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BTC ecosystem expansion plan review: Where does the inscription go?

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Original Title: "BTC Ecological Expansion Plan Tour (1): Where is the Inscription Going?"

Original Author: Simon Shieh

Original Source: MetaTrust Labs

Inscription: What's Next?

Foreword

On December 6, 2023, while Bitcoin investors were celebrating the rise brought by Inscriptions, Luke Dashjr, the developer of the Bitcoin Core node client, poured cold water on the excitement. He believed that Inscriptions were a form of "spam" attack and submitted a fix code and CVE vulnerability report (CVE-2023-50428). Subsequently, the Bitcoin community exploded, and after the chaos of the hard fork in 2017, the Bitcoin community once again fell into intense debate.

So should Bitcoin prioritize security and sacrifice some unexpected features, or should it be more tolerant of unexpected innovations and tolerate some potential security issues?

We know that the journey of Bitcoin is not just about speculation and trading, but also about the continuous evolution of its ecosystem and security landscape. This article aims to delve into the dual narrative of Bitcoin's growth: the expanding utility within its ecosystem and the strengthening of security measures. We will explore the synergy between innovation and robust security protocols, and how they pave the way for a new era of digital assets.

BTC Ecosystem Overview and Basic Knowledge

We know that as the cornerstone of the cryptocurrency revolution, Bitcoin has always been regarded as a store of value like gold. While other DEFI innovations on public chains are booming, it seems that people have forgotten about the existence of Bitcoin.

However, it is precisely in Bitcoin that pioneers first experimented with stablecoins, Layer2, and even DEFI. For example, the now popular USDT in the cryptocurrency industry was first issued on the Bitcoin Omnilayer network. The following image is a basic classification of the Bitcoin ecosystem from a technical implementation perspective.

Including technologies such as sidechains based on bidirectional anchoring, text parsing based on output scripts (OP_RETURN), engraving based on Taproot scripts, drive chains based on BIP300 updates and upgrades, and the Lightning Network based on state channels.

Above, there may be many terms that you are not familiar with yet. Don't worry, let's first familiarize ourselves with the basic knowledge, and then explain the technical principles of these ecosystems one by one and explore the security issues involved.

UTXO is the basic unit of Bitcoin transactions.

Unlike the account balance system in Ethereum, the Bitcoin system does not have the concept of accounts. Ethereum introduces four complex Merkle Patricia Tries to store and verify changes in account status. In contrast, Bitcoin cleverly uses UTXO to solve these problems more simply.

The Four Trees of Ethereum

Bitcoin Input and Output

UTXO (Unspent Transaction Outputs) is a mouthful of a name, but once you understand the concepts of inputs, outputs, and transactions, it becomes easy to comprehend.

The input and output of transactions.

Friends familiar with Ethereum should know that transactions are the basic communication units in blockchain networks. Once a transaction is packaged into a block and confirmed, it means that the on-chain state change is determined. In Bitcoin transactions, it is not a single address-to-address state operation, but rather a combination of multiple input and output scripts.

The above figure shows a very typical Bitcoin 2-to-2 transaction. In theory, the amount of BTC input should be equal to the amount of BTC output. However, in reality, the BTC that is less than the input amount is taken as a transaction fee by the miner who mines the block, which is equivalent to the Gas Fee in Ethereum.

We can see that while transferring BTC between two input addresses, validation needs to be done in the input script to prove that these two input addresses can spend these two inputs (i.e., the unspent output of the previous transaction, UTXO). The output script specifies the conditions for spending the two output bitcoins, which means that when this unspent output is used as input in the next transaction, certain conditions must be met (for ordinary transfers, the condition is the signature of the output address, for example, in the above figure, P2wPKH indicates the need for signature verification of taproot address, while P2PKH indicates the need for signature of legacy address private key).

