Bitcoin Token Standards Without Smart Contracts

Bitcoin's core protocol is secure but static. Its primary use case is store-of-value, leaving its massive capital base idle and unable to participate in DeFi or tokenized economies without complex, trust-minimized bridges to other chains.

• No Native Programmable Logic for composable assets.
• Capital Inefficiency: Value sits idle, generating no yield.
• Fragmented Liquidity across wrapped BTC variants on Ethereum, Solana, etc.

Casey Rodarmor's post-Ordinals protocol enables native fungible tokens on Bitcoin by using OP_RETURN to "etch" token metadata directly onto UTXOs. It's a minimalist, UTXO-native standard designed to avoid the chain bloat of BRC-20.

• UTXO-Native: Aligns with Bitcoin's core architecture, enabling efficient light client validation.
• Post-Unspendable: Etched runes become unspendable after creation, preventing state bloat.
• Focused on Fungibility: A direct answer to the fungible token demand revealed by BRC-20s.

Bitcoin L2s like Stacks, Rootstock, and Liquid Network provide the smart contract environment that Bitcoin L1 lacks. They use Bitcoin as a secure base layer for consensus or finality, enabling DeFi, NFTs, and complex dApps.

• Stacks (sBTC): Uses Bitcoin for consensus; enables Clarity smart contracts and a trust-minimized 2-way peg.
• Rootstock (RBTC): EVM-compatible sidechain merged-mined with Bitcoin.
• Liquid Network: Federated sidechain for fast, confidential transactions and asset issuance.

RGB is a suite of protocols for scalable & confidential Bitcoin smart contracts. It moves state and logic off-chain using client-side validation, with Bitcoin UTXOs acting as single-use seals for ownership claims.

• Massive Scalability: Execution and data are off-chain; L1 only handles commitment anchors.
• Strong Privacy: Data is revealed only to involved parties, not the entire network.
• Asset Complexity: Supports NFTs, fungible tokens, and complex contractual logic.

Developed by Lightning Labs, Taproot Assets enables the issuance of stablecoins, securities, and other assets on Bitcoin, with instant, high-volume settlement via the Lightning Network.

• Lightning-Native: Assets can be transferred over Lightning channels for instant, low-cost payments.
• Taproot-Powered: Uses Schnorr signatures and Taproot trees for efficient on-chain commitments.
• Focus on Liquidity: Aims to bring forex-like settlement to Bitcoin's base layer.

The emerging Bitcoin token stack rejects the Ethereum model of a monolithic VM. Instead, it embraces modularity: L1 for supreme security and finality, with specialized protocols (Runes, RGB, Taproot Assets) and L2s for specific use cases like speed or privacy.

• Security/Trust Trade-Offs: Users choose the right layer for their asset's needs.
• Protocols > Platforms: Interoperable, specialized standards instead of one-size-fits-all VM.
• Capital Efficiency: Unlocks Bitcoin's treasury for DeFi, payments, and tokenization.

Wrapped Bitcoin (WBTC) dominates with ~$10B+ TVL but introduces a single-point-of-failure: the centralized custodian. This is a systemic risk vector for the entire DeFi ecosystem built on Ethereum and other chains.\n- Counterparty Risk: Users must trust the custodian's multisig signers.\n- Regulatory Attack Surface: Custodians are KYC/AML gateways, creating censorship risk.

Protocols like RGB and Taro move state and logic off-chain, relying on client-side validation. This shifts security from Bitcoin's consensus to data availability and oracle honesty.\n- Data Liveness: Loss of off-chain data renders assets unspendable.\n- Synchronization Complexity: Global state consensus is impossible, leading to potential double-spends if channels are not properly synchronized.

Ordinals and BRC-20 tokens are immutable JPEGs and JSON blobs inscribed on-chain. They have no native transfer logic, relying entirely on external marketplaces and indexers for functionality.\n- Indexer Centralization: Disagreement between indexers (e.g., Ordinals vs. Runes protocols) can fork asset perception.\n- No Smart Contracts: Simple transfers require complex, fee-inefficient partial signing protocols.

Every cross-chain bridge for Bitcoin assets (e.g., Multichain, Portal) is a multi-sig or MPC vault with its own security assumptions, creating a $2B+ exploit history across crypto. Bitcoin's finality model (10-min blocks) complicates light client verification.\n- Trust Minimization Failure: Bridges are high-value targets, as seen in the Wormhole and Ronin hacks.\n- Validation Gap: Proving Bitcoin state on other chains is heavy, often leading to trusted committees.

On-chain token protocols like BRC-20 directly compete with BTC payments for block space, leading to fee spikes over $30+. This creates a negative externality for Bitcoin's primary use case and makes micro-transactions for tokens economically impossible.\n- Congestion Externalities: Token minting can paralyze the base layer.\n- No Fee Market Separation: All activity shares one congestible resource.

The only path to robust Bitcoin tokenization is pushing execution off the base layer. Liquid Network, Stacks, and Rootstock act as sidechains or merge-mined L2s, while OP_CAT or Covenant opcodes could enable native enforceable logic.\n- Security Inheritance: L2s can leverage Bitcoin's security for settlement.\n- Logic Separation: Moves volatile activity to a dedicated execution environment.