The Future of Bitcoin Smart Contracts with OP_CAT and sCrypt: In-Depth Analysis with Xiaohui Liu

In the latest episode of "Ryze Up," Joven, Chief Investment Officer of Ryze, had a conversation with Xiaohui Liu, founder of sCrypt and advocate of the Bitcoin script opcode OP_CAT. Together, they explored the future of Bitcoin smart contracts, delving into OP_CAT, the CAT protocol, and other innovative projects aimed at revolutionizing Bitcoin. Xiaohui Liu shared his vision of how these technologies could unlock Bitcoin's full programmability, enabling more possibilities such as decentralized applications.
If you want to find answers to the following questions, be sure to listen to the full episode—it's definitely worth it!

• What exactly is sCrypt? How is it related to Bitcoin smart contracts?

• How does the UTXO model achieve global state?

• Why is OP_CAT itself considered so powerful?

• What is the CAT protocol, and how is it different from BRC20 and Runes?

• What role does Fractal play in all of this?

• Assuming Bitcoin is Turing complete, what is best built on top of it?

• What are the long-term goals for these technologies on Bitcoin?

sCrypt: Rethinking Bitcoin Smart Contracts Xiaohui Liu first introduced sCrypt, a smart contract language designed specifically for Bitcoin. He compared sCrypt to Solidity on Ethereum, explaining that sCrypt aims to unlock Bitcoin's potential smart contract capabilities. Contrary to popular belief, Xiaohui Liu emphasized that Bitcoin has had smart contract functionality since its inception. However, due to security concerns, some opcodes, including OP_CAT, were disabled in Bitcoin's early days.
The creation of sCrypt stemmed from Xiaohui Liu's personal experience with the scalability limitations of existing blockchain platforms. He recalled his journey in crypto since 2017, highlighting the challenges faced by successful applications like CryptoKitties, which nearly crippled the Ethereum network. This realization prompted him to dive deeper into the foundations of Bitcoin.
Xiaohui Liu shared a personal story about spending two months intensely studying Satoshi Nakamoto's whitepaper and early forum discussions. He described this experience as "going back to basics." This deep dive into Bitcoin's origins convinced him that the platform's potential had yet to be fully tapped.
UTXO Model: Bitcoin's Parallel Execution A significant portion of the interview was devoted to explaining the advantages of Bitcoin's UTXO (Unspent Transaction Output) model over Ethereum's account model. Xiaohui Liu used a vivid analogy to illustrate this concept, likening the UTXO model to an independent mailbox system.
In this analogy, Xiaohui Liu explained: "You can think of Bitcoin as a giant post office. Each UTXO is like an independent mailbox, each with its own unique lock. You could have a simple key lock, a time lock that only opens after a certain date, or even a complex combination or conditional lock." He continued, "The beauty of this system is that each mailbox operates independently. Opening one mailbox doesn't affect the others, so multiple users can access their mail at the same time."
In contrast, Ethereum's account model was described by Xiaohui Liu as: "Imagine if, instead of independent mailboxes, the whole town shared a single large mailbox. Everyone's mail is mixed together, and only one person at a time can look for their mail. That's basically how Ethereum's account model works."
This fundamental architectural difference gives Bitcoin a significant advantage in scalability. Xiaohui Liu pointed out that the UTXO model supports horizontal scaling, allowing more transactions to be processed simultaneously by adding more computing resources. He explained: "It's like adding more mail carriers to sort mail in parallel. For Ethereum's model, adding more workers doesn't improve efficiency, because they're all trying to process mail from the same big mailbox at the same time, leading to interference."
OP_CAT: Unlocking Bitcoin's Full Potential The core of the discussion centered on OP_CAT (concatenation opcode) and its potential to revolutionize Bitcoin's capabilities. Xiaohui Liu explained that once OP_CAT is re-enabled, Bitcoin will achieve Turing completeness, significantly expanding its programmability.
To illustrate the concept of OP_CAT, Xiaohui Liu used a simple analogy: "Imagine you have two pieces of paper, one says 'Hello' and the other says 'World.' OP_CAT is like a special glue that can stick these pieces together to form 'HelloWorld.' It sounds simple, but especially in smart contracts, this ability to combine information is extremely powerful."
He went on to explain that this simple operation, when combined with other Bitcoin script operations, can enable complex smart contracts. "It's like giving a chef not just a knife, but a whole set of kitchen tools, allowing the chef to create a wider variety of complex dishes. Suddenly, the number of dishes the chef can create grows exponentially."
A key feature enabled by OP_CAT is the Covenant functionality. Xiaohui Liu explained Covenant with a real-world analogy: "Imagine I give you a $100 bill, but with a special condition—you can only spend it at a specific store. That's basically what a Covenant does in Bitcoin. It allows the sender to impose restrictions on how the recipient can use the funds." This is significant for decentralized finance and fund management.
This Covenant functionality opens up many new application scenarios. For example, it can be used to create more complex smart contracts, enhancing Bitcoin's utility in decentralized finance (DeFi) applications. Xiaohui Liu gave an example: "You could create a Bitcoin savings account that only allows withdrawals after a certain date, or a shared account for a business where all transactions require multiple signatures."
