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Bitcoin’s OP_CAT Proposal Could Transform the Bitcoin Blockchain — TradingView News
History is full of crucial moments. Some pass almost without warning, only to be dusted off and highlighted by historians decades later, while others come roaring into existence with all the fanfare of a Christmas parade. From the hype alone, the launch of the standard Runes token would seem to fall into the latter category.
On April 19, the new protocol, designed to facilitate more efficient generation of Bitcoin’s native fungible tokens and coincided with that of Bitcoin BitcoinUSD scheduled fourth halving: triggered a flurry of investment activity. Over 7,000 Rune tokens were minted in the first two days following launch. As of this writing, more than 91,000 runes have been engraved on Bitcoin with an associated $4.5 million in transaction fees paid to miners. At the height of the crisis in mid-April, demand pushed transaction fees to an unprecedented level of $128.45.
At the time, more than a few analysts wondered whether we were seeing a repeat of the “summer” of 2021 for decentralized finance (DeFi), when the launch of several decentralized apps and tokens led to rampant activity and a sudden flood of liquidity in Ethereum. blockchain. But if so, autumn has come rather quickly; in mid-May the number of rune carvings dropped by 99%.
So, was the launch of Runes truly a historic moment for Bitcoin DeFi (BTCFi) or simply an expression of momentary interest? It might have been a little of both.
The Runes Protocol’s facilitation of efficient token generation could prove instrumental in enabling liquid staking and, by extension, investment activity, Layer 2 expansion, and DeFi innovation. But make no mistake: runes alone are just one advancement among many. For the last decade, a BTCFi revolution has been quietly underway and, pending the likely passage of the OP_CAT Bitcoin Improvement Proposal (BIP) in 2025, it appears poised to spark unprecedented growth for Bitcoin.
Related: Runes Protocol Will Kick Off a New Season for Bitcoin After the Halving
But before we can speculate on what will happen, we need to consider the current situation. Mainstream adoption has three key pillars: visibility, versatility and accessibility. As the first and foremost cryptocurrency, Bitcoin commands attention and respect but (at least for now) falls short of the other two categories.
A temporary hurdle: Innovators face capital inefficiency and limited scalability of BTCFi
Bitcoin is capital effective but not capital efficient. Despite its high market capitalization, status as a major store of value, and significant investor buy-in, BTC is critically underutilized as an investment asset. As of early April, approximately 65% of BTC supply had not moved in more than a year. This was down 10% from January, which coincided with the launch of more exchange-traded funds. While investors are starting to put their BTC to good use, more than half are still keeping their feet on the ground.
To be fair, BTC investors have had plenty of reason to be cautious, given the lack of sustainable return opportunities, the absence of institution-friendly return products, and the unknown risks of moving or deploying assets. Enter our slow undercurrent of revolution: a slow culmination spanning years of persistent determination to evolve Bitcoin from a store of value into a vibrant financial ecosystem in its own right.
Related: 3 Trends to Think About Before Bitcoin’s Bull Run Resumes
Efforts so far are focused on two main priorities: making Bitcoin more programmable and improving capital efficiency. By design, the current Bitcoin network does not offer smart contract functionality. While this reduces complexity and the risk of security breaches, it also prevents the use of logical loops and conditions, thus limiting the development and scalability of dApps. Blockchain’s high on-chain transaction fees and, until Rune, inefficient tokenization protocols have further hindered active, return-generating investment activities.
Bitcoin’s DeFi ecosystem may be nascent, but it is undeniably growing. In addition to basic DeFi primitives like DEX, Money Markets, Vault, Oracle, and Stablecoin, BTCFi includes solutions intended to address existing pitfalls of BTC, the asset, and Bitcoin, the network. General and purpose-built L2s like Stacks, Merlin and B2 are developing their own BTCFi ecosystems. Projects like Babylon are promoting the development of DeFi by bridging the gap between Proof-of-Work and Proof-of-Stake models.
Taken all of this in context, the emergence of BTCFi and the subsequent “Bitcoin DeFi Summer” seem inevitable, if long overdue. But supporters will likely have to wait another year – or even two, taking into account the time needed for innovation – before the season begins.
OP_CAT could help usher in a new BTCFi renaissance, if it happens in 2025
If the runes arrived in a cacophony, the Bitcoin OP_CAT proposal arrived with a whisper. Scheduled to undergo revision in 2025, this landmark document would restore smart contract functionality that has been unavailable to Bitcoin since Satoshi Nakamoto himself disabled it in 2010. OP_CAT would enhance logical and conditional loops, thus enabling the creation of rules or conditions on how Bitcoin can be spent and opens the door to many development possibilities, including Layer 2, Smart Contracts and more.
If OP_CAT passes, it will fundamentally change how people leverage Bitcoin and usher in a new renaissance for projects seeking to make BTC more programmable or capital efficient. Innovators will finally have a safe path to adapt Bitcoin’s programmability to critical use cases such as DeFi, scalability, and on-chain interoperability, thus leading to more abundant, varied, and profitable investment opportunities.
At that point we will officially get our second pillar for mass adoption. Bitcoin will continue to attract attention as an area of DeFi expansion. This, coupled with the development of a secure and robust infrastructure, could lead to huge amounts of capital flowing into BTC yield-generating protocols. Of course there are obstacles; for example, as individual L2 and DeFi ecosystems emerge and grow, they will form their own communities and leverage their own version of BTC, which will inevitably lead to fragmentation of liquidity and returns.
Accessibility is also a concern. For all its allure and potential, cryptocurrency can seem intimidating and inaccessible to individual investors. Although institutional actors are committed to the cause, more work needs to be done to educate and involve the general public. Many Bitcoin holders and potential users may be familiar with DeFi usage or key concepts (e.g., bridging). Education and concept abstraction will be important priorities for ecosystem advocates looking to encourage mainstream adoption.
The true summer of BTCFi may be a couple of years away, but if history tells us anything, it’s that we need to start supporting our future users now. While these quiet moments of progression and preparation may not make as many headlines as Runes’ debut, they’re all important. Just like how blockchain works, making history is a collective endeavor; individuals need to come forward and contribute to the cause. The pieces are in play, change is underway, and our collective advocacy for the cause is strong – the only question that remains is how soon we will see our vision for BTCFi come to fruition.
Mikhil Pandey is a guest columnist for Cointelegraph and co-founder and chief strategy officer at Persistence One, a layer 1 blockchain. He holds a bachelor’s degree in electrical engineering from the University of Mumbai.
This article is for general information purposes and is not intended to and should not be relied upon as legal or investment advice. The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.