Bitcoin NFTs are rapidly making a mark in the crypto universe, introducing exciting prospects for the pioneering blockchain and digital art enthusiasts.
Conventionally, NFTs were minted and traded on Ethereum-oriented platforms, with a few others branching into blockchains like Cardano and Solana. However, an innovative protocol called Ordinals came into existence in January 2023, thanks to the efforts of former Bitcoin Core contributor Casey Rodarmor. Rodarmor took advantage of the 2021 Bitcoin Taproot upgrade to diversify Bitcoin’s capacities and pave the way for on-chain Bitcoin NFTs.
With a revolutionary concept named Ordinals, the Bitcoin ecosystem is setting new horizons. While both Bitcoin Ordinals and Non-Fungible Tokens (NFTs) share some traits like immutability and uniqueness, their characteristics and applications set them apart, offering distinct advantages in the crypto space.
The Ordinals Protocol Explained
Bitcoin Ordinals, a consequence of the Ordinals protocol, are inherently dualistic, exhibiting properties of both fungible and non-fungible assets. They operate by inscribing data onto satoshis, the smallest unit of Bitcoin. This process transforms an otherwise fungible satoshi into a unique and non-fungible Ordinal. In contrast, NFTs on Ethereum and Solana are entirely different from their parent coins and share no relation with each other.
Taproot Upgrade
The Taproot upgrade optimizes the block’s capacity at the base layer by compacting transaction size and minimizing data consumption. It also promotes the use of Bitcoin-based smart contracts. This improvement expands the diversity of transactions Bitcoin can accommodate, including applications for decentralized finance (DeFi) and NFTs. By February 2023, Yuga Labs, the world’s leading NFT issuer, announced the production of TwelveFold, an exclusive Bitcoin-issued NFT collection, signaling the arrival of Bitcoin NFTs.
Scarcity
Bitcoin Ordinals bring a fascinating twist to the crypto market – their limited supply. With only 21 million Bitcoins in circulation, each divisible into 100 million satoshis, there are only 2 quadrillion satoshis available for inscription. This scarcity not only enhances the value of Ordinals but also creates an environment of high demand with limited supply. In contrast, Ethereum doesn’t exhibit such hard limitations.
Ordinals are unique numbers assigned to individual satoshis (the smallest unit of Bitcoin), giving them a unique identifier based on their mining sequence. The ordinal theory awards unique value to satoshis, allowing them to be accumulated and traded as precious items. Each satoshi gets a unique identity, which can be tracked, moved, and instilled with arbitrary data such as images, text, or videos, through a Bitcoin transaction that becomes a permanent part of the blockchain.
Inscriptions
The procedure of associating assets with individual satoshis is known as inscription. Inscriptions are akin to digital artifacts native to the Bitcoin blockchain. They are entirely on-chain and do not require a sidechain or a different token. Instead, they use the Ordinals protocol to inscribe sats with content on ord, a platform that includes an index, an explorer, and a wallet that relies on Bitcoin Core for private key management and transaction signing.
How to Mint Your Bitcoin NFT
Despite the ongoing development of the Ordinals ecosystem, there are currently two primary methods to mint an Ordinal NFT.
The first approach, intended for those with some technical prowess, involves running a full Bitcoin node and installing Ord on this node to inscribe satoshis into an Ordinals wallet and craft Bitcoin NFTs. Both types of Bitcoin wallets that can process Ordinals must be Taproot-compatible and feature a “coin control” capability to prevent accidental expenditure or misdirected transactions of Ordinal satoshis.
The second, more user-friendly method entails using a no-code tool such as Gamma or Ordinalsbot.com to inscribe your Ordinal NFT. The process is relatively straightforward, beginning with selecting the type of file to be used in minting your Bitcoin NFT, uploading the necessary file from your computer, and setting up the transaction fee based on how quickly you want your Ordinal to be minted. Once you’ve finished these steps, all you have to do is wait until your NFT is ready.
Step-by-step Guide
To mint a Bitcoin NFT, or an Ordinal, there are two distinct routes. Running a node is one, though it can be resource-intensive and require substantial computational power. For those who prefer a more straightforward approach, the no-code inscription tool Gamma.io offers a simpler way. However, it’s crucial to consider a few factors before you begin.
Firstly, you must have Bitcoin worth $50 in your wallet to cover the inscription fee. Furthermore, you’ll need a Taproot-compatible wallet like Muun, Sparrow, or Spectre, and Coinbase and Binance do not support Taproot addresses.
The minting process for a Bitcoin NFT using Gamma.io is straightforward. Starting with navigating to the Ordinals page on Gamma.io’s official website, the process involves selecting an inscription type based on the data you want to inscribe onto your satoshi.
Once you select the inscription type, it’s time to choose a fee plan for the transaction. As the next step, you have to provide the recipient’s Bitcoin address, ideally obtained from a Sparrow wallet.
One crucial detail to bear in mind is that all Taproot addresses start with the prefix ‘bc1p.’ Hence, the recipient’s Bitcoin address should have this prefix. After ensuring the prefix, the payment for the transaction fee can be sent to the specified wallet address.
Remember, it’s advisable to make the payment from a different wallet than the recipient’s to avoid any potential issues. Finally, after the payment is processed, the minted Ordinal can be viewed in an Ordinal viewer after a waiting period based on your selected fee plan.
