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Most of the cryptocurrency enthusiasts are accustomed to non-fungible tokens (NFTs). They have become an inherent part of the cryptocurrency ecosystem mostly in the years 2021 and 2022 and are unlikely to be moving away from it.
This is even more supported with the rather new emergence of Bitcoin NFTs. Until now, NFTs were mostly dominant on the Ethereum or Solana networks. But Bitcoin Ordinals have changed that and created not only a new market for them, but also helped to spark a debate about whether people need Bitcoin NFTs or not.
Before we explore Bitcoin Ordinals, let’s quickly summarise what NFTs are, as it is essential to understand this concept in order to discuss the future and potential of Bitcoin Ordinals. NFTs, or non-fungible tokens, are a type of digital asset that represents ownership of a unique item or piece of content, such as a piece of art, a video clip, a tweet, or a virtual real estate property in a game.
Unlike fungible assets like cryptocurrencies, each NFT is unique and theoretically cannot be exchanged for another NFT on a one-to-one basis. NFTs are typically bought and sold on blockchain platforms, which provide a secure and transparent way of verifying ownership and ensuring authenticity.
NFTs have become popular in recent years as a way for artists, musicians, and other creators to monetise their digital creations and establish ownership of their work. NFTs can be sold in online marketplaces, and their value can appreciate over time based on market demand.
NFTs have been for almost their entirety solely a domain of Ethereum or other smart contract platforms such as Solana, Cardano or Polygon. Yet, the biggest boom of NFTs has been recently seen in Bitcoin. Since the end of January, when the so-called Bitcoin Ordinals, or Bitcoin NFTs, have been released, a lot more attention has been given to what Bitcoin is and whether NFTs on Bitcoin are helpful.
While we will try to answer the helpfulness of Bitcoin NFTs later on, Ordinals are not the first try in Bitcoin NFTs. In 2014 a project called Counterparty created the Rare Pepe NFT collection, which however did not receive the needed audience. The same applies to Stacks, which in 2017 tried yet again to bring NFTs to the Bitcoin blockchain.
However, for everything to allow this to happen, Bitcoin needed to go through SegWit and Taproot upgrades, both of which helped immensely in creation of Bitcoin Ordinals. Thanks to these improvements, Bitcoin has allowed for NFT creation in the form of Ordinals, which are currently extremely popular. But what are they?
“What the team came up with Ordinals is genius. It is super core to the Bitcoin ethos in that they basically took several different things and pieced them together in a way the original creators didn’t foresee or expect.”
Alex Miller, CEO of Hiro
At the end of January, Casey Rodamor, Bitcoin developer and software engineer released Ordinals, a project that inscribes data onto satoshis and on-chain directly. Inscription, the process that is akin to minting, allows for data such as pictures, jpegs, audio clips or even games to now become part of Bitcoin blockchain.
This makes Ordinals unique, since they cannot be modified, which for instance is not true for Ethereum NFTs which depend on off-chain metadata that can be modified. Muneeb Ali, co-founder of Stacks and CEO of Trust Machines, describes the difference between Bitcoin NFTs and other NFTs as follows:
“The unique thing about Ordinals is it is putting the image literally in the blockchain. Other NFTs usually link to the images on-chain.”
Currently, more than 260,000 Ordinals have been created, however, this figure is rising pretty quickly. And so is their price. Ordinal Punk 94 was, for instance, sold for more than $214,000, which is more than some of the most renowned and established pieces of CryptoPunk NFTs on Ethereum.
The usecases of such Bitcoin NFTs are countless. These include for example:
Other than that, users can also benefit from virtual real estate verifications, gaming or different predominantly digital industries where any form of identification or verification is needed. With Bitcoin Ordinals, this would make the whole process much easier, although most of the newly minted NFTs are currently not serving this purpose.
Most of them are currently only seen as collectibles or a way to make a quick buck. The rarity of the Bitcoin NFTs will definitely play a key role in the future. It is possible that satoshis connected to halving or upgrade changes will be deemed as more valuable than others.
