2024 has proven to be a year full of breakthroughs for the leading cryptocurrency to date. Not only have spot Bitcoin exchange-traded funds (ETFs) become a reality and are now tradeable and offered by multiple massive investment firms, but the payment method received the O.K. from Hong Kong regulators, too. Its fourth, quadrennial mining reward halving dropped in May and harbingered new performance, seeing Bitcoin break the $73K record weeks later and paving the path for its newest ATH of over $106K. On the app side, famous software developer, Casey Rodarmor, introduced new, cutting-edge developments for Ordinals.
Bitcoin is basking in lauds these times, but the work days aren’t over. The market has been expecting a new thing in the crypto realm – the Bitcoin decentralized finance concept. This innovation brings about new use cases into Bitcoin’s ecosystem, bringing it closer to its counterpart, Ethereum, which is known for leading the DeFi realm. The asset’s legacy could be a reason why the bulk of HODLers remain loyal to the asset and to the platforms allowing them to buy Ethereum online.
The market witnessed a thriving BTC L-2 solution and sidechain scene, reinforcing its potential for growth within the sector. Here’s why Bitcoin gurus are hopeful for what BTCFi is about to introduce.
First, let’s clear up the BTCFi concept
Although Bitcoin is well-rooted in the financial system and coming across someone lacking minimum knowledge about it is hard, some notions are still wrapped in mystery. If we add that BTCFi is yet to be around us, this idea becomes even more perplexing. This is why starting with a definition of BTCFi, short for Bitcoin DeFi, or Bitcoin decentralized finance, is the best departure point.
BTCFi is all about expanding the prosperous Bitcoin landscape through new roles. It has long served as a greater alternative to banks and financial systems for its immutable nature, cheaper transactions, speedier confirming times, and all the other factors that determine the success of a financial service. Moreover, it has become an excellent variant of the SWIFT code. Now, it’s time it took the security and robust consensus and worked to enter an unexplored era to date. This is mainly about smart contracts, as you will discover.
What’s the catch with smart contracts?
Smart contracts have drawn everyone’s attention lately. Smart contracts are the century’s developments thanks to their capacity to create, code, and confirm virtual contracts executable on the DLT network, a.k.a. the Distributed Ledger Technology network. Despite its popularity, Bitcoin has yet to be able to generate such contracts because of its script language, which can’t process numerous transactions. Bitcoin can’t inherently facilitate the complex smart contracts that Ethereum supports, becoming incompatible with decentralized applications like its counterpart.
This incapacity differentiates Bitcoin from Ethereum, Litecoin, Ripe, and other public blockchains, making it mainly useful for activities involving holding Bitcoin. For BTC possessors, decentralized trading, on-chain lending, and futures trading have mainly been off the table, starting to appear promising only when Runes and Ordinals emerged and evolved.
Runes, Ordinals, and Bitcoin’s new chapter
Debuting in 2023, Bitcoin Ordinals have emerged as a protocol that could power NFT-like tokens – similar to Ethereum. Non-fungible tokens, long for NFTs, have stolen the spotlight with their capabilities of storing value in digitalized artifacts that could be traded and speculated. On the other hand, Bitcoin’s structure is incompatible with these cutting-edge developments. Instead, Bitcoin can now fuel Ordinals, or digital assets resembling NFTs, consisting of the minor units of the asset known as satoshis. Digital data, such as videos, texts, music, and so on, are inscribed on the rare pieces, giving way to ordinals.
Another late innovation is represented by the Runes, the protocol that makes Bitcoin-based fungible tokens a reality. Runes rely on runestones, a protocol text recorded in Bitcoin’s transaction output, to etch, mint, and transact tokens.
Bitcoin has to catch up, though
A year after their launch, the two developments are already navigating new possibilities for Bitcoin’s ecosystem, catering to the ever-increasing demand for general-purpose functionalities in the market. Bitcoin’s full potential may not be completely unearthed, but gigantic steps are being taken in this regard.
The total value locked in Bitcoin DeFI approaches a staggering $1.2BN, representing up to 0.1% of the whole market capitalization. Contrarily, Ethereum has an incomparably higher total value locked, standing at 14%. Solana follows with 6% and precedes Ton, with Toncoin as native crypto, and its 3% TVL-to-market cap ratio. The success of these mainstream public blockchains is attributed to their capacity to power smart contracts, which explains why Bitcoin is a far cry from them.
The potential Bitcoin possesses not only invites newcomers to the table but also presents fresh money-making possibilities for holders. They aren’t limited to holding their Bitcoin for its great store of value capacities but can stake it, lend it, and engage in other rewarding activities.
As Bitcoin DeFi protocols progress, they’re anticipated to put Ethereum, Ripple, and other mainstream public chains to the test, making standing up to Bitcoin a tall order. The idea is straightforward momentarily: Bitcoin is a $1.2TN investment with almost no on-chain activity. The recent Bitcoin-native DeFi opens a new chapter for an asset class, making it more productive and attractive and bringing new potential for L-2s and protocols.
Layer-2s power not only Bitcoin-based activities but can also be on par with Ethereum’s L-2s and surpass them in the future.
What drives this enthusiasm?
The activity registered in the top BTC layer-2 network stacks has broken new records, demonstrating rising concentration and demand for Bitcoin DeFi. Active accounts conducting at least one transaction have increased incredibly, surpassing the number of 122K in April. This figure indicates spurred interest in the evolving area and a reason to rejoice for those involved in Bitcoin, whether by holding it or planning to invest in it.
Bitcoin Ordinals and Runes are expected to drive enhanced activity in the two layers.
What to expect
Market participants are on the lookout for cutting-edge platforms that can support the rising activity and user numbers, as well as the exploding anticipations. Decentralized Finances is the only branch that can meet these demands, offering a sustainable ecosystem where Bitcoin’s rising uses can be explored and leveraged.
The new dynamic changes lay the foundation for Bitcoin DeFi expansion, making it possible for Bitcoin to achieve the same level of sophistication and novelty met in its counterparts’ DeFi ecosystems.
