Debate erupts over NFTs: Is it time to include them in the Bitcoin ecosystem

Reportedly, more than 200,000 Bitcoin Ordinals have already been created

Going by GoSats' official website, it's a Bitcoin-based platform
Going by GoSats' official website, it's a Bitcoin-based platform

By Mohammed Roshan

Since the launch of Bitcoin Ordinals in January 2022, they have sparked a lot of debate within the Bitcoin community. Ordinal Inscriptions, similar to NFTs, are digital assets inscribed on a satoshi (the lowest denomination of a Bitcoin). These inscriptions, named after the pseudonymous creator of Bitcoin, Satoshi Nakamoto, became possible thanks to the Taproot upgrade implemented on the Bitcoin network in November 2021.

More than 200,000 Bitcoin Ordinals have already been created, with the widespread expectation that demand for their unique ability to store NFTs on Bitcoin will only increase over the coming years. However, some in the Bitcoin community have argued against the concept, expressing their concerns about its implications.

Let’s try and understand this in detail.

So, are ordinals NFTs?

Well, not exactly – but they can potentially be used for some of the same purposes.

NFTs and similar products that are used to certify ownership and authenticity ideally must be hosted on secure, decentralized platforms. However, in the case of NFTs until now, they were instead hosted on centralized crypto or chains prone to hacks and network shutdowns.

And, that’s exactly where ordinals come in. With its advent, we now have a Bitcoin-native way to create NFTs, without actually issuing a token.

So, what exactly are Bitcoin ordinals?

Proposed by a developer named Casey Rodarmor, Bitcoin Ordinals are “sats” or satoshis that have been ordered and inscribed with information, that could be a text or an image. This piece of information makes each satoshi unique and turns it into an NFT of sorts.

Here’s a simple analogy to understand ordinals better: imagine two hundred-rupee notes. You could use either of them interchangeably for transactions. However, they aren’t exactly unique thanks to a serial code, which serves as an identification for each hundred-rupee note. But imagine if one note was signed or “inscribed” by Virat Kohli and another by Shahrukh Khan, you now have 2 unique “rupee NFTs”. You could still spend it as regular money, but you probably wouldn’t since the inscribed signatures of these celebrities boost its value.

Ordinals work similarly and they take advantage of the fact that every satoshi can be uniquely identified by its equivalent of a “serial code.” And, because there are a limited number of sats in existence, there are also a limited number of ordinals.

Ordinals contain the actual raw file data directly written into the Bitcoin blockchain and hence they’re pretty much “forever”, and cannot be destroyed. That makes them ideal for NFTs, where you want to make sure the ownership of a digital asset is clear and immutable.

How are ordinals different from NFTs?
While they can be used for the same purposes, ordinals are different from traditional NFTs in terms of their technical design. Bitcoin ordinals, as mentioned before, help identify sats uniquely and have information stored on-chain. On ethereum, which is the dominant crypto of NFT activity and trading, the ERC-721 standard used to create NFTs, typically holds the metadata or a pointer to the art, which is generally held off-chain.

Another key difference is how the value of Bitcoin NFTs, especially around rarity, is derived. With traditional NFTs, the attributes of the art or information typically defines its rarity and hence its value. NFT projects generally also mint a limited supply of art pieces, so as to create exclusivity and boost its price.

Bitcoin ordinals can do all of the same but the pricing can also be defined by key moments that a Bitcoin block would represent. A simple framework suggested by the creator of ordinal inscriptions is that key events would decide the rarity of a sat and the ordinal inscribed into that. Some sats would be considered more precious than others, such as the first sat of every new block, the first sat of an adjustment period that occurs approximately every two weeks and the first sat of each halving.

At the same time, the other sats can derive value from the content which is inscribed into them.

This gives a unique dimension to its pricing and differentiates Bitcoin ordinals from NFTs, where the rarity is controlled by the artists or the founding teams behind the NFT collections.

So, are ordinals ultimately a good thing for Bitcoin?

Ordinals have already had quite a noticeable impact on the Bitcoin Network, and have stirred up quite a debate amongst Bitcoiners. There is a section of Bitcoiners who are of the opinion that ordinals are spamming the network causing network congestion and is ultimately a threat to Bitcoin decentralization.It is important to note that the Ordinals ecosystem is still in its early stages of development, and what lies in the future remains to be seen.

Just last week, Yuga Labs, the company behind the Bored Ape Yacht Club NFT series, generated $16.5 million from its first NFT auction using the Ordinals protocol on Bitcoin and this definitely has helped introduce many people to BItcoin.

A lot of the criticism against ordinals stems from Bitcoiners that either believe that Bitcoin must remain a peer-to-peer payment platform or those that don’t understand the innovation behind building NFTs on Bitcoin.

We like to look at the optimistic side of things, and strongly believe this could be the start of a cultural shift showing even people outside the Bitcoin ecosystem that things can be built on a crypto ecosystem.

Over time, Bitcoin could act like the base protocol on which NFTs and several innovations are built – an ultimate bottom layer of absolute truth.

It’s also why the ordinals movement is so important. While there may be those that might not like to see Bitcoin move beyond its created intention of peer-to-peer payments, these are initiatives in the right direction that will unleash a torrent of innovation to the Bitcoin ecosystem.

The author is co-founder and CEO, GoSats

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First published on: 18-03-2023 at 16:00 IST