Contents
Imagine how powerful Bitcoin could become if more developers were actively building in its ecosystem.
In the past, when Web3 developers thought about building decentralized apps, they rarely thought about building them for Bitcoin. That’s because they couldn’t. Bitcoin mostly functioned as a store of value, but now that’s changing thanks to Stacks and its fully expressive smart contracts for Bitcoin.
Today, there’s a whole world of opportunities for developers to help propel the Bitcoin economy forward by building Bitcoin dApps and some of the key components of Web3 infrastructure, including DeFi, NFTs, and interoperability bridges.
How Big Can the Bitcoin Economy Become?
Led by Bitcoin, the crypto industry built a $2 trillion financial economy from scratch in less than a decade with little institutional support. Today, Bitcoin has a market cap of about $330 billion. Where does it go from here?
We can extrapolate what the future for Bitcoin may look like based on what we know today. Let’s start with the basics. Today, Bitcoin’s market cap is largely centered around hodling: users and entities holding Bitcoin as a store of value. Bitcoin itself is not a productive asset.
For example, if you look at Bitcoin DeFi, the total amount of Bitcoin being utilized within decentralized finance (DeFi) is a mere fraction of the $330 billion locked in Bitcoin. In other words, most of the capital in Bitcoin is latent and not being put to productive economic use.
That lack of productivity helps support the narrative that Bitcoin is digital gold. It is a scarce, and natively digital, store of value. Let’s take a look at Bitcoin’s growth potential through this narrow lens. Gold’s market cap sits around $12 trillion. If Bitcoin realizes its full potential as digital gold, then its current market cap could still see ~10X growth (at minimum) as adoption increases and the world becomes more digital. This isn’t a perfect analogy, but it is an illustrative one.
Regardless, we believe there’s still more to the potential size of the Bitcoin economy than Bitcoin flipping gold. We see a much bigger market, one where developers make Bitcoin a productive asset through smart contracts.
Bitcoin today is a $1T opportunity for developers. All of this latent capital eliminates the uphill task of preaching the message of decentralization to crypto skeptics. A lot of the public is already bought in. Capital is already in the ecosystem. The earliest crypto adopters are holding Bitcoin, and the money in crypto typically flows in and down (but never out).
Building attractive Bitcoin projects across DeFi, NFTs, DAOs, and other Web3 applications provide new streams into which the wealth lying dormant in Bitcoin can flow. And many new projects are building on Bitcoin to capitalize on just that.
And the best part: when new apps put more of the Bitcoin in circulation into productive use, developers can unlock flywheel effects for the growth of the Bitcoin ecosystem. Here’s what that flywheel looks like:
- Developers build new Bitcoin applications and create new use cases for BTC.
- New apps bring new users to the Bitcoin ecosystem.
- Together, the addition of new users and new BTC use cases increases the value of Bitcoin.
- That increased value means Bitcoin developers have greater financial resources to build new applications, and we cycle back to the first step but with more developers building more applications.
Today, Bitcoin is the bedrock of the crypto market. What happens to the value of Bitcoin when dozens of popular applications are running on top of it?
As decentralized applications continue to gain mainstream adoption, we believe Bitcoin will also become the global reserve currency of the internet. Imagine if Bitcoin became a global reserve on par with the US dollar, the Euro, and the Chinese Renminbi, among others. We see that possibility as an inevitability.
This is still the early days of Bitcoin. We’re in the first inning. So what does the next phase of growth look like?
Discover lessons for building in Web3 with Bitcoin educator Dan Held:
Opportunities for Web3 Developers in the Decentralized Economy
Today, there are about 700 Bitcoin developers, with another 120+ Stacks developers building Bitcoin applications. That’s really not that many when you consider that there are 13.5M full-time software developers in the world. The good news for developers is that Bitcoin (and all of crypto) is still so young, and there are numerous sectors ripe for disruption and innovation. Let's take a look at some of the biggest opportunities for Bitcoin developers to grow the ecosystem.
DeFi
Decentralized Finance (DeFi) refers to a new class of permissionless and transparent financial services managed by smart contracts and powered by blockchain technology. DeFi broadly has reinvented the entire financial services industry, including categories like lending and borrowing, liquidity pools, trading and decentralized exchanges, among others.
DeFi has gained significant traction over the past few years. While the Gross Total Value Locked (TVL) in DeFi projects has pulled back from its 2021 peak, it remains well over $50B.
