Can the uniqueness of UTXO give birth to a new ecological model?

Source: Byte Yuan CKB

On June 10, Cipher, the author of the RGB++ protocol and founder of CELL Studio, Lin, the co-founder of DotSwap, Tim Xie, the co-founder of Shell Finance, and NIGO, the CMO of TBC (Turingbitchain), visited the Twitter Space of UTXO Stack to discuss whether the UTXO model can give birth to a new model of Bitcoin ecology.

In the 上一篇文字整理稿, the guests shared the differences and advantages of the UTXO model and the account model in terms of design philosophy, efficiency, etc., and how to realize smart contract capabilities based on the UTXO model. This text compilation will cover topics such as the challenges of developing projects based on the UTXO model, L2 solutions, security, and ecological models.

It should be noted that the text has been simplified a lot. If you want to have a more comprehensive understanding of the content of this Space, it is recommended to listen to the audio playback directly:

https://x.com/utxostack/status/1799046046812942369

3. What is the biggest challenge you encounter when developing projects based on the UTXO model?

Cipher: We talked about the advantages of the UTXO model earlier, such as simplicity, concurrency, and easier debugging, but in fact its shortcomings are also obvious, such as its global state is more troublesome.

The global state update of the Ethereum account model is actually done by miners. When adding transactions to blocks, the global state update is calculated. However, the global state of the UTXO model can only be updated by the person who issues the transaction outside the chain and then committed. There is a problem here. If a UTXO saves the so-called global state, it seems that only one person can update it in the same block. If two people update it at the same time, there will be a conflict.

In our actual development work, a lot of work will be generated on this. That is, we need an off-chain Aggregator to aggregate the access of many people to the global state into a single result, and then upload it to the chain. The blockchain only handles the migration of the final state. This is equivalent to the idea of ​​combining the account model with the UTXO model. This is actually what we think is the biggest technical challenge. It increases a lot of development workload. Compared to the account model, in addition to the conventional on-chain smart contracts and off-chain access interfaces, you also have to make an off-chain aggregation operation and calculation interface. Off-chain calculations and off-chain aggregations will bring a lot of workload.

Of course, we also have a solution. We try to introduce miners into L2. They may not necessarily be called miners, but L2 nodes are more appropriate. They also take on the work of Aggregator. Of course, some development is also needed here.

We have a brother project called Khalani. They have an idea. They use a formal language to build another VM on the RISC-V VM. This VM processes the formal language just mentioned. So what can this formal language do? When you write a smart contract for UTXO, it will automatically generate an Aggregator and Generator outside the chain at the same time. In this way, you can write code once and generate multiple processors. This idea is actually very cool. Of course, they have not yet completed the development. The technical difficulty is quite high. Tim Xie: To use an analogy, I think Ethereum is actually a highly segmented assembly line factory. It is relatively easy to do anything you want to do, whether it is development or knowledge acquisition. The ecosystem is also very rich, and there are infrastructure and middleware support and solutions. When you return to the Bitcoin ecosystem, it is like returning from an industrial society to an agricultural society, just like before Ford developed the assembly line, if you produce cars, you may have to build wheels and tools to make wheels. For example, when we were working on Shell Finance, we needed an oracle and needed to use DLC, but there was no DLC available on the market, so we could only do it ourselves and work with others to develop it. This is like when MakerDAO on Ethereum made stablecoins, it needed an oracle, but there was no Chainlink on the market, so they could only do Chainlink themselves. So, from my point of view, the biggest difficulty in developing the Bitcoin ecosystem is the ecosystem support, and the difficulty of developing based on UTXO is much greater than that of developing based on EVM. Of course, this is also a stage that must be experienced. Early participants in an ecosystem have to bear more pressure and solve more problems than latecomers.

4. What L2 solutions based on the UTXO model are currently on the market? How do they solve the scalability problem of Bitcoin?

