The Ordinals protocol now allows the incorporation of non-fungible tokens (NFTs) into Bitcoin transactions, causing both excitement and discussion among the Bitcoin community. Whereas NFT efforts like Ethereum, Solana, and Stacks allow users to change information, Ordinals allows users to inscribe data directly onto satoshis, Bitcoin’s smallest denomination unit.
As a result, each inscription is regarded as a “digital artifact,” forever preserved on the Bitcoin network. This essay dives into the Ordinals protocol and its implications for Bitcoin.
What Is the Ordinals Project and How Does It Work?
The Ordinals project was announced in January 2022, and it allows photographs, digital art, new profile picture (PFP) projects, and even video games to be written on the Bitcoin blockchain without the need for a separate sidechain or token.
Almost 50,000 ordinals have been minted on the Bitcoin blockchain to date, with some already commanding significant prices. The Ordinal Punk, a fork of the CryptoPunks NFT collection, sold for 9.5 BTC, or approximately $218,000.
Inscriptions are deemed immutable since they are stored on-chain alongside the whole image or content rather than just a link connecting to a server storing the data.
Criticism of Ordinals
Ordinals’ popularity has sparked a heated dispute within the Bitcoin community. Detractors contend that ordinal inscriptions are spam that clogs up network space, leading more legitimate financial transactions to be drowned out.
Inscriptions, they argue, enhance demand for block space, resulting in a healthy fee market that compensates miners for safeguarding the network. They also assert that the free market determines the optimum use of block space.
Some Ordinals opponents have asked Bitcoin node operators and miners to censor inscriptions. Although nodes and miners have the capacity to filter some transactions, it is in their best economic interest to enable any use cases that increase fee revenue, especially as transaction fees become a larger percentage of miner revenue over time.
Ordinals in comparison to Other Bitcoin-based NFT Initiatives
Ordinals is not the first project to seek to integrate non-fungible assets to Bitcoin; prior attempts include the now-defunct Counterparty and Mastercoin. Stacks, on the other hand, is a Bitcoin sidechain with its own NFT ecosystem.
Gamma is a Stacks-based NFT marketplace that functions on the Bitcoin blockchain, settling Bitcoin transactions while storing raw picture data directly in a Bitcoin L1 transaction. Stacks, on the other hand, only settles transactions in Bitcoin, with the actual photos saved on a separate layer.
The Future of Ordinals and Bitcoin NFTs
The Ordinals protocol’s introduction and subsequent popularity have broadened Bitcoin’s use cases beyond transaction settlement. While some Bitcoin purists remain dubious of NFTs, it seems evident that NFTs are here to stay on the Bitcoin blockchain.
The surge in interest in Ordinals has resulted in a 3,000% increase in daily trading volume on Stacks NFT collections from late January to February 9th. Stacks NFTs have a total trading volume of $36.2 million, with a volume of $211,000 in the last thirty days.
Bitcoin Originals NFT Marketplaces
As of right now, there don’t seem to be any major NFT marketplaces for Bitcoin ordinals.
The incorporation of NFTs into Bitcoin transactions via the Ordinals protocol is a game-changing development in the cryptocurrency sector.
While the debate about the use of Ordinals continues, its implementation and adoption have clearly broadened Bitcoin’s use cases. As the use of NFTs on the Bitcoin blockchain expands, it is evident that the opportunity for investors and the broader crypto community is enormous.