For the longest time, the utility of Bitcoin was limited to storing and transferring value. As such, developer activity on the world’s oldest blockchain network was minimal, to say the least. Fortunately, this began to change with the emergence of Bitcoin DeFi protocols such as Wrapped Bitcoin (WBTC), Stacks (STX), Rootstock (RBTC), etc.
These platforms brought the world of crypto borrowing and lending to the Bitcoin network and created new use cases for the big daddy of cryptocurrencies.
And now, the utility of the Bitcoin network has been expanded even further, thanks to the arrival of the Ordinals Protocol. This latest innovation allows developers and artists to create and store digital artefacts directly on the Bitcoin blockchain. The protocol has been a massive hit, with more than 100,000 ordinals minted so far.
The introduction of this technology has also sent Bitcoin metrics skyrocketing. For instance, the number of non-zero Bitcoin addresses hit a record of 44 million following the introduction of ordinals. In addition, Bitcoin’s block sizes have also increased after ordinals were launched, even touching an all-time high of 2.5MB on Feb 12.
But what are Bitcoin Ordinals, why are they causing such a stir, and how do they compare to traditional NFTs? Tag along to find out.
Bitcoin Ordinals: What are they?
As you may know, the smallest denomination of BTC is known as a satoshi or a Sat - one BTC is equal to 100,000,0000 sats. The Ordinals Protocol allows users to send and receive sats that carry optional extra data. This data can be text, JPEGs, audio or videos.
Adding such kinds of data to a satoshi is known as inscription and the end result can be considered as a Bitcoin NFT or an ordinal. Since the launch of the Ordinals Protocol on Jan 21, nearly 100,000 inscribed satoshis have been minted, including a collection of Ordinal Punks and Ordinal Penguins. For the unacquainted, these are Bitcoin offshoots of popular NFT collections.
It is important to note that ordinals are only possible thanks to the “witness section” of Bitcoin transactions that was introduced after the Taproot soft fork in 2021. This is where the JPEGs, audio files or videos are inscribed into the individual sats. These digital artefacts are also made possible through the 2017 Segwit update, a soft fork that increased block sizes from 1MB to 4MB.
Are ordinals NFTs?
Bitcoin Ordinals can be considered NFTs, but they have a few differences. To begin with, most NFTs are created and tracked through a smart contract. However, the assets that these smart contracts represent are often hosted elsewhere.
For example, some NFT platforms make use of the decentralised storage system, IPFS, to store the NFT artworks/audio files/videos. However, ordinals are inscribed into the satoshi and therefore, these Bitcoin-NFTs are stored on-chain. They are validated in blocks along with other transactions and stored in the network’s distributed ledger.
Moreover, traditional NFTs usually have metadata that allows creators to change the appearance and characteristics of an NFT. For instance, some NFT projects will ask users to refresh their metadata to update their NFTs with higher-resolution images.
However, since ordinals are stored on-chain, their data is immutable and cannot be changed. Also, unlike NFTs, ordinals do not provide creators with the option to receive royalties on subsequent sales.
In a nutshell, ordinals are immutable and complete digital artefacts. Unlike traditional NFTs, they cannot be tampered with and they reside completely on-chain. For these reasons, the creator of the Ordinals Protocol, Casey Rodarmor, believes that these digital artefacts are “intended to reflect what NFTs should be.”
Ordinals break records but also receive flak
Since their introduction, Ordinals have been a huge hit. They have brought thousands of new users to the Bitcoin blockchain. Evidence of this is in the fact that non-zero Bitcoin addresses touched a record 44 million on Feb 14.
Moreover, since these satoshis carry extra on-chain data, Bitcoin block sizes have also increased over the last couple of weeks. Recently, Bitcoin registered its largest-ever block, coming in at a massive 2.52MB. In comparison, the average Bitcoin block size before the introduction of ordinals was around 0.7 MB to 1.5 MB.
Previously, miners only received network fees for monetary transactions. However, with the introduction of ordinals, the network will be used for non-monetary purposes for the first time in its history. This will increase the transaction volumes and bring more revenue for miners.
As such, data from Glassnode indicates that miners have collected nearly $600,000 in transaction fees from ordinals in the last two months alone. Such an additional revenue stream could be extremely important when block rewards dwindle or no longer exist in the future.
However, not everyone is on board with these digital artefacts. For instance, in a recent tweet, Adam Black, the CEO of Blockstream, referred to ordinals as a frivolous waster of block space. Others highlighted the increase in transaction fees thanks to ordinals.
“Marginalized peoples in developing countries will have to pay more to run their Bitcoin nodes and send transactions because privileged wealthy whites want to put JPEG drawings on the blockchain as status symbols,” read a tweet from the popular crypto Twitter handle, Bitcoin is Saving.
Then there’s also the issue of power consumption. Bitcoin is known for its astronomical energy usage and the influx of ordinals is not helping this in any way.
“The carbon footprint of NFTs on Ethereum wasn’t looking great before The Merge, but it was nothing compared to the latest hype: on-chain Bitcoin NFTs,” said Alex de Vries, a prominent data scientist, in a LinkedIn post.
Conclusion
Love it or hate it, ordinals are transforming the Bitcoin blockchain. They bring added utility and could expand the user base of the world’s largest cryptocurrency. Moreover, they could lead to further innovation and more practical use cases in the future. As such, most Bitcoiners are welcoming these digital artefacts with open arms.
