In recent times, there have been frequent incidents of “asset loss” during the operation of engraving transactions. This article will summarize several important precautions in the process of engraving operations, allowing you to avoid becoming a victim of such tragedies.
(Background information:
Satoshi Nakamoto left an encrypted message in the Bitcoin engraving? Spent £60,000 to engrave 332 pieces, decrypted by the community as government surveillance data.)
Contents of this article:
The UTXO mechanism behind Bitcoin and engraving
Why do engraving losses occur?
How to avoid pitfalls in the field of engraving?
Conclusion
Not long ago, a community member accidentally released the UTXO occupancy when purchasing engraving, resulting in the loss of their 3 Bitcoin frogs, which were mistakenly transferred as Gas, resulting in a loss of about 150,000 RMB.
This kind of “asset loss” incident that frequently occurs during engraving transactions has also been quite common recently. In essence, it is because some users are not familiar with the basic concepts of Bitcoin and engraving transactions, which leads to their engraving being treated as ordinary UTXO transfers, resulting in tragedies.
This article aims to briefly introduce the reasons behind this issue and help everyone understand the precautions in the process of using engraving, in order to avoid such unnecessary significant losses.
Firstly, we need to clarify that the transaction model of Bitcoin is different from the bank accounts we usually use. Bitcoin does not have the concept of an account, but it has UTXO (Unspent Transaction Output), which refers to unspent transaction outputs.
In Bitcoin transactions, each transaction has inputs and outputs. The money others pay you is the “transaction input,” and the money you receive is the “transaction output.”
In order to verify and track transactions more efficiently, each UTXO is indivisible and cannot be merged. It can only be spent as an input in a transaction, and after each transaction, the old UTXO will be destroyed and new UTXOs will be generated.
For example, if a person named Xiao Bai has a UTXO of 1 BTC, when he transfers 0.5 BTC to someone else, there will be two corresponding transactions: one is 0.5 BTC for the recipient, and the other is 0.5 BTC as change. The recipient will receive a UTXO, and Xiao Bai will also receive a UTXO worth 0.5 BTC.
In short, a UTXO can be imagined as a “coin” of any amount that cannot be split and is used in transactions to meet the input amount and provide change.
Secondly, the main representative of Bitcoin engraving is the Ordinals protocol (BRC20 tokens), which assigns a sequence number to each satoshi and tracks them in transactions. Users can also attach additional data (images, videos, texts, etc.) to the Bitcoin blockchain through Ordinals, making each satoshi unique and possessing NFT properties.
The carrier of Bitcoin Ordinals protocol engraving is UTXO. Bitcoin engraving is engraved in the segregated witness data, so when a user engraves, it is essentially sending the corresponding amount of Bitcoin to the protocol and the protocol returns a UTXO with the engraving.
In essence, engraving is the process of engraving information such as images, texts, and code on “satoshi” and sending it in a transaction. After each transaction, a UTXO is generated. If a user wants to convert the engraving into a regular Bitcoin balance, they only need to release the UTXO occupancy.
And usually, it is a UTXO of 0.00000546 BTC. In order to prevent dust attacks, the Bitcoin network limits the minimum amount of Bitcoin in a single UTXO to be no less than 546 satoshis.
Therefore, when users transfer engraving, wallets like Unisat and OKX Web3 recognize these special format UTXOs and transfer them to the recipient through the corresponding protocol as inputs, and additional fees are paid.
If a user wants to convert the engraving into a regular Bitcoin balance, in general, they only need to release the UTXO occupancy. After releasing it, this part of the UTXO that originally belonged to the engraving can be used as a transaction fee.
Generally speaking, wallets can recognize users’ engraving, avoiding the merging of this part of the UTXO, and it will only be transferred when the user actively trades the engraving. This is the last line of defense to prevent engraving from being burned. Currently, mainstream Bitcoin wallets such as Unisat and OKX Web3 also have protection mechanisms that support locking engraving to prevent users’ assets from being “destroyed”.
However, if users are not familiar with the underlying UTXO and engraving principles and release the occupancy through the UTXO management function, the reason for the loss of engraving will also become apparent:
Since engraving is essentially UTXO, when users use a wallet to perform Bitcoin engraving transactions, if they accidentally release the UTXO that contains the engraving, it is easy to treat it as an ordinary UTXO and send it out as a regular transfer.
This means that these engravings may be transferred as ordinary UTXOs, and the entire process is completely random and beyond human control. They may be sent to the counterparty or miners, making it difficult for users to recover their assets.
From this perspective, once the occupancy is released, the contained Ordinals assets will be treated as regular balances and may be lost due to normal spending:
Either this part of the UTXO is used as a transfer balance, and the corresponding engraving or NFT asset is sent along with the balance to the recipient address;
Or this part of the UTXO is spent as Gas, and the corresponding engraving or NFT asset is sent along with the Gas fee to the miner.
In this context, contacting the other party to recover the assets purely depends on luck and the other party’s integrity.
In addition to the aforementioned Ordinals (BRC20 tokens) protocol, the well-known Atomicals Protocol is another derivative protocol that embeds data in UTXOs to implement Tokens.
Although it is different from Ordinals originally designed for NFTs, which takes satoshi, the smallest unit of Bitcoin, as the basic “transaction unit,” meaning that each satoshi UTXO represents the Token itself (1 Token = 1 sat), it still faces the same problem because it is essentially UTXO.
Therefore, users must take precautions before operating engraving transactions, confirm that the Ordinals, Atomicals, and other assets contained in the occupied UTXOs are abandoned engraving, use dedicated wallets as much as possible, and isolate the payment address from the recipient address:
Confirm the validity and value of the engraving: Before trading engraving, confirm whether it has practical value and significance to avoid participating in invalid or valueless engraving transactions.
Use smart release functions: Use smart contracts or specific functions to release the occupancy of engraving UTXOs, ensuring that they will not be unintentionally used in other transactions.
Use dedicated wallets that support engraving locking: Choose wallets that support engraving locking to reduce the risk of engraving being mistakenly used or destroyed.
Isolate payment addresses from recipient addresses: Separate payment addresses from recipient addresses as much as possible to reduce the possibility of engraving being mistakenly transferred.
Keep an ongoing focus on engraving transactions: Regularly check and monitor the status of engraving transactions to ensure asset security.
In addition to this, users also need to be aware of other risks when operating engraving transactions. The most common one is the phishing website promotion risk that may be encountered when using Google or Baidu search engines. Users must be careful to directly enter the official entrance of the official Twitter and be cautious in identifying official website links and authorizations.
At the same time, there is also the risk of fake engravings, such as the recent vulnerability in the OKX Web3 wallet’s Ordinals trading market, where a large number of fake Sats were displayed in the order book. If not careful, they can be easily mistaken for engravings with the same name, resulting in losses for many users.
Overall, engraving is an important milestone in the continuous evolution and innovation of the Bitcoin ecosystem in 2023. It has greatly promoted everyone’s attention and enthusiasm for the Bitcoin ecosystem, and has played a significant role in the future development of the Bitcoin ecosystem.
But the Web3 world is a paradise for technical talents and hackers. Especially in the past two years, the security risks in the new track are like an asymmetric one-way hunt, which is undoubtedly an inexhaustible free ATM for technical geniuses. For ordinary users like us, it is more like a “sword of Damocles” that may fall at any time.
For now, engraving is still in the barbaric development stage. Everyone must pay attention to the related risks while participating, not leave the table, and hold onto their assets tightly in order to enjoy victory.
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