Bitcoin NFT and Ordinals Protocol open the door to innovative growth and new economic potential for the Bitcoin network. Join me in the article below to learn about the advantages and challenges of Bitcoin NFT, Ordinals Protocol, and discover how they can bring promising changes to the world of NFT on the Bitcoin network!
What are Bitcoin NFTs?
On February 2, 2023, the Bitcoin network created the largest block ever, with a capacity of 4MB, which is 4 times the normal limit of 1MB. The main reason is that a transaction "engraved" an image into the block numbered <774628>, and this operation occupied almost all the storage space of the block.
This block became a milestone in Bitcoin history, paving the way for future Bitcoin NFT or Ordinals imprinting movements.
In order to clarify the concept of Bitcoin NFT, first we need to understand the concept of NFT. If you don’t understand it yet, you can refer to here: What is NFT? Let’s learn what makes NFT so popular.
Bitcoin NFTs are non-fungible tokens on the Bitcoin network. They are generated using the Ordinals protocol. Each Bitcoin NFT has a sequential number (also called a serial number) printed on a unique Satoshi. This serial number makes this digital asset scarce and valuable.
The realization of Bitcoin NFTs has benefited from the upgrades of the blockchain network in the past few years, including SegWit, Taproot, and various payment channels like Lightning Network and Stacks. These upgrades standardize the form of complex transactions and confuse signatures to make them more difficult to identify, thereby expanding the functionality of the blockchain and reducing transaction size.
Bitcoin NFTs are implemented through the Ordinals protocol, which was released in January 2023. A month later, Yuga Labs announced the launch of their Bitcoin NFT series TwelveFold. It is worth noting that Bitcoin NFTs are also called Bitcoin Ordinals or Ordinal NFTs.
Blockchain developers create standards on networks like Ethereum or BNB Chain, and these sets of standards, also known as rule sets, are specifically designed for the creation of NFTs such as ERC-721 and ERC-1155.
However, the Bitcoin network does not have a similar mechanism. The Bitcoin network does not support its own NFT creation standards. Instead, Bitcoin only focuses on the transaction confirmation system known as the Bitcoin Transaction Protocol. This means that Bitcoin cannot support the construction of smart contracts, which is also the most important difference between Bitcoin and Ethereum and the next generation of blockchains.
What is the Ordinals Protocol?
What is the Bitcoin Ordinals Protocol?
The Bitcoin Ordinals protocol is a brand new protocol that allows users to generate non-fungible tokens (NFTs) directly on the Bitcoin network, bringing new possibilities to the user community.
Bitcoin was born on January 3, 2009, and was initially used only as a store of value. But now, revolutionaries are not satisfied with this, they hope to develop a more powerful Bitcoin network and more applications.
To realize this vision, software engineer Casey Rodarmor created the Ordinals protocol, which allows users to generate NFTs on the Bitcoin network. This makes the Bitcoin network richer and provides great potential for the user community.
Bitcoin Ordinals allow for the assignment of unique identifiers to each satoshi (sats) unit in Bitcoin and the transaction of additional data. Satoshi is the smallest unit of the Bitcoin cryptocurrency, and there are 100 million satoshis in one Bitcoin. The protocol creates non-fungible tokens (NFTs), also known as NFT Ordinals, directly on the Bitcoin blockchain.
Before this, there was no way to distinguish between bitcoins and satoshis on the blockchain. But Rodarmor’s protocol changes that by using two bitcoin updates: Segregated Witness and Taproot.
The Taproot update introduced a new Bitcoin address format that can be used by the Bitcoin Ordinals protocol to identify a specific satoshi.
The Segregated Witness update allows evidence information (evidence scripts) to be separated from transaction data and stored in a separate data structure on the blockchain. This change increases Bitcoin’s block size and allows users to write image and video data into evidence scripts along with digital signatures and other credentials.
Features of Bitcoin Ordinals
The Bitcoin Ordinals protocol allows for each satoshi to be assigned a unique identifier on the Bitcoin blockchain and for transactions to be made with data attached.
NFTs can be created directly on the Bitcoin blockchain using the protocol.
The protocol uses the new Bitcoin address format introduced by Taproot to identify each specific satoshi.
Benefits of Bitcoin Ordinals Protocol:
Through Bitcoin Ordinals, satoshi units become unique and can be tracked and traded with data attached.
Creating NFTs directly on the Bitcoin network opens up many new creative and business opportunities.
Image and video data can be written to the Bitcoin blockchain along with authentication information, opening up the possibility for diverse and multimedia applications on the Bitcoin platform.
