'Bitcoin season 2' is here thanks to ordinals and BRC20s – Bioniq CEO Bob Bodily

From Kitco by Jordan Finneseth

The launch of ordinals and BRC20s reignited interest in developing on top of Bitcoin.

These metaprotocols have diminished the advantage that other smart contract platforms had over Bitcoin.

The key to future growth is interoperability between Bitcoin and other networks.

Current approaches to upgrading Bitcoin include metaprotocols, sidechains, sovereign rollups, and state channels like the Lightning Network.

People are now using and exploring Bitcoin in more ways than ever before.

The launch of the first spot Bitcoin ( BTC ) ETFs in the U.S. helped reignite interest in the top cryptocurrency as institutional investors now have a simple way to gain access to the top digital asset without having to learn the intricacies of digital wallets, private keys, and everything else that comes with the HODL life. 

Another development that brought renewed attention to Bitcoin was the launch of ordinals in early 2023, which enabled inscriptions on individual satoshi’s – the smallest unit of Bitcoin – allowing for the creation of non-fungible tokens (NFTs) directly on the network. 

The subsequent launch of the BRC-20 token standard for the Bitcoin blockchain further expanded the ability for developers to create and transfer fungible tokens using the ordinals protocol. Together, these developments have diminished the advantage that other smart contract platforms had over Bitcoin as developers now have an easier way to launch projects on top of, or connected to, the most secure and decentralized cryptocurrency network. 

To gain a better understanding of how these changes will impact the Bitcoin ecosystem moving forward, Kitco Cryto spoke with Bob Bodily, CEO of Bioniq, an ordinals marketplace and launchpad that is built on Internet Computer Protocol (ICP), a Bitcoin sidechain. 

“We’re built on a Bitcoin sidechain because of all the benefits you get from a sidechain compared to building on Bitcoin itself,” Bodily said. “Bitcoin is slow, with 10-minute block times on average, but it could be up to two hours. Also, network fees over the past year have been very high at times due to ordinals, so building on a sidechain alleviates a lot of the speed and cost concerns, and we can create a better user experience for creators who want to monetize their work leveraging web3 technology.” 

He said the main goal of Bioniq is to help creators grow, engage, and monetize their communities by prioritizing user experience above all else. To do this, they launched on ICP, which has an integration with Bitcoin, and released some protocol improvements in 2021 that Bodily said were ideal. 

“In February of last year, I decided that Bitcoin ordinals were going to be massive,” he said. “I'd seen all the necessary pieces that needed to come into play and that's when we started building.”

What is a Bitcoin sidechain? 

A sidechain is a separate blockchain with a separate consensus mechanism that “is more like a sibling,” Bodily explained.

“You don’t inherit the security or the decentralization of the base chain,” he said. “You have to take additional trust assumptions in order to play with the side chain.” 

The main alternative to a sidechain is a layer-two (L2) protocol. “An L2, theoretically, is a very secure layer on top of a network like Ethereum that inherits the full decentralization and security of the underlying chain,” he said. “You can do trustless bridging between the Ethereum layer-one (L1) and the L2 and it requires verifying validity proofs natively at the L1 layer.”

“So you can do this on Ethereum right now, but we still don't really have a true L2 on Ethereum yet,” he noted. “They're all just like glorified multi-sigs for the most part. On Bitcoin, you can't verify validity proofs yet, so we don't have any true L2s on Bitcoin.”

“It depends on your definitions, and those are the definitions that I use,” he clarified. “It’s a complicated topic.” 

Sidechains as a way to evolve the network

Making changes to the Bitcoin core code has been a contentious issue within the Bitcoin community almost since the time of its inception. Things came to a head in 2017 when the community famously forked between Bitcoin Core and Bitcoin Cash (BCH), which was launched to allow for bigger blocks that can hold more data. 

Much of the debate centers around keeping Bitcoin as a store of value and limiting the number of potential attack vectors, which increase as greater capabilities are added to the Bitcoin code. 

“This has been a debate that's happened in Bitcoin since 2010,” Bodily said. “You can find discussions happening on the Bitcoin forum talking about whether Bitcoin should just be a store of value, a medium of exchange, or whether it should be more. And based on what we've seen in the last year, there are lots of people wanting to make Bitcoin more than it is right now.”

He noted that numerous influencers have dubbed the rise of ordinals ‘Bitcoin season 2,’ referring to the time from 2017 to 2022 as “the great Bitcoin stagnation, where essentially no progress was made.” 

