CEO of Loka Mining on Bitcoin’s DeFi possibilities

As a long-time crypto investor and CEO of a mining firm, I’ve witnessed the evolution of Bitcoin and its role in the decentralized finance (defi) space with great interest. The recent Bitcoin halving has brought about new challenges for miners, but innovations like Runes and Ordinals are revolutionizing the defi landscape on the Bitcoin network.

In a conversation with, Andy Fajar Hardika, the CEO of Loka Mining, shared insights on the development of Decentralized Finance (DeFi) applications on the Bitcoin network.

As a crypto investor, I’m closely monitoring the Bitcoin network after the mining rewards were cut in half on April 19, 2024. Previously, I used to earn 6.25 BTC for mining a block, but now I’ll only receive 3.125 BTC as reward. The halving event occurs roughly every four years, but this time around, it has sparked intense discussions within the industry regarding its potential impact on the Bitcoin mining economy.

As each Bitcoin halving occurs, mining companies face the challenge of adjusting to reduced profit margins. Smaller, financially strained businesses often withdraw from the industry or merge with larger entities. In contrast to previous halving occurrences in 2016 and 2020, the upcoming halving event in 2024 could trigger a wave of consolidation and potential insolvencies.

Discover the innovative applications of Runes and Ordinals, two groundbreaking concepts transforming the DEFi (Decentralized Finance) sector on the Bitcoin network.

In simple terms, Runes enable Bitcoin to adopt fungible tokens similar to Ethereum‘s ERC-20 through its blockchain, while Ordinals introduce NFTs (Non-Fungible Tokens) directly onto the network. This expansion opens up new opportunities for Bitcoin, allowing it to go beyond just financial transactions.

Using Runes and Ordinals, Bitcoin is exploring innovative approaches to narrow the divide between itself and Ethereum, which has predominantly been acclaimed as the leader in Decentralized Finance (DeFi). Nevertheless, progress comes with its complications. The specter of scalability constraints and apprehensions regarding blockchain congestion cast long shadows, evoking previous hurdles that the industry has encountered.

As a crypto investor, I’ve observed with excitement the emergence of new protocols such as Runes and Ordinals. These innovations demonstrate that Bitcoin is capable of hosting a wider range of decentralized applications. Concurrently, miners have found a way to mitigate the impact on their income due to the halving event.

Hardika, who leads a cryptocurrency mining firm, shared his insights on the matter.

As a researcher studying the decentralized finance (DeFi) landscape, I’m intrigued by Bitcoin’s growing influence. With the introduction of innovative solutions like the Runes protocol, Bitcoin is increasingly becoming a significant player in this space. The impact on miner revenues and transaction fees is an essential aspect to consider. These advancements not only expand Bitcoin’s capabilities but also contribute to its evolving role as a crucial foundation for DeFi applications.

In simpler terms, although Bitcoin doesn’t offer the same level of programmability as other cryptocurrencies, its enduring strength and status as the leading store of value give it a powerful “Lindy effect.” This influence is compelling new protocols to develop on Bitcoin’s second layer or sidechains.

From my perspective as an analyst, I believe it’s an intriguing question. Bitcoin and Ethereum occupy distinct yet interconnected roles in the world of cryptocurrencies. Bitcoin is often seen as a digital gold, providing a store of value and scarcity through its limited supply, while Ethereum has emerged as a platform for decentralized applications (dApps) and smart contracts, fueling the growth of decentralized finance (DeFi).

As a researcher in this field, I believe that the future landscape of blockchain technology won’t be marked by competition but rather collaboration. We will witness the fusion and abstraction of chains to such an extent that typical users wouldn’t have to worry or even care about which specific chain they are utilizing at any given moment.

Given the surge in transaction fees due to Runes, how do you suppose Bitcoin can strike a balance between compensating miners effectively while ensuring affordability and accessibility for users? Is the increasing fee structure posing a challenge to Bitcoin’s potential adoption for smaller transactions?

When Bitcoin evolved from being a peer-to-peer digital currency to a Store of Value, the significant transaction fees on the Bitcoin L1 became essential in my opinion. These fees represent the cost for maintaining the network’s security budget. In this context, Layer 2 (L2) solutions like Lightning or ICP come into play, contributing to network scaling and adding programmability to Bitcoin. From a user’s standpoint, these alternatives enable Bitcoin transaction fees to be minimized, bringing costs down to just a few cents.

Previously, Ethereum has outpaced Bitcoin when it comes to Decentralized Finance (DeFi) applications. But with emerging innovations like Runes and Ordinals, how probable is it that Bitcoin could bridge this divide? What are the strengths or hurdles Bitcoin faces in this domain?

In simpler terms, Ordinals and Runes represent distinct components of Bitcoin’s programming functionality, comparable to ERC721 for Ordinals (NFTs) and ERC-20 for Runes (Fungible Tokens) on Ethereum. Though they enable the creation of a foundational decentralized application (dApp) on Bitcoin, their capabilities are currently limited. However, I envision their role as anchors for Layer 2 solutions, ultimately allowing for a comprehensive DeFi experience on the Bitcoin network. A major advantage lies in unlocking the vast amount of value locked in Bitcoin holders’ wallets.

Some critics contend that employing protocols such as Runes and Ordinals in a blockchain might result in increased data storage requirements and slower transaction processing speeds. I’d be interested in hearing your perspective on these potential disadvantages, and how they measure up against Ethereum’s scalability issues.

The past is full of precedents. A few short years ago, CryptoKitties emerged as the pioneering gamified NFT on Ethereum, accounting for a significant 13% of all transactions in that network. This situation sparked debates about network capacity and ultimately led to numerous upgrades and the emergence of Layer 2 solutions on Ethereum.

Do you expect a similar trend?

From my perspective as an analyst, I observe striking similarities between the role of Runes and Ordinals in the current blockchain landscape and their impact on Bitcoin’s ecosystem. Both Runes and Ordinals occupy substantial block space and significantly contribute to the network’s security budget. This development has led to over fifty Bitcoin layers or sidechains emerging, all striving to address Bitcoin’s scalability issues.

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2024-05-03 15:00