Dasha Shan from Waterdrip Capital: The beginning of the blockchain world is Bitcoin, and the endgame is the Bitcoin ecosystem.
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Dasha Shan from Waterdrip Capital: The beginning of the blockchain world is Bitcoin, and the endgame is the Bitcoin ecosystem.
Comprehensive insights into the Bitcoin ecosystem, blockchain technology evolution, Lightning Network, Nostr protocol, and more.
Navigating Web3 tides with focused insightsEditor: Bowen, White Dew Salon
On December 20, the Hong Kong Web3.0 Entrepreneurs Summit was held as scheduled at Cyberport, with White Dew Salon attending as a media supporter.
During the event, Da Shan, founder of Waterdrip Capital, delivered an insightful presentation on the theme "The Beginning and Endgame of the Blockchain World," sharing in-depth knowledge about the Bitcoin ecosystem across key areas including Bitcoin's ecosystem development, miners' second growth curve, major Bitcoin upgrades, blockchain technology evolution roadmap, Ethereum and RWA, the Lightning Network, and the Nostr protocol.
White Dew Salon has curated the key highlights from this speech for our readers.
Key Takeaways:
1. Bitcoin’s total network hash rate has grown from 10 billion in 2021 to 50 billion today—an increase by a factor of five within just over two years;
2. The Lightning Network could potentially become a global settlement network. Data from the Lightning Network, when batched and posted onto Layer 1, can also generate additional income for miners—this represents miners’ second growth curve;
3. The blockchain world is evolving along two paths: one focused on assets, the other on technological advancement;
4. The market cap of Ethereum’s ecosystem is roughly equivalent to that of ETH itself; Bitcoin’s own market cap is three times that of Ethereum, creating a massive alpha opportunity—Bitcoin’s ecosystem market cap may soon catch up to or even surpass that of Ethereum’s;
5. Ethereum’s advantage lies in its account-based model, which is well-suited for RWA (Real-World Assets) development;
6. It is estimated that eventually around 10% of all Bitcoin—amounting to hundreds of thousands of BTC—could be locked into the Lightning Network or other Bitcoin Layer 2 networks;
7. If Bitcoin marks the first time in human history that technology has protected private property from infringement, then Nostr marks the first time technology has protected individual free speech from censorship.
Below is the full transcript of Da Shan’s keynote speech at Waterdrip Capital, slightly edited for clarity.
The beginning of the blockchain world can be summed up in three words: Bitcoin. At the start, there was only Bitcoin. More precisely, before 2014, the term “blockchain” was synonymous with Bitcoin.
Back in 2013, if you wanted to launch your own project, you had to gather a group of miners or community nodes and post an announcement on Bitcoin Talk. Then everyone would simultaneously begin mining—a process very similar to today’s inscription minting, where project teams have no unfair advantages.
The only advantage back then was that the early community was relatively small, so project founders could participate more actively. But they still had to spend money and resources—there were real costs involved. That was the next chapter after the initial Bitcoin era.
Development of the Bitcoin Ecosystem
Now let’s look at the current state of the Bitcoin ecosystem. Bitcoin itself has been around for 14 years since 2009 and now has over 16,800 full nodes—a critically important number.
Remember this figure—even though ten thousand+ nodes might not sound like much, behind them are millions of mining machines. These 16,800+ full nodes are primarily maintained by mining farms and miners who relay transactions. Additionally, many developers working on inscriptions or building Bitcoin-based startups also run full nodes to access data faster.
As you can see, these nodes are distributed globally. Thus, the Bitcoin ledger forms the most secure accounting system in the entire blockchain space, maintained by over 16,800 full nodes.
Miners deeply understand this reality. Hash rate continues to grow rapidly and consistently.
To illustrate: Waterdrip Capital originally started in mining. Though we stopped investing heavily in mining after 2021, we kept older machines running. In 2021, due to concerns about carbon emissions, China’s National Development and Reform Commission banned cryptocurrency mining, forcing the industry to move overseas.
At the time of the ban, I remember clearly—the bull market pushed the total network hash rate to a record high of 10 billion. Now? Just over two years later, it has surpassed 50 billion—a fivefold increase in just over two years.
In other words, the same mining machine today produces only one-fifth of what it did a few years ago—extremely competitive.
