Owing to the unique characteristics of the BTC network, Bitcoin, the oldest cryptocurrency, is primarily used to store and transfer value. As such, for a long time, developers in the network seemed “quiet”. However, the emergence of Bitcoin DeFi protocols such as Wrapped Bitcoin (WBTC), Stacks (STX), and Rootstock (RBTC) as well as the Ordinals protocol has signaled a shift in the Bitcoin ecosystem.
On January 21, 2023, Bitcoin developer Casey Rodarmor introduced the Ordinals protocol on the mainnet. In less than two months after its launch, the protocol facilitated the minting of over 380,000 NFTs on the Bitcoin network, with total fees amounting to nearly $1.51 million. As a loyal Bitcoin supporter, I find it exciting to witness a new appealing feature of the “digital gold”. Thanks to the novelty and huge user traffic that comes with NFTs, Ordinals has become a trending project.
Source: Dune
What is Ordinals?
Ordinals, also known as Bitcoin NFTs, is a technology that enables users to inscribe data such as images, texts, and HTML onto the main BTC chain. In December 2022, Casey Rodarmor released an open-source software called ORD, which runs on a Bitcoin Core full node. The software allows users to encode images, text, and HTML into hexadecimal data inside a Bitcoin transaction (“inscription”) and bind that posted data to an individual Satoshi. With ORD, we convert a Satoshi, the lowest denomination of Bitcoin, into an Ordinal or Bitcoin NFT.
Ordinals Link: https://docs.ordinals.com/introduction.html
Users can use ORD to check the NFTs minted based on a system called Ordinal Numbers, and can trade and transfer NFTs with unique Satoshi identifiers.
Bitcoin NFTs vs Ethereum NFTs
Compared to Ethereum NFTs, Bitcoin NFTs are implemented using a different technology. The following table put together by Galaxy Research summarizes the differences between the two:
Note: Due to the upgrades introduced by SegWit in 2017 and Taproot in 2021, the theoretical maximum capacity for these NFTs is 4 MB. In fact, some users have already successfully minted NFTs as large as 3.96 MB in February 2023.
How do we define the rarity of Bitcoin NFTs?
It has been over a decade since Bitcoin was born. During that time, the network has witnessed many cyclical events, including halving and difficulty adjustments. Ordinals has created a rarity system based on the frequency of those events.
Block: New blocks are created approximately every 10 minutes, and they are the most common event in the rarity system.
Difficulty adjustment: Difficulty adjustments occur every 2,016 blocks, or roughly every two weeks.
Halving: A halving occurs every 210,000 blocks, or about every four years. During a halving, the number of new NFTs created per block is reduced by half.
Cycle: Every six halving epochs, a special event occurs where halving and difficulty adjustment take place simultaneously. The event takes place roughly once in 24 years, and the first simultaneous event is expected to happen sometime in 2032.
The impact of Bitcoin NFTs on miners
The recent NFT craze in 2021 on Ethereum led to network congestion and skyrocketing gas fees that made records. The launch of NFTs on the Bitcoin mainnet has reignited the supposedly bearish crypto market. Backed by the traffic support of Yuga Labs, the largest NFT issuer in the world, an increasing number of users have minted Bitcoin NFTs, which has led to greater demands for block capacity.
According to BTC.com, the average size of BTC blocks stands at 1.83 MB. Since January 29, the average block size of Bitcoin has been on a steady rise and reached 2.52 MB on February 12, a new record.
Bitcoin miner revenue edged up
The adoption of Ordinals has triggered different views in the Bitcoin community. Opponents of the protocol argue that it goes against Satoshi Nakamoto’s original vision for Bitcoin as a P2P electronic cash system and takes up too much block space, leading to higher transaction fees. However, supporters believe that Ordinals can introduce Bitcoin to more people, provide higher fee income for miners, and improve network security by attracting more hashing power.
Conclusion
Following the launch of Ordinals, software engineer Anthony Guerrera rolled out the protocol on Litecoin through a fork. Today, over 200,000 NFTs have been minted on Litecoin. Regardless of how Ordinals evolves in the future, at the moment, it is definitely a positive development for both Bitcoin and Litecoin miners.