Bitcoin, which is mainly used as a digital currency and a store of value, has long been a dominant force in the rapidly changing world of cryptocurrencies. But with the advent of Ordinal NFTs, its potential and functionality have undergone a substantial change.
What Are Bitcoin Ordinals?
The Bitcoin network saw the release of Bitcoin Ordinals in January 2023, a unique method for producing non-fungible tokens (NFTs) based on the Bitcoin network. This innovation entails using a process called “inscribing” to affix distinct data to each individual satoshi, the smallest unit of Bitcoin. Historically, NFTs have been primarily linked to blockchains such as BSC Chain, Ethereum, and Solana. The Ordinals project, however, changed this view by highlighting the potential of NFTs in the Bitcoin ecosystem.
Because Bitcoin is decentralised and its users are reluctant to jeopardise network security, changing the core code of the cryptocurrency has always been a difficult task. This has made it more difficult for Bitcoin NFTs to be widely used. Despite these difficulties, the changing cryptocurrency scene has opened doors for progressive people who believe that Bitcoin NFTs will play a major role in the development of Web 3. Since its launch, the Ordinals platform has consistently seen an increase in activity. A wide range of content, such as pictures, music, and videos, are being added by its expanding user population. We’ll then examine the workings of this novel procedure.
Satoshi, the smallest unit of Bitcoin, are given serial numbers by a special system that powers Bitcoin Ordinals. Using this system, called the Ordinals protocol, users can attach extra data to regular Satoshi to make them into unique entities—a process called “inscription.”
The smallest portion of a Bitcoin (BTC) is represented by a satoshi, which is named after the mysterious person who created Bitcoin, Satoshi Nakamoto. One BTC is divided into 100 million satoshis. A satoshi is worth 0.00000001 Bitcoin.
Each Satoshi’s uniqueness is based on where it falls in the mining and transaction chain. The sequence of transaction inputs and outputs determines the transactional sequence, whereas the ordinal numbering is based on the chronological order of mining. This is what “ordinals” are all about. As an example, the first Satoshi in the first block is assigned the ordinal number 0, the second is assigned the number 1, and so on. According to ordinal theory, these numbers function as reliable identifiers for the information associated with the satoshis.
Ordinals and traditional NFTs share certain similarities, but they also differ significantly. Smart contracts on blockchains such as Ethereum, Solana, and BSC Chain are typically used to create NFTs, and the assets they represent are frequently stored outside of the blockchain.
In contrast, ordinals are directly inscribed onto individual satoshis and are incorporated into the Bitcoin blockchain‘s blocks. This means that ordinals are entirely contained within the blockchain, eliminating the need for sidechains or additional tokens. As a result, ordinal inscriptions benefit from the inherent simplicity, immutability, security, and robustness of the Bitcoin network.
Differences between Ordinal NFTs and Traditional NFTs
1.Storage on the Blockchain of Bitcoin: Because ordinal inscriptions are decentralised and have higher security thanks to Bitcoin’s cryptographic capabilities, this is one of their main advantages over traditional NFTs. A permanent record on the Bitcoin blockchain, ordinal inscriptions are essentially satoshis. Its decentralisation and security are guaranteed by this characteristic. Your Bitcoin NFT is moved to your Ordinals wallet and safely recorded on the Bitcoin blockchain when you inscribe a satoshi using an inscription tool. It’s a simple and dependable process.
Nevertheless, the majority of conventional NFTs are run on decentralised platforms that make use of self-executing smart contracts, like those found on the Ethereum Virtual Machine (EVM). Because of this arrangement, these NFTs are dependent on the precise guidelines and reasoning of the contract. As a result, the NFTs’ functionality may be impacted by any unforeseen modifications to the Ethereum network or EVM.
2.Enhanced Liquidity with Ordinals: Ordinals benefit greatly from the strong liquidity provided by Bitcoin, the most well-known and traded cryptocurrency that is always accessible on a variety of exchange platforms. You can essentially connect your artwork or asset to the most liquid cryptocurrency on the market by registering digital artefacts with Bitcoin.