Not to mention, next April, Bitcoin will undergo another halving. After that, theoretical mining rewards could drop to just one-tenth of their 2021 level.
This is bad news—not just for miners but for the network as a whole. As miner revenues decline, fewer participants will maintain nodes, potentially reducing the number of active validators and making the Bitcoin network less secure.
Therefore, increasing miner revenue is effectively equivalent to enhancing the decentralization and security of the network.
Miners Seeking a Second Growth Curve
Beyond fixed block rewards, miners are actively seeking a second growth curve.
One path has already emerged: inscriptions. Recently, mining revenue per block has nearly doubled—or increased by at least 50%.
Transaction fees now constitute a significant portion of block rewards—and in some blocks, transaction fees even exceed the fixed block subsidy. After next year’s halving, transaction fees may frequently surpass block rewards. This is the miner’s second growth curve.
Of course, inscriptions remain controversial: if low-value inscriptions flood the network, they waste precious space in Bitcoin’s 4MB blocks.
Relatively speaking, we should prioritize protecting Bitcoin’s core transfer functionality. If too many spammy inscriptions occupy space, it truly becomes a waste of valuable capacity.
Our view is: inscriptions are acceptable on Layer 1—but not in excess. If you want to experiment with trivial inscriptions, do it on Layer 2 instead.
When Layer 2 matures and supports diverse applications, the data exchanged between Layer 2 and Layer 1—or the transactions themselves—become highly valuable. If such data generates more value than standard Bitcoin transfers, it cannot be considered junk.
Bitcoin Layer 2 holds great promise. Satoshi Nakamoto himself included code for the Lightning Network in Bitcoin 0.1.
Satoshi envisioned Layer 2 support. Back in 2009, he said: “Either Bitcoin becomes a global settlement network in 20 years, or it goes to zero.” A global settlement network cannot operate solely on Layer 1—it must rely on Layer 2.
In other words, the Lightning Network could realize the vision of a global settlement network. By bundling Lightning Network data and posting it to Layer 1, miners gain additional income—this is also part of their second growth curve.
Major Bitcoin Upgrades
Bitcoin has undergone several critical upgrades. Many people who entered crypto post-Ethereum believe Bitcoin hasn’t evolved in the past decade—that it’s limited to simple transfers. This is completely wrong. Bitcoin has seen multiple pivotal upgrades.
For example: in 2012, multi-signature support was introduced, although initially basic—supporting up to 15 signers.
Thus, during the last DeFi boom, Bitcoin played almost no role—only two centralized bridges allowed BTC to move to Ethereum, making users hesitant to trust them. Today, however, truly decentralized cross-chain methods exist.
A major upgrade came in 2017: SegWit. This significantly improved the scalability and throughput of the Lightning Network.
Most importantly, the reason many of you are here today—the reason the Ordinals inscription community and BRC-20 ecosystem exist—is thanks to one upgrade: Taproot.
After the 2021 Taproot upgrade, Waterdrip Capital made a strategic decision: we began treating the Bitcoin ecosystem as a primary investment focus. We saw Taproot as ushering in Bitcoin 2.0—with vastly improved scalability and programmability.
Taproot launched during the previous bull market, so it was largely overlooked by the broader blockchain community. Only among Bitcoin OGs was the significance widely recognized.
Many OGs who had stepped away after 2013 returned, saying: “Okay, Bitcoin can finally do a lot,” and re-entered the space as entrepreneurs.
Precisely because other communities underestimated Taproot, most missed the subsequent Ordinals wave—especially players from the Ethereum or other L1 ecosystems.
Technology Evolution Path of Blockchain
Since Bitcoin, the blockchain world has evolved along two main paths. Understanding these two trajectories offers strong potential to become mainstream in the industry.
The first is the asset path. Simply put: can you bring traditional finance capital into the blockchain world? Whether through DeFi yields, GameFi play-to-earn models, Bitcoin’s digital gold narrative, Solana’s DePIN concepts, or tangible products—if you can attract real-world capital, the entire industry rises together. This is one viable entrepreneurial direction.
The second is the technology evolution path. Technology must serve humanity by lowering costs and improving efficiency. Let’s examine the technological progression since Bitcoin.
Initially, Bitcoin 1.0 and early blockchains could only perform one function: transferring assets. Each chain supported only a single native asset.
