In recent years, with the rise of concepts such as web3 and the metaverse, many digital collection platforms have emerged at home and abroad. These platforms have jointly sold digital collections with well-known IPs and even museums, attracting a large number of players to enter the market. However, behind this hype of digital collections, there are huge risks. Many products sold by domestic digital collection platforms have serious consumer fraud behaviors.
The current status and existing problems of domestic digital NFT
As shown in the figure below, the casting process of digital collections is mainly divided into three steps. In order to save costs, many digital collection platforms in China directly store the pictures, audio and other resources corresponding to the digital collections sold in centralized servers. Some platforms do not even issue corresponding NFTs on the chain, resulting in the so-called digital collections purchased by players being just a small picture stored in a centralized server. In addition to the various NFT and web3 concepts in the publicity, it does not have any NFT attributes. It can be said that it is a fraud under the banner of NFT.
In addition, regarding how to stop the infringement that may be caused by this type of NFT, the mainstream view in China is to put the infringing NFT into a black hole address for destruction, so as to achieve the purpose of stopping the infringement. However, the author believes that this method cannot completely solve the problem of the digital storage NFT involved in the case infringing the right to disseminate information on the Internet. Instead, the digital storage NFT should be put into a black hole and the image resources in the corresponding NFT storage server should be deleted. (For details, please see Analysis of NFT-related legal issues from a technical perspective)
Challenges of Ordinals Protocol
The Ordinals protocol, which was launched earlier this year, completes the issuance of NFTs by marking a serial number on Satoshi (SAT), the smallest unit of BTC, and writing pictures, audio and video content with a size of less than 4MB into the witness isolation area.
Compared with the above-mentioned NFT digital collection, this NFT issued based on the Ordinals protocol is more stable. The data involved in the NFT is actually stored on the blockchain, and there is no need to worry about the depreciation of the NFT value after the image resources mapped by the NFT underlying are deleted. However, due to the popularity of the Ordinals protocol inscriptions, the BTC chain transactions have surged, the congestion is serious, and a large amount of garbage data has been generated, which has increased the burden on the operating nodes. Bitcoin core developers believe that the inscriptions are using vulnerabilities to attack the blockchain and plan to fix the vulnerability in subsequent version updates. This move may seriously affect the inscriptions and NFTs of the Ordinals protocol.
NFTs in the Bitcoin Stamps Protocol and Related Legal Issues
When the Ordinals protocol encountered challenges, the Bitcoin Stamps protocol came into the public eye. The Bitcoin Stamps protocol stores data such as text and images directly in BTC's UTXO (unspent transaction output). This storage method cannot be changed or deleted, and it does not store data in a certain node or server in the Bitcoin network, but directly embeds the data in the Bitcoin transaction ledger. Once created successfully, it will be permanently retained on the Bitcoin blockchain.
Compared with the Ordinals protocol, the Bitcoin Stamps protocol has a more streamlined data structure design, requires less storage space, does not generate a large amount of junk data, and has little impact on the operating efficiency and scalability of the Bitcoin network. NFTs issued through the Bitcoin Stamps protocol rely on the security and decentralization of the Bitcoin network, allowing works to be stored more efficiently and stably in the Bitcoin network.
In my previous article, I mentioned that it is difficult to stop the infringement of NFTs in the Ordinals protocol by destroying them. The same problem exists with NFTs issued in the Bitcoin Stamps protocol. The text or image data of NFTs issued in the Bitcoin Stamps protocol is engraved on UTXO. Once the infringement occurs, it is basically impossible to delete it, which will cause the infringement to continue. Therefore, how to stop the infringement of NFTs in the Bitcoin Stamps protocol will be a key point to consider in the future.
In addition, the hot inscription market has attracted some local promotion communities to enter. Some so-called "grandpas and aunties" have also joined in the inscription, trading and promotion. The investment risk of virtual currency is extremely high. The liquidity of inscriptions is poor. Once the tide recedes, many inscriptions will fall into liquidity crisis or even return to zero. Investors must pay attention to the risks. Some project parties use inscriptions to hype in order to attract users. The promotion model they adopt may also have criminal risks such as illegal absorption and pyramid selling.