Some cryptocurrencies that support NFT, such as Binance Coin, Ethereum, and Polkadot, might not provide as much liquidity as this one. Some users may be concerned about their robustness, security features, and market value, which contributes to this.Choosing Bitcoin for your digital creations not only safeguards your art or asset but also provides access to a broad and deep market, allowing you to sell whenever the need arises.
3.Ordinal inscriptions cannot be changed: The design of the Bitcoin protocol uses consensus mechanisms and cryptographic hashes to guarantee the immutability of transactions. The hash of the previous block is included in every block of the Bitcoin blockchain, creating an impenetrable chain. A transaction becomes an unchangeable part of the public ledger once it is confirmed by the majority of nodes on the Bitcoin network. The likelihood of fraud and the tampering of current records is greatly decreased by this arrangement.
On the other hand, Ethereum NFTs frequently have mutable metadata despite being immutable at the core. This metadata is normally kept off-chain on centralised servers and may contain information about the NFT’s owner, related photos or videos, and other characteristics. It can be updated by the NFT’s owner or creator and is connected to the NFT through its token ID.
An artist that has an Ethereum-based NFT, for example, can update descriptions and titles or change the attached image to alter the metadata. To accomplish this, modify the metadata on the central server and re-link it to the token ID of the NFT.
4.Bitcoin ordinals are less common: The 21 million coin supply limit of Bitcoin, which is controlled by a proof-of-work (PoW) algorithm and a transaction halving mechanism, adds to its scarcity: As a reward for adding new blocks to the blockchain, miners get more bitcoins. Every four years, this reward is halved, which lessens the motivation to grow the Bitcoin network and keep the supply cap in place. Every 2016 blocks, or roughly every four weeks, the difficulty of creating new blocks increases, guaranteeing a consistent rate of block creation over time.
These elements maintain the supply limit and drive up the cost of mining. Ordinal inscriptions are therefore restricted to the amount of bitcoins that are currently in circulation and a finite quantity that is still to be mined, avoiding market saturation and maintaining the value of digital artefacts.
On the other hand, an infinite number of Ethereum NFTs can be represented within a single contract, as they are primarily based on the ERC-721 contract. This is because the data is referred to off-chain by the contract rather than being stored there. Nevertheless, in order to create a Bitcoin ordinal inscription, a particular Bitcoin transaction is needed, and the content is directly stored on the Bitcoin blockchain, underscoring its exclusivity.
What Impact Will Ordinal NFTs Have on Bitcoin?
In terms of market capitalization, Bitcoin is without a doubt in the lead. Its original intent was to serve as a digital cash payment system only. With time, it developed into a value storage medium that led to the hard forks that created Litecoin and Bitcoin Cash, among other new cryptocurrencies. The capacity to assign data to specific satoshis brings benefits and difficulties. Through mainnet integration, this simplification enables NFTs to benefit from Bitcoin’s well-established security features and offers a way to confirm the ownership and uniqueness of digital assets.
But this development presents some challenges for miners. They must decide whether to allocate block space to ordinal and smaller transactions or to standard transactions. As speculation and interest in ordinal NFTs grow, so does the competition for block space, forcing miners to be picky about which transactions to include.
In conclusion, Ordinal NFTs offer new opportunities and challenges in the Bitcoin space, constituting a revolutionary development. They add new functionality and inventiveness to Bitcoin, but they also raise concerns about transaction costs, network capacity, and the core idea behind the cryptocurrency. The long-term effects of Ordinal NFTs on Bitcoin’s purpose and functionality are still a topic of intense interest and continuous discussion as the cryptocurrency community navigates these changes. The protocol might enable Bitcoin smart contracts, give ordinal satoshis to specific security tokens or stablecoins, and make the cryptocurrency more widely known.