People soon realized this was too limiting. Could we not only issue assets but also program them?
Some projects emerged, but they relied on hard-coded smart contracts—rigid, non-upgradable, requiring coordinated forks for updates—cumbersome and not truly decentralized.
Then came a revolutionary breakthrough: Ethereum. Ethereum’s key contribution was flexible, upgradable, Turing-complete smart contracts.
Alongside Ethereum’s launch, numerous competitors—so-called “Ethereum killers”—emerged. In my view, they were all of the same generation.
Some, like EOS, sacrificed decentralization for performance. Others traded off aspects of the blockchain trilemma to optimize elsewhere.
But note: during the Blockchain 2.0 era, none achieved sufficient performance to meet long-term needs.
Many tried to improve Ethereum or build better alternatives.
In 2017–2018, a major debate erupted over scaling—BCH, BSV, big blocks vs small blocks, various approaches.
Initially, the dominant approach was on-chain scaling via sharding, which promised full decentralization. Unfortunately, the Ethereum Foundation struggled technically and failed to deliver sharding after years of research.
Amid growing competition from alternative chains, Ethereum ultimately shifted to Layer 2 scaling—Rollups—leading to the rise of various L2 networks.
However, L2 scaling has a fatal flaw: centralization.
Ethereum’s Layer 2 solutions are centralized—you probably know this. They lack independent consensus mechanisms or blockchains. Instead, a centralized sequencer orders transactions, batches them, and submits proofs to Layer 1 for verification, with a 7-day challenge period.
This setup appears to solve trust issues, but it’s inefficient and prone to failure. Recently, Arbitrum and zkSync both went down simply because a single inscription overwhelmed the system—unable to handle traffic spikes. When the sequencer fails, the entire network collapses.
Looking ahead to Blockchain 3.0, several directions remain open. For instance, achieving full on-chain scalability—like successful Ethereum sharding—could revive Ethereum’s prospects.
But if we’re merely building centralized L2s today, why not do it on Bitcoin? User experience and developer accessibility would be identical. You use Ethereum as your base layer and pay gas in ETH; I use Bitcoin as base layer and pay gas in BTC. Data availability (DA) solutions may differ, but everything else is the same.
Bitcoin also has native Layer 2 options like RGB and Nostr—viable alternatives worth exploring.
Let me briefly illustrate the TVL of the Bitcoin ecosystem. The area of each square represents market cap. Bitcoin’s market cap is over three times that of Ethereum. Yet, Ethereum’s ecosystem value—sum of all projects and TVL on Ethereum—is roughly equal to ETH’s own market cap, totaling around $300 billion.
Today, Bitcoin’s ecosystem value is mainly driven by inscriptions and a few testnet L2s, totaling under $5 billion. However, Bitcoin’s standalone market cap is triple that of Ethereum—creating a massive alpha opportunity. In the coming bull market—or perhaps already in its early stages—Bitcoin’s ecosystem value could match or even surpass Ethereum’s.
RWA Remains Ethereum’s Opportunity
That said, Bitcoin’s vast potential doesn’t mean Ethereum has no future—especially in RWA (Real-World Assets). Most DeFi activity is shifting to L2s, so we can expect many DeFi protocols—and even top-tier Ethereum L2 teams like Starknet—to begin building on Bitcoin L2s.
Ethereum holds one key advantage over Bitcoin: its account-based model.
What does “account model” mean? An Ethereum address remains constant across all interactions. While convenient, this lacks privacy—every interaction with a frontend or MetaMask wallet can potentially expose your IP, making user tracking easy.
In other words, Ethereum and similar PoS account-model chains offer weak address-level security.
This “insecurity” means it’s hard to act anonymously (for better or worse). If you don’t engage in illicit activities, you’re safe.
Bitcoin uses UTXO—each transaction generates new addresses, making tracking extremely difficult and offering strong privacy. The downside? It’s more complex to manage.
RWA involves linking blockchain to real-world assets, which inherently require KYC—making it naturally compatible with Ethereum’s traceable account model.
For those preferring Ethereum over Bitcoin, I strongly recommend focusing on the RWA sector—it’s a natural fit. Outside of RWA, however, I believe most native innovations like GameFi and DeFi will eventually migrate to the Bitcoin ecosystem.
