Bitcoin-based ordinal inscriptions are the “new, new thing” and an opportunity to frame and make more accessible issues surrounding designing, quantifying, and measuring exponential innovation.
To start: the recent growth metrics of what are being described as the “NFTs of Bitcoin” – Ordinal Inscriptions aka Ordinals – from Jason Nelson at Decrypt: “On Monday, February 13, Inscriptions using Ordinals passed 100,000 as users flooded the network with images, video games, and other content.” (1)
Further metrics on recent and future exponential growth of ordinal inscriptions in the bitcoin blockchain:
Ordinals are currently being inscribed at a rate of:
212 / hour
5,088 / day
152,640 / month
1,857,120 / year
If this rate continues we will cross 100,000 inscriptions on February 24th and 1,000,000 inscriptions on August 20th 🤯
— Leonidas (@LeonidasNFT) February 8, 2023
CP: 124k tokens (since Jan 2014), mostly semi-fungibles, few 1/1s
Ordinals: 58k (since Dec 2022), all 1/1s pic.twitter.com/rHr3zXTDNt
— Doggfather (@DoggfatherCrew) February 11, 2023
Today, Bitcoin reached the #2 position on our Fees & Revenue Dashboard, having accumulated $2,552,183 in gas fees paid by users over the past 24 hours. This is the highest amount since the beginning of 2023 pic.twitter.com/EkxztRZMAI
— DefiLlama.com (@DefiLlama) February 3, 2023
What are Ordinals?
Our friends over at Ark Invest describe the rise of Ordinal Inscriptions:
“With the launch of the Ordinals protocol, the Bitcoin network can now support non-fungible tokens (NFTs)1 directly on-chain. Users can inscribe images and other data in satoshis, the lowest denomination of bitcoin.
Thanks to two Bitcoin software upgrades—Segwit in 2017 and Taproot in 2021—the Bitcoin network can incorporate novel metadata on the blockchain. SegWit expanded Bitcoin’s block size from 1 megabyte to 4 megabytes, and Taproot increased data limits, enabling developers and users to encode various data types.
To understand Bitcoin Ordinals, consider the analogy to the dollar: just as 100 pennies constitute $1, 100 million satoshis constitute 1 bitcoin. Similarly, just as one might engrave a design onto a penny, bitcoin owners can “etch” satoshis, thanks to BTC Ordinals.
To date, users have created more than 100,000 Ordinals on the Bitcoin blockchain, some of them commanding large premiums. Ordinal Punks, a spin-off project from the groundbreaking Ethereum-based CryptoPunks NFT collection, sold for 9.5 BTC, or ~$218,000. The Ordinals project has sparked intense debate in the Bitcoin community. Bitcoin “purists” oppose it, claiming not only that ordinal inscriptions are congesting block space at the expense of valid financial transactions but that they also put bitcoin’s fungibility at risk because certain satoshis are worth more than others.
In contrast, Ordinal supporters maintain that inscriptions are boosting demand for block space and generating fees, compensating miners for securing the network. They also cite libertarian, free market principles, noting that the market should determine the optimal use of block space. In response to concerns about bitcoin’s fungibility, advocates liken Ordinals to “coin collections” and note that the market for collectible coins has not impacted the dollar’s fungibility. (2)
What Next? The Exponential Growth of Block Space and Content Liability on the Bitcoin Blockchain
A positive perspective is offered by Yassine Elmandjra at Ark Invest: “In our view, Ordinals have activated a new wave of Bitcoin users and developers—a net positive. Enabling new types of innovation, Ordinals have rejuvenated developer interest in building Bitcoin infrastructure. During the next few months, wallets and marketplaces are likely to support Ordinals, broadening the range of Bitcoin use cases.” (2)
The OODA Network on Ordinals
Less bullish was a recent conversation during the OODA Network Monthly Meeting, which gave voice to the following concerns re: the exponential growth of ordinals, the storage capacity of bitcoin, and what that means for stakeholders up and down a bitcoin blockchain addled with (and exponentially overwhelmed by) ordinal inscriptions of a dubious (if not downright illegal) nature.
OODA CEO Matt Devost observed that “this is an interesting development in what for me – prior to a week or so ago – was a relatively static technology. I didn’t expect a lot of innovation out of Bitcoin other than to continue to grow as a potential store of value. And now you have this adaptation that takes it in a different direction.”
Additional perspectives offered by the OODA Network included:
- It has always been possible with Bitcoin – people have been putting texts and links to images with the current version of Bitcoin – but there is now the ability to embed images. It will cause all sorts of complications for the technology because people who are running nodes obviously have a complete copy of the blockchain in their possession.
- What happens if inscribed images have illegal materials, illegal images, or revenge porn?
- What is the responsibility of stakeholders up and down the blockchain to these embedded data types?
- What are the unique identifiers and tracking mechanisms for the inscribed data on the bitcoin blockchain?
- What is the risk for organizations running nodes that have a complete copy of the blockchain that includes ordinal inscriptions at a growing exponential volume (such as illegal materials, classified documents, and/or illegal images)?
- As a person with a security clearance, am I precluded from running a blockchain node because I am storing classifier documents in a way that is not approved or legal?
- Sometimes these technologies adapt and develop in ways that are not anticipated. From a bitcoin perspective, what if blockchain moves away from a store of value to a store of information as a priority?
- Finally, if you look at storage utilization and bitcoin, it is on an exponential curve, so the blocks of storage are filling up that much more quickly – at potentially exponential speed – which of course is driving up transaction costs and making the miners very happy. But what are the long-term risks and unintended consequences of this need for storage? And, as with all risks and threats, what are the parallel opportunities which will be created by this technology?
Decrypt’s Nelson offered the following:
So you want a Bitcoin ordinal?
Start with a Bitcoin full node, then install……no, no.
For the past year, we’ve focused on making the best creator tools possible.
Today, we’re launching no-code ordinal inscriptions to anyone with a BTC address.
— Gamma.io (@trygamma) February 9, 2023
We’ve begun rolling out support to Hiro Wallet for Bitcoin, NFTs and Ordinals for a truly cross-protocol Bitcoin Web3 experience. https://t.co/OAVriTraFq
— Mark Hendrickson | mark.btc | Leather (@markymark) February 14, 2023
William M. Peaster from Metaversal (a Bankless newsletter) offered these insights (pro and con):
- “Ordinals has been met with criticism from some hardliner Bitcoiners but is hailed by others as potentially revolutionary for the future of Bitcoin’s NFT scene.
- New NFTs are driving up transaction fee revenues for Bitcoin miners, potentially indicating a future where cultural activity supports the network.
- Inscriptions are stored entirely on the Bitcoin blockchain, making them forever retrievable and x7 cheaper to mint than on-chain Ethereum NFTs.
- Onchain Bitcoin NFTs are becoming more popular in the Bitcoin ecosystem, driven by the need for a teeming block space market to secure the network as the BTC block subsidy decreases.
- Ordinals are seen as a step in the direction of a teeming block space market on Bitcoin, despite opposition from some hardliners.
- Bitcoin’s decreasing block subsidy would eventually pose an existential crisis for Bitcoin if a thriving, organic block space market didn’t take hold on the chain. Funnily enough, the rise of Bitcoin Ordinals NFTs is the first such indication in recent memory that such an organic block space market may actually come to be, and it’s entirely through the newest Bitcoin-native version of NFTs.
- These experimentations because they represent the boldest opportunities yet to break Bitcoin out and evolve it from the grips of the “old guard” hardliner Bitcoin OGs, many of whom think Bitcoin NFTs are spam and have been anti-progress presences in the crypto-economy for years now. (3)