Potential Use Cases of Bitcoin NFTs
The implementation of Bitcoin Ordinals, or NFTs, extends to various practical applications. These could significantly influence their adoption and mainstream acceptance.
Art and collectibles top the list, with artists having the opportunity to tokenize their work and sell it directly to collectors on the Bitcoin blockchain. However, the possibilities do not end here. Bitcoin NFTs can also find application in the gaming industry and virtual worlds. Blockchain-based games can integrate Bitcoin NFTs to give players ownership over their digital game assets. Additionally, Bitcoin NFTs can represent virtual land or real estate ownership.
Another promising avenue for Bitcoin NFTs is intellectual property rights. By tokenizing their creations into NFTs, creators can establish ownership and control over their intellectual property.
Buying and Selling Bitcoin NFTs
Given that infrastructures and marketplaces for Bitcoin Ordinals trading are still under development, the trading of these digital artifacts is currently carried out peer-to-peer (P2P) in dedicated Discord servers, with intermediaries known as escrows and tracked on Google Sheets. This method may seem primitive compared to more popular NFTs traded via Ethereum and other blockchains, yet it hasn’t dampened enthusiasm for Bitcoin NFTs, with hundreds of thousands of newly minted digital artifacts emerging within only a few weeks from launch.
The process of buying a Bitcoin NFT involves creating an account in a Bitcoin Taproot-compatible wallet, securing your seed phrase, depositing funds into the wallet, selecting the Ordinals you want to purchase, and executing the transaction. Selling a Bitcoin NFT follows a similar process, with the added step of uploading your inscription and setting the associated fee based on the file size and the speed you want the transaction.
Bitcoin Ordinals vs. Traditional NFTs
Several differences exist between Bitcoin Ordinals and conventional Ethereum-based NFTs, although both fall under the broader digital art category. Bitcoin NFTs, as described by creator Casey Rodarmor, are genuine digital artifacts because they exist on-chain and carry all the beneficial properties of Bitcoin.
Controversy Surrounding Bitcoin NFTs
The advent of the Ordinals protocol has ignited a debate within the NFT community. Should Bitcoin merely serve as money, or should it broaden its functionality to include other use cases? Does the Ordinals protocol represent an attack on the Bitcoin network? Furthermore, Ordinals challenge the concept of Bitcoin’s fungibility, as the inscriptions imprinted on individual satoshis make them unique and rare, thus essentially transforming them into NFTs.
Concerns about Full Node Costs
The emergence of Ordinals has sparked concerns about the efficiency and costs of the blockchain and its full nodes. Critics argue that the substantial transactions and blocks associated with inscriptions could increase the requirements and costs for devices running a full node. On the flip side, some believe that full blocks are necessary for the security of the Bitcoin blockchain, thus justifying higher fees for users. As the Ordinals market evolves and presents new opportunities, this debate is likely to continue.
The Debate around Bitcoin NFTs
With the advent of Ordinals, there’s been a heated discussion within the crypto community about the scope and purpose of Bitcoin. Should Bitcoin be strictly a medium of exchange, or should it evolve to accommodate other functionalities like NFTs? The critics argue that Ordinals can detract from Bitcoin’s primary usage and congest the blockchain, slowing down transaction times significantly.
The Impact on Bitcoin’s Fungibility
One of the primary concerns raised by the introduction of Ordinals is the potential impact on Bitcoin’s fungibility, a key attribute of any currency. By imprinting inscriptions onto individual satoshis, each satoshi can take on unique properties, effectively turning them into NFTs. This contradicts the conventional viewpoint where all satoshis are identical. If satoshis are distinguishable from each other, it could undermine one of the foundational principles of money.
The Effect on Full Node Costs
Furthermore, the rise of Ordinals has led to an increase in the size of Bitcoin blocks. In the weeks following the launch of Ordinals, a record-breaking block size of 4MB was achieved, which is unprecedented as the average Bitcoin block size has never surpassed 1.5MB. Critics worry that this increase could lead to higher costs for running a full node, making it more expensive for individuals to participate in maintaining the network. However, proponents of Ordinals counter this argument by asserting that fuller blocks improve the security of the Bitcoin blockchain and justify users paying a higher transaction fee.
What the Future Holds for Bitcoin NFTs
As we delve deeper into the age of digitization, Bitcoin Ordinals bring a wave of excitement and confusion. These unique crypto assets have already managed to capture a significant market cap in billions of dollars, even amidst a crypto winter.
Many industry experts believe that the rapid tokenization of Bitcoin through Ordinals could provide substantial advantages for Bitcoin miners. Referred to as ‘the Bitcoin flippening,’ the emergence of Ordinals has amplified the miner’s fee for mining a block.
However, like all novel concepts, Ordinals have their fair share of skeptics. While some see them as unsustainable projects and short-lived phenomena, others are optimistic about their potential.
To sum it up, Bitcoin Ordinals, a result of the 2021 Taproot update, provide a promising new asset class in the crypto ecosystem. As a recent addition to the crypto space, Bitcoin NFTs serve as an intriguing case study and offer valuable insights into the world of blockchain. With 10 million Bitcoin Ordinals already minted as of May 2023, we can expect a fascinating journey ahead in this dynamic digital landscape.