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Bitcoin developers tout “programmability” as a catalyst for the next rally
(Bloomberg) — After the long-awaited launch of U.S. Bitcoin Exchange Traded Funds in January, and the every-four-year software update called “halving” last month, the big question on many cryptocurrency investors lies, what will fuel the next rally of the largest cryptocurrency?
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A large number of developers think they have the answer: adding programmability to the Bitcoin blockchain. Today, Bitcoin is seen by many as digital gold: a token you hold in your hand to appreciate, but can’t do much else with. While it is possible to use its biggest rival, Ether, to trade coins and earn returns on the Ethereum network, the Bitcoin blockchain lacks the ability to easily support apps via the so-called smart contract functionality that enables features such as storing agreements self-executed. on the blockchain.
For years, developers have tried to fix this intentional design flaw in various ways. They have built “Layer 2” Bitcoin networks, like Lightning, designed to scale Bitcoin for applications like payments. Some have proven unreliable, and so-called bridges (software infrastructure for moving tokens between networks) have been subject to hacks, making many users reluctant to use them. And many Bitcoiners aren’t interested in using the tokens for payment anyway, and are holding them with a bet that long-term prices will rise in what has become known as “hodling.” However, without a new catalyst to keep investor enthusiasm for Bitcoin alive, the original cryptocurrency has retreated from its all-time high of nearly $74,000 set in March.
Things have changed recently, however, since Bitcoin Ordinals, a way to create non-fungible tokens by incorporating data on satoshis, as Bitcoin’s smallest denomination is called, began last year. Shortly after, an anonymous developer named Domo proposed BRC-20 tokens, which use the same subscription mechanism to issue tokens on the Bitcoin blockchain. This, in turn, has prompted teams of developers to look for ways to enable even greater programmability of Bitcoin. The Bitcoin community is considering proposals like OP_CAT, which would represent a software upgrade for the network itself and make programmability easier to implement. Approaches being worked on include that of a team Domo is involved in, the Layer 1 Foundation. Another approach, that of the startup Arch, has just raised $7 million in a round led by Multicoin Capital.
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“It’s a huge unlock for Bitcoin,” said Kyle Samani, co-founder of Multicoin. “It’s really helpful for users.”
Arch, which is expected to be open to all developers as soon as this month, runs an application platform on Bitcoin that uses software that will potentially allow the Solana network’s apps to be ported to Bitcoin, Arch CEO Matt Mudano said. About 20 developer teams are already building apps for features like lending and borrowing against Ordinals, as well as decentralized exchanges and stablecoins, he said.
The Layer 1 Foundation, meanwhile, is building a programmable module for the so-called BRC-20 metaprotocol, which essentially just consists of messages stored in code layered on the Bitcoin blockchain. An indexer can find these messages and perform calculations similar to smart contracts on Ethereum. Because Bitcoin has much longer block confirmation times than Ethereum — 10 minutes versus 12 seconds currently — which leaves more time to perform calculations, “we can actually do more,” said Eril Ezerel, founder of Best in Slot aggregator and Ordinals explorer.
“It’s like chapter two of cryptocurrencies, Ezerel said. “It’s big. He makes us question how we build things.” While building with metaprotocols is simpler, it is sufficient to support most financial applications, he said.
Not everyone in the Bitcoin programming community is convinced that this is the future of cryptocurrency. Jeff Garzik, former Bitcoin developer and co-founder of crypto infrastructure and app builder Bloq, expects Layer 2s will eventually prevail, as using them for transactions will be less expensive than running apps on Bitcoin.
“The programmability of Bitcoin is increasing, by virtue of these new Bitcoin L2s expanding the reach of Bitcoin,” said Garzik, who is working on a Bitcoin and Ethereum Layer 2 merger. “This simultaneously enhances the Ethereum ecosystem and competes even recently with the Ethereum ecosystem.”
Even so, new ventures are betting that this new kind of programmability could lead to an influx of decentralized finance apps on Bitcoin. Currently, the total value of tokens locked in Bitcoin’s DeFi market is around $1.1 billion, compared to Ethereum’s $52.7 billion, according to DeFi data tracker Llama.
“Bitcoin’s DeFi ecosystem could become the largest among all cryptocurrencies,” said Toby Lewis, one of the founders of OrdinalsBot. “It is possible that Bitcoin’s DeFi ecosystem could grow to trillions of dollars in market capitalization in the next few years, and appears to be a major driver of cryptocurrency growth this cycle.”
And if demand materializes, perhaps the next catalyst that Bitcoin investors seem to be waiting for.
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