This new class of digital assets has undoubtedly unlocked new utilities for the Bitcoin Layer 1 chain, which enjoys over $850 billion in idle assets.
But why does the interest seem to be waning? While it’s obvious that the overall bearish mood in the crypto market has affected projects across the board, a simple look at both the Ordinals and Runes growth curves reveals a similar pattern: a period of hyped activity followed by a decline in new ordinal inscriptions or fees paid to the Runes protocol over time.
For example, in 2023, Bitcoin Ordinals pushed Bitcoin’s network transaction fees to record highs of around $37, levels last witnessed during the 2021 bull market. This was because of the high number of ordinal inscriptions created, but what’s worth noting is that over 75% of the inscriptions that currently exist were created in 2023. A clear indication that ordinal activity has significantly reduced in H1 2024.
Source: Dune Analytics
It’s a similar narrative for the Runes protocol, whose launch coincided with the most recent Bitcoin halving. This protocol racked up $3 million in fees during the initial week of its debut, with over 85,000 token issuances. But as of writing, the protocol is barely active; the highest fees collected on a single day in June 2024 were barely $8,000.
The Lacking Factor?
Now to the big question: One of the main reasons why Ordinals and Runes had a short-lived run is the congestion they cause on Bitcoin’s Layer 1. Some critics also argue they have no tangible utility to justify the amount of space being used up.
Evidently, it has become unsustainable to create new inscriptions or mint fungible tokens through the Runes protocol given the increasing fees, coupled with the fact that the value of the new digital assets may never match the cost of creation.
Another factor that has contributed to the sluggish activity is the lack of a fundamental value proposition by projects building in this niche. Apart from a few notable meme coins such as PUPs, there are merely a handful of known Ordinals or Runes projects that offer the true value of decentralization.
This brings us back to the Layer 2 developments on Bitcoin’s blockchain; could they be the true key to unlocking the massive liquidity? We have seen DApps boosting activity on chains such as Ethereum and Solana. Perhaps it is time for Bitcoiners to embrace the true value of a secure and decentralized blockchain, beyond the payments or store-of-value realm.
DApp Networks: The Path to Mainstream Adoption
Unlike Ordinals and Runes, which only made a debut recently, Bitcoin’s Layer 2 ecosystem and chain-agnostic networks have been in active development, with notable projects such as the Lightning Network dating back to 2016 when the initial whitepaper was released.
Today, this Bitcoin L2 is not the only innovation bringing a fundamental change to the Bitcoin blockchain. DApp-oriented networks such as Stacks, Zeus Network, and Rootstock have brought more technical advancements, allowing developers to build interactive applications that leverage Bitcoin’s Layer 1 security and decentralization.
Stacks
Launched in 2021, this Bitcoin L2 is one of the pioneer networks to introduce smart contract support for Bitcoin. Stacks leverages what is known as a Proof-of-Transfer (PoX) consensus to allow for DApp building on its L2 while also reusing Bitcoin’s PoW computational power to enable an on-chain economy on the Bitcoin blockchain.
According to DeFi Llama, there are a total of 10 DApps currently operating on this Bitcoin L2, with a total value locked (TVL) of $80.6 million. Notably, this TVL has been on an uptrend since the beginning of 2022 when there was barely $15 million locked.
Zeus Network
The Zeus Network is another DApp-oriented ecosystem that is laying the foundation for expanding Bitcoin’s use cases. This chain-agnostic network has tapped into Solana’s Virtual Machine (SVM), introducing programmable features through the Zeus Programming Library (ZPL).
DApp developers can use the ZPL pluggable architecture to seamlessly integrate their applications and services from other blockchains to SVM. A good example is Zeus Networks’ first DApp, APOLLO, which allows the transfer of Bitcoin liquidity to Solana’s vibrant DeFi ecosystem through zBTC.
Rootstock
It is no secret that Ethereum’s DeFi ecosystem is still the most active despite the high transaction fees compared to the likes of Solana and Avalanche. The RSK network is famous for bringing EVM-compatible smart contracts to the Bitcoin blockchain. At its core, RSK’s virtual machine (RVM) allows DApp developers to port Ethereum contracts to Bitcoin.
This Bitcoin L2 currently enjoys a TVL of $158.6 million, which, although it may seem like a drop in the ocean compared to Ethereum’s $54 billion, has grown from $41 million at the beginning of 2023.
Conclusion
Satoshi Nakamoto may have launched Bitcoin with the initial purpose of creating a peer-to-peer electronic cash system that was beyond the control of central banks, however, it’s become apparent that Bitcoin’s Layer 1 can support a whole financial trustless ecosystem.
Ordinals and Runes were a good test of the waters, but what will truly transform the value of this pioneer public blockchain are valuable DApps that address everyday problems. Bitcoin Layer 2 networks and chain-agnostic platforms are already setting the stage, given that we’re now seeing more financial DApps, ranging from DEXs, CDPs, lending, and staking being built on these ecosystems.
