February 14, 2023 - 10 min read
Ordinal NFTs are a new form of blockchain-based asset. They allow investors to create and purchase NFTs inscribed directly onto the Bitcoin Blockchain.
Ordinals, Bitcoin's latest innovation to the Web3 network, have taken centre stage. Since Casey Rodarmor's protocol hit the Bitcoin blockchain on January 21st, there has been a surge of interest in this advancement with some proponents hailing it as revolutionary and others giving it a thumbs down.
Despite scepticism from the purists in the Bitcoin community, the NFT-like project on the Bitcoin blockchain creating Ordinal NFTs continues to gain traction. As of mid-February 2023, a staggering 76,400 inscriptions have been created - an impressive feat! On February 9th, over 20800 new inscriptions were added alone—an immense number that was recorded by Dune analytics. Clearly, this revolutionary innovation is here to stay and shows no signs of slowing down any time soon.
The Ordinals protocol enables non-fungible tokens (NFTs) to be affixed to transactions on the world’s most valuable blockchain, the Bitcoin network. To put it plainly, Ordinals are NFTs that can be minted specifically on the Bitcoin blockchain - not merely pointing to off-chain data as Ethereum [ETH] tokens do with token standards such as ERC 721.
The Bitcoin Ordinals project, which launched in January 2023, has revolutionized the way data is stored on Bitcoin. It allows users to engrave JPEG images, profile pictures (PFPs), digital art and even DOOM, a first-person shooter video game released back in 1993, directly onto satoshis (the smallest denomination of Bitcoin). All this can be done without having to create an additional sidechain or token!
Blockchain-based Non-Fungible Tokens (NFTs) made their debut on the Bitcoin Blockchain in 2014 on Counterparty. In 2015 and 2016, two of the largest collections came out - Spells of Genesis and Rare Pepes.
As Counterparty gained recognition in the Bitcoin blockchain, it provoked controversy about its efficacy. Jeff Garzik - then a core developer for Bitcoin – asserted that utilizing full nodes as “dumb data storage terminals” meant taking advantage of an unpaid network resource.
At the crux of it all is OP_RETURN, a mechanism for storing any data inside the blockchain. Bitcoin had initially set an upper limit on this function at 40 bytes; however, that was expanded to 80 bytes in 2016.
Segwit's 2017 upgrade dropped the cost to store data with this function by 75%, and Taproot, a 2021 update made it even more efficient; nearly 10% cheaper plus easier to save information in one transaction as compared to spreading it out between multiple ones. These findings were drawn from research done by Bitcoin core developer Peter Todd.
With this new feature, storage limits are no longer a hindrance. As long as you're willing to pay for it, and keep the block size under 4MB - anyone can store an unlimited amount of data!
Bitcoin is composed of 100,000,000 units known as satoshis (or sats). With the help of the Ordinals protocol, people who operate Bitcoin nodes are able to inscribe sat with data. This in turn creates something called an Ordinal. This inscribed data can include smart contracts which lead to the creation of NFTs. In simpler words, Ordinals enable you to mint NFTs directly onto the Bitcoin blockchain quickly and easily. As Ordinals are minted directly on the blockchain, all content stored is unchangeable and permanent.
Ordinal engravings are known as "digital artefacts" due to their immutable nature and the fact that they will be secured on the Bitcoin blockchain in perpetuity. Unlike most other NFT projects which can be modified or removed by the smart contract's developer, this is not an issue with Ordinal inscriptions. Where certain types of changeable data can be altered; for example, the image related to the token, the item's description and so on, with Ordinals all content is stored directly on-chain.
Presenting as a Layer 1.5 solution, Stacks offers unsurpassed features to its users that are unparalleled by any other Bitcoin-based system - smart contract capability and rollups of transactions on the main blockchain. The innovative implementation is akin to the Lightning network in design; data storage supports multiple transactions while executing them simultaneously on the primary Blockchain setup.
Intriguingly, Stacks' smart-contract capability gives it the capacity to craft NFTs while still utilizing Bitcoin blockchain security measures. Each of these tokens are confirmed through a transaction on the BTC chain and particular transactions take advantage of off-chain technology using STX cryptocurrency, resulting in much less work for the BTC network.
Stacks doesn’t utilise Proof of Stake (PoS) as a consensus mechanism, it uses Proof of Transfer (PoX). Here are the benefits:
Rather than expending new energy, Bitcoin's protocol recycles the energy previously used.
The design makes it possible for everyone to mine, eliminating the need of an ASIC or multiple GPUs.
Constructing applications through Stacks ensures Bitcoin's safety at every stage of development.
Developers and builders can profit from the powerful features of Bitcoin without having to make any modifications to it.
Stacks network participants can reap the rewards of Bitcoin yield.
Being as Ordinals utilise the Bitcoin network essentially as an immutable storage system for the NFTs, there are arguably some downsides compared to Stacks:
Inscriptions store all content immutably—rendering it impossible to remove any unauthorized or inappropriate material.
When the transaction size increases, nodes may be required to pay higher fees and experience increased demands.
As a consequence of the soaring acceptance of ordinals, the average block size has amplified, meaning greater fees per block. This could have an incredibly unfavourable impact on the Bitcoin community if it continues to grow exponentially.