Specifically, the data structure of Bitcoin transactions is as follows:

In Bitcoin transactions, the basic structure consists of two key parts: inputs and outputs. The input part specifies the initiator of the transaction, while the output part specifies the recipient and change (if any) of the transaction. The transaction fee is the difference between the total input amount and the total output amount. Since the input of each transaction is the output of a previous transaction, the output of the transaction has become the core element of the transaction structure.

This structure forms a chain-like connection. In the Bitcoin network, every valid transaction can be traced back to one or more outputs of previous transactions. The starting point of these transaction chains is the mining reward, and the endpoint is the unspent transaction output that has not yet been spent. All unspent outputs in the network are collectively referred to as the UTXO (Unspent Transaction Output) of the Bitcoin network.

In the Bitcoin network, each new transaction's input must be an unspent output. In addition, each input requires a corresponding private key signature from the previous output. Each node in the Bitcoin network stores all UTXOs on the current blockchain to verify the legitimacy of new transactions. Through the UTXO and signature verification mechanism, nodes can verify the legitimacy of new transactions without tracing the entire transaction history, simplifying the network's operation and maintenance process.

The unique transaction structure of Bitcoin is in line with its white paper "Bitcoin: A Peer-to-Peer Electronic Cash System". Bitcoin is an electronic cash system, and its transaction structure simulates the process of cash transactions. The amount that can be spent on an address depends on the amount of cash received previously. Each transaction requires spending all the cash on this address as a whole, and the output addresses of the transaction usually include a receiving address and a change address, just like the change received when using cash for transactions in a supermarket.

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In the Bitcoin network, scripts play a crucial role. In fact, each output of a Bitcoin transaction actually points to a script, rather than a specific address. These scripts are like a set of rules that define how the recipient can use the assets locked in the output.

The legitimacy verification of transactions relies on two types of scripts: locking scripts and unlocking scripts. The locking script exists in the output of the transaction and is used to define the conditions required to unlock that output. The unlocking script corresponds to the locking script and must follow the rules defined by the locking script to unlock the UTXO assets, which are located in the input section of the transaction. The flexibility of this scripting language allows Bitcoin to achieve various combinations of conditions, demonstrating its characteristics as a "partially programmable currency".

In the Bitcoin network, each node runs a stack interpreter to interpret these scripts based on the "first in, first out" rule.

The most classic Bitcoin scripts mainly have two commonly used types: P2PKH (Pay-to-Public-Key-Hash) and P2SH (Pay-to-Script-Hash). P2PKH is a simple transaction type, in which the recipient only needs to sign with the corresponding private key to use the assets. P2SH is more complex, for example, in the case of multi-signature, a combination of multiple private keys is required to sign and use the assets.

Pubkey script: OP_DUP OP_HASH160 OP_EQUALVERIFY OP_CHECKSIG

Signature script: sig

Pubkey script: OP_HASH160 OP_EQUAL

Signature script: [sig] [sig...]

Taproot

Ordinals

OP_FALSE OP_IF OP_PUSH "ord"OP_1OP_PUSH

"text/plain;charset=utf-8"OP_0OP_PUSH "Hello, world!"OP_ENDIF

We will find a transaction on the chain to explain the encoding principle of ordinals in detail:

https://explorer.btc.com/btc/transaction/885d037ed114012864c031ed5ed8bbf5f95b95e1ef6469a808e9c08c4808e3ae

We can view the detailed information of this transaction:

We analyze the encoding of the witness field starting from 0063 (OP_FALSE OP_IF) to understand the serialized encoding content:

So as long as we can decode the code in this witness script, we can know the content of the inscription. The encoded information here is pure text, and other data such as HTML, images, videos, etc. are also similar.

BRC20

On March 9th, 2023, an anonymous Twitter user named "domo" tweeted about creating a standardized token called BRC20 on top of the Ordinals Protocol. The idea is to use the Ordinals protocol to encode JSON string data into Taproot scripts, allowing for the deployment, minting, and transfer of homogeneous BRC-20 tokens.

