This year, there has been no escape Bitcoin. It’s in your wallet, it’s in your 401(k), and it’s on the news. Entities of all sizes, from Wall Street hedge firms to Vietnamese rice farmers, have been hoarding the best-performing asset of the past ten years.
Despite several false starts and significant declines along the road, Bitcoin’s incredible growth has been fascinating to watch. Even the non-participants who are happy to remain on the sidelines have reluctantly acknowledged that Bitcoin has exceeded all predictions.
Senator Elizabeth Warren, a well-known opponent of cryptocurrencies, recently went so far as to call Bitcoin “the first truly inclusive financial system.” You know you’re winning when even the officials start identifying digital assets. The reason for Bitcoin’s success this year will be less about breaking through the $69,000 ATH and more about its continued expansion into every part of the financial system.
Bitcoin is gaining traction quickly in both TradFi and DeFi, as well as gaming, NFTs, and a plethora of other industries. Once believed to be useful only for transferring Bitcoin, a blockchain is proving to be a multi-talented master of many trades. The first indication of what a Bitcoin-powered financial system would look like will appear in 2024.
Move over Ethereum
Lately, two blockchain ecosystems that formerly operated in parallel—Ethereum and Bitcoin—have begun to mimic one another. Thanks in large part to BlackRock’s encouragement, the first Ethereum ETF is about to be approved, after the approval of the first Bitcoin ETF. Ethereum is dedicated to help institutions in every way that Bitcoin can.
As a multi-token ecosystem for hosting decentralised finance is built on top of Bitcoin and its fleet of quickly spawning Layer 2 (L2) solutions. In exchange, Bitcoin has been taking cues from Ethereum’s playbook. The development of protocols that enable satoshis, the smallest unit of Bitcoin, to be marked and exchanged over several markets has been made possible by the advent of Ordinals, which has exploded into a $1.1 billion industry.
This invention has allowed a wide range of DeFi primitives for trading, lending, bridging, and issuing assets on Bitcoin, with BTC acting as the underlying collateral and the Bitcoin network acting as the security layer. It has also supported a robust market for Bitcoin NFTs. Even though the basic architecture is exclusively Bitcoin-based, other token standards such as BRC20 and Atomicals have arisen, drawing inspiration from Ethereum’s ERC20.
With the impending release of Bitcoin L2 Stacks’ Nakamoto update, which will bring five-second block timings, DApps akin to Ethereum and smart contracts for DeFi, NFTs, and other purposes will be possible. Although it’s the most well-known L2, there are several others emerging on Bitcoin’s main chain.
Bitcoin branches out
The Bitcoin DeFi guarantee is not brand-new. With varying degrees of success, Bitcoin scaling efforts like RSK and Lightning Network have been attempting to do this for years. However, it feels different this time. These pioneers are no longer need to go it alone, since hundreds of projects are already creating primitives and protocols to address certain use cases, providing the impetus behind Bitcoin DeFi.
RWAs on Bitcoin infrastructure are one story that will probably receive a lot of attention in 2024. As bonds, commodities, and stocks were put onchain last year, the tokenization of real-world assets (RWAs) increased dramatically. By enabling institutions to trade these assets on Bitcoin L2s, hundreds of billions of dollars of idle BTC may now be used, creating new opportunities for income production.
Even with last year’s multiplication of TVL, tokenized RWAs still only account for a small portion of their total worldwide market value. The breakthrough of fractionalizing illiquid assets, like real estate and fine art, and making them tradeable round-the-clock on blockchain rails has the potential to be a major driver of TradFi growth. Bitcoin L2s will benefit both centralised real-world assets and decentralised BTC if they emerge victorious in the competition to become the leading layer for RWAs.
The bear case is still bullish
It’s probable that multi-layer Bitcoin architecture adoption won’t happen completely until 2025. Infrastructure development is complicated and time-consuming, especially when it involves stringent regulation of traditional financing, as is the situation with RWAs. The promise of a vast financial system based on Bitcoin will be postponed if this turns out to be the case, but don’t count on BTC being silent in the meanwhile.
Less than two months remain until the halving, which will cause the block reward to drop to 3.125 BTC. This has sparked a great deal of discussion, speculation, and trade in the run-up to the four-yearly event. There is plenty to look forward to this year, especially with the addition of Cursed Inscriptions and the creation of much awaited protocols like the open-source indexer Trac. Rune Protocol, a fungible Bitcoin token standard based on Ordinals, is being developed by Casey Rodarmor, the developer of Ordinals. It will address some of the shortcomings inherently present in the BRC20 standard by not depending on off-chain infrastructure.
Even while most people who aren’t builders or die-hard users won’t understand the nuances of Bitcoin architecture, the overall picture becomes evident when you zoom out. These days, Bitcoin is a big tent that accepts users and use cases from various backgrounds and industries, including enterprise and entertainment, suit-wearing and non-suit-wearing. Although Satoshi Nakamoto’s original idea for the blockchain is still there in the underlying system, the variety of goods and services that are currently being developed on top of Bitcoin would astound its originator.
People who believed in Bitcoin when others did not, or who adopted Ordinals early when the industry as a whole just shrugged, are now being rewarded. The allure of Bitcoin lies in the fact that it’s never too late—many who first believed they had missed the boat have since realised they were among the first. There are a tonne of conflicting stories, ecosystems, and assets in cryptocurrency. However, in 2024, Bitcoin will remain the central hub of the blockchain.
