The constantly evolving space of digital assets sees new developments every day. Even though Bitcoin and NFTs have been associated for a while now, Non-Fungible Tokens have almost become synonymous with other protocols like Ethereum, Solana, or Polygon.
Recently a new project called Ordinals was launched on the Bitcoin blockchain network. After its announcement, the project stirred up some controversy in the industry.
In this article, we will take you through what Ordinals Bitcoin NFTs are, how they work and the discussion surrounding them.
History of Bitcoin NFTs
The creation of blockchain-based NFTs began in 2014 on Counterparty, a protocol built on top of Bitcoin. This led to the development of popular collections such as Spells of Genesis and Rare Pepes in 2015 and 2016, respectively. At the time, the use of the Bitcoin blockchain for NFTs sparked a debate in the community, with some, like Jeff Garzik, a former Bitcoin core developer, opposing the idea of using full nodes for data storage purposes.
The contention arose from the utilization of a function called OP_RETURN, which allowed for the storage of arbitrary data in the blockchain. Initially, there was a limit of 40 bytes of data that could be stored using this function, but it was later increased to 80 bytes in 2016.
However, the upgrades of Segwit in 2017 and Taproot in 2021 made it more cost-effective and easier to store data with OP_RETURN.
Segwit made it 75 per cent cheaper while Taproot made it 10 per cent cheaper and easier to store data in a single transaction instead of multiple ones, according to Peter Todd, a Bitcoin core developer.
As a result, anyone can now store unlimited amounts of data with this function by paying for it, as long as the total block size remains under 4 MB.
What are Ordinals Bitcoin NFTs?
Ordinals are a kind of numbering scheme put in place to track as well as transfer individual satoshis. Satoshis are the smallest units of a Bitcoin, named after the creator of Bitcoin, Satoshi Nakamoto. One Bitcoin is equal to 100 million satoshis. They are used to express smaller amounts of a Bitcoin and can be used to pay for goods and services.
With the Ordinals project, the team under the leadership of an ex-Bitcoin Core contributor Casey Rodarmor have made it possible to enable Bitcoin-native on-chain NFTs
Ord is a wallet and explorer that provides the ability to track the location and ordinal number of specific satoshis. It also enables the creation and transfer of inscriptions, which are individual satoshis with added content such as images, videos, and HTML.
The Ordinals protocol assigns an ordinal number to each satoshi. With the introduction of Ord and inscriptions, Bitcoin now has the capability to host NFTs (non-fungible tokens), as content can be included and linked to a specific satoshi in a Bitcoin transaction.
How do Ordinals NFTs work?
Ordinals NFTs have two key features that distinguish them from others. Firstly, they are made up of on-chain data, meaning the actual image for the NFT is stored directly on the blockchain, rather than being linked to an external website like most NFTs on Ethereum.
This makes them unique and more secure, as the data cannot be lost or altered without affecting the blockchain itself. Eric Wall, a Swedish researcher and former Arcane Assets CIO, believes that storing fully on-chain NFTs is now seven times cheaper on Bitcoin compared to Ethereum.
Secondly, NFTs are linked to individual satoshis, unlike Ethereum NFTs, which have their own token. This creates a connection between the NFT and the underlying asset, Bitcoin.
However, it can be challenging to maintain this connection because Bitcoins are fungible, meaning each one is interchangeable and can only be differentiated through a complex transaction input-output system.
To solve this issue, Ordinals uses a shared numbering system that assigns every satoshi an ordinal number based on the order in which it was mined. This numbering system, along with other details, is used to maintain continuity for NFTs.
It’s important to note that the Bitcoin does not natively support these features, and NFT holders may accidentally spend their NFTs on transaction fees if they are not careful. Waoh!
Controversy Behind this new Bitcoin NFT project
The world of crypto, DeFi, blockchain, NFTs etc is a very community-focused space. And with every new development, the community ferociously discusses their opinions of it.
The supporters of the project suggest that it will have an overall favourable impact on the Bitcoin ecosystem. They believe that the integration of NFTs on the Bitcoin blockchain is a positive development that will bring more fees and use cases to the chain. This view is held by prominent Bitcoin influencer Dan Held, who argues that every transaction paying its fee is not spam and that the Bitcoin blockchain is open and accessible for anyone to build upon.
Some individuals believes that incorporating NFTs on the Bitcoin blockchain will negatively impact its financial and transactional use case. The CEO of Blockstream Adam Back, who is rumoured to be Satoshi Nakamoto, is a part of this group. He supports this argument and has suggested that Bitcoin users must “educate and encourage developers who care about bitcoin’s use-case to either not do that, or do it in a prunable space-efficient eg time-stamp way.”
He also took to Twitter to express his views on the project. He said that “”you can’t stop them” well ofc! Bitcoin is designed to be censor resistant. doesn’t stop us mildly commenting on the sheer waste and stupidity of an encoding. at least do something efficient. otherwise it’s another proof of consumption of block-space thingy.”
On the other hand, Casey Rodarmor responded to the criticism with the following arguments,
I actually love the haters,” he said. “I mean, they do more to drive people to find out about the project than anybody else. I don’t know what they think when they have these massive audiences, and they go, ‘This is an attack on Bitcoin’—it seems like you don’t want to do that if you don’t want people to use the thing. – Casey Rodarmor
He also added counterpoints that stated
“My design goal, from the beginning, was to create something that would strike people as being Bitcoin native. That means it can’t have a token, and it can’t be a sidechain. One thing that people don’t understand is that in order for Bitcoin to be secure, blocks must be full—that is part of the Bitcoin security model,” he said. “If blocks are not full, nobody has any reason to pay more than the minimum fee rate to have their transactions included. So, as a result, blocks must be full.”