The Protocol: Beneath Bitcoin ETF Chaos, A Blockchain Drama

In this week's issue, we dive into the proposal that would have curtailed Ordinals inscriptions "NFTs on Bitcoin" traffic – were it not abruptly ended over the past week by a maintainer for the popular Bitcoin Core software. ALSO: Sam Kessler tries out the Polygon-based "Verify" tool – on Fox News stories.

AccessTimeIconJan 10, 2024 at 7:14 p.m. UTC
Updated Mar 9, 2024 at 5:48 a.m. UTC

Happy New Year! The mood in crypto markets has suddenly turned quite bullish with speculation reaching a fever pitch that U.S. regulators will finally approve a spot bitcoin ETF after years of denials. Based on one estimate, some $100 billion of capital might flow into the products.

One question might be how many of the incoming investors actually understand the nitty-gritty of how Bitcoin actually works – not just the technical details, but the governance. In today's Network News, we dive into a well-known Bitcon developer's proposal that would have severely curtailed a key source of recent traffic on the blockchain; over the past week the effort was abruptly ended by a maintainer of the open-source Bitcoin Core software project.

In this week's feature article, our Sam Kessler kicks the tires on the new "Verify" tool from Fox Corp. (parent of Fox News) and Polygon, the Ethereum scaling project, that supposedly will help to detect deepfakes.

This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday. Also please check out our weekly The Protocol podcast.

Network news

GITHUB REJECTION! While crypto traders, tradfi investors, financial institutions and probably lots of normies and newbies were engaging in the gripping speculation over whether U.S. regulators would approve a spot bitcoin ETF, a struggle over the very soul of the Bitcoin blockchain was taking place on the open-source developer platform GitHub. At the core of the matter was whether data-oriented applications like Ordinals inscriptions – often referred to as "NFTs on Bitcoin" – should be allowed on a network that purists argue should be preserved primarily as a settlement layer for peer-to-peer payments. In September, the longtime Bitcoin developer Luke Dashjr, who sits in the latter camp, created a proposal – technically known as a "pull request" or PR – to put strict limits on the amount of data that could be stuffed into an individual transaction. The proposal quickly touched off an acrimonious debate that went on for months, until several days ago when Ava Chow, a maintainer of the paramount Bitcoin Core software, abruptly closed the PR without taking action. "It's abundantly clear that this PR is controversial and, in its current state, has no hope of reaching a conclusion that is acceptable to everyone," Chow wrote, the last post in the thread. It's possible there could be additional chapters, though, since Dashjr later tweeted, "Spam filtering isn't dead until the spam is dead."

ICYMI: We finally got around to reading this report from last month by Galaxy Research's Christine Kim (who by the way is also the former co-author of The Protocol's predecessor newsletter, Valid Points) on why ETH might underperform in the near term. A teaser: "The forthcoming Cancun/Deneb upgrade on Ethereum is expected to reduce fees paid by rollup operators for block space and thus, in the near term, act as a headwind to Ethereum’s fee-derived protocol revenue. Over the long-term, if the blockchain modularity thesis proves correct, then the main network fee drivers for layer-1 blockchains like Ethereum and Celestia will be layer-2 rollup service providers, instead of end-users."


  1. This week's hack of the SEC's X (Twitter) account to post a fake bitcoin ETF approval was "due to an unidentified individual obtaining control over a phone number associated with the @SECGov account through a third party,” based on a preliminary investigation by the social media-platform. The report also noted that the SEC's account did not have two-factor authentication enabled.
  2. Grayscale, purveyor of GBTC bitcoin trust, is standing ground on fees amid ETF price war, though some analysts say tax considerations might keep many investors in the investment vehicle post-conversion.
  3. U.S. arrests 'Bitcoin Rodney' alleged HyperVerse crypto scheme promoter, on IRS charges of fraud. (Link)
  4. North Korean hacking group Lazarus withdraws $1.2M of bitcoin from unidentified coin mixer. (Link)
  5. Mysterious $1.2M bitcoin transaction to Satoshi Nakamoto sparks speculation. (Link)
  6. Bitcoin ETF chaos memorialized on blockchain, with nod to Satoshi Nakamoto's "Chancellor on the Brink" Reference. (Link)

Protocol Village

Highlighting blockchain tech upgrades and developments.