Xiaohui Liu also emphasized the importance of OP_CAT in enabling advanced cryptographic technologies, especially zero-knowledge proofs. He used a magic door analogy to explain this complex concept: "Imagine you have a door that can only be opened if you know a secret number. Zero-knowledge proofs are like being able to prove you know the number without actually revealing it. This allows you to prove your ability without exposing your privacy. It's like being able to walk through the door without touching it, proving to everyone you know the secret, but not disclosing it."
He revealed that their team is collaborating with Starkware, a leading zero-knowledge technology company, to bring zero-knowledge rollups to the Bitcoin ecosystem. Xiaohui Liu explained: "You can think of rollups as a very efficient packaging service. Instead of sending a thousand small packages individually, which is expensive and time-consuming, you pack them all into one big box. That's basically what rollups do for transactions, making the whole process more efficient."
Assuming Bitcoin is Turing complete, what applications are best suited to be built on it? According to Xiaohui's insights, ideal use cases may focus on high-value, low-frequency transactions and operations that require high trust, rather than high-frequency, fast transactions. Bitcoin can become a premium platform for issuing fungible and non-fungible tokens, leveraging its security and reputation. Applications like staking or lending, which do not require frequent interactions, are suitable to run on the Bitcoin mainnet.
Those complex, high-value protocols that prioritize security over transaction speed can also find a suitable place on Bitcoin, and similarly, decentralized governance systems are also suitable for scenarios involving important but infrequent decisions. Bitcoin can serve as a secure base layer to support faster, more scalable Layer 2 solutions and facilitate trustless interoperability with other blockchains.
Using Bitcoin's security to create algorithmic stablecoins, as well as developing on-chain decentralized exchanges based on Bitcoin assets, can reduce reliance on centralized systems. Long-term arrangements, such as time-locked contracts, will be able to benefit from Bitcoin's reliability and security and may become commonplace.
In addition, Bitcoin's durability and widespread adoption make it an ideal backbone for persistent digital identity and reputation systems.
CAT Protocol: A New Paradigm for Bitcoin Tokens Building on the potential of OP_CAT, Xiaohui Liu introduced the CAT protocol, a novel Bitcoin token standard. Unlike previous token standards such as BRC20 or Ordinals, the CAT protocol is directly validated by miners, eliminating the need for external indexers.
To illustrate this, Xiaohui Liu used a voting analogy: "Imagine in a traditional election, there are voters, vote counters, and independent observers to ensure fairness. For previous Bitcoin token standards, it's like letting the independent observers (indexers) take on all the vote counting duties. The CAT protocol, on the other hand, is like having the official vote counters (miners) do the job, making the whole process more efficient, trustworthy, and reducing potential trust risks."
This miner validation brings multiple advantages. Miners can ensure successful token minting when confirming transactions, prevent accidental token burns, and allow seamless integration with smart contracts, enabling more complex financial applications. Xiaohui Liu envisions CAT protocol tokens being widely used in various DeFi applications in the future, including decentralized exchanges, lending platforms, and even algorithmic stablecoins.
"Imagine being able to trade tokens, lend, or use them as collateral directly on the Bitcoin blockchain," Xiaohui Liu explained. "It's like upgrading Bitcoin from a single-purpose piggy bank to a fully functional financial institution."
Future Outlook: Testing and Implementation Looking ahead, Xiaohui Liu outlined the development roadmap for OP_CAT and the CAT protocol. The current focus is on testing these technologies on the Fractal network, a Bitcoin-compatible chain that has already enabled OP_CAT. Xiaohui Liu said: "You can think of Fractal as our test kitchen, where we optimize our recipes before serving them on the main course—that is, the Bitcoin mainnet."
Xiaohui Liu also discussed possible Layer 2 solutions that could enhance Bitcoin's scalability. He used a city planning analogy: "The base layer of Bitcoin is like the foundation and main structure of a city—solid and secure, but not designed to handle every interaction. Layer 2 solutions are like efficient public transportation systems built on top of this foundation, handling daily traffic and alleviating pressure on the base layer, making the whole city run more smoothly."
Challenges and Opportunities Despite his optimism for the future, Xiaohui Liu also acknowledged the challenges ahead. The adoption of OP_CAT and the CAT protocol represents a significant paradigm shift in Bitcoin development, and developers will need time to adapt and create user-friendly applications.
"It's like introducing cars to a world that relies on horse-drawn carriages," Xiaohui Liu mused. "The potential is huge, but there's also a learning curve. We need to build roads (infrastructure), train drivers (user education), and set up gas stations (support networks). Only then can everyone benefit from this new technology."
However, he also sees tremendous potential in this new field. From decentralized exchanges and lending platforms to governance tokens and membership systems, the possibilities unlocked by OP_CAT and the CAT protocol are vast. Xiaohui Liu believes these technologies can fundamentally change how we perceive and use Bitcoin, especially in finance and applications, and may even position it as the preferred platform for decentralized applications. END

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