Bitcoin Ecosystem — Current Status and Opportunities & Recap of Bitcoin Asia

The Bitcoin Asia conference, held from May 9 to 10 at the Kai Tak Cruise Terminal in Hong Kong, attracted over a thousand attendees, more than 200 speakers, over 100 sponsors, and extensive media coverage. The conference covered a wide range of topics, from mining and energy to Layer 2 solutions, infrastructure, and wallets. During the exhibition, participants had the opportunity to engage with and learn about the latest Bitcoin projects, exploring opportunities for participation or investment.

Jsquare and our sister fund DFG have also been interested in Bitcoin ecosystem, where we have invested in BOB (Build on Bitcoin) — a hybrid L2 that combines the security of Bitcoin with the versatility of Ethereum, ZKM — Entangled Rollup Network where blockchains can share native assets with no added security assumptions, and BRC-137 — an Open DID Protocol for Bitcoin Socialverse etc.

Bitcoin Ecosystem in Hong Kong

Since last year, the Bitcoin ecosystem in Asia, particularly in Hong Kong, has shown significant activity. The emergence of the Ordinals protocol and BRC-20 has reignited interest in the development and potential of the Bitcoin ecosystem. While Ethereum has become the preferred platform for many developers due to its smart contract functionality, Bitcoin, as the earliest cryptocurrency, still holds unique advantages, albeit with its own set of challenges.

Bitcoin’s highly decentralized nature and consensus-driven operations make it a valuable asset with gold-like properties for value preservation and appreciation. As of today, Bitcoin (BTC) has a market capitalization of $1.4 trillion, accounting for 50.32% of the cryptocurrency market. The fair launch characteristic of inscriptions has rekindled market interest in the Bitcoin ecosystem. Although this enthusiasm was short-lived, it has led to increased attention on the opportunities and future of the Bitcoin ecosystem.

Policy Support and Market Growth in Hong Kong

Hong Kong’s recent support for Web3 policies and open attitude towards cryptocurrencies have attracted more people from the Chinese community to establish roots in Hong Kong and Shenzhen to explore the crypto ecosystem. The recent surge in the Bitcoin ecosystem is largely driven by the Chinese community, represented by Hong Kong, and is spreading to the West. Bitcoin Magazine’s choice to host its conference in Hong Kong is a testament to the city’s significant role in the cryptocurrency space. The Hong Kong Monetary Authority (HKMA) has recently announced a series of policies that explicitly encourage the development of cryptocurrencies and blockchain technology, and they plan to launch pilot projects. This not only draws the attention of numerous startups and investors but also provides more opportunities for the development of the Bitcoin ecosystem.

Major Challenges Facing the Bitcoin Ecosystem

For the Bitcoin ecosystem to achieve rapid development, scaling is one of the most pressing issues that need to be addressed. After the Bitcoin hard fork, BTC has been continually exploring ways to enhance its scalability. The SegWit upgrade introduced in 2017 brought about expanded blocks and block weight, increasing block capacity. The Taproot upgrade, starting in 2021, improved transaction privacy and efficiency. Despite these important on-chain upgrades, the scalability of the Bitcoin network remains low and cannot support large-scale applications, requiring significant input from developers in the ecosystem’s infrastructure.

Currently, off-chain scaling solutions for Bitcoin include:

• State Channels: These allow transactions to be conducted off-chain, with only the initial and final balances reported to the mainnet, reducing network congestion and improving transaction efficiency.
• Side-chains: These have their own consensus mechanisms and are connected to the Layer 1 blockchain via two-way pegs, extending the functionality of the Bitcoin network.
• Rollups: These process a large batch of transactions together, reducing the burden on the main-net.

For example, the Lightning Network is one of the most widely adopted Bitcoin scaling solutions globally. Additionally, protocols like RGB enable scalable, robust, and private smart contracts to operate on Bitcoin’s UTXO blockchain.

On the application level, Bitcoin also faces several challenges, including but not limited to:

• Transaction Speed and Fees: The Bitcoin network’s slow transaction speed and high fees limit its use in everyday transactions.
• Smart Contract Limitations: Compared to platforms like Ethereum, Bitcoin has limitations in supporting complex smart contracts, restricting the development and deployment of decentralized applications (DApps).
• User Experience: As the ecosystem is still in its early stages, public blockchains are vying for user attention. For the Bitcoin ecosystem, user growth and retention are particularly crucial given the limited overall attention span.

Conclusion

As one of the largest, most trusted, and earliest blockchains, Bitcoin holds unique asset value. Transitioning from a simple native currency to fully capitalizing on its potential requires long-term dedication. For the development of any ecosystem, three factors are crucial: narrative, talent, and time. Recent political endorsements, such as Trump’s promise to pardon the founder of Silk Road if elected and his support for cryptocurrencies, highlight Bitcoin’s increasing political and strategic significance. The stage for capital is also expanding. From the perspective of taking a low-cost bullish stance in the early stages of the ecosystem, the Bitcoin ecosystem warrants long-term attention.