Are ‘evil JPEGs invading the sacred Bitcoin blockspace’? In the recent few weeks, over 75 thousand NFTs have been inscribed into the Bitcoin blockchain. All this is made possible by the new Ordinals protocol.
The Ordinals protocol was launched on January 21st, 2023. It allows people to track individual satoshi’s by assigning them a serial number. This new option alone gives satoshi’s a separate identity.
Compare it to being able to track individual gold atoms… This ability alone would make certain gold atoms more valuable than others. Some people wouldn’t mind owning a piece of gold that contained some gold atoms which once were part of Cleopatra’s jewelry…
Collecting Satoshi’s
We are a species of collectors, and since satoshi’s can now be tracked and transferred, this opens some possibilities. In order of increasing rarity, consider the rarity of:
- Any first satoshi of a newly mined block
- The first satoshi after a halving
- The first satoshi of Bitcoin’s genesis block
Unfortunately, it is unlikely that Satoshi Nakamoto will ever sell that first sat….
Inscribing Satoshi’s: NFTs on Bitcoin
This is all cute, but Ordinals don’t stop at just ordering satoshi’s. There is an added possibility of inscribing satoshi’s with content, such as an image or music files, or other types of data. This has created for the first time the possibility of Bitcoin-native digital artifacts, or Bitcoin NFTs.
“Inscribing is done by sending the satoshi to be inscribed in a transaction that reveals the inscription content on-chain. This content is then inextricably linked to that satoshi, turning it into an immutable digital artifact that can be tracked, transferred, hoarded, bought, sold, lost, and rediscovered.”
You inscribe a satoshi by creating a Bitcoin transaction that includes a specific sat first in line in the transaction output. Why first in line? Because you can’t transfer individual satoshi’s from wallet to wallet. That would be an amount below the dust limit.
In a sense, the Ordinals protocol makes the entire stack of 2.1 quadrillion satoshi’s that will ever exist a giant Bitcoin NFT collection. Except that it is not an NFT collection yet. It’s more like a protocol for creating new collections.
What is the Controversy Surrounding Bitcoin Inscriptions?
It is understandable that some respected people in the bitcoin community (such as OG Adam Back, inventor of proof-of-work) aren’t fond of inscriptions. In their eyes, the invention makes Bitcoin less of a pure monetary instrument and makes satoshi’s less fungible. Admittedly, also inscribed satoshi’s still have the nominal value of one satoshi. But in practice, some inscribed satoshi’s are already trading at floor prices of more than 1 Bitcoin, i.e. 100.000.000 times their nominal value!
Proponents of inscriptions argue that it will create a healthy fee market for Bitcoin. After all, simply hodling bitcoin won’t create full blocks. A prospering fee market is essential if Bitcoin wants to keep a healthy security budget for three or four halvings in the future. And, indeed, the numbers of transactions and fees are up since the launch of Ordinals. On average, since the second week of February, an average of around 70 thousand dollars per day is spent on Ordinal fees. Still, the current Ordinals market is too small to come even close to the cumulative fees that were paid in the recent bull market. So, it’s too soon to declare victory for Bitcoin’s potential fee problem.
What is the Difference Between NFTs on Bitcoin and Other NFTs?
The first main difference is that the ‘jpegs’ (the image files or files of another data type) are stored on-chain. With many other NFTs, this is not the case. To save precious block space, the only thing that is typically stored on-chain in the case of NFTs, is the ‘ownership certificate’ of the file. In that case, the NFT is a pointer to the file, which is in some database.
So, Bitcoin NFTs can arguably be considered the highest quality type of NFTs by collectors: large images inserted directly into the most immutable blockchain in the world.
Second, whereas NFTs on Ethereum are separate tokens on a different standard, on Bitcoin there is no new token. Whereas no Ethereum wei (smallest ETH unit) is inscribed, this is the case with satoshi’s.
Are Ordinal NFTs the First NFTs on Bitcoin?
Historically, it is possible to put small amounts of arbitrary data into bitcoin’s blockcain, other than bitcoin transactions. This was already done in the Genesis block, by Satoshi Nakamoto (the infamous ‘Chancellor on the brink…’ quote) A large use case has been to attach other blockchains onto Bitcoin, which want to inherit some of the security. An early example of this was the Omni protocol, on which Tether was originally issued. The usage of these data peaked in 2019 and has dwindled since.
