Over the past few years, we’ve seen huge surges and dips in the popularity of non-fungible tokens (NFTs). However, since the technology behind those assets was locked behind a different blockchain, it left some Bitcoiners looking for more. Thanks to a new development in the Bitcoin community—Bitcoin Ordinals—NFTs in the world of Bitcoin are now a reality.
What is a Bitcoin Ordinal?
In January 2023, a software engineer named Casey Rodarmor launched the Ordinals Protocol as part of the Taproot Upgrade, which allowed users to inscribe satoshis on the Bitcoin network with NFTs. These NFTs could be images, text, audio, and video.
Imagine having two 10-dollar bills. Each of those bills is unique in the sense that they each have their own serial code. However, despite them being unique, you could still use either bill interchangeably to purchase a good or service at a store. Now, imagine having one of those bills autographed by one of the biggest musicians or athletes in the world. That bill then becomes kind of like a collectible. You could still use either to buy a good or service at a store, but the autographed bill is now worth more because of the signature on it.
Ordinals are similar in the sense that you could inscribe new data onto an existing satoshi, which will effectively turn it into a collectible that can be uniquely identified by its version of a “serial code.”
How are Ordinals different from NFTs?
Although the two share similarities, Ordinals and NFTs have some key differences:
- Different platforms
Ordinals only exist on the Bitcoin blockchain, meaning anyone with access to the blockchain can verify the inscriptions on satoshis. NFTs, on the other hand, exist on various blockchains like Ethereum or Solana.
- Immutabilty
One of the biggest differences between the two is that Bitcoin Ordinals cannot be changed once they’re inscribed—they’re permanently recorded and can never be altered. Although some NFTs can be completely immutable, some allow for changes or modifications.
- Metadata
Ordinals store their metadata—information like proof of ownership or description of the asset—directly on Bitcoin transactions. On the other hand, NFTs have their metadata stored on a separate file that represents the content of the asset. Although both sets of data are similar, where they’re stored makes all the difference—Ordinals are seen to be more secure and transparent.
- Market
With the Ordinals protocol only being launched a few months ago (at the time of writing), the market for these collectibles is much younger, with only a few specialized platforms that allow you to buy and sell them. In contrast, NFTs have been around for much longer and offer a wide range of marketplaces for buying and selling.
The pros and cons of Bitcoin Ordinals
Just like anything else in the cryptocurrency space, Bitcoin ordinals have their pros and cons. Let’s start with the pros:
- The potential to attract new users
The NFT boom taught us that there are people out there that love buying, selling, trading, and collecting these assets online. With Bitcoin Ordinals coming onto the scene, the Bitcoin community now has a direct line to these collectibles as well as the ability to capture market share from other chains and pull their value into Bitcoin.
- More security for the network
Ordinals will require people to pay fees for inscriptions, transactions, and the use of additional space. Although that may not be the best news for everyone, it means that the miners are more incentivized to verify and secure the network—especially as more halvings split their rewards for newly-minted blocks.
- Acceleration of second-layer adoption
If higher fees are a result of Ordinals, people will look for cheaper alternatives for their every transaction. This might encourage them to explore second-layer options like the Lightning Network—the more people adopt these types of solutions, the more improvements and developments we’ll see along the way.
Now let’s take a look at the cons:
- Costs for block space
As we mentioned earlier, the inscribed satoshis are going to be taking up block space, which could possibly bloat the chain and make things harder for those who want to make on-chain transactions. It’s also worth noting that Ordinals are immutable, meaning people who want extra hard drive space will have to fork out more satoshis.
- More speculation
The introduction of Ordinals to the cryptocurrency space has led to a lot of popular NFT projects (such as CryptoPunks and Bored Ape Yacht Club) making their way into Bitcoin. This may cause more capital flowing into these types of assets instead of storing the value in Bitcoin.
- Effects on satoshi fungibility
Inscribing a satoshi with a digital asset’s metadata splits the use case of a satoshi. Before, all satoshis were equal and each could be swapped for any other on any layer. Ordinals change this dynamic by adding data, altering the value of some satoshis compared to others, and encouraging people to pay for some satoshis above market value—splitting them into two groups: collectible satoshis and standard satoshis, which could ultimately affect its fungibility.
Are Ordinals good for Bitcoin?
The truth is, we don’t know yet. Bitcoin Ordinals have caused a heated debate in the Bitcoin community: should Bitcoin’s main purpose be financial transactions or should we be using it also as a secure and decentralized network for data?
In any case, the Ordinals protocol has introduced an interesting development into the world of Bitcoin. The technology is still new, so we’ll all have to wait and see how things develop in this space.
