Bitcoin
Reaching the tip of the iceberg: the untapped potential of Bitcoin’s definition
Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of the crypto.news editorial.
Since its launch in 2009, Bitcoin has emerged as a hedge against inflation. Some countries like El Salvador even made it legal tender. In March 2024, market valuation of BTC circulating supply Reached US$1.4 trillion, surpassing silver to become the 8th most valuable property in the world.
Despite BTC’s dominance over other cryptocurrencies, the majority of BTC has remained dormant in users’ wallets. BTC’s massive liquidity reserves remained underutilized and unproductive due to the network’s limited scalability. Additionally, Bitcoin does not support programmable smart contracts and has a block completion time of 10 minutes. These challenges hinder developer activity on Bitcoin, affect growth, and impede the emergence of decentralized financial services on Bitcoin.
The origins of the definition of Bitcoin
The lack of debit apps on Bitcoin has prevented users from capitalizing on BTC’s vast asset reserves. However, developers have been working for a long time to improve the functionality and performance of Bitcoin to make it suitable for definition.
For example, the Segregated Witness (SegWit) upgrade in July 2017 reduced transaction times and increased block capacity beyond 1 MB. It was followed by the Taproot update in November 2021 to introduce protocols such as Pay-to-Taproot (P2TR) and Taproot Asset Representation Overlay (Taro). However, during the long crypto winter, developers focused more on building robust Bitcoin definition protocols.
For example, Casey Rodarmor launched Ordinals in January 2023 to create NFT-like inscriptions on the Bitcoin chain. Ordinals has rejuvenated the ‘Building on Bitcoin’ movement and opened a Bitcoin NFT marketplace that can to reach US$4.5 billion by 2025.
Rodarmor also launched the Runes protocol after Bitcoin halving to mint fungible tokens like memecoins on Bitcoin. In the first week, users brother-in-law more than 11,000 Runas tokens, representing 45% of Bitcoin transactions.
Simultaneously, layer 2 like Stacks, launched in 2021, offered smart contract functionalities to Bitcoin. The Stacks Nakamoto update, introduced in mid-April 2024, reduces transaction processing time to 5 seconds and provides 100% Bitcoin block finality.
Therefore, developer activity is expanding Bitcoin’s utility and improving scalability, thus ushering in Bitcoin’s defining moment.
The Potential of Bitcoin Definition
After a long bear market, the total value locked in defi protocols crossed the $80 billion mark in February 2024. However, the important thing to note is that TVL excludes any liquidity from BTC reserves.
Most funds for defi apps come over of Ethereum with almost 60% market dominance. If defi protocols had the opportunity to access even a fraction of Bitcoin’s market cap, TVL would reach unprecedented levels.
According to a spartan survey report, Bitcoin defi presents a 7x growth opportunity without taking into account any additional liquidity inflow. Let’s demonstrate this with the available market data.
As of December 2023, Bitcoin’s market capitalization is $850 billion, which is 3.1 times more than Ethereum’s $270 billion. However, Ethereum’s TVL definition application was worth $76 billion or 28% of its market value, compared to just $320 million for Bitcoin definition.
If we hold the data constant, then Bitcoin defi presents a $238 billion market opportunity by December 2023. These numbers do not consider any increase in adoption or more capital inflows like we are witnessing today.
Thus, it is safe to say that we have only touched the tip of the Bitcoin market definition iceberg. The market will expand further as more smart contract functionality and scalable defi applications are released in 2024.
Bitcoin’s Summer of Definition Is Coming
Protocols like Ordinals, Runes, and layer 2 networks like Stacks are crucial to the growth of Bitcoin’s definition. They allow users to tap into the vast underutilized reserves of BTC while also taking advantage of the security and decentralization of the underlying Bitcoin chain.
However, some Bitcoin maximalists think that frivolous memecoins and NFTs have harmed Bitcoin’s legacy and led to network congestion. Despite this, it may be necessary to insist on the playful aspect of cryptography to popularize the definition of Bitcoin and lead to mass adoption.
Meme tokens could eventually lead to more activity from developers and users participating in lending, borrowing, trading, yield farming, staking, and Bitcoin-based GameFi and SocialFi protocols. These apps will finally make Nakamoto’s dream of an alternative financial system a reality.
As we approach the defi summer, the true potential of Bitcoin defi will begin to unfold as permissionless Bitcoin-based financial services become accessible to users around the world.
Mikhil Pandey
Mikhil Pandey is the co-founder and chief strategy officer of Persistence. Founded in 2019, Persistence is a tier 1 purpose-built with the mission of maximizing yield and security through net staking and restaking, building at the forefront of the proof-of-stake landscape. Persistence Labs has several products in its ecosystem, including pSTAKE Finance, Dexter, and more.