How Lightning Network Plans to Solve BRC20 Congestion Issue
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How Lightning Network Plans to Solve BRC20 Congestion Issue

In an effort to upscale the Bitcoin network, Lightning Labs released Taproot Assets v0.2.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

On Tuesday, Ryan Gentry, the head of business development at Lightning Labs, announced the updated testnet for Taproot Assets Protocol. Version v0.2 aims to upgrade the Lightning Network further to relieve congestion from the Bitcoin network. 

Such upscaling is in demand following the quadrupling of Bitcoin fees amid a flood of Bitcoin ordinals (non-fungible) and BRC-20 (fungible) tokens. For Bitcoin developers, Taproot Assets v0.2 will accomplish this in several ways when released on the Lightning Network mainnet.

The biggest improvement comes with unlimited assets that can be sent or minted off-chain in a single on-chain transaction. This follows through on LN’s concept of keeping Bitcoin payment channels open as needed, with all the transactions then sent to the Bitcoin mainnet in a single bundle. 

How Does Taproot Assets Work?

Not only could users move/mint an unbounded number of assets in a single transaction, but this applies to the type of assets as well. For instance, users could mint three ordinals or BRC-20 tokens simultaneously but pay a single miner fee. 

This is possible using PSBT (Partially Signed Bitcoin Transaction) on the Taproot Assets Protocol. As adopted Bitcoin Improvement Proposal (BIP-174), PSBT keeps private keys secure while signing transactions between multiple signers, but without broadcasting them to the Bitcoin mainnet.

The v0.2 version extends PSBT to virtual PSBT, allowing low-level complexity to be abstracted.

Building on PSBT and Taproot, virtual PSBT incorporates Taproot Assets-specific information. Image credit: River Financial

However, it is Bitcoin’s Taproot upgrade that makes Taproot Assets work. Activated in November 2021, Taproot enhanced the Bitcoin protocol with more flexible scripting capability. Taproot Assets takes advantage of it by leveraging the Taproot virtual machine (VM). 

Like Ethereum’s EVM, this runtime environment allows for more complex smart contracts to be executed on the Bitcoin network. Based on this Taproot legacy, Taproot Assets (TA) can generate addresses compatible with existing Bitcoin addresses. More importantly, each minted asset from TA has its unique address. 

Lastly, because TA is designed to be light-client friendly, users and developers won’t have to use as much computing power. This contrasts with other asset issuance protocols that require a full node plus multi-gigabyte indices. In turn, TA lowers the barrier of entry as assets can be managed and tracked on a smartphone. 

What Else Does Taproot Assets v0.2 Bring to the Bitcoin Scaling Table?

In addition to multi-asset minting support, TA optimizes Lighting Network’s scaling. This ranges from a greater number of concurrent users to boosted asset metadata. To facilitate future transferability, developers could include up to 800 KB of metadata per mint, but with only a hash needed for on-chain transfer.

Furthermore, Taproot Assets Universes (TAU) has been upgraded with an API. TAU is similar to Bitcoin block explorer but analyzing and tracking Taproot Assets minting and transaction data. Developers can now build apps with easy TA discovery as they sync with TAU servers.

Image credit: Lightning Labs

The end goal of Taproot Assets is to make Lightning Network a multi-asset network. Tokenized dollars (stablecoins) would be included in this vision, making LN eventually outcompete legacy payment networks like SWIFT, thanks to ultra-low fees and instant transaction settlement.

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Ordinals/BRC-20 Asset Migration to LN?

While some core Bitcoin developers hinted at canceling ordinals and BRC-20 tokens, an extra utility for the Bitcoin network could increase BTC adoption. After all, it is the most secure computing network in the world, recently reaching a record-high of 367 million TH/s.

Leveraging this computing power, new avenues for Bitcoin adoption could open up.

Now that Bitcoin transaction fees dropped -90%, Taproot Assets Protocol is positioning itself as the multi-asset highway for the next ordinals wave. As for BRC-20 tokens, the future seems less secure. While ordinals allow data inscription (images, video, text, audio) into Bitcoin blocks, BRC-20 tokens are pseudo-fungible. 

Launched on March 9 by @domodata, instead of using smart contracts, BRC-20 tokens store script files. Specifically, users could mint or transfer Bitcoin-borne altcoins by embedding JSON data into an ordinal structure.

But in contrast to ERC-20 tokens on Ethereum, which use smart contracts, BRC-20 tokens are severely limited. For example, for the simple task of checking BRC-20 wallet balance, users would have to run an off-chain interpreter for the inscriptions. 

However, now that the gates to the Bitcoin network’s limited programmability have widened, Taproot Assets’ light client could pave the road to Bitcoin’s multi-asset apps. Whether this would involve the BRC-20 experiment or some other Bitcoin extension is yet to be seen.

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Do you think the Bitcoin network should be exclusively oriented toward BTC transactions? Let us know in the comments below.