“There was a lot of infighting and bickering about what to do,” he said. “We did get Segwit in 2017 and Taproot in 2021, but otherwise, there were no Bitcoin upgrades in that period.”

“Now, we have more builders coming to Bitcoin,” Bodily said. “We have more people doing crazy metaprotocols on Bitcoin. We have more VC interest in Bitcoin than we have had in the past five years. We've had more users, we've had more use cases regarding decentralized finance (DeFI), decentralized autonomous organizations (DAOs), NFTs, and other things.” 

“Essentially, anything that's happened anywhere on any chain is coming to Bitcoin,” he emphasized. “That's my thesis for 2024. It’s a blue ocean opportunity. If you think about Ethereum, it’s so crowded, almost cutthroat in a way. It’s like a red ocean opportunity – like there’s blood in the water. On Bitcoin, it’s pretty open still. There’s a lot of opportunity to build meaningful applications and there are dozens and dozens of layers building on Bitcoin.” 

He noted that he has seen a lot of good Bitcoin developers coming back from BCH, Bitcoin Satoshi’s Vision (BSV), and other Bitcoin forks due to the rise in innovation on the network.

User experience and interoperability 

Bodily said one of the biggest benefits of operating on the ICP sidechain is the fees.

“We’re building on ICP specifically because of the user experience we can create,” he said. “Most networks have a gas fee, but on ICP, there is no gas fee that users have to pay. Users can interact with smart contracts in a token-free way through a reverse gas model or sponsored transactions. Essentially, this means the developer of the smart contract is responsible for paying the fees associated that are incurred by their smart contract.”

“So it's more like web services in a way,” he said. “With AWS, if you spin up a server, you have to pay the costs for the server, and the users get a really nice user experience. That's how ICP works. There are no fees natively, which is nice for users because they can come in and just start doing things without having to go through multiple complicated steps, including buying a token on a centralized exchange, downloading a wallet, and then sending the tokens to their wallet. A lot of applications now have built-in wallets, so you don’t even need a browser extension.” 

He noted that with Bioniq, users can log in with a Google account, and the platform uses Web3Auth for non-custodial social media logins. “You can just log in with Google, and then you have a built-in wallet, and you're ready to go. There are benefits on the user experience side to having something like that,” he said.

When asked what could help motivate even more developers to move away from projects like Ethereum and Solana and back to Bitcoin, Bodily said “Developers are drawn to where they can make money, where they can get users, and where they can grow their business.”

“Before 2023, I think you would have had a really hard time finding applications with traction, applications with a nice monthly active user base with growing traction and growing revenue,” he said. “But now, a year later, there are dozens of companies that have spun up doing rare sats or rare sat hunting, or automated sat hunting marketplaces. There are people doing lending protocols and people doing other kinds of technical consulting. There are all kinds of businesses around NFTs and the DeFi space in Bitcoin now.”

“More money and bigger collectors are coming in and spending more money, which means you can support more businesses,” he said. “I think it's partly a network effects question. Ethereum is probably the king of network effects from a programmability standpoint because the Ethereum Virtual Machine (EVM) is king.”  

“Even if you don't like the EVM or you have a better environment, it's really hard to build anything that isn't on the EVM because of the network effects,” he added. “ICP, for example, is a WebAssembly-based blockchain, and the main challenge that ICP has had over the last couple of years is essentially having to start from ground zero on infrastructure development.”

“So NFT standards, fungible token standards, decentralized exchanges, DeFi platforms, and NFT marketplaces all have to be built,” he said. “It takes time. Solana had this same problem, but they also experienced some massive early capital injections that pumped its price. When price goes up, attention goes up, more developers come in, and so they were able to pay their way through the infrastructure battle, to get over the hump, and now we’re seeing Solana do quite well because they’ve overcome the infrastructure barrier that happens to any L1 ecosystem that’s not EVM.”

He said that the main advantage of Bitcoin is the fact that “89 percent of the world has heard about Bitcoin and BTC accounts for around 50 percent of the total market cap. If you consider those two things, you have a massive potential base for bringing people into the Bitcoin ecosystem. So now, we are seeing people come from all different chains. People who love Bitcoin but could never build on Bitcoin can now finally do so, and they’re starting to come home.”