Some of the terms used in Bitcoin NFTs:
Ordinals: A protocol that allows the creation of NFTs on the Bitcoin network. In the Ordinals protocol, the "ordinal number" of sats is also mentioned. Sat is the smallest unit of Bitcoin, 1 BTC = 100,000,000 sats, and each sats is assigned a unique ordinal number when it is generated.
Inscription: It is the content written on sats to create Bitcoin NFT. Inscription can be understood as NFT on the Bitcoin network.
Inscribe: It is an Inscription operation performed on sats, similar to the "minting" (creation) process of a normal NFT.
Digital Artifact: is a term used to refer to NFTs that are stored at a higher standard than ordinary NFTs. To be considered a Digital Artifact, an NFT must meet the following requirements: decentralized, immutable, fully hosted on the blockchain, and without restrictions.
For ease of understanding, an Inscription can be thought of as an NFT on the Bitcoin network, while a Digital Artifact is a type of NFT. A Digital Artifact is a subclass of an NFT with more advanced features described by the author. A Digital Artifact is not necessarily part of the Bitcoin network.
The difference between traditional NFT and Bitcoin NFT
Traditional NFT: Token information is deployed on smart contracts and stored on the chain. Metadata (the content of the NFT) is usually stored on a decentralized system such as IPFS.
Bitcoin NFT: All information about the NFT is stored completely on-chain, including token information and metadata.
Characteristics of Bitcoin: Bitcoin NFT inherits the decentralization, transparency, security and immutability of Bitcoin.
Content censorship: For traditional NFTs, content can be controlled. For Bitcoin NFTs, anyone running a full Bitcoin node can generate an NFT, and there is no control over the content posted by users.
Determination of scarcity: For traditional NFTs, scarcity is determined based on artistic value, use value, etc. Bitcoin NFTs, on the other hand, add the factor of the number of sats engraved on the NFT.
Scarcity Classification: Ordinals classifies Bitcoin NFT sats into 6 categories: Ordinary, Uncommon, Rare, Epic, Legendary, and Mythical. These classifications are based on the position of each satoshi in the block, difficulty adjustment, each Bitcoin halving season, each cycle, and the origin of the block.
The impact of Bitcoin NFT on the market
Since its inception, Bitcoin has been regarded as a store of value and a means of payment. El Salvador's legalization of Bitcoin further highlights its role. But this time, Bitcoin has surpassed the imagination of its founder Satoshi Nakamoto. Bitcoin NFT not only affects the operation of the blockchain network, but also has an impact on the crypto economy.
For the Bitcoin blockchain network, the number of Inscriptions created on the Bitcoin network has increased significantly since the historic 4MB block. Now there are more than 500,000 Inscriptions created. Due to the increased demand for Inscriptions from the community, the size of each block has also become larger. This has the opposite effect:
The increased burden on the Bitcoin network has caused miners to upgrade their hardware and created barriers for new entrants.
However, a busy network is also good for miners, as they can earn a lot of fees from transactions. This is especially important because the Bitcoin mining reward decreases with each halving cycle.
Bitcoin NFTs also drive the development of Bitcoin Inscription services, making the network more centralized.
For the crypto economy, the trend of Bitcoin NFT opens up new avenues for value creation and application of Bitcoin. Bitcoin NFT attracts the attention of the community and increases the value of Bitcoin. Bitcoin holders now have more opportunities to use their Bitcoin. In addition, engraving Inscriptions on Bitcoin encourages holders to keep them instead of selling them. However, Bitcoin NFT also has some limitations, such as high cost, imperfect infrastructure, high price and censorship.
Bitcoin NFTs not only involve buying/selling/storing NFTs, but also open up the economic field of digital images on the Bitcoin network. Services such as Inscription creation, markets, wallets and exchanges have emerged, and in the future, we can also expect a DeFi ecosystem to develop on Bitcoin.
The emergence of Bitcoin NFT has sparked a heated debate between two factions. One faction believes that this is a beneficial reform for Bitcoin, while the other believes that Bitcoin NFT is unnecessary and constitutes an attack on the Bitcoin network.
Summarize:
Through the above articles, readers can see that Bitcoin NFT and Ordinals protocol have produced significant changes in the way we view and use Bitcoin. Bitcoin NFTs have opened up a new world of value and applications for Bitcoin, gaining attention and generating significant growth within the Bitcoin network.
However, the limitations and challenges of Bitcoin NFTs also need to be considered. Factors such as high costs, imperfect infrastructure, and inability to censor need to be evaluated and addressed in further development. At the same time, the competition and debate surrounding the role and value of Bitcoin NFTs is also a highlight of the community.