Nfts
How do ordinals change the way we think about NFTs?
Last updated: May 16, 2024 at 7:52 a.m. EDT | 4 minutes of reading
Launched in January 2023, the Ordinals protocol opened the Bitcoin ecosystem to the NFT craze, allowing users to register data – images, artwork, videos, etc. – on individual Bitcoin denominations known as satoshis.
The idea of introducing NFTs to the Bitcoin network might have seemed frivolous to some.
Others, however, recognized the importance and touted Ordinals as a boost for proof-of-work blockchain.
As strong as it is, the digital gold narrative would now be supported by another compelling use case, as bitcoin becomes more than a deflationary digital currency: it could now become a non-fungible digital work of art or a piece of music.
Ordinary: endless registrations
The arrival of Ordinals actually made it possible for the first time to create NFTs directly on the Bitcoin blockchain. The idea is attributed to Casey Rodarmor, former Bitcoin Core contributor and creator of Ordinals.
Ordinals represent a system in which serial numbers are assigned to satoshis, giving each a unique identifier that can be tracked across transactions and allowing users to attach additional data (inscriptions) to it.
Just months after Ordinals arrived, an anonymous developer launched BRC-20, a token standard that extended Bitcoin functionality by supporting the minting and transfer of fungible tokens via a protocol.
The experimental standard – which uses Ordinal inscriptions to integrate token data directly onto the blockchain – was a revelation: less than a year after the launch of Ordinals, the BRC-20 ORDI moonshot meme coin exceeded a billion dollars in market capitalization.
As for the Ordinals, approximately 66.5 million inscriptions were made on the satoshis according to Dune analysis.
Given that there are 100 million satoshis per bitcoin, we still have a way to go before the inscriptions amount to an entire coin. The dollar amount generated by Ordinals fees, meanwhile, exceeds $417 million.
In less than 18 months since the official launch of Ordinals, many significant milestones have been achieved, from the debut of the first Ordinals collection (Bitcoin Shrooms) to the arrival of the first ever listing service (OrdinalsBot) and the aforementioned success of ORDI.
One of the biggest milestones was the opening of a Bitcoin NFT marketplace on Magic Eden, which paved the way for rampant trading of Bitcoin-based BRC-20 NFTs, similar to the Ethereum NFT boom of 2021.
How Do Bitcoin Ordinals Compare to Ethereum NFTs?
So how do designed Bitcoin-based NFTs compare to older equivalents on Ethereum?
The main difference to note is that Ethereum NFTs are created using smart contracts based on standards such as ERC-721 and ERC-1155.
This actually means that NFT data can be stored on different layers of the Ethereum blockchain or even on the Interplanetary File System, with NFTs benefiting from superior functionality. On the other hand, Bitcoin NFTs are recorded directly on the eponymous blockchain.
Another point of divergence concerns transaction fees. Since ordinals are stored on-chain, transaction fees are higher. Ethereum NFTs, on the other hand, can be stored off-chain and thus benefit from lower fees.
Since NFT royalties operate via smart contracts and Bitcoin is not a smart contract network, ordinals do not entitle creators to royalty income on the resale of their work.
That said, there are initiatives looking to bring smart contract capability to Bitcoin, wedding rings being an example.
Although decried by some for bringing DeFi degeneracy to Bitcoin (not to mention increasing network fees), Ordinals and BRC-20 were praised by Vitalik Buterin, who greeted the “organic return of builder culture” to the PoW network last summer.
It’s a culture that has collided with that of Ethereum in the form of the BRC-721 token standard that allows Ethereum’s ERC-721 NFTs to be linked to Bitcoin.
It is interesting to note that ordinals can be used for purposes other than writing a message on a satoshi: a recent initiative by leading BTC hodler, MicroStrategy sees the protocol used to enable the creation of trustless and tamper-proof decentralized identifiers (DIDs).
There is an argument to be made that Ordinals has learned lessons from the previous NFT boom and, because inscriptions cannot be changed after creation and Bitcoin NFTs are inherently rarer, they are better at preserving their value . Time will tell us.
The flourishing of Bitcoin Layer-2
The success of Ordinals is inextricably linked to the rise of Bitcoin Layer-2, secondary protocols built on top of Bitcoin and intended to address the network’s scalability challenges while improving its utility.
In a sense, this evolution of the Bitcoin network follows a similar trend to that of Ethereum, which spawned its own multitude of Layer 2s during the last big DeFi boom.
One of these layers 2 is Merlin Channelwhich leverages ZK-Rollup technology to compress transaction data and therefore enable faster and cheaper transactions.
Other distinctive features of L2 include its decentralized Oracle network, on-chain BTC anti-fraud modules, and compatibility with the Ethereum virtual machine.
Although it only launched earlier this year, Merlin has become by far the the largest Bitcoin sidechainits billion dollars + TVL far exceeds that of Rootstock, Stacks and other Bitcoin L2.
The team behind Merlin Chain previously developed BRC-420, a standard that turns Ordinals into assets that can interact with each other – called recursive inscriptions.
Notably, BRC-420 introduces a royalty standard, allowing developers to earn revenue from the use of their creations, with the team committed to unlocking the potential of Bitcoin’s native assets, protocols such as ordinals and associated products.
With the market capitalization of Bitcoin L2 solutions now exceeding $4.3 billion less than 18 months after the launch of Ordinals, Casey Rodarmor has much to be proud of.
Not that the developer has rested on its laurels: in April, it spear Runes, a protocol for fungible tokens that leverages Bitcoin.
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