Despite the billions of dollars locked in DeFi across all chains, DeFi trades are still less than 1% of the global banks’ market cap. As DeFi continues to eat into traditional finance (TradFi), the total value locked in DeFi projects will continue to soar — Bitcoin DeFi can catalyze much of that growth through Stacks, which brings smart contracts to Bitcoin.
In particular, Stacks has two unique features that empower Bitcoin DeFi.
- Stacks’ unique consensus mechanism Proof of Transfer means you can create DeFi products that earn BTC yield.
- Clarity, the smart contract programming language for Stacks, can read Bitcoin’s global state. This feature means that developers can write smart contracts that react to native Bitcoin transactions, which unlocks DeFi applications, such as native BTC swaps and Bitcoin-backed loans.
These unique features have allowed Bitcoin developers to build innovative new use cases in DeFi. For example, Arkadiko is building self-repaying loans that leverage Stacks’ proof of transfer, and GoSats is facilitating Bitcoin-backed cashback reward programs for merchants.
These are only a few of the many different ways Bitcoin developers are unlocking DeFi. Bitcoin DeFi is in its infancy, and it still needs more developers to create mature DeFi products and create better experiences for the end-user.
NFTs
2021 was the year of non-fungible tokens (NFTs) — trades in NFTs surged by more than 21,000% to cross $17 billion by the end of 2021. NFTs currently have a market cap of about $11 billion, and analysts at Jefferies estimate that will climb to $80 billion by 2025.
NFTs are unique assets that enable digital scarcity, and so far have been taking off in what seems to be every industry, including art, gaming, collectibles, music, and more. Ethereum is currently home to the largest share of the NFT market. In 2021, Ethereum-powered NFTs accounted for 76% of 2021 NFT sales at a combined value of $13.59 billion. Ronin (Axie Infinity) and Flow blockchain (NBA Top Shot) were responsible for 19% and 5% of NFT sales, respectively.
While Bitcoin NFTs are not yet as popular as Ethereum NFTs, developers within the Bitcoin ecosystem are building out the NFT industry through Stacks. There are several popular marketplaces in the Bitcoin ecosystem, including Gamma and TradePort. Both list more than 600,000 NFTs for sale, such as popular collections like Megapont Ape Club, Bitcoin Birds, and Bitcoin Monkeys. And for creators, companies like the Mintery and Layer provide the education and tools needed to mint, launch, and distribute Bitcoin-powered NFTs.
There’s a lot of exciting innovation happening in the Bitcoin NFT space, but there’s plenty more room for innovation for Web3 developers to build new applications. Bitcoin NFTs still need better creator tools, new use cases for NFTs beyond simple collectibles, as well as solutions to authenticate the origin of NFTs representing off-chain assets.
Bridges
There’s a decent chance that we won’t have one blockchain to rule them all, and Bitcoin will still need to ‘communicate’ with other blockchains and share data with other ecosystems. Bridges between blockchains are important for the entire ecosystem because they provide interoperability and pragmatic solutions to the blockchain trilemma. Bridges enable the cross-chain transfer of assets and data, while unlocking scalability and facilitating efficient use of computing resources.
Ethereum has experienced well-documented scaling issues, and it has seen significant growth in bridge adoption, with the TVL of locked assets in Ethereum bridges sitting around $6 billion. Developers in the Bitcoin ecosystem are also actively building interoperability bridges to other chains. There are currently many ongoing projects to build interoperability bridges that connect Stacks with other public blockchains such as Ethereum, Polygon, Solana, and more.
One such bridge is the StacksBridge, which enables users to move NFT assets between Stacks and Ethereum. There is also ongoing development to bridge Stacks to Orbit Chain to integrate Bitcoin DeFi into the DeFi ecosystems on other chains.
Despite this early work, this is still a lot of opportunity for Web3 developers to successfully launch bridges to different chains and to explore varying levels of trust and centralization with bridge protocols. Just as there is no “one blockchain to rule them all” in this scenario, nor will there be just one bridge.
Get Started With Clarity
There’s a growing community of developers building out the Bitcoin ecosystem. Stacks enables developers to create fully expressive Bitcoin smart contracts through the programming language Clarity. At Hiro, we build developer tooling and resources, so that you can build applications for Bitcoin.
Want to learn more about the trillion-dollar opportunity in Bitcoin? Download our free guide to Bitcoin's evolution to understand how Bitcoin became an ecosystem for Web3 apps.
