Bitcoin Ecosystem FAQ: Frequently Asked Questions

A protocol that assigns a serial number to every satoshi based on mining order. Each satoshi becomes individually identifiable and trackable. Inscriptions write arbitrary data (images, text, HTML, code) to a specific satoshi using the witness field of a Bitcoin transaction. The data is stored on-chain permanently. Ordinals launched in January 2023. Over 50 million inscriptions were created in the first year.

A fungible token protocol that uses Bitcoin's UTXO model. Each UTXO can carry a Runes balance alongside its BTC value. Runes encode transfers in OP_RETURN data (80 bytes) rather than full inscriptions, making them more space-efficient than BRC-20 tokens. The protocol launched at the Bitcoin halving in April 2024. A Rune has a name, supply, divisibility, and symbol. No smart contract logic.

A network that processes transactions off the Bitcoin base layer and settles back to Bitcoin for security. Lightning Network uses payment channels for near-instant transfers. Stacks runs smart contracts that settle via Proof of Transfer. BOB is an Ethereum rollup that uses Bitcoin as the security layer. Other L2s include RSK (merged-mining sidechain) and Liquid Network (federated sidechain).

Ordinals store data directly on the Bitcoin blockchain in the witness field. Ethereum NFTs typically store a token URI that points to off-chain data (IPFS, Arweave, or a server). Ordinals have no smart contract layer: there is no transfer hook, no royalty enforcement, no approval pattern. Ownership is determined by who controls the UTXO containing the inscribed satoshi. Ethereum NFTs use ERC-721 or ERC-1155 contracts with programmable logic.

Arbitrary data written to a specific satoshi using the witness field of a Bitcoin transaction. The witness (SegWit) data benefits from a 75% fee discount compared to regular transaction data. An inscription can be an image (PNG, JPEG, SVG, WebP), plain text, HTML, JavaScript, JSON, or any other file type. Once confirmed, the data is permanent and immutable. Recursive inscriptions reference other inscriptions by ID, enabling on-chain composability.

BRC-20 uses Ordinals inscriptions to track token balances in JSON data. Each transfer requires a new inscription, which creates chain bloat. Runes use OP_RETURN data encoded in the transaction itself, not in witness data. This is more efficient and aligns with Bitcoin's UTXO model. BRC-20 contributed to significant mempool congestion in 2023. Runes solve this at the cost of programmability: no transfer hooks, no approval patterns, no smart contract logic.

DeFi applications that use BTC as the primary asset. Bitcoin Script is not Turing-complete, so smart contracts require Layer 2 networks (Stacks, BOB, RSK) or bridges to EVM chains. The largest categories by TVL are liquid staking (Babylon, SolvBTC) and lending. Wrapped BTC on Ethereum (WBTC, cbBTC, tBTC) has deeper DeFi markets than native Bitcoin DeFi. DEX volume on Bitcoin is significantly lower than on Ethereum or Solana.

Protocol data (TVL, categories, chain coverage) comes from DeFiLlama's protocol and chain API endpoints, updated every 6 hours through the DIA data pipeline. Educational content (guides on Layer 2s, Ordinals, Runes) is maintained in Notion. Directory data (Runes projects, Ordinal wallets, Ordinals marketplaces) is sourced from Notion databases with structured metadata.