TL;DR: Bitcoin NFTs are tokenized assets created and traded on the Bitcoin network using a protocol known as Ordinals. Since launch, they have been in the limelight as they unlocked new possibilities for NFT creators and buyers who use the Bitcoin network.
Bitcoin NFTs have become increasingly popular due to their uniqueness and value as collectibles. Additionally, integrating NFTs on the Bitcoin network can boost fees for Bitcoin miners who process and validate data on the blockchain. However, some critics are concerned that an influx of new trading volume may crowd out other financial transactions on the network.
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Bitcoin NFTs: What’s Behind the Buzz
Ordinals are the most recent advancement in the NFT space. It is a new protocol that enables the addition of NFTs to the Bitcoin blockchain. But how?
Ordinals, a project launched in January, developed by Casey Rodarmor, allows data such as images, videos, text, and much more to be inscribed directly on Satoshis (the smallest denominational unit of Bitcoin, 1/100,000,000 of a BTC) on the Bitcoin network.Following this, over 50,000 ordinals have been issued, with some projects already commanding high prices.
Ordinals’ opponents have attempted to persuade Bitcoin node operators and miners to censor inscriptions. But that’s when Ordinals made the following statement:
“The most important thing that the Bitcoin network does is decentralize money. All other use-cases are secondary, including ordinal theory. The developers of ordinal theory understand and acknowledge this, and believe that ordinal theory helps, at least in a small way, Bitcoin’s primary mission.”
Ultimately, it is up to the nodes and miners to determine which transactions are valid and should be included on the blockchain.
At ordinals.com, you can explore the ordinal scheme, which includes an index that communicates with a Bitcoin Core node to keep track of all ordinals. Additionally, there is a wallet that facilitates ordinal-aware transactions, making it easy to buy and sell ordinal NFTs. These NFTs are available in six rarity levels: common, uncommon, rare, epic, legendary, and mythic.
The Surge in Ordinals NFTs
According to a recent report from blockchain intelligence company Glassnode, the use of Ordinals is becoming more popular, as evidenced by an increase in Taproot transactions on the blockchain. According to Glassnode data, the percentage of transactions utilizing this technology nearly tripled from the previous month.
According to BitMEX research, over 13,000 Ordinals NFTs were identified on the Bitcoin blockchain, minted or “inscribed” between their debut on December 14 and February 7. The sudden influx of media files, including JPEGs, has consumed 526 megabytes of block space in a matter of weeks and cost creators about 6.77 bitcoin.
The total number of Ordinals transactions follows a steep “hockey stick” curve, indicating that NFT activity on Bitcoin is increasing exponentially.
Meanwhile, Stacks, a Bitcoin sidechain that leverages Bitcoin’s security and has a growing NFT ecosystem also saw increase in trading volume for its NFTs, possibly due to interest in the Ordinals protocol and Bitcoin NFTs.
Here’s How the Community Responded
This surge in popularity has enraged prominent Bitcoiners such as Rene Pickhardt, who accuses the Ordinals of “spamming” the most dominant blockchain with large JPEGs.
Pickhardt and other critics have data to back up their claims. Although ordinals accounted for less than 3% of total Bitcoin transactions on Wednesday, they consumed nearly 70% of Bitcoin block space. It has raised concerns about the Bitcoin network’s scalability, as the block size is limited to 1 megabyte.
Despite the criticism, Bitcoin NFTs are becoming increasingly popular.
How are Ordinals Different in Functionality?
Ordinals NFTs are distinct in that they are stored on the Bitcoin blockchain rather than the Ethereum blockchain, which has historically been the preferred blockchain for NFTs. As more creators and collectors embrace Bitcoin NFTs, whether the network can handle the increased demand for block space remains to be seen.
The block subsidy, which will be reduced every four years until it disappears, is the primary source of revenue for Bitcoin miners. To maintain network security, transaction fees will need to rise to compensate for the declining block subsidy.
Ordinals have helped increase miners’ transaction fee revenue and ensure blocks are full. They have attracted the attention of a new group of Bitcoin users and developers, which may encourage network experimentation and development.
Furthermore, prominent NFT projects on other chains may use Ordinals to capitalize on Bitcoin’s permanence and immutability. For instance, Megapont Ape Club, a popular Stacks NFT project, intends to release a new Ordinals collection called Megapunks.
The infrastructure for creating, storing, trading, and transferring Ordinal NFTs is still in its infancy. Nonetheless, it is expected to grow in the coming weeks and months, providing new design options for the protocol.
“There is a subset of Bitcoin culture which sees Bitcoin as purely a way to settle transactions; they see any other use of Bitcoin as an “abuse” of the system. There will always be a contingent of people who oppose using the base layer for anything but those transactions. Though, since Bitcoin is an open, permissionless system, anybody can submit a transaction with any data they want — and we’ve historically seen an incredible amount of creativity and innovation for expanding Bitcoin beyond its original use cases.” – Jamil Dhanani, Founder of Gamma.io
The emergence of Bitcoin NFTs has heightened interest in the digital art and collectibles market. While Ethereum has long been the preferred blockchain for NFTs, the growing popularity of Ordinals on Bitcoin demonstrates that there is a market for NFTs on other blockchains. It will be interesting to see how Bitcoin and other blockchains adapt to meet this demand as the crypto community continues to explore the potential of NFTs.
NFTs: Then and Now
Initially, the majority of NFTs were created and traded on the Ethereum blockchain, which was the first to support smart contracts and a variety of decentralized applications (dApps). The Ethereum token standards ERC-721 and ERC-1155 became the primary protocols for creating and trading NFTs. These standards established a set of guidelines for creating one-of-a-kind, indivisible tokens representing any asset, from digital art and music to virtual real estate and gaming items.
Ethereum’s network has been plagued by scalability issues, high transaction fees, and slow transaction processing times, making it increasingly difficult for creators and buyers to use Ethereum for NFT transactions. As a result, new blockchains have emerged that provide faster transaction processing speeds, lower fees, and other benefits.
Solana, a high-performance blockchain that supports smart contracts and dApps, has been one of Ethereum’s most significant competitors in the NFT space. Because of Solana’s fast transaction processing and low fees, it has become an appealing option for NFT creators and buyers, and many new NFT platforms have been launched on the Solana blockchain.
Bitcoin has recently entered the NFT realm thanks to the development of the RSK network, a Bitcoin sidechain that supports smart contracts and dApps. The integration of RSK and Bitcoin has opened up new avenues for NFT creators and buyers, who can now use Bitcoin to create and trade NFTs on the RSK network.
The emergence of new blockchains and sidechains has made participation in the NFT ecosystem easier and more cost-effective for creators and buyers. It is because these blockchains and sidechains support smart contracts and dApps. More people recognize the potential of NFTs for value creation and ownership. Following this, there has been a surge in NFT adoption and innovation.
Wrapping Up
The popularity of Ordinals NFTs can be attributed to the recent increase in transaction fees on the Bitcoin network. According to on-chain data from IntoTheBlock and CryptoQuant, network activity has increased to levels not seen since 2021, coinciding with the rise of NFTs. While some argue that NFTs provide a new use case for the Bitcoin blockchain, others are concerned about the network deviating from its original purpose.
Nonetheless, NFTs have been a driving force behind Ethereum’s success as the leading blockchain for digital asset trading, and whether Bitcoin will follow suit remains to be seen. It will be intriguing to see how NFTs shape the future of Bitcoin and other cryptocurrencies as the crypto industry evolves.