Will Ordinal NFTs Clog the Bitcoin Blockchain?
No. First, the block size will stay limited at 4 MB, pre and post-Ordinals. Second, the inscriptions will end up in the witness data, which make up three-quarters of the block space. Witness data are essentially the signatures. These data can be pruned after validation. This in turn means that full nodes don’t have to store these data. For a full explanation: see this podcast fragment with Eric Wall.
Can Ordinal NFTs be Banned from Bitcoin?
Friend and foe agree ordinals are here to stay, at least in principle. We have to accept that inscriptions cannot be kept off the bitcoin blockchain.
Andrew Poelstra (Director of Research at Blockstream):
“Unfortunately, as near as I can tell there is no sensible way to prevent people from storing arbitrary data in witnesses without incentivizing even worse behavior and/or breaking legitimate use cases.”
Why? Because banning ‘useless data’ would simply push people to embed their data inside ‘useful’ data such as dummy signatures or public keys.
Or, to phrase it a bit more abruptly by the inventor of Ordinals protocol: ‘deal with it’.
But how exactly, ‘deal with it’? Casey names a few ways: Help onboard new users to Bitcoin and Lightning and help make inscriptions as efficient as possible. For example, compression for text formats, and guiding users towards space-efficient formats.
Udi Wertheimer posits that Ordinals will educate a lot of people about Bitcoin who weren’t previously interested.
Examples of Ordinal NFTs
As a lot of people are toying around with inscribing NFTs on bitcoin, a lot of inscriptions feel a bit random. A recipe for shrimp dip, a GIF of Rick Astley dancing, the sound of a 1990-type modem connecting to the internet…
Then there are the inscriptions that seem to want to prove a point, such as the playable doom clone, or Udi Wertheimer’s 3.8 Taproot Wizard image, filling up nearly an entire block (possibly made possible by an over-the-counter trade with a miner, for a hefty fee).
Emerging Collections: ‘Bitcoin Punks’
Part of the first 1.000 ordinal inscriptions, are 100 ‘Bitcoin punks’. Sure, a rip-off, but potentially valuable. Simply by virtue of being early. They trade at a floor price of 3 BTC.
How do I Mint an Ordinal NFT?
Go to ordinalsbot.com and upload the file you want to inscribe. Specify the BTC address you want to have the inscription sent to. Or, if your wallet isn’t ready to deal with ordinal NFT’s, let ordinals.bot escrow your inscription for the time being.
Can I Buy Ordinal NFTs?
Currently, trades are over the counter. You will have to reach out on Twitter or find discord groups. To avoid getting scammed, always make sure to check an ordinals discord and try to chat with people.
The ecosystem is growing fast. Specialized wallets with a graphical user interface (not command line, like currently) are in development.
What Kinds of Risks do Ordinal NFTs Bring with Them?
From the perspective of people who view bitcoin as a single-purpose blockchain – an app chain for money if you will – Ordinals NFTs remind us why bitcoin developers need to be cautious with updates. Changes to the protocol can lead to use cases that were not anticipated. Ordinals are an example.
The biggest risk with Ordinal NFTs is that they increase the possibility of a specific attack vector: a government that is hostile towards Bitcoin could secretly inscribe obscene or criminally charged imagery into the Bitcoin blockchain. That could be used to demonize Bitcoin.
Conclusion: What Jewellery is to Gold?
At first, Ordinal NFTs on Bitcoin might seem sacrilege: inscribing NFTs on a purely monetary chain like bitcoin. On second thought, the first person who made jewellery out of gold might also have been scorned. Such a frivolous use of a pure, monetary asset! Clearly, gold has managed fine to combine the formal use cases of being stored in central bank vaults and being worn as an adornment. Now, let’s see how bitcoin will do. Possibly, these NFTs are just a passing fad. Or perhaps, they spark innovations that are still unforeseen and could help bitcoin bring to the masses.
For users to interact with, ordinals still feel rather technical. But an ecosystem is forming, and it is likely that the infrastructure needed to onboard millions will get built out.
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
