NFTs on Bitcoin? 🤨
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Bitcoiners,
Ordinal inscriptions are one of the most exciting innovations in bitcoin over the past few years.
But with the excitement comes massive controversy in the bitcoin community akin to the blocksize wars.
Whether for better or worse, they may have a dramatic impact on the bitcoin ecosystem from now until a century or more in the future.
Here is a basic overview explaining what Ordinal inscriptions are, how they affect the bitcoin ecosystem, and what to expect in the future if this concept builds momentum so you can take advantage of this innovation.
Basic Overview
What are NFTs
NFTs (non-fungible tokens) are unique cryptographic identifiers that exist on a blockchain and cannot be replicated.
In a digital world where any text, image, audio, or video file can be duplicated by simply copying and pasting, NFTs are a way to prove the authenticity and ownership of a file. Owning an NFT is like owning a one-of-a-kind baseball card because they are not fungible or replaceable with another identical item. Over the past decade, NFTs hit the mainstream and exploded in value as seemingly rare digital collectibles sold for over $69.3 million in 2021!
NFTs have been dominant on other cryptocurrency blockchains such as Ethereum, however, Ordinal inscriptions unlocked a new way to mint NFTs on bitcoin's blockchain.
What are Ordinal Inscriptions?
Ordinal inscriptions are essentially NFTs minted on the bitcoin blockchain in a way never done before.
Creator Casey Rodarmor explains ordinals as a numbering scheme for satoshis that allows tracking and transferring individual sats. The standard uses a scripting function made possible by Bitcoin’s 2021 Taproot upgrade to allow up to 4 MB of NFT data to be inscribed in a single satoshi. Compared to previous bitcoin NFT standards, ordinal inscriptions dramatically increase the amount of NFT data able to be stored while allowing for the actual NFT content to be included in the bitcoin blockchain.
Combine this innovation with bitcoin's existing immutable and censorship-resistant blockchain and you get very exciting possibilities.
Impact on Bitcoin
Since its inception in January 2023, Ordinals started a heated debate in the bitcoin community on whether the extra data in block space is net good or bad for bitcoin.
The Good
Those in favor of Bitcoin NFTs see the potential in this new standard gaining traction for good including:
miner fees that create an incentive to keep producing blocks after the block subsidy runs out in the year 2140
immutable, censorship-resistant file storage for sensitive information
bringing in new participants into the bitcoin network that previously used other blockchains for NFTs
The Bad
Those against Bitcoin NFTs see the extra data inscribed in the block space as spam and overall bad for different aspects of bitcoin including:
reduced privacy of only those users that decide to use them
reduced fungibility of Bitcoin, as ordinals received in a transaction may carry with them some public history
increased demand for bitcoin transactions which will drive up fees that affect the poorest of bitcoin users in developing nations
possibility of extremely graphic content such as shock porn inscribed onto the bitcoin blockchain
Whether good or bad, Ordinals can play a dramatic role in bitcoin's development over this decade as it matures into a globally accepted asset.
The Future of Bitcoin
What to Expect
An unbiased user of the Bitcoin network can expect some changes if Ordinals continue to build momentum and breach into the mainstream.
One change to expect is higher transaction fees. Ordinals take up data space in a given block which competes with normal bitcoin transactions that typically fill up space. This increased demand for block space will require both Ordinal inscribers and normal bitcoin transactors to bid higher fees for miners to include their transaction in a block that gets added to the bitcoin blockchain.
With this information, you may want to consider UTXO consolidation in the near term to help you save on future transaction fees that can potentially be much higher than today's fees.
How to Interact with Ordinals
If you want to further learn ways to interact with Ordinals and even collect some for yourself to appreciate in value, follow these links:
Inscriptions - mint your own Bitcoin NFT and save it in your wallet
Exploring - view and search for existing Ordinal inscriptions by using an Ordinal block explorer
Collecting - use the ord wallet to store and send ordinals
Considering the most valuable NFT sold for $69.3 million in 2021, it may be worth getting your hands on some early ordinals!
Thanks & Resources
Thank you to the bitcoiners that wrote about Ordinal inscriptions and consolidated the information for me to easier understand!
Ordinals.wtf by Bitcoin Gandalf
WTF are Ordinal NFTs, Inscriptions, and Digital Artifacts? by Colin Harper
Ordinal Theory by Casey Rodarmor
Ordinal Draft BIP by Casey Rodarmor and Mark Goodwin
What do you think of Ordinals? Reply to this email or leave a comment on this post!
Happy Wednesday,
-Pod
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Disclaimer: This should go without saying: This is not financial advice. This is not investment advice. I write this newsletter for education and entertainment. Act accordingly.
