If you're new to cryptocurrencies or simply haven't kept up with NFT trends, your first encounter with NFTs might have been during the 2017 speculative frenzy with games like CryptoKitties or the 2021 art NFT boom. Despite the NFT market losing over 96% of its trading volume and much of its hype fading, a dedicated group of collectors remains.
NFTs are often marketed as "digital assets" that claim uniqueness by tying a token or hash to a blockchain. These tokens reference external files—such as digital art, movies, or music—to assert ownership or membership in exclusive groups.
Today, NFTs play a significant role in altcoin ecosystems, enabling markets where users create custom tokens linked to media files to encourage speculation.
Bitcoin’s History with NFTs
While NFTs are commonly associated with smart contract chains, Bitcoin has had its own NFT experiments for nearly a decade. However, these never gained mainstream traction, as most Bitcoin holders see little value in these flawed "digital assets."
Previous projects like Colored Coins and Mastercoin attempted to embed additional data on the Bitcoin blockchain but faded as congestion made such use cases impractical. Bitcoin's focus remained on essential financial transactions.
Currently, Bitcoin-based NFTs primarily exist on the Liquid Sidechain, requiring specialized wallets. Unlike smart contract-based NFTs—which rely on Turing-complete scripting languages—Bitcoin’s base chain lacks this functionality, keeping it largely separate from altcoin NFT trends.
However, Casey Rodarmor, a former Bitcoin Core contributor, developed the Ordinals Protocol, enabling NFTs directly on Bitcoin by tagging individual satoshis (the smallest Bitcoin unit).
What Are Ordinals?
Ordinals assign unique numbers to satoshis, allowing them to be tracked and transferred individually. The numbering follows the order in which satoshis are mined and transacted (first-in-first-out). The protocol leverages Bitcoin’s existing infrastructure, requiring no new tokens, sidechains, or code changes.
How Ordinals Work:
- Identification: Each satoshi gets a unique ordinal number.
- Inscription: Users attach digital files (text, images, SVG, HTML) to a satoshi via Bitcoin transactions.
- On-Chain Storage: Unlike traditional NFTs (which reference off-chain files), Ordinals store data directly on the blockchain, making them immutable but increasing blockchain size.
👉 Explore Bitcoin's Taproot upgrade
Challenges and Debates
1. Block Space Competition
Ordinals compete with standard transactions for block space. If demand surges:
- Miners must choose between processing Ordinals or regular transactions.
- Fees could spike, impacting Lightning Network operations and everyday users.
2. Network Sustainability
- Proponents: More transactions mean higher miner fees, bolstering security as block subsidies decline.
- Critics: Congestion could price out users needing censorship-resistant transactions, undermining Bitcoin’s monetary role.
3. Fungibility Concerns
Ordinals could "taint" satoshis if linked to controversial content (e.g., illegal imagery), potentially breaking Bitcoin’s fungibility.
4. Blockchain Bloat
- Storing files on-chain expands Bitcoin’s size, raising hardware requirements for full nodes.
- Pruned nodes may become necessary, sacrificing historical data for efficiency.
👉 Learn about Bitcoin's halving events
FAQ
Q: Are Ordinals the same as traditional NFTs?
A: No. Traditional NFTs reference off-chain files, while Ordinals store data directly on Bitcoin’s blockchain.
Q: Do Ordinals require smart contracts?
A: No. They use Bitcoin’s existing scripting capabilities post-Taproot upgrade.
Q: Could Ordinals harm Bitcoin’s usability?
A: It’s debated. While they increase fees for miners, they could also congest the network and centralize node operations.
Q: How do I create an Ordinal NFT?
A: Inscribe data onto a satoshi using compatible wallets/tools like Ordinals GitHub.
Final Thoughts
Ordinals introduce NFTs to Bitcoin’s base layer, sparking debates:
- Utility vs. Distraction: Do they add value or complicate Bitcoin’s purpose?
- Incentive Shifts: Will miners prioritize Ordinals over standard transactions?
Where do you stand? Share your views in the comments below.