The recent NFTs and media on Bitcoin have already taken up a shocking 500 megabytes of storage, costing creators over 6 BTC (around $155K) in no time. That's an incredible amount of money for such little memory!
There's no way to ignore the captivating charm of this collection. Dedicated to CryptoPunks, Ordinal Punks is made up of 100 NFTs that were crafted within Inscriptions 1-650 on the Bitcoin blockchain, with the highest one in place #642. This generative PFP series of 192x192 pixel visuals was constructed using an open-source algorithm produced by Web3 maker FlowStay under a pseudonym!
The infrastructure of Bitcoin necessitates users to host a full node in order to make an Inscription, thus forcing bids and asks for Ordinal Punks onto a Google Sheet managed by FlowStay. As such, the project operator is essentially acting as an escrow on Discord. At present, the lowest price bid for one of these is 3.7 BTC/51.26 ETH ($84k), while the most expensive asking price belongs to Ordinal Punk 78 at 50 BTC/692.66 ETH ($1M+). Web3 denizen dingaling was recently swept away by their enthusiasm when they bought seven Ordinal Punks altogether for 15.2 BTC/211 ETH ($331K).
The Taproot Wizards Ordinal collection is a unique set of hand-drawn NFT wizards crafted by independent Web3 developer Udi Wertheimer. The initial Ordinal in the collection allegedly made history on the Bitcoin chain for being its largest block and transaction at 4MB.
As one of the oldest Ordinals on Bitcoin, Inscription 19 holds a special place in history – introducing us to the world's first grouping of "Shroomy-NFTs" that spelled out the phrase “The Shrooms R Coming.” Despite its mysterious origins, The Shrooms project is still yet to be sold or auctioned off; though their Discord channel has been temporarily shut down.
As Bitcoin remains relatively new, enthusiasts are racing to etch as many remarkable Ordinals onto the blockchain as possible. This fervour has led NFT fans to create strikingly similar versions of classic Ethereum collections - take for example two distinctively named but almost identical Bitcoin Punks series!
In comparison to the Ordinal Punks, The first Bitcoin Punk series features a bright blue backdrop and also includes an even more diverse selection of characters and expressions. As for their worth? These 100 pieces have typically been exchanged starting at 1 BTC/14.14 ETH ($21,823).
The Second Bitcoin Punks Collection is special because it's a 10K PFP collection. It was inscribed after the first 100-piece Bitcoin Punk collection, which began at Inscription 5,530.
Bitcoin users and developers are quite captivated by Ordinals. By including inscriptions in their transactions, the network can be propelled forward with new innovations which could reinvigorate the development process, encouraging a dynamic atmosphere amongst Bitcoin's community while cultivating growth and innovation within its system.
Additionally, renowned artists and NFT collections may flock to Ordinals due to Bitcoin's reliable and unchanging nature. For example, Megapont Ape Club, the most celebrated Stacks NFT project, recently announced their plan for a fresh collection called 'Megapunks' on the Ordinals platform.
The infrastructure to support the making, keeping, exchanging and sending of Ordinal NFTs is in its early stages since this project just launched last month. In the near future, we anticipate wallets and marketplaces will offer native backing for Ordinals which could expand significantly more opportunities as far as what can be done with the protocol.
The appreciation of Ordinal NFT projects such as Ordinal Punks is largely due to their status as the first project deployed on the protocol. Moreover, since many of these collections have a low supply - with Ordinal Punks boasting only 100 pieces issued versus CryptoPunk's 10,000 - this relative scarcity has enabled prices to spike even higher!
Potential investors should be cautious - these assets are still highly speculative. Moreover, older projects may not hold up against newer ones that offer greater utility, more compelling stories and visuals, or other attractive features.
The Ordinals protocol may have the potential to last and become more powerful, eventually making certain projects a highly desirable asset for collectors. However, it is likely that many inscriptions will be of little value in the long run and their values could follow an exponential law within increments of accruing worth.
For investors looking to capitalize on the growth of NFTs and Bitcoin, Stacks (STX) is an ideal option. Since late January when NFTs surged in popularity, STX has outperformed BTC by 8%, partially due to individuals seeking out other projects that utilize both Bitcoin and NFTs. Investing in STX could be a savvy strategy for anyone wanting access to this new form of digital asset class.
As with other NFT standards, Bitcoin-based NFTs still have unanswered inquiries regarding copyright protection and intellectual property. Duplicate projects are likely to be inscribed onto the blockchain and some of these issues may require a legal solution. Furthermore, there is yet to be seen the full potential that inscriptions can bring forth. Ethereum has allowed for groundbreaking creator royalties and auction systems which raises questions if such implementations will also become available on Bitcoin in time as well.
Over the coming months, we will probably witness an upsurge in the web3 community's activity of developing with Stacks and Bitcoin. An impressive NFT collection could be forthcoming as well. The usage of Bitcoin for projects related to non-fungible tokens (NTFs) may become more common once people realize how advantageous it is compared to Ethereum or other chains.
The most compelling reason to explore Bitcoin-native NFTs is the potential for fully on-chain metadata, albeit at a cost.
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