ICP recently released an Ethereum integration, meaning users can bridge ETH to the ICP sidechain as CKE, which is wrapped Ether on ICP. The protocol also has what’s known as a threshold ECDSA signing code, Bodily noted,“which allows nodes to collectively sign for assets at the protocol layer, enabling ICP smart contracts to hold native Bitcoin and Ethereum assets.” 

“So if you wanted to build an ICP smart contract that interacts directly with an Ethereum smart contract, you could,” he added. “Right now, an ICP smart contract can hold an Ethereum balance. So I think there are lots of opportunities for using ICP to make Bitcoin and Ethereum better.”

“Finding ways to plug in ICP is almost like the Swiss army knife of crypto, where it can plug in and help solve a lot of different problems for a lot of different chains,” he said. “We're trying to leverage the best of Bitcoin and ICP right now, and in the future, I think going cross-chain, becoming EVM, and adding in Ethereum L2s just makes sense.”

Developer migration

Bodily said the launch of ordinals has resulted in “more developers coming over in the past 12 months to start building Bitcoin solutions than ever before in the history of Bitcoin.” 

“With the rise of ordinals, BRC20s, and metaprotocols – which are messaging protocols that allow you to store all your messages on Bitcoin without the need to do any compute on Bitcoin itself – Bitcoin is arguably the most decentralized database on planet Earth,” he said. 

“Metaprotocols can do all of the indexing, all of the state changes, and all of the state transitions off-chain,” he added. “This is the big unlock for ordinals. Ordinals is a metaprotocol, BRC20 is a metaprotocol. All of these are metaprotocols, meaning they are slightly more centralized than Bitcoin because you have an off-chain indexer that you are relying on for state.”

Another development that has benefitted Bitcoin is the emergence of inscriptions. 

“Inscriptions have also propagated across all blockchains,” he noted. “And the beauty of inscriptions is that it's just so easy to deploy a fungible token. It’s decentralized by default, so you don’t have regulatory concerns. There isn't a team, it's just someone who made a transaction somewhere and now everyone is crowdsourcing the minting of this token. It's decentralized by default, which is good for U.S. securities laws. It's a fair launch, meaning anyone can go and mint it. There are no insiders. So there are a lot of interesting innovations that have come out of ordinals that are just starting to propagate across the crypto space.” 

The Lightning Network and rollups

When asked about the Lightning Network (LN) and whether it will play a key role in driving greater adoption for Bitcoin, Bodily said the protocol has lost some of its luster in recent years. 

“The Lightning Network has fallen out of favor a little bit lately in the Bitcoin Season 2 crowd,” he said. “It's partly because Lightning is a state channel-based solution, meaning that the ideal situation for the Lightning Network is when you have an economy of goods transferring, and you have known entities or persons A, B, C, D, E, F, and G who are all interacting in similar ways so that the funds can flow between everyone because it’s a channel-based setup. If you have a model where it’s one central point just sending out funds, it doesn’t work as well. The same goes if you have a bunch of different people sending in funds.”  

“So you have to have the right kind of ecosystem architecture,” he said. With the LN, “new users have to open channels, and opening channels takes a layer one transaction.  So, there are downsides to using Lightning as a scalability solution for Bitcoin.” 

“I think we'll see innovation on the Lightning Network like we saw with Taproot Assets over the last couple of months,” he said. “Taproot Assets is a way to take these metaprotocol assets on Bitcoin and move them to the Lightning Network. So you could deploy a fungible token on Taproot Assets and then move it to lightning, and then you could trade that fungible token leveraging existing lightning channels, which is pretty interesting.” 

“But we're not seeing tons of adoption there because while lightning is good for payments, it's not good for programmability,” he noted. “You get speed and faster transactions, but you don't get programmability, you don't get smart contracts. So a lot of people are excited about building roll-ups on Bitcoin because they give you scale, privacy, and programmability. 

Bodily said he was aware of ten teams building “sovereign rollups on Bitcoin.”

“Bitcoin can't verify validity proofs right now because the Bitcoin script can't handle the scripting programmability needed to do that,” he said. “User-verified rollups are sovereign rollups, meaning users run a lite client and can verify the proofs themselves. I know a lot of people building sovereign rollups and a lot of people pushing for a zk verifier to be added to Bitcoin, which will enable true zero knowledge rollups.”

He said finding the ideal solution for improving Bitcoin is a challenge “because Bitcoin has been very slow to upgrade. Right now, there is a three or four-way tie going on in Bitcoin, where you have metaprotocols, sidechains, sovereign rollups, and state channels like Lightning. People are pushing in all of these directions, trying to make it work, but they all have tradeoffs.” 