1. Metis, the layer 2 blockchain, in the first official disbursement of their Ecosystem Development Fund (EDF), revealed that DeFi products suite WAGMI will receive a $2 million grant and deployed on Metis on Jan. 8, according to the team: "WAGMI is the latest venture from DeFi magnate Daniele Sesta, and WAGMI will be deploying a decentralized exchange that will allow permissionless pool creation, arbitrage bots that will be a way for market inefficiencies to become users' returns and GMI strategies that allow users to seamlessly interact with concentrated liquidity pools."

2. Parallel Network has officially launched on mainnet and is open to developers, according to the team, claiming to be the first layer-2 network on Arbitrum Orbit to go live. "It is also the first non-custodial omni-chain margin protocol, which allows liquidity to be pooled across multiple chains and makes it immediately available on the Parallel Network."

3. AQUA by JAN3, a Bitcoin and stablecoin wallet headed by former Blockstream Chief Strategy Officer Samson Mow, launched on Jan. 3, according to a press release. Designed for users in Latin America, AQUA claims features that "can also attract die-hard Bitcoin Maximalists, offering them a powerful interface to layer-2 technologies like Lightning and Liquid. By utilizing submarine swaps, AQUA can completely bypass high fee-rate environments, seamlessly moving between Lightning and Liquid. AQUA gives Bitcoiners the ability to batch their Bitcoin transactions in Layer 2 and then swap to mainchain Bitcoin when fees are low."

4., a hybrid crypto exchange, announced the launch of public mainnet. The project's "self-custodial approach ensures users control their funds, enhancing security while reducing insolvency risks," according to the team. According to the project documentation: "C3’s on-chain component consists of two smart contract applications, the Cross-collateral Clearing Engine and the Health Calculator, which are deployed on the Algorand blockchain and serve as C3's settlement layer…. To consolidate balances, C3 leverages Wormhole’s cross-chain interoperability protocol to process deposits and withdrawals to and from C3’s on-chain component."

5. Libre, a newly established tokenization platform, is emerging from stealth mode under the leadership of tokenization pioneer Avtar Sehra, constructed using Polygon CDK, the blockchain development kit of the Ethereum-based scaling network. Heavy hitters from the world of institutional cryptocurrency investing like Nomura’s Laser Digital, Brevan Howard’s WebN group and private markets giant Hamilton Lane are foundational partners and the first users, the companies said on Wednesday.

Money Center


  • Tune.FM, a Web3 music platform, has received $20 million in capital from alternative investment group LDA Capital to advance its goals of helping musicians earning a greater share of royalties from their work. Using Hedera Hashgraph's blockchain technology, Tune.FM provides musicians with a platform to receive micropayments for streaming in its native JAM token (JAM) as well as minting non-fungible tokens (NFTs) for digital music assets and collectibles.
  • Bracket Labs, a provider of leveraged structured products for non-custodial DeFi users, raised $2 million in a pre-seed round led by Binance Labs and NGC Ventures for their "Passage" volatility trading product on the BracketX platform, according to the team.
  • EOS Network Ventures (ENV) "just invested $500K in EZ Swap, a multi-chain NFT DEX protocol and inscription marketplace, during its successful second fundraising round in December 2023, totaling $1 million," according to the team.
  • KuCoin Labs, the investment and incubation program of Seychelles-based crypto exchange KuCoin, has made a strategic investment in DeMR, a "decentralized mixed reality (MR)" infrastructure network (MR-DePIN) built on the Solana blockchain, according to a press release.
  • Ta-da, an AI data marketplace, completed a $3.5M funding round from investors including Morningstar Ventures, the layer-1 blockchain protocol MultiversX, GBV Capital, XVentures, NxGen and Spark Digital Capital, according to the team.

Data and Tokens

Ethereum Gets Flippened by Bitcoin on NFTs


Those who have followed the growth of NFTs over the past several years know that the tokens initially exploded as a phenomenon on the Ethereum blockchain. But according to a recent chart from the analysis firm Messari, Bitcoin has now taken the lead in NFT sales volume, with $881 million in December. "This well surpasses any single-month sales volume for Ethereum or Solana in 2023," according to Messari. The driver? Ordinals inscriptions.


Edited by Bradley Keoun.


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Bradley Keoun

Bradley Keoun is the managing editor of CoinDesk's Tech & Protocols team. He owns less than $1,000 each of several cryptocurrencies.