Blockchain has introduced some of the last decade's most innovative and disruptive technologies. From decentralised and secure finance to Web 3.0 and NFTs, the blockchain emergence has uncovered new ways to engage with the online landscape.
The Bitcoin ecosystem has long been at the forefront of recent blockchain disruptions, spearheading the crypto movement and popularising the DeFi solutions. The latest innovation in the Bitcoin family is the introduction of Bitcoin Ordinals (BOs).
This article will delve into the nature, significance, and implications of Bitcoin ordinals.
Bitcoin Ordinal (Bitcoin NFT) Explained
Conceived in late 2022 and launched in February 2023, Bitcoin Ordinals are the newest variation of NFT technology. While the Bitcoin Ordinals is frequently referred to as a Bitcoin NFT and shares numerous similarities with NFT technology, they differ in several essential domains.
Firstly, BOs are created by modifying the Satoshi units of BTC currency. Satoshis (Sats) are the lowest possible units of Bitcoin currency. With Sats, BTC currency can be easily divided into smaller nominal units, simplifying conducting various transactions. After all, the average Bitcoin transaction value is much smaller than a single BTC currency value.
However, as of 2023, Sats expanded its functionality by introducing the inscription ability. With this feature, Sats can be inscribed with several data types like text, code, or visual images. As a result, a single Sat currency can be used to create Bitcoin Ordinals, which function similarly to a non-fungible token.
To further visualise this point, let’s imagine a single US dollar with no distinguishable features from other US dollar bills. The same is true for a single Sat currency. It has a unique code for identification, but every other component is virtually identical to other Sat units. However, inscribing a Sat unit would resemble painting an expensive picture on a US dollar bill.
The mentioned dollar bill has a much higher inherent value, despite maintaining its previous attributes. Thus, inscribing data into Sats potentially increases their value, creating Bitcoin NFT variants. It is important to note that BTC Ordinals are still technically fungible, as they maintain their Sat currency features and can be used to conduct various transactions.
Understanding the Ordinal Inscriptions
Now, let's address the next logical question in the Bitcoin Ordinals creation process – how exactly does the inscription work? While the inscription procedure is a highly complex methodology, it is an accessible process in practice. Users can think of it as a marking or signature on a document, making it unique and distinguishable from similar documents. Grasping this process doubles as a guide to Bitcoin ordinals, as the inscription process is the most crucial aspect of its creation.
To actualise the inscription process, users must first select their desired content to be inscribed. Bitcoin protocol allows users to choose their preferred format, from simple text to images. However, it is essential to note that each inscription is tied to a Sat Bitcoin node, which is only 4 megabytes.
Moreover, the actual size limitations are even stricter, going down to as low as 60 kilobytes for images and 200 kilobytes of GIFs. Anything higher than the outlined size might lead to technical issues. Thus, as of 2023, most Bitcoin Ordinals are inscribed with text, as the text files require the least space.
After deciding the content of choice, users can upload them onto the Bitcoin network and specify the fees related to the inscription process. The Bitcoin platform offers several pricing options for inscriptions, which dictate the speed and precision of the process. Finally, users must specify the owner address for the particular inscription. Now, all users must do is wait for the inscription to be executed on the Bitcoin network.
As described above, the inscription is a relatively simple procedure, seamlessly accessible for most Bitcoin users. Moreover, the entire inscription is conducted on the Bitcoin chain, enhancing the process's speed, security and efficiency.
Bitcoin Ordinals VS NFTs
So far, the described features and tendencies of BTC Ordinals closely resemble the NFT technology. While ordinals were created to function similarly to NFTs, they operate based on a fundamentally different technology, which gives way to several core deviations:
Inscriptions against Tokens
In the case of NFTs, each token must be created from scratch on the blockchain network. This process is called minting, which enables NFTs to stand alone as unique and truly non-fungible digital assets. On the other hand, Bitcoin ordinals are constructed using inscription technology, which simply modifies the existing Sat units with various types of content.
While this difference might seem in favour of NFTs at first glance, the advantage goes to the Bitcoin Ordinals. While Bitcoin Ordinals are technically still fungible, they manage to store the entire digital asset on-chain. Conversely, most NFTs require data from off-chain sources to function properly. For example, in order to enhance the quality of NFT images, blockchain protocols require refreshing the metadata of the digital asset. This process might require informational flow from off-chain networks, which potentially endangers the security of NFT assets.
Thus, by fully operating on-chain, Bitcoin Ordinals share the complete security and decentralisation of the Bitcoin network, giving them a distinct advantage over traditional NFTs.
The Size Limitations and Rarity
As discussed above, Bitcoin Ordinals are limited to a small amount of 4 megabytes per inscription. While this size is plentiful for text inscriptions, it is a considerable limitation for pictures, GIFs, and other similar types of content. Right now, the Bitcoin protocol only permits the mentioned size, which is a hefty constraint for the Bitcoin Ordinal audience.
Secondly, the Bitcoin Ordinals are effectively limited assets compared to standard NFTs. Since Bitcoin has a hard cap of 21 Million units in perpetuity, the number of Sat units is also not limitless. This fact could have both negative and positive implications for BTC ordinals. Firstly, it is never good news that BTC enthusiasts will have limited options to create Bitcoin Ordinals.
On the other hand, Bitcoin Ordinals will be inherently more scarce than regular NFTs, which can potentially increase their valuation in the long run. In practice, however, the number of Sat units is astronomical, which makes it highly unlikely for BTC ordinals to become scarce any time soon.
Liquidity
Naturally, one of the biggest advantages of BTC ordinals is that they are directly tied with the most liquid and reliable cryptocurrency on the market – Bitcoin. Moreover, ordinals maintain their currency features, which further elevates their liquidity. Conversely, NFTs do not have the same luxury, as their most liquid network, Ethereum, still lacks in comparison to the liquidity of Bitcoin.
