo: Enhancing Interoperability For Bitcoin
With Komodo’s infrastructure, developers can create custom blockchains that share in the robust security of Bitcoin. It uses Bitcoin as the foundation of its unique Delayed-proof-of-work consensus mechanism. At every new block Bitcoin generates, the entire history of the Komodo blockchain is backed up upon it. The process is organized by 64 notary nodes and enables Komodo to be secured by the world’s most trusted blockchain.
By leveraging Bitcoin as its foundation, Komodo creates interoperability among other blockchains, making it a compelling option for developers who want to build more versatile dApps. As an additional benefit, Komodo makes it possible for developers to create their own customized transaction models.
Bitcoin As The Foundation For Web3
Building on Bitcoin is good for Bitcoin because it leads to more widespread use cases and greater adoption. We’re still in the early stages of Web3 development, and Bitcoin, as the strongest cryptocurrency by far, is one of the most promising bedrocks for developers, entrepreneurs and startups alike.
For now, most of the hype around Web3 is focused on other cryptocurrencies, but as the above projects mature we can expect that narrative to shift. Decentralized applications backed by the most secure blockchain of all will have access to greater liquidity and have much stronger security. The potential is there, just waiting to be tapped.
Source: https://coincodex.com/article/28486/these-five-projects-are-making-bitcoin-stronger/