“With metaprotocols, you don't have smart contracts, you just have off-chain indexers, so you have a centralizing component there,” he said. “But you can do a lot with metaprotocols, and so ordinals and BRC20 have done really well.”

“Sidechains allow for the full programmability of another chain, but now you have additional trust assumptions,” he said. “It's a similar story with sovereign rollups. Now you're doing transactions that do inherit the full security of Bitcoin, but still have bridging concerns because you can't do trustless bridging with sovereign roll-ups.”

“Zk rollups you can't do yet, but a lot of people are trying to push in that direction with BitVM or with other kinds of new opcodes to Bitcoin,” he noted. “And then Lightning doesn't give you programmability, but it does give you fast transactions.” 

“So, there isn't a clear winner, which is actually exciting for me,” he said. “We have dozens of teams trying to solve these problems in different ways, which is decentralizing the Bitcoin layer space, which I think is fun.”

Bitcoin mining and the halving

Addressing the growing strength of the Bitcoin network, Bodily noted that the emergence of ordinals and BRC20s has introduced a new level of interest in the platform and has attracted more miners as they can now earn more money through fees. 

“Bitcoin just hit an all-time high hash rate, meaning we have more miners than we’ve ever had,” he said. “Generally, the higher the hashrate, the more decentralized Bitcoin is. And part of this is because we've seen so many fees come in from transactions – something like an extra hundred million, just from fees in 2023 from the ordinals and BRC20 transactions.” 

“That’s a massive win for miners everywhere,” he added. “I think we are seeing increased decentralization because of increased miners, because of increased fees, because of ordinals.” 

Turning to the recently launched spot BTC ETFs, Bodily set aside the short-term, “buy the rumor, sell the news” debate and said he thinks they will lead to “more inflows over time, on the months to years horizon.” 

“I think we see way more inflows into Bitcoin, and that will likely push its price up due to more demand, which I think leads to more interest in what's going on with Bitcoin,” he said. “More interest in ordinals, rare sats, and Bitcoin DeFi.”

He also suggested that BTC's price could see some appreciation as the next halving approaches. “We’ve seen this four-year cycle. While the past doesn’t predict the future, I think there’s a case that we see another pump due to the halving. Maybe not because of any reason other than people expect it to happen,” he said. “So it could be a self-fulfilling prophecy where people expect and want it to happen, so it happens. I don’t know that we’ll continue to see that four-year cycle in the future. Maye we do, maybe we don’t.” 

On a macro level, Bodily said that growing national debts and inflation are also factors that could influence Bitcoin. 

“I think as we continue to see inflationary concerns from the world, people will be drawn to assets like gold and Bitcoin,” he said. “With the Bitcoin ETF, I think it’s more likely that people view Bitcoin as a safe haven for their assets, rather than a risky asset class. There are fewer regulatory concerns with a Bitcoin ETF due to the SEC approval, and despite statements from SEC Chair Gary Gensler warning about the risks, the broad message is that Bitcoin has an ETF and has more regulatory clarity now.” 

Future opportunities for growth

When asked what he was most excited about in Bitcoin’s future, Bodily highlighted zk rollups and BitVM. 

“Zk rollups are going to be really awesome, but they’re still a ways off,” he said. “BitVM is going to be awesome, but it's still a ways off in terms of being usable and functional. We're going to get sovereign rollups this year. We're going to have sovereign rollups that are live on Bitcoin with some kind of additional trust assumptions with that Bitcoin bridging.”

“But we don’t even have a true L2 on Ethereum yet. We're maybe a couple of years off of a true L2 on Ethereum,” he said. “So it will be at least that long to have one on Bitcoin, maybe more. And that’s theoretical because we haven't even seen a true fully-featured implementation of an L2.”

“There is a lot to be excited about regarding DeFi, NFTs, DAOs, auctions, and other smart contract-based applications on Bitcoin itself,” he said. “So I think the thing I am most excited about is the layers ecosystem on Bitcoin. I created a Bitcoin layers diagram a couple of months ago that outlined the various side chains, metaprotocols, peer-to-peer protocols, state channel L2s like Lightning, and all the improvements happening there. All of that has doubled or tripled since I did the diagram last year.”

“I think that continued growth is what I’m most excited about,” he concluded. “People using Bitcoin to do more is pretty exciting.”