Bitcoin NFTs: The Future of Digital Ownership?
Yuga Labs, the company behind crypto’s largest NFT collection BAYC, has recently earned 733 BTC from its debut 300 limited Bitcoin NFT collection, Twelvefold, indicating the growing prominence of Bitcoin NFTs.
To some, the concept of NFTs on the Bitcoin blockchain may seem strange, but it appears that Bitcoin NFTs are a lasting trend that is on its tracks to expanding in the future — let’s explore why.
What are Bitcoin NFTs?
With the explosive growth of the NFT market in 2021, driven by Ethereum’s ERC-721 standard, Casey Rodarmor, a programmer and artist, recognized a chance to establish a distinctive yet comparable experience on the Bitcoin blockchain. He devised a solution called Bitcoin Ordinals that is founded on ordinal theory, which we will explore below, and spent 2022 executing his vision.
Finally, on December 14, 2022, Rodarmor recorded a pixel art of a skull as the genesis ordinal. In January 2023, Rodarmor introduced the Bitcoin Ordinals protocol, which was deployed to create an unalterable on-chain manifestation of a creative work, text, or video, on the Bitcoin blockchain rather than utilizing NFTs on Ethereum or other blockchains.
Bitcoin NFTs vs other NFTs
A key distinction between NFTs on the Ethereum network and Bitcoin (Ordinal) NFTs on the Bitcoin blockchain, is that the former typically reference off-chain data, such as an image, that is stored on a server or various decentralized file storage systems like IPFS. These systems have varying counterparty risks and metadata can be changed dynamically.
Ordinal NFTs, on the other hand, inscribe all the data directly on-chain. Thereby allowing Ordinal NFTs to be a more authentic representation of digital assets as true digital artifacts.
The process of incripting data directly on to the blockchain is possible due to Ordinal Theory.
What is Ordinal Theory?
Ordinal theory centers on the concept of granting satoshis (sats) unique identities and enabling them to be monitored, exchanged, and endowed with significance. In their most basic form, ordinals are a system for numbering sats.
Each Bitcoin (BTC) comprises 100 million satoshis, and each sat is numbered sequentially based on the order of mining, with the unique identifying number assigned to a sat being an ordinal number. Assigning an ordinal number to every satoshi on the Bitcoin network transforms it into a traceable and transferable Bitcoin non-fungible token, or “digital artifact.”
Now with a way to number each satoshi and make each one somewhat non-fungible, users have begun inscripting data onto a satoshi to increase its significance.
What is Ordinal Inscription?
Bitcoin developers have been striving for nearly a decade to integrate NFTs onto Bitcoin. The initial efforts began in 2014 with Counterparty, the pioneers of the Rare Pepe NFT collection, followed by Stacks in 2017.
But the endeavor went through a break through in the form of inscription in 2017, with the Segwit upgrade that introduced the witness feature, where users were able to “record” or “engrave” data onto a Bitcoin transaction.
Then in 2021, the Bitcoin protocol underwent changes with the Taproot upgrade, altering the amount of data that can be saved in a transaction. A byproduct to Taproot was that it allowed 4mb worth of code to be included in a Bitcoin transaction, which we call inscription today.
How do we create Bitcoin Ordinals?
Unlike minting NFTs on the Ethereum blockchain, which is a relatively mature process with intuitive tools, mining Bitcoin ordinals is still in its infancy. To mine ordinals without a third party, users need to be running a Bitcoin node with ORD running on top of it.
There are also application such as Gamma or the Ordinals Bot that enable users to create their Bitcoin ordinals without the need for technical knowledge or running a Bitcoin node. These no-code ordinal mining applications allow users to upload their desired content to be inscribed and guide them through a payment process.
How to trade ordinals?
Ordinals can be traded through applications such as Ordinals Wallet, Hiro, Xverse wallet, and Gamma. Each application has their unique way of buying and selling Bitcoin ordinals.
Whatever method you use, make sure it is secure and you do not share your private keys to your wallet or the Bitcoin Ordinal you are trading.
Why should we be interested in Bitcoin Ordinals?
On-chain data vs Off-chain data
As previously stated, Bitcoin ordinals uniquely identify sats and store content or art on-chain. In contrast, Ethereum’s ERC-721 standard usually stores metadata or a pointer to the off-chain art. While some Ethereum NFTs are exploring on-chain storage, this is still uncommon.
Determination of rarity
The rarity and pricing of Bitcoin ordinals differ from traditional Ethereum-based NFTs.
In Ethereum-based NFTs, rarity and subsequent pricing are typically determined by the attributes of the collection. However, with Bitcoin ordinals, rarity is derived from their serial number, and pricing works differently.
For instance, the pricing of Bitcoin ordinals are determined by significant moments represented by a Bitcoin block. For example, the first 1,000 or 10,000 ordinals inscribed might hold significant value for collectors.
The creators of Bitcoin ordinals propose a straightforward method for determining the scarcity of a sat and its corresponding ordinal inscription:
- The initial sat of each fresh block is deemed to be scarcer than the others in that block.
- The initial sat of an adjustment interval that happens approximately every two weeks is even more rare.
- With the upcoming halving expected in 2024, the first sat of each halving epoch would add another level of rarity.
- Ultimately, the first sat of the adjustment interval, which occurs roughly once every six halvings (about 24 years), would represent the highest degree of scarcity.
According to the creators, this strategy differentiates Bitcoin ordinals from NFTs by establishing genuinely random rarity that is not controlled by the founding teams or artists of NFT collections.
In conclusion:
The topic of Bitcoin ordinals has garnered significant attention within the crypto community due to several factors.
The Bitcoin community is divided between those who advocate for Bitcoin’s use solely as a peer-to-peer transfer of value and oppose expanding its utility beyond this, and those who support exploring all possible use cases of the Bitcoin protocol, believing that it would benefit the network overall.
The NFT community is grappling with the implications of Bitcoin, the original and most resilient blockchain, now accommodating NFTs. This development has disrupted the stability of established NFT collections on other blockchains like Ethereum and BSC, prompting questions about whether to migrate these collections to Bitcoin.
At present, ordinals have found their most successful use case in the form of NFTs on the Bitcoin blockchain. However, their potential goes far beyond functioning solely as non-fungible tokens. Ordinals are poised to become the bedrock for censorship-resistant documents and information that will exist on the Bitcoin network indefinitely.
Given that we are still in the early stages, the future of Bitcoin ordinals remains uncertain, and it's possible that this technology could merely be a passing trend. Nonetheless, this innovation is significant in showcasing the rapid evolution of the blockchain ecosystem, demonstrating the potential for new use cases that may surface in the near future.
So what do you think, will Bitcoin NFTs last, or will they fade away?
