NFTs
How are ordinals changing the way we view NFTs?
Last updated: May 16, 2024 07:52 EDT | 4 minutes of reading
Launched in January 2023, the Ordinals Protocol opened the Bitcoin ecosystem to the NFT craze, allowing users to inscribe data – images, art, videos and more – into individual Bitcoin denominations known as satoshis.
The idea of bringing NFTs to the Bitcoin network may have seemed frivolous to some.
Others, however, recognized the importance and heralded Ordinals as a shot in the arm for the Proof of Work blockchain.
As strong as it was, the digital gold narrative would now be supported by another compelling use case as bitcoin became more than a deflationary digital currency: it could now function as a piece of digital art or a piece of music. fungible.
Ordinals: from inscriptions to infinity
The arrival of Ordinals effectively allowed the minting of NFTs directly on the Bitcoin blockchain for the first time. The idea is credited to former Bitcoin Core contributor and Ordinals creator Casey Rodarmor.
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 supplementary data to them (inscriptions).
A few months after the arrival of Ordinals, an anonymous developer pioneered BRC-20, a token standard that extended the functionality of Bitcoin by supporting the minting and transfer of fungible tokens through one protocol.
The experimental pattern – which uses Ordinal inscriptions to embed token data directly into the blockchain – was a revelation: less than a year after Ordinals launched, the BRC-20 ORDI meme coin exceeded US$ 1 billion in market capitalization.
As for Ordinals, around 66.5 million inscriptions were made in satoshis according to Dune Analysis.
Given that there are 100 million satoshis per bitcoin, we still have a long way to go before the inscriptions amount to an entire coin. The dollar value generated by Ordinal fees, however, exceeds $417 million.
In less than 18 months since the official launch of Ordinals, there have been many significant milestones, from the debut of the first Ordinals collection (Bitcoin Shrooms) to the arrival of the first subscription service (OrdinalsBot) and the aforementioned success of ORDI.
Among the biggest milestones was the opening of a Bitcoin NFT marketplace on Magic Eden, which set the stage for frenzied 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 the designed Bitcoin-based NFTs compare to their more established Ethereum counterparts?
The main difference worth noting is that Ethereum NFTs are created using smart contracts based on standards like ERC-721 and ERC-1155.
In effect, this means that NFT data can be stored on different layers of the Ethereum blockchain or even the InterPlanetary File System, with NFTs benefiting from greater functionality. On the other hand, bitcoin NFTs are registered directly on the blockchain of the same name.
Another point of divergence concerns transaction fees. Because ordinals are stored on the network, transaction fees are higher. Ethereum NFTs, on the other hand, can be stored off-chain and therefore benefit from lower fees.
Because NFT royalties work through smart contracts and Bitcoin is not a smart contract network, Ordinals do not entitle creators to royalty income upon reselling their work.
That said, there are initiatives that seek to bring smart contract capability to Bitcoin, agreements being an example.
While criticized by some for bringing DeFi degeneration to Bitcoin (not to mention increasing network fees), Ordinals and BRC-20 have been praised by people like Vitalik Buterin, who acclaimed 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, which allows for the linking of ERC-721 NFTs from Ethereum to Bitcoin.
Interestingly, ordinals can be harnessed for purposes beyond inscribing a message on a satoshi: a recent initiative by top BTC hodler MicroStrategy sees the protocol used to enable the creation of foolproof and trustworthy decentralized identifiers (DIDs).
It can be argued that Ordinals have learned lessons from the previous NFT boom, and since inscriptions cannot be modified after creation and Bitcoin NFTs are inherently more scarce, they are better at preserving their value. Time will tell.
The Bloom of Bitcoin Layers 2
The success of Ordinals is closely linked to the emergence of Bitcoin Layer-2s, secondary protocols built on top of Bitcoin and intended to address the network’s scalability challenges while improving its utility.
In some ways, this evolution of the Bitcoin network follows a similar trend to that of Ethereum, which generated its own multitude of Layer-2s during the last big DeFi boom.
One of these layer 2 is Merlin Chainwhich 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 fraud-proof BTC modules, and compatibility with the Ethereum Virtual Machine.
Despite only being launched earlier this year, Merlin has become by far the largest Bitcoin sidechainits $1 billion + TVL value far exceeds that of Rootstock, Stacks and other Bitcoin L2s.
The team behind Merlin Chain previously developed BRC-420, a standard that transforms ordinal inscriptions into assets that can interact with each other – known as recursive inscriptions.
Notably, BRC-420 introduces a royalty standard, giving developers the right to revenue from the use of their creations, with the team committed to unlocking the potential of Bitcoin’s native assets, protocols like Ordinals and associated products.
With the market value of Bitcoin L2 solutions now exceeding $4.3 billion, less than 18 months after launching Ordinals, Casey Rodarmor has a lot to be proud of.
Not that the developer has rested on his laurels: in April he released Runes, a protocol for fungible tokens that leverages Bitcoin.
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