Lin: If we strictly follow the judgment criteria I mentioned before, there is none, because their transactions are not issued on L1. In other words, on top of the first layer of Bitcoin, we can also have some overlays, which will execute some new rules. These new rules are only effective on the overlays, not on the first layer, but at the same time, these overlays enjoy the benefits of the first layer, such as the UTXO anti-double-spending mechanism. This is actually my personal opinion, so I don’t currently regard those so-called Bitcoin L2 projects as the second layer.

In a broad sense, I have not seen many L2 projects based on the UTXO model. I am mainly studying how to use ZK (zero-knowledge proof) to build trustles bridges and give full play to the advantages of UTXO. Most of the cross-chain bridges on the market are decentralized, moving assets from one blockchain to another. In my opinion, neither strict nor broad sense can be considered L2. (Note: Here is recommended reading "Why RGB++ assets can achieve bridgeless cross-chain")

5. Some people are worried that the introduction of some complex protocols may bring challenges to the security and consensus mechanism of Bitcoin. What do you think?

NIGO: Ordinals and BRC-20 have indeed brought a lot of controversy, and these disputes can be divided into two major camps. Supporters believe that as long as you pay the handling fee, you have the right to use the block space in any way, regardless of the content of the transaction. They believe that BRC-20 and NFT have brought new culture and narrative to Bitcoin, which is conducive to improving the actual application value of Bitcoin. The Core development team is actually quite opposed to this. They believe that the Bitcoin main chain should remain simple, and BTC should be used as digital gold. They do not want it to have any application, so they believe that BRC-20 and NFT are worthless junk transactions, and too many junk transactions will also occupy transaction bandwidth, resulting in longer transaction block time and higher handling fees. So it is essentially a difference in concepts.

I personally think that Bitcoin UTXO plus the underlying model of the Merkle tree are naturally suitable for high-concurrency and high-performance transactions. If the Core development team of the main chain does not support it, then we will come to the second layer or even the side chain to implement it. I am more in favor of "you play you pay", as long as you pay you can play, I believe that everyone here is a supporter.

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Lin：I think you can think about it. Some people say that the introduction of some complex protocols may bring challenges to the security and consensus mechanism of Bitcoin. What exactly is this challenge? We can't believe it just because others say it will bring challenges, right? And if this challenge happens, as individuals and supporters of Bitcoin, what kind of decentralized way should we use to protect our Bitcoin assets from being affected? These questions are actually worth thinking about. It actually goes back to the essence of decentralization. Since we are talking about decentralization, it is definitely not the views of some people, but to reach a consensus on this matter. So what is the mechanism for us to reach a consensus here? This is quite interesting. I don't want to give my own opinion directly.

I would also like to raise such a question. If someone says that certain protocols and certain applications have an impact on the security of Bitcoin, OK, then whether we support or oppose such a view, what kind of way can we use to express it and protect our Bitcoin assets? How do we protect it? These are worth thinking about. Tim Xie: I have been looking at whether the total network computing power and miners' income of Bitcoin can cover their expenses. The block reward of Bitcoin will be halved approximately every four years, and the amount will be less and less in the future. Miners are only concerned with profit. After the block reward becomes less, how can miners maintain the security of the network? They must get a return for their investment in computing power. So it is obvious that if the Bitcoin system is to continue to operate, its development path must be more and more transactions on the chain, the ecology is more and more prosperous, and the mining fee becomes rich enough. Ordinals and BRC-20, they did not fork Bitcoin, nor did they affect the consensus and security of Bitcoin. They rely on the Indexer method to expand the capacity. On the Bitcoin main chain, it is just a UTXO, but it is more troublesome. In my opinion, they have not damaged the core value of the entire Bitcoin network - the network itself, and no viruses have been implanted.

On the contrary, new protocols such as Ordinals and BRC-20 have brought new possibilities to Bitcoin, brought in a group of new users, and kept some users in the Bitcoin ecosystem. At the same time, they have also increased the fee income of miners, contributing to the continued operation of the Bitcoin system.

6. Can the uniqueness of UTXO give birth to a new ecological model? What projects are worth paying attention to?

Cipher: The Bitcoin ecosystem became popular from the inscription, and then everyone began to talk about the Bitcoin Renaissance. Now the entire ecosystem has entered a stage of being ready to go. I think there is a big opportunity here that the Ethereum ecosystem has encountered a bottleneck.