The Endgame Is the Bitcoin Ecosystem
We’ve discussed the beginning—now let’s talk about the endgame. My personal view—and Waterdrip Capital’s thesis—is: the beginning was Bitcoin, the endgame is the Bitcoin ecosystem.
We believe the most promising path lies in Bitcoin Layer 2, given the severe limitations of Layer 1 capacity. Even minor features like inscriptions have sparked major debates and driven up gas fees—clearly unsustainable for mass adoption.
Whether proactive or forced, we must build on L2.
Expect Bitcoin L2s with Ethereum-like UX to emerge by January next year—one month from now. Projects like BEVM are already testing, with fast-growing TVL.
Second, the Lightning Network and Nostr deserve close attention.
Lightning Network
Let’s start with Web2. Web2 revolves around two functions: messaging over the internet and payments (e.g., subscription purchases).
Interestingly, Lightning Network and Nostr mirror these functions: Lightning is a decentralized asset transfer protocol; Nostr is a decentralized messaging protocol. Both can theoretically achieve 1 million TPS—far beyond any existing blockchain, whether L2 or L3.
RGB, another native off-chain computation + client-validation model, is also lightning-fast—essentially an extension of the Lightning Network supporting complex smart contracts. But RGB is still early—likely only capable of simple token issuance within the next six months.
Regarding the Lightning Network, it’s important to know that even Bitcoin 0.1 contained primitive state channel code—proving Lightning aligns with Satoshi’s original vision and is considered the orthodox Bitcoin L2.
Technically, Lightning relies on two fundamentals. First: RSMC (Revocable Sequence Maturity Contract). Users open a payment channel by locking BTC inside. Transactions occur off-chain.
For example, lock 10 BTC—conduct unlimited transactions up to 10 BTC. Lock 100 BTC—do business worth 100 BTC. This is its core tech. Through shared relay nodes, channels interconnect into a network—the “Lightning Network.”
As Lightning grows, more BTC will be locked into L2, further tightening circulating supply and potentially driving price appreciation.
Currently, Lightning holds about 5,000 BTC—locked in channels. This seems small, but recall: Taproot Assets aren’t live yet.
Right now, Lightning only supports BTC transfers—useful for buying coffee or meals, but demand is limited.
Large purchases using volatile BTC aren’t practical. But Taproot Assets—or stablecoins on Lightning—are launching in the coming months.
Once stablecoins go live, Lightning’s capacity will surge dramatically. Estimates suggest up to 10% of all Bitcoin—hundreds of thousands of BTC—could eventually be locked in Lightning or other L2s.
Nostr Protocol
Nostr is another severely underrated protocol—not just in the broader blockchain space, but even within the Bitcoin ecosystem. Its importance rivals Bitcoin itself. If Bitcoin is the first technological safeguard for private property, then Nostr is the first technological safeguard for free speech.
Once deployed, Nostr nodes cannot be censored by governments or regulators.
Nostr is simple: as long as there’s mutual trust, anyone can communicate—much like the early internet.
The U.S. Nostr community champions reclaiming the internet from government centralization—a noble vision. I believe Nostr stands shoulder-to-shoulder with Bitcoin as one of the most profound inventions in digital history. Pay attention.
Finally, regarding RGB—I’ll keep it brief. There’s an expert in the audience, Professor Hong, who leads in this field. Feel free to reach out to him for technical questions. In short, RGB is a native UTXO-based smart contract system on Bitcoin. It achieves Lightning-speed execution while enabling Turing-complete logic comparable to Ethereum. However, development is technically challenging.
Conclusion
The Bitcoin ecosystem frequently spawns groundbreaking technologies—many of which flourish first on other chains. If these protocols seem too complex, consider supporting roles within the Bitcoin ecosystem: payment node providers, liquidity providers, commercial applications—all offer entrepreneurial opportunities.
I once tweeted: many so-called “Ethereum killers” were crushed during the last bull market, left barely alive.
Their only chance of survival—or relevance in the blockchain world—is to pivot quickly and serve the Bitcoin ecosystem: alleviating inscription pressure, sharing traffic load, or integrating with Bitcoin. Having proven inferior to Ethereum, their best hope is to return to the roots—join the Bitcoin ecosystem. That’s my advice.
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