Nevertheless, this can seriously affect the fungibility argument of Bitcoin, since one satoshi will no longer be equal to any other satoshi. At least not in theory, since some Ordinals might be much more valuable, making the specific stats much more valuable as well. Nonetheless, this is a debate that will unravel mostly in the future as it is currently really soon to know what the real influence of this on the Bitcoin overall can be.
The whole ecosystem around Bitcoin Ordinals has grown rather quickly in the past few weeks. While some projects were built solely with the premise of improving Bitcoin Ordinals or helping with their spread and adoption, other projects were mostly focused on implementing this solution right into their products or services.
Yuga Labs, the creators of Bored Apes Yacht Club or CryptoPunks NFT, have already created a 300-piece NFT collection for Bitcoin. It is called TwelveFold and as per the creators, currently it does not have any utility or added value. Yet, the brand and name behind the creation of this NFT collection ensured that the demand was clearly there. But Yuga Labs is not the only company or entity that is active in the Bitcoin Ordinals ecosystem.
Hiro Systems as well as Xverse were rather quick to announce their support of Bitcoin Ordinals in their wallets. However, they have been joined by many other entities that are currently trying to dominate the Bitcoin Ordinals ecosystem.
Those are only some of the projects that are connected to Bitcoin NFTs and the overall ecosystem surrounding the current craze. The biggest question however still remains unanswered. Are Bitcoin Ordinals good or bad for Bitcoin?
The answer is simple. No one knows. The debate around Bitcoin Ordinals has many layers. The side which one decides to incline to is mostly connected to their belief of what Bitcoin is or who it’s supposed to serve.
On the one hand, Bitcoin maximalists and purists believe that NFTs on Bitcoin make no sense. They argue that Bitcoin is money and nothing else and that everything connected to NFTs is only a way to enrich oneself on behalf of others.
They also state that the NFTs are clogging the mempool with their useless data and thus are actually making the transactions for people in developing countries not available. And those are the people who Bitcoin is supposed to be helping the most. Yet, if a single Bitcoin on-chain transaction should cost let’s say $5, it immediately becomes infeasible for many.
Due to this, many Bitcoin purists have already called for miners and node operators to reject transactions connected to NFTs and censor them. However, this could be seen as “anti-Bitcoin,” since censorship is definitely not part of the Bitcoin manifesto.
On the other hand, there are people supporting Bitcoin Ordinals. Their arguments are mostly threefold. First of all, it increases the transaction fee that the miners are getting paid. This means that the “security budget” debate might be postponed only thanks to the fact that people are willing to put data on blockchain and pay higher fees for that. This obviously should make mostly miners happy, who are clear benefiters of this.
That is also a reason why they would not probably be for censorship of Bitcoin NFTs, supporting the second argument of the pro-Bitcoin-NFTs side, which is libertarianism. Bitcoiners have for long been supporters of the free market, which is one of the reasons why they should accept everything that the market comes up with. Bitcoin Ordinals included.
Last, but definitely not least, the overall network is more secure thanks to the fact that miners are getting paid more. Without going too much into technical details, the security of the network improves if miners are able to earn more from the process of mining as more miners are inclined to join the network to earn. This is allowed mostly via an increase of the demand for block space, which essentially drives up the fees and creates a market for it.
Milan De Reede, crypto expert, has summarised the whole situation as follows:
“Bitcoin NFTs are an interesting dichotomy. Many Bitcoiners are almost religious in their belief that Bitcoin should be secure money and nothing more. Yet, these NFTs lead to more fees being paid, which actually increases security. Some of the big names in Bitcoin were strongly against this idea initially, but I think we’re already seeing a turn towards some enthusiasm as the repercussions sink in.”
If these two sides should see regular clashes, it is possible, but not yet probable, that we might see either a soft or even a hard fork that would resolve this debate. However, the more likely scenario is that the free market will play itself out and show whether there really is a need or demand for Bitcoin NFTs.
Bitcoin Ordinals are here, whether people like it or not. They have become part of the Bitcoin ecosystem already, with more development being done daily. Whether they will be here in 5, 10 or 15 years no one knows. Only time will tell if the market for Bitcoin NFTs is really there, but currently it definitely seems that the momentum is picking up despite the unfavourable situation in which the whole cryptocurrency market is.
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