Ordinals are driving a Bitcoin popularity surge, but for that to continue the protocol will need to integrate more standards.
This is an opinion editorially by Danny Yang, founder of the Stanford Bitcoin Meetup, who has inscribed the OnChainMonkey NFT collection on Bitcoin.
In the last few years, NFTs have been the breakout application for Ethereum and other blockchains. While much of this mainstream user base did leave with the drop in NFT prices, many have stayed. But the initial surge in NFT interest drew most of these users to blockchain projects aside from Bitcoin, even though BTC is the largest cryptocurrency by market cap (which is twice the size of Ethereum’s) and it has the highest level of security and the most proven capacity as a store of value. Unsurprisingly, a protocol like Ordinals arrived to make it possible for NFTs to exist on Bitcoin. It was only a matter of time until someone recognized that Bitcoin’s staying power could underpin a truly “killer” app.
Contrary to some complaints, the Ordinals protocol and the capacity to create NFTs on Bitcoin is remarkably great for the future of Bitcoin. With ordinals, we can now inscribe and store non-fungible digital assets on the Bitcoin blockchain. More value stored means even more incentive to participate in the network — we’ve seen this reflected in the increase in Bitcoin nodes operating — further driving up the competitiveness of the bitcoin miners and the value of bitcoin.
It’s not a fad, either. NFT collectors rushed to pay more than $16 million in bitcoin for 288 Yuga Labs ordinals. Bitcoin NFTs are the new “gold standard” and only strengthen bitcoin’s place as the global standard for a store of value.
What Are Ordinals?
The first Ordinals inscription was added to Bitcoin in December 2022, and started to gain traction in early 2023. An ordinal is composed of two parts: an individual satoshi (the smallest unit of bitcoin), and an inscription. Each satoshi is identified by the order in which it was created in the Bitcoin protocol, and the Ordinals protocol tracks each satoshi as they are transferred between wallets.
The inscription is data that is written (or inscribed) on the Bitcoin blockchain and is associated with an individual (“marked”) satoshi at the time of the inscription. This allows people to inscribe data on Bitcoin, and assign and transfer ownership of that on-chain data or inscription using the “marked” satoshi.
The first ordinal created is numbered “ordinal 0” and each subsequent ordinal increments the counter by one. All ordinals form a single ordinals NFT collection. There was an initial rush to create the lowest-numbered ordinals, motivated by the collectibility of very low ordinal numbers. The value of these early ordinals was mostly in the low ordinal number, and the actual data inscribed was not as important (many were just copy-pasted images of existing works, often done without permission from the original creators).
In other words: An ordinal is like a digital postage stamp, and the protocol allows anyone to print their own stamps. Just like with real, physical stamps, these digital stamps are assets that can be owned, sold and transferred. The stamp or ordinal has the advantage of being digital, stored and secured on the Bitcoin blockchain. Both Bitcoin and Ordinals are open, permissionless protocols, so anyone can use Ordinals to print whatever stamps they want.
In the last few weeks, we have seen over 750,000 “stamps” printed on Bitcoin. And, just like with physical stamps, some are worth more than others. One of Yuga Labs’ “stamps” sold for more than 7 BTC, worth over $150,000 at the time.
Why Ordinals Are Good For Bitcoin
The major criticism of ordinals is that storing additional digital assets on Bitcoin means more block space must be used to store these digital assets. Each year, the Bitcoin blockchain can only store a little over 200 gigabytes of data as its theoretical maximum (as each Bitcoin block has a theoretical maximum size of 4 megabytes, with miners adding one block roughly every 10 minutes, and thus, roughly 210 gigabytes’ worth of data per year), which includes all regular bitcoin transactions in addition to marked satoshis and the accompanying inscription data.
Storing ordinals can easily use up a lot more block space than regulator transactions do, crowding out these regular transactions and driving up transaction fees. But this isn’t bad. Fees going up indicate demand for and use of Bitcoin, and that money goes straight to the bitcoin miners who secure the blockchain. That incentivizes more miners and nodes to join, further strengthening the blockchain. Critics also forget that bitcoin is a true free market. Higher fees should mean that the ordinals being written to Bitcoin are of higher value than regular transactions are, just by the nature of their existence. If they aren’t, they won’t sell and won’t be created.
I do agree with critics who point out that most of the NFT collections going to Bitcoin are wasting space — in their rush to be trendy, they’re bloating the blockchain with transactions that I do not see as truly valuable. When I inscribed a 10,000-image collection of ordinals, our team decided to intentionally use only 20 kilobytes of Bitcoin blockchain data total, thus minimizing disruption of the rest of the mempool. Consideration of block space should be a standard for any NFT collection launching on Bitcoin.
Ordinals Does Need a Standard
The Ethereum NFT market had several years to develop — at the time of writing, two of the top three most-used applications on Ethereum (by the amount of gas paid) are NFT marketplaces (on Etherscan, as Blur and OpenSea’s Seaport). Bitcoin is the biggest blockchain by market cap, so it stands to reason that there will be a Bitcoin NFT marketplace (or several) soon. However, where Ethereum got it right was in its NFT standards, and that’s what Bitcoin NFTs are still missing.
As mentioned earlier, all ordinals are part of a single NFT collection on Bitcoin. One important NFT standard available on Ethereum, and not yet on Bitcoin, is the ability for a specific creator to define a custom NFT collection of just their NFTs. The NFT collection standard is vitally important for provenance, security, interoperability and growth. On Ethereum, there are many NFT explorers, wallets and marketplaces, and they can all interoperate and understand which collection any NFT belongs to.
This searchability does not exist for ordinals on Bitcoin yet. To be fair, ordinals are brand new. Ethereum had several years to develop NFT standards, such as ERC-721 and ERC-1155. But now that Bitcoin NFTs are here, we need to create these standards as soon as possible.
Ordinals, the protocol, is also not a finished product. In fact, it is still very much an alpha release. The protocol is being actively developed and upcoming updates will give it more power and make it more efficient.
One important upcoming feature is “collections and provenance.” This will allow creators to clearly authenticate that a group of ordinals are part of the same collection. The technique used to enable this feature is in itself a powerful feature: the ability for an ordinal to reference another ordinal. The collection provenance is established by having a parent collection ordinal that is referenced by its many children ordinals that are all members of the collection. This has two significant advantages: provenance for the collection is very clear, and storage space required to store all of the data for the child ordinals can be greatly reduced by reusing data in the parent.
This is what we did with our ordinal inscription: you can see what collection provenance looks like for yourself in Ordinal inscription 20219. This standard will improve security and provenance for everyone, and we need that to keep people from being scammed. Right now, creators are passing around ad-hoc lists of ordinals that they say are “a collection.” Because marketplaces and explorers only get some of this metadata, they have a hard time verifying the provenance of these lists.
If we can get a standard set up and running, it can always be improved. In the interim, it will give the teams building Bitcoin NFT DApps (like wallets and explorers) the infrastructure they need.
Ordinals is kickstarting a new renaissance of Bitcoin development and bringing in a new wave of Bitcoin users.
We have seen this on other blockchains like Ethereum and Solana. Except this time, it’s happening on the most decentralized, most secure and highest-valued blockchain. Bitcoin could easily have the highest-valued individual NFTs, and even the highest market cap overall for all NFTs. And as more users come to Bitcoin, it will only become more secure.
This is a guest post by Danny Yang. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Source: Bitcoin Magazine - Bitcoin News, Articles and Expert Insights