In the past, Bitcoin was considered to be good as long as SoV (value storage) was done well, and nothing else needed to be done. Ethereum is the world computer. We want to build the ideal of a decentralized world on Ethereum. Decentralized media, financial applications, games, etc. are all built on Ethereum. But as Ethereum becomes more and more solidified, the capital market becomes more and more heavy, new entrepreneurs have fewer and fewer opportunities, and the shift from PoW to PoS, people begin to doubt whether we should really put all the future Web 3 facilities on Ethereum. At the same time, emerging platforms like Solana are also rising. They don’t care about decentralization, and even famous brands say they are more centralized, but they are efficient, fast, and cheap, and they are constantly grabbing the market of Ethereum.

At this time, a group of people said that we recognize the earliest Bitcoin, which is more decentralized and more streamlined, and we want to reconstruct the entire decentralized infrastructure in the Bitcoin ecosystem. This narrative is more interesting and unique, but it is not so related to UTXO. In other words, there is actually a difference in value orientation, and UTXO is just because its advantages are gradually highlighted in this narrative.

In addition, Ethereum's ecological development is also moving towards UTXO. For example, parallel EVM calculation means that when each transaction is initiated, I will first clearly mark which states I will consume or occupy, so that it is convenient for me to do parallel processing. This is actually the idea of ​​UTXO.

In the fields of DeFi, NFT, and Metaverse, what innovative projects are worth paying attention to? I am more familiar with the CKB ecosystem. Projects like Nervape and Unicorn are different from the previous PFP NFT projects. They emphasize interaction, gameplay, and changes in internal parameters, more like Loot.

In addition, I am more optimistic about the Lightning Network, which is more suitable for UTXO. The Lightning Network has basically never appeared in the Ethereum world. Payment based on the Lightning Network and various Finance based on the Lightning Network are definitely a big track, and there will be new things coming out, but the technology is not so mature at present, but it will actually develop very quickly, so you can look forward to it.

Tim Xie：I think Ethereum is still at the forefront of innovation, but it has encountered problems. The things described in the Ethereum white paper, including prediction markets, transactions, DeFi, oracles, RWA, etc., have basically been completed, so it actually doesn't know what it will do in the next stage. When there are no new needs, everyone will fall into collective confusion and need to break out a path alone.

The current market response is two different branch routes. One is what Solana said that we should do AI and DePIN, and the other is that some users think we should return to Bitcoin. Now the Bitcoin ecosystem is doing inscriptions and DeFi. Our ideology is actually still moving forward according to the Ethereum paradigm, so the early ecological development is basically the same.

After Bitcoin has completed this stage, which may be one, two or three years later, will the Bitcoin ecosystem begin to become different from the Ethereum ecosystem? From the current point of view, Bitcoin has the capital and the ability to do such things. However, the problem here is that it is very decentralized, unlike Ethereum, which has a foundation to organize and coordinate uniformly. Of course, this has both advantages and disadvantages. The advantage is that everyone can explore various possibilities without being constrained by others or worrying about orthodoxy. Everyone can explore to the best of their ability. My current view is that in the foreseeable two years, we are actually a catching-up role, doing what happened in Ethereum and the proven successful model again on Bitcoin. Two years later, when we have caught up, how we should move forward is a very important question.

Lin: My personal opinion is that if we regard Bitcoin as digital gold, then the various assets on Bitcoin can be regarded as gold artworks. Gold artworks do not have to be purchased with gold, but can also be purchased with legal currency or other currencies. Similarly, assets on Bitcoin do not have to be exchanged with Bitcoin.

Now that the Bitcoin ETF has been approved, we must broaden our horizons. Not everything needs to be traded on the chain, and we should not only focus on the small group of people who understand Bitcoin knowledge and own Bitcoin. This is actually wrong because this market is very small. In other words, we need to broaden our horizons, go beyond our circle, and move towards a broader market.