The liquidity advantage also stems from the general reputation of Bitcoin. As described above, BTC ordinals were created as an inseparable part of the Bitcoin ecosystem, which enables them to share robust security and decentralisation features. Thus, individuals worldwide will prefer ordinals to NFTs if their utmost priority is ensuring maximum security.
Trading Ecosystem
While Bitcoin Ordinals possess several unique benefits over traditional NFTs, they severely lack the quality-of-life features present in the NFT marketplaces. Since NFTs have been around for almost a decade, the market has been optimised for efficient and seamless trading.
As of 2023, NFTs can be stored in digital wallets and traded on the most popular crypto exchanges. They can be seamlessly transferred between digital wallets and modified per the owner's preferences. All of these features make NFTs easily manageable for individuals and businesses.
Conversely, Bitcoin Ordinals have a much more limited interface regarding active trading and investment. Naturally, this process is much more complicated than convenient NFT trading.
Thus, BTC ordinals lack the speed, convenience, and accessibility of NFT trading, potentially making them less attractive options for crypto investors worldwide. However, the empirical evidence shows that this factor has not hampered the popularity of Bitcoin Ordinals.
The Risk of Losing Inscriptions
It is no secret that NFTs can be lost in various ways, including digital wallet corruption, cyber breaches or simple password loss. The same risks are true for BTC ordinals but in a slightly different manner. As Bitcoin Ordinals maintain their function of Sat currencies, they can be accidentally transferred along with other Sats in a given transaction.
Thus, BTC ordinal owners must remain mindful of their transactions, as they could unwittingly trade their prized ordinal asset as a part of a standard commission fee or similar transaction.
The Lack of Regulations
Finally, it is essential to note that BTC ordinals also share the complete decentralisation, anonymity and permissionless nature of Bitcoin. This means the Bitcoin network cannot effectively regulate the content inscribed within Bitcoin Ordinals. Thus, users worldwide have unlimited freedom to create Bitcoin NFTs of their preference.
While the freedom of choice is welcome, the permissionless nature potentially invites numerous malicious parties to store sensitive, graphic, or downright illegal content on the Sat currencies. While there are format limitations, the actual raw file data could include any restricted or dangerous content. This feature is the most significant source of controversy within the Bitcoin community, as individuals are concerned about the negative implications of this uncensored freedom.
Numerous parties could utilise ordinals protocol to conduct illegal activities without any chance of regulation or intervention. Thus, many experts and enthusiasts question the ethical nature of BTC ordinals and whether they should continue functioning in the existing format.
The Possible Impact of BTC Ordinals on The Bitcoin Blockchain Network
As analysed above, Bitcoin Ordinals are a fascinating addition to the Bitcoin ecosystem. On the one hand, the ordinals market is great news regarding the security, decentralisation, freedom, and liquidity of digital assets. BTC ordinals also increase the potential value and functionality of the Bitcoin asset, as they add inherent value to the BTC network.
Many Bitcoin users have already transitioned their NFT assets to the ordinals' protocol, the most popular being the emergence of ordinal punks. Numerous other users are rapidly creating BTC ordinals, confident in this novel technology's bright future.
However, the other side of the Bitcoin community remains sceptical. From limited functionality and constraining file size to ethical concerns, many individuals believe that BTC ordinals are not worth the hype. Some even believe that ordinals could be a gateway to numerous cybersecurity issues, as they could potentially store malware within the inscribed nodes.
Moreover, BTC ordinals might threaten to clutter the Bitcoin Network, increasing the transaction fees and processing periods. So, the Bitcoin community is also concerned that if Bitcoin Ordinals do not achieve the promised potential, they could needlessly overwhelm the Bitcoin Network.
Thus, the long-term future of BTC ordinals is quite murky in the current period. Numerous positive and negative signs could tilt the BTC ordinal progression in either direction. With convincing arguments on both sides, the impact of BTC ordinals could be catastrophic or highly lucrative for the Bitcoin ecosystem.
Best Marketplaces to Purchase BTC Ordinals
While the Bitcoin Ordinals technology is still fresh, several marketplaces have adopted a simplified trading functionality, allowing users to trade ordinals conveniently.
Ordinals Market is by far the most popular option for BTC ordinals today. It operates on the Ethereum network, storing Bitcoin information using digital vault technology. These vaults effectively contain Bitcoin inscriptions, allowing users to trade Bitcoin assets on the Ethereum network. However, if the users claim their inscriptions and open the vaults, they can no longer sell on the open market.
Ordswap is another excellent option to purchase, sell or even generate ordinals. Ordswap offers many easily accessible features, letting users access the Bitcoin network seamlessly and generate BTC ordinals without leaving the Ordswap platform. It also has simplified search options and trending statistics for active traders.
Magic Eden is the most popular option for digital artists to create BTC ordinals, letting creators conduct the inscription process seamlessly and swiftly. As a result, artists can convert their works directly into BTC ordinals on the platform and put them on sale instantaneously. However, Magic Eden does not accommodate royalties from re-sales, as the Bitcoin methodology does not permit this practice.
Summary
Bitcoin ordinals have stormed the crypto market with an exciting wave of innovation. On the one hand, Bitcoin enthusiasts have received a much-expected upgrade to the Bitcoin ecosystem. BTC ordinals have the potential to increase the inherent value of Bitcoin and transform the NFT market to be more secure and decentralised.
On the other hand, BTC ordinals have significant ethical issues due to a complete lack of moderation and censorship. They could also cause the Bitcoin Network to become cluttered soon. Thus, the subject of BTC ordinals remains to be determined, and only time will tell if this novel technology will fulfil its potential.
