Ordinals are driving a rise in Bitcoin’s popularity, but for that to continue, the protocol will need to integrate more standards.
This is an editorial opinion from Danny Yang, founder of the Stanford Bitcoin Meetup, who has enrolled the OnChainMonkey NFT collection in Bitcoin.
In recent years, NFTs have been the emerging application for Ethereum and other blockchains. While much of this core user base left with the fall in NFT pricesmany have stayed. But the initial spike in NFT interest drew most of these users to blockchain projects other than Bitcoin, even though BTC is the largest cryptocurrency by market capitalization (which is twice the size of Ethereum) and has the highest level of security and the most proven capacity as a store of value. Unsurprisingly, a protocol like Ordinals came along to make it possible for NFTs to exist on Bitcoin. It was only a matter of time until someone recognized that the staying power of Bitcoin could support a truly “killer” app.
Contrary to some complaints, the Ordinals protocol and the ability to create NFTs on Bitcoin is remarkably good for the future of Bitcoin. With ordinals, we can now enroll and store non-fungible digital assets on the Bitcoin blockchain. More stored value means even more incentive to participate in the network; We have seen this reflected in the increase in operational Bitcoin nodes — further boosting the competitiveness of bitcoin miners and the value of bitcoin.
Nor is it a passing fad. NFT collectors rushed to pay more than $16 million in bitcoin for 288 ordinals from Yuga Labs. Bitcoin NFTs are the new “gold standard” and only strengthen Bitcoin’s place as the global standard for a store of value.
What Are Ordinals?
The first inscription of Ordinals was added to Bitcoin in December 2022, and began to gain traction in early 2023. An ordinal is made up of two parts: an individual satoshi (the smallest unit of bitcoin) and an inscription. Each satoshi is identified by the order it was created in the Bitcoin protocol, and the Ordinals protocol tracks each satoshi as it is transferred between wallets.
Registration is data that is written (or inscribed) into the Bitcoin blockchain and is associated with an individual satoshi (“marked”) at the time of registration. This allows people to enroll data in Bitcoin and assign and transfer ownership of that data or on-chain enrollment using the satoshi “markup”.
The first ordinal created is numbered “ordinal 0” and each subsequent ordinal increments the counter by one. All ordinals form a single NFT collection of ordinals. There was an initial rush to create the lowest numbered ordinals, motivated by the collectability of very low ordinal numbers. The value of these early ordinals lay mainly in the low ordinal number, and the actual data inscribed was not that important (many were just copy-pasted images of existing works, often done without permission from the original creators).
In other words: an ordinal is like a digital postage stamp, and the protocol allows anyone to print their own stamps. As with actual physical stamps, these digital stamps are assets that can be owned, sold, and transferred. The seal or ordinal has the advantage of being digital, stored and secured in the Bitcoin blockchain. Both Bitcoin and Ordinals are open and permissionless protocols, so anyone can use Ordinals to print whatever stamps they want.
In the last weeks, we have seen more than 750,000 “stamps” printed on Bitcoin. And, just like physical stamps, some are worth more than others. One of Yuga Labs “stamps” sold by over 7 BTCworth over $150,000 at the time.
Why ordinals are good for Bitcoin
The main criticism of ordinals is that storing additional digital assets in Bitcoin means that more block space must be used to store these digital assets. Each year, the Bitcoin blockchain can only store a little over 200 gigabytes of data at its theoretical maximum (since each Bitcoin block has a theoretical maximum size of 4 megabyteswith miners adding a block roughly every 10 minutes and thus roughly 210 gigabytes of data per year), which includes all regular bitcoin transactions plus the marked satoshis and accompanying enrollment data.
Ordinal storage can easily use much more block space than regulator transactions, crowding out these regular transactions and increasing transaction fees. But this is not bad. Rising fees indicate demand for and usage of Bitcoin, and that money goes directly to Bitcoin miners who secure the blockchain. That incentivizes more miners and nodes to join, further strengthening the blockchain. Critics also forget that bitcoin is a true free market. The higher fees should mean that the ordinals that are written into Bitcoin have a higher value than regular transactions, just by the nature of their existence. If they are not, they will not be sold and will not be created.
I agree with critics who point out that most NFT collections going to Bitcoin are wasting space: in their rush to be hip, they are bloating the blockchain with transactions that I don’t see as really valuable. When I entered an ordinal collection of 10,000 images, our team decided intentionally use only 20 kilobytes of the total data on the Bitcoin blockchain, thus minimizing disruption to the rest of the mempool. Block space consideration should be standard for any Bitcoin NFT collection launch.
Ordinals need a standard
The Ethereum NFT marketplace took several years to develop: At the time of writing, two of the three most used applications on Ethereum (by the amount of gas paid) are NFT marketplaces. (on Etherscan, like Blur and OpenSea’s Seaport). Bitcoin is the largest blockchain by market cap, so it stands to reason that there will be a Bitcoin NFT market (or several) soon. However, where Ethereum did well was in their NFT rulesand that is what is still missing in Bitcoin NFTs.
As mentioned above, all ordinals are part of a single Bitcoin NFT collection. One important NFT standard available on Ethereum, and not yet on Bitcoin, is the ability for a specific creator to define a custom NFT collection of just their NFTs. The NFT collection standard is critically important for provenance, security, interoperability, and growth. On Ethereum, there are many NFT explorers, wallets, and marketplaces, all of which can interoperate and understand which collection each NFT belongs to.
This search capability does not yet exist for ordinals in Bitcoin. To be fair, the ordinals are new. Ethereum had several years to develop NFT standards, such as ERC-721 and ERC-1155. But now that Bitcoin NFTs are here, we need to create these standards as soon as possible.
The ordinals, the protocol, is not a finished product either. In fact, it is still very much an alpha version. The protocol is actively being developed and upcoming updates will give it more power and make it more efficient.
An upcoming important feature is “collections and provenance.” This will allow creators to clearly authenticate that a group of ordinals are part of the same collection. The technique used to enable this feature is itself a powerful feature: the ability of one ordinal to reference another ordinal. The provenance of the collection is established by having a parent collection ordinal referenced by its many child ordinals which are all members of the collection. This has two significant advantages: the provenance of the collection is very clear, and the storage space required to store all the child ordinal data can be greatly reduced by reusing the data in the parent.
Here’s what we did with our ordinal inscription: you can see what the provenance of the collection looks like for yourself at Regular registration 20219. This standard will improve security and provenance for everyone, and we need it to prevent people from getting scammed. Right now, creators are passing out ad-hoc lists of ordinals that they say are “a collection”. Because marketplaces and browsers only get some of this metadata, it’s hard for them to verify the provenance of these listings.
If we can set and run a standard, it can always be improved. In the meantime, it will give teams building Bitcoin NFT DApps (like wallets and explorers) the infrastructure they need.
Ordinals is starting a new renaissance of Bitcoin development and bringing in a new wave of Bitcoin users.
We have seen this in other blockchains like Ethereum and Solana. Except this time, it’s happening on the most decentralized, most secure, and highest value blockchain. Bitcoin could easily have the highest value individual NFTs, and even the highest overall market cap for all NFTs. And as more users flock to Bitcoin, it will become more secure.
This is a guest post by Danny Yang. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