Figure 1: The humble beginning of BRC-20 tokens (domo's first post on the topic).

Source: Twitter (@domodata)

Figure 2: Three possible initial operations for BRC-20 tokens (p = protocol name, op = operation, tick = stock code/identifier, max = maximum supply, lim = minting limit, amt = amount).

Source: https://domo-2.gitbook.io/brc-20-experiment/, Binance Research

The initiator of Token deploys the BRC20 token on the chain, and then participants can obtain Token at almost no cost through minting (only miner fees). When the minting quantity exceeds the max, the inscription of the minting will be deemed invalid by the indexer. After that, the address that owns Token can transfer Token through the transfer inscription.

It is worth noting that Casey, the founder of Ordinals, is very unhappy with the BRC-20 transactions that dominate the Ordinals protocol. He has publicly stated that BRC-20 has brought him a lot of garbage to his creation of Ordinals. Therefore, the Casey team publicly wrote to Binance to remove "Ordinals" from the introduction of the ORDI token, as he does not want the Ordinals protocol to be associated with ORDI.

Extension Protocol

BRC20 swap

Currently, the largest market for inscriptions trading, indexer, and wallet provider Unisat have proposed the BRC20 swap protocol for BRC20 transactions. Early users are now able to try it out.

Previously, the inscription trading could only be conducted through a method called PSBT (partially signed Bitcoin transaction), similar to Opensea's off-chain signature scheme, which uses centralized services to "match" the signatures of buyers and sellers. This results in BRC20 assets being traded only through order placement, similar to NFT assets, resulting in low liquidity and trading efficiency.

BRC20 swap introduces a mechanism called "module" in the JSON string of the BRC20 protocol. A set of scripts similar to smart contracts can be deployed in this module. Taking the swap module as an example, users can lock BRC20 into the module through transfer, which means initiating a transfer transaction to themselves. However, the inscription in the transaction is locked in the module. After completing the transaction or withdrawing LP, users can initiate another transaction to extract the BRC20 tokens.

Currently, the brc20 swap operates in an extended mode using the black module. The black module is implemented for security reasons, and determines the amount of funds that users can withdraw based on the total funds in the module, without consensus and verification. This means that no user can withdraw assets exceeding the total locked-in module assets.

When the behavior of black modules is understood and executed by users, gradually becoming reliable and gradually accepted by more indexers, the product transitions from black modules to white modules, achieving consensus upgrade. Users can also freely deposit and withdraw assets.

In addition, because the BRC20 protocol and the entire Ordinals ecosystem are still in the early stages, Unisat has a significant influence and reputation, providing complete transaction and balance query indexing services for the protocol, with a centralized risk of monopoly. Its modular architecture allows more service providers to participate, thereby achieving more decentralized indexing.

BRC420

The Brc420 protocol was developed by RCSV. They added the extension of recursive indexing based on the original inscription. By defining more complex asset formats recursively, Brc420 established a constraint relationship between usage rights and royalties on a single inscription. When users mint assets, they need to pay royalties to the creators, and when they own an inscription, they can assign usage rights and set prices for it, which can encourage more innovation in the Ordinals ecosystem.

The proposal of Brc420 provides a broader imagination space for the inscription ecology. In addition to constructing more complex meta-universes through recursive references, it can also build a smart contract ecology through the recursive references of code inscriptions.

ARC20

ARC20 token standard is provided by the Atomicals protocol. In this standard, "atom" is the basic unit, built on top of the smallest unit of Bitcoin, satoshi (sat). This means that each ARC20 token is always backed by 1 sat. In addition, ARC20 is also the first token protocol to be minted through proof of work (PoW) inscription, allowing participants to directly mine inscriptions or NFTs in a similar way to mining Bitcoin.

Equating 1 ARC20 token to 1 sat has brought several benefits:

1. First of all, the value of each ARC20 token will never be lower than 1 sat, which makes Bitcoin play a role of "digital gold anchor" in this process.

