NFTs on the Bitcoin Blockchain!
New Ordinals Protocol Causes Surge in Activity
Are there more uses for the Bitcoin network than making financial transactions? Apparently there are.
Ordinals, a new version of Non-Fungible Tokens (NFTs), are now being minted directly on the Bitcoin blockchain.
NFTs made quite a stir in 2021, when suddenly, digital files, artwork, music and more, were being bought and sold for exorbitant amounts on NFT exchanges. The scarcity of these images led many to believe that they would all soar in value. Well, it didn’t last, not entirely. Most every asset acquires “bubble” status at one time or another. Real estate, stocks, tulip bulbs.
NFTs are still around, and many are trading at healthy prices. It’s just that there’s been a shakeout. And prices have settled down. A lot.
On January 21st, software engineer Casey Rodarmor launched the new Bitcoin ordinals protocol. This allows people to inscribe data on each and every satoshi (sat) on the Bitcoin blockchain. There are 100,000,000 satoshis in each Bitcoin, so a total of 2.1 quadrillion are in existence. But still, a fixed total.
To inscribe data, images, art, whatever, on one satoshi means it is on the blockchain forever. It cannot be altered or deleted, and always leaves a permanent record of the transaction. That, you have to admit, is pretty cool. Thus the recent hype and demand.
So far, over 100,000 ordinals have been inscribed on the Bitcoin blockchain. JPEG images, which most of us are familiar with, digital art, new profile pictures, and even video games have already been inscribed.
Why Is This Good For Bitcoin?
The ordinals protocol is good for Bitcoin, and good for NFTs as well, for a few reasons. First, the ordinals store the NFTs directly on-chain, as opposed to NFTs on Ethereum, which have to use a third-party service, such as Filecoin, to store them. The Bitcoin blockchain, being, as we know, decentralized, is more efficient and cheaper.
Second, the new activity on the network has increased block sizes, practically overnight. This translates into higher fees per block, for the miners and nodes. Those parties have the ultimate say over what gets added to the blockchain, but it is certainly in their best interest to support this use, as it will increase the transaction fees they can earn. And over time, as block rewards for miners decrease, transaction fees will make up a greater share of revenue. Satoshi’s built-in incentives to secure the network.
Miner transaction fee revenue has already increased significantly. As of this Tuesday, over $285,000 of transaction fees have been paid on transactions involving ordinals. This has represented about 12% of all transaction fees in the past couple of weeks, according to on-chain data.
This is pretty big news in the Bitcoin space.
It’s All Good, Right?
Bitcoin network activity has spiked to a two-year high.
NFT activity on the Bitcoin network has risen exponentially.
Transaction fees are rising significantly.
Bitcoin’s price surged past $25,000.
And this is another use case for Bitcoin.
Not everyone agrees that this is all good news for Bitcoin, however. The Bitcoin purists believe that the network should only be used for financial transactions. They feel that Satoshi’s vision was one of a peer-to-peer currency system. The Bitcoin traditionalists also look at NFTs on the network as a sort of spam. Spam that may sort of crowd out chain space for financial transactions.
Indeed, Satoshi’s blog posts from the early days of Bitcoin indicate that he was strongly opposed to non-financial uses of Bitcoin.
Proponents of ordinals on the Bitcoin blockchain point to higher transaction fees, more secure storage of NFTs, and the increased demand for block space.
They also point out that NFTs on Ethereum, Solana or other chains, can be altered or deleted by the creator of the token. Not so with Bitcoin, which is immutable in its nature.
And hey, this Ordinal Punk pictured below, recently sold for about $218,000, on the Bitcoin blockchain.
How Will This Bitcoin Chain Innovation Play Out?
Certainly, there is a lot of hype out there this week concerning ordinals. And the price of Bitcoin is rising. There is more interest in Bitcoin.
As I write this on Wednesday evening, Bitcoin’s price has risen 11.5% for the day.
And people are finally realizing the important differences between Bitcoin and other blockchain tokens. The immutability, the decentralization, and its fixed supply.
Here’s an outstanding quote that sums up the debate over the use of Bitcoin for other than financial transactions:
“There is a subset of Bitcoin culture which sees Bitcoin as purely a way to settle transactions; they see any other use of Bitcoin as an "abuse" of the system. There will always be a contingent of people who oppose using the base layer for anything but those transactions. Though, since Bitcoin is an open, permissionless system, anybody can submit a transaction with any data they want — and we've historically seen an incredible amount of creativity and innovation for expanding Bitcoin beyond its original use cases.” - Jamil Dhanani, Founder of Gamma.io
NOTE: Buyers of NFTs must realize that they are still very speculative investments. Investors must be prepared to lose money. Other blockchains may come along and usurp current protocols, and may offer more utility and more security. Still, alternate uses for the Bitcoin blockchain offer hope for greater adoption and of possibly even more uses for the network.
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Issue No. 96, February 17, 2023
Rick Mulvey is a CPA, crypto consultant, and frequent contributor to Bitcoin Magazine. He writes about all things Bitcoin, and yells at the Yankees and Giants. He also runs marathons and makes wine, neither professionally.