Bitcoin Ordinals NFT’S: The Good, the Bad, and the Ugly
Bitcoin ordinals have become increasingly popular in 2023. They provide a unique and revolutionary way to transfer value from one person to another and can be used to purchase goods and services online. Despite their advantages, there are also several potential drawbacks associated with the use of bitcoin ordinals. In this blog post, we will discuss the pros and cons of using bitcoin ordinals, so that you can make an informed decision when considering whether or not to use them.
What are Bitcoin Ordinals?
Using the Ordinal protocol, each Satoshi is assigned a sequential number. After the number is assigned, each Satoshi can be inscribed with data such as pictures, text, or videos. These inscriptions offer an innovative way for users to tokenize data, allowing them to represent digital assets such as artwork, photographs, or music as permanent and immutable entries on the blockchain.
The Ordinal protocol was created by Casey Rodarmor in collaboration with the Bitcoin Core development team. After assigning each satoshi a sequential number. That number is assigned, and each satoshi is inscribed with data such as pictures, text or videos through a Bitcoin transaction. Once that transaction is mined, the arbitrary data is permanently part of the Bitcoin blockchain and viewable through Ordinalnenabled Bitcoin wallets and online Ordinal viewers.
In a nutshell, Bitcoin Ordinals make it possible for users to easily store and share information on the blockchain in an immutable way. They have the potential to revolutionize how data is stored and shared on the internet, giving users more control over their personal data.
How do they work?
Bitcoin ordinals are a type of non-fungible token (NFT) that represent ownership of a unit of Bitcoin. An ordinal is an individual, unique token that is associated with a particular unit of Bitcoin. Each token is created and secured through a set of cryptographic algorithms, meaning it cannot be counterfeited or forged.
To receive an ordinal, you must make a Bitcoin deposit into a special wallet. This wallet stores your deposited funds until the transaction is completed. After the transaction is completed, the Bitcoin will be transferred to the corresponding token address. Once this has occurred, the token holder will have exclusive ownership of the Bitcoin associated with their ordinal.
The blockchain technology behind these tokens ensures that transactions are secure and transparent. This allows individuals to track and monitor their transactions and ensures that each token is traceable and can be used to verify ownership of the Bitcoin associated with it.
Bitcoin ordinals offer an alternative method for storing Bitcoin. Instead of using a centralized platform such as an exchange, users can use these tokens to securely store their Bitcoin in a decentralized manner. By using blockchain technology, these tokens are highly secure and provide users with a safe and reliable way to store their Bitcoin.
The Bad
Bitcoin ordinals have many potential risks, one of the most notable being transaction malleability. Transaction malleability is when a third-party change some details in the Bitcoin protocol, allowing them to double-spend funds. This can be done through a variety of methods, such as changing the order of operations or exploiting the mining process.
Another risk is mining pool concentration. When one entity controls a large share of the mining power or hash rate, it can gain an advantage over other miners and exploit the system in various ways. This could lead to a manipulation of the Bitcoin blockchain or even a 51% attack.
Network congestion can also pose a risk to users of Bitcoin ordinals. High levels of congestion on the Bitcoin network can lead to increased fees for users and limit their ability to make transfers. This is especially true during periods of high demand when the network is already at capacity.
Lastly, there is the risk of selective forking. Selective forking occurs when somebody strategically generates new blocks but does not propagate these blocks quickly enough so others do not view these blocks as members unless these forks produce higher net profits due to lower block confirmation time intervals than competing nodes operating standard network participation behaviors would achieve under similar circumstances; this could be seen as a means of gaining outsized rewards over legitimate behaviors remaining undetected until larger profits have been reached.
The Good
One of the major advantages of Bitcoin ordinals is that they can provide a great degree of security. Since these NFTs are completely unique, it is highly unlikely that someone will be able to forge them. This means that buyers and sellers can have peace of mind that the asset they are purchasing or selling is legitimate.
Another advantage of Bitcoin ordinals is that they provide users with an easy way to buy and sell digital assets in a decentralized manner. This eliminates the need for users to use centralized exchanges and allows them to take advantage of the market forces. Additionally, since these tokens are completely unique, users can customize them to suit their needs and preferences.
Finally, Bitcoin ordinals offer a great degree of flexibility. They can be used to store value, pay for goods and services, and even be used as collateral for loans. This means that users can make the most out of their investment without having to worry about being locked into one specific use case.
The Ugly
Security Risk: Bitcoin Ordinals, like any other digital asset, are vulnerable to hacking. When stored in a digital wallet, they are susceptible to phishing attempts and malware that can steal private keys or other sensitive information. As such, extra caution should be taken when using these ordinals.
History Replay Attacks: History replay attacks are one of the most serious threats to the security of Bitcoin Ordinals. These attacks involve malicious actors intercepting broadcasts and sending out fake versions of original transactions without user knowledge in an attempt to double-spend funds or otherwise manipulate the system illegally.
Invalid Block Denial-of-Service (DoS): Bitcoin Ordinals are also vulnerable to invalid block denial-of-service attacks by unknown entities continuously broadcasting large blocks which contain invalid information which requires computing resources from miners to identify and reject them as invalid blocks before they take effect on proposed transactions that are broadcast on the network concurrently with said blocks.
Bribing Miners: Malicious parties may also attempt to bribe miners into creating blocks that include only transactions that benefit themselves instead of following standard consensus rules for block generation as designated by the community at large participating in validation activities. This attack is known as a “51 percent attack” and it is highly dangerous due to its potential to subvert consensus rules, effectively allowing miners to become their own central bankers.
The Hideous
When it comes to Bitcoin Ordinals NFTs, there are a few potential negatives that could make them less attractive. One of the primary concerns with Bitcoin Ordinals is their environmental impact. The energy-intensive process of mining Bitcoin has been a topic of concern in the past, and the creation and validation of NFTs on the Bitcoin network could contribute to further environmental harm.
Another issue is the lack of transparency in the ownership of all parts of the network. Ethereum provides more visibility into this ownership, while Bitcoin lacks such visibility with its ordinates.
Additionally, some Bitcoin Ordinals NFTs may lack utility or practical use cases beyond their novelty value. While some might have significant value as collectibles, others may not be very useful.
Finally, the creation and storage of NFTs on the Bitcoin blockchain can contribute to an increase in the size of the blockchain, potentially making it more challenging for nodes to validate transactions and maintain the network. This bloating of the blockchain could lead to scalability issues, which could in turn impede its ability to handle large volumes of transactions. Additionally, it’s important to note that due to the difficulty of mining Bitcoins, the cost associated with creating Bitcoin Ordinals can be high. Thus, if the asset doesn’t generate enough revenue or interest, then creating one could become prohibitively expensive. Furthermore, since many exchanges are built around trading ERC-20 tokens (the token standard used by Ethereum), it’s possible that many of these exchanges won’t support trading of Bitcoin-based NFTs. Thus, these assets could remain relatively illiquid, limiting the number of people who are willing to invest in them.