2. Secondly, when verifying transactions, only the UTXO corresponding to sat needs to be queried, which is in contrast to the complexity of off-chain ledger state records and third-party sorters required for BRC20.

3. In addition, all operations of ARC20 can be completed through the Bitcoin network without any additional steps.

4. Finally, due to the composability of UTXOs, it is theoretically possible to achieve direct exchange between ARC20 tokens and Bitcoin, which provides possibilities for future liquidity.

The Atomicals protocol has set special prefix parameters for Bitwork Mining for ARC20 tokens. Token issuers can choose a special prefix, and users must calculate a matching prefix through CPU mining in order to qualify for minting the ARC20 token. This "one CPU, one vote" model is in line with the ideology of Bitcoin purists.

Is Mingwen secure?

On-chain Security Issues

The inscription will increase the size of the Bitcoin block, which will increase the resources required for nodes to propagate, store, and verify blocks on the network. If there are too many inscriptions, it will reduce the decentralization of the Bitcoin network and make it more vulnerable to attacks.

https://metatrust.io/company/blogs/post/the-analysis-of-the-atomicals-market-user-asset-loss

Use a wallet that supports inscription to conduct transfer activities.

5. Pay attention to the review of inscription codes and related scripts.

In the new experiment of brc20-swap and recursive inscription, it is necessary to ensure the security of these codes and scripts due to their introduction.

Summary

From a technical and security perspective, Bitcoin's plaintext nature is essentially a loophole that bypasses rules. The taproot script did not appear for the purpose of storing data, and there are also some security issues. Luke's modification of the Bitcoin Core code is correct from a security perspective. Luke did not directly modify the consensus layer of Bitcoin, but chose to adjust the Spam Filter module, allowing nodes to automatically filter out Ordinals transactions when receiving P2P broadcast messages. In this strategy filter, there are multiple functions named isStandard() used to check whether various aspects of the transaction comply with the standard. If the transaction does not comply with the standard, the transaction received by the node will be quickly discarded.

In other words, although Ordinals transactions can ultimately be added to the blockchain, most nodes will not include such data in the transaction pool, which will increase the delay in Ordinals data being received by mining pools willing to package it for the chain. However, if a mining pool broadcasts a block containing BRC-20 transactions, other nodes will still recognize it.

Luke has already introduced modifications to the policy filter in the Bitcoin Knots client, and plans to introduce similar changes in the Bitcoin Core client. In this modification, he introduced a new parameter called g_script_size_policy_limit, which is used to limit the size of scripts at multiple different locations. This change means that when processing transactions, the size of scripts will be subject to additional restrictions, affecting the way transactions are accepted and processed.

Currently, the default value of this parameter is 1650Bytes. Any node client can set it at startup through the parameter -maxscriptsize.

However, even if the code is updated, it will take a long time for all miner nodes to update to the new version. During this time, innovators in the Mingwen community should be able to create a safer protocol.

Metatrust Labs has rated and monitored the investment risks of inscriptions on the metaScore platform through on-chain data and asset tracking. At the same time, on the metaScout platform, a rule engine for monitoring the Bitcoin network has been launched to help investors monitor real-time data of Bitcoin inscriptions.

In this issue, we explore the technical principles and potential security issues of the popular inscription ecology. In the next issue, we will bring you the more complex Taproot circuit etching technology - bitVM. Stay tuned.

About MetaTrust Labs

MetaTrust Labs is a leading Web3 artificial intelligence security tool and code auditing service provider incubated by Nanyang Technological University in Singapore. We provide advanced AI solutions that empower developers and project stakeholders to protect Web3 applications and smart contracts. Our comprehensive services include AI security scanning, code auditing, smart contract monitoring, and transaction monitoring. By integrating AI, we ensure the construction of a secure ecosystem and enhance trust between users and developers.

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