The world of bitcoin is growing rapidly, and with it comes unprecedented comes new applications, protocols, tools, services, and opportunities– but also a unique set of risks. Bitcoin ordinals and inscriptions are the latest update to apply a fresh take on how to use bitcoin, and it would naturally trigger raging debates. As the ordinals debate rages on, we’re sure many questions and fewer answers floating around.
In this article, we’ll explore the pros and cons of bitcoin ordinal protocol and inscriptions, how it differs from other NFT approaches, and it could change and evolve in the future. We will also review the different use cases, trade-offs and how they could affect the bitcoin blockchain as we advance.
So Let’s take a second to break down the arguments for and against bitcoin inscriptions. So that you can get up to speed whether you’re a seasoned bitcoin maxi or, more importantly, a new bitcoiner looking at all the shouting on Twitter, wondering what the hell is potting here?
A quick recap on ordinals.
A single bitcoin is divided into 100,000,000 smaller units we know and love called satoshis or sats. The new Ordinals protocol now allows users to label a single satoshi creating a serial numbering system for satoshis called “Ordinals”. These ordinals can then be used to attach a reference to a file that is stored in the witness data of the bitcoin blockchain.
Unlike traditional Bitcoin transactions, which are used for sending and receiving UTXOs between private keys, Ordinals enable the inclusion of the serial number and corresponding file using a smart contract code; the file could be anything and is not limited to images. Developers have inscribed JPEGs, audio files, videos, and even video games to test the limits of what novel use case they can squeeze into the available block space.
While there is no token created on the bitcoin blockchain like you would have on other smart contract chains or platforms, ordinals are simply a novel way of tagging transactions, which have now been used as a method of creating NFTs.
Ordinals in the court of opinion.
Since the launch of ordinals in February, we’ve seen an uptake in the number of files added to the bitcoin blockchain, along with some spikes in fees. A report from Dune shows that the uptake of ordinals has some demand. Upon the release to the public, inscriptions reached the 100,000 benchmark, netting miners an additional $114,590 in transaction fees.
The rise has since sparked up speculative trading, “destroying” of NFTs on other chains to be re-minted on bitcoin, bridging projects for NFTs and even native ordinal collections.
Ordinals do not break any consensus rules of the bitcoin protocol, and people who “mint” these NFTs have paid the market rate for block space, so they can do with that finite space as they please, but just because you can execute an action, doesn’t mean it’s a good idea or that it will be profitable for you.
As ordinals are now out of the bag and here to stay in some form, let’s look at the arguments for and against it.
Pros of ordinals.
If you’re planning to login to Twitter or Nostr to argue on behalf of inscriptions, you’re likely to side with the following talking points.
Attracts new users.
The first point Ordinal fans like to make is that NFT creation is a use case, and people want to be able to trade these digital assets online, it’s created a multi-billion dollar market, but it was hosted on other chains, meaning that value was excluded from the bitcoin network. Now with inscriptions, the bitcoin network can capture market share from other smart contract chains and pull that value into bitcoin.
It may also bring users to bitcoin who have ignored the chain because it didn’t offer NFTs and encourage users to purchase bitcoin so that they may pay inscription fees, move their NFTs around and trade them with others, driving demand for bitcoin.
Its has market demand.
Ordinals fans argue that these transactions need to add that bloat and take up space that otherwise would not have been filled by standard Bitcoin transactions. Their claim is that because we’ve seen such an uptake in inscriptions that this is validation that these transactions are something the market wants, and if this is a poor use of block space, that generates no value, these transactions would slow down or be priced out as miners prefer to include standard transactions in blocks making ordinal transaction bidding much higher.
Drives more fees for miners.
Unoriginally clones of popular NFT projects from other blockchains like CryptoPunks and Bored Ape Yacht Club NFTs have found their way to bitcoin. On February 8, a single Ordinal Punk sold for 9.5 BTC, or nearly $215,000 at the time of sale.
Accellerating second layer adoption.
Inscription advocates also claim that since they’re paying for the use of additional block space and driving up transaction fees, they are increasing the security budget for miners. The increased prices will benefit Bitcoin’s overall security model by providing income for miners after the Bitcoin block subsidy shrinks with each halving.
The argument is that bitcoin blocks will trend to being filled in the future with the adoption of more users and that pricing out certain transactions. The higher fees and constant full blocks would be a forcing function for bitcoiners to fast-track improvements of second-layer solutions like the Lightning Network.
Driving adoption of taproot transactions.
Taproot transactions have been live for some time but have not yet seen much uptake, despite its benefits in providing more compact transactions and better privacy. Since the launch of Ordianls, however, we’ve seen a sharp rise in Taproot transactions and Ordinal promoters feel it will help push more wallets and users to opt for taproot transactions as block space is limited.
Cons of ordinals.
If your goal is to poopoo on inscriptions, you’re likely to side with people who claim the following.
Drives up cost for block space.
The argument against inscriptions is that it will make it harder for node operators to run full nodes, it will increase fees, bloat the chain, and could be detrimental in the future as those who want to make on-chain transactions will have to wait for lower fees or cough up more to secure final settlement.
As it stands, though, Bitcoin block space is only somewhat scarce; there are still unfull blocks, but as adoption for inscriptions increases, it could drive constant fee pressure pushing up the floor on transaction costs.
Ordinals data is extra non-financial data and will be forever included in the blockchain. Those who wish to run a full archival node will need to fork out more sats for extra hard drive space sooner rather than later. Over time, that leads to higher technical requirements to run a full node can leads to further centralisation for the set of full nodes verifying the chain.
It brings in more speculation.
Unsurprisingly, clones of popular NFT projects like CryptoPunks and Bored Ape Yacht Club NFTs have made their way to bitcoin, and the novelty of using bitcoin to host NFTs has seen quite a few outrageous bids. On February 8, a single Ordinal Punk sold for 9.5 BTC, or nearly $215,000.
This speculation could see capital flow into trading ordinals rather than storing value in bitcoin. At the same time, serious investors would steer clear of bitcoin, seeing it as another digital pet project not to be taken seriously.
It could affect satoshi fungiblity.
Creating non-fungible attributes and adding to a token is one thing; the chain and users recognise it as a separate asset from the native token of the chain. Inscribing non-fungible attributes characteristics to satoshis, the individual increments of bitcoin is a different model. The NFT file and the satoshi attached to it render it distinct from satoshis without an inscription tethered to it.
This duality of satoshis may challenge bitcoin’s use case as money by affecting the fungibility of satoshis in the Bitcoin network. Previously all satoshis were equal and could be swapped for any other satoshi on any other layer.
But Ordinals can alter the value of these units of money by adding additional data that encourage people to pay over market rates for that satoshi. This could result in a market for rare collectable satoshis versus standard satoshis.
Adds additional tracking to bitcoin.
Bitcoin is pseudonymous rather than anonymous – your pseudonym (bitcoin address) is recorded, but your identity isn’t. Sometimes, you may publicly identify your address, allowing people to track your bitcoin transactions. The more data points you create, the easier for chain analysis firms to keep an eye on you.
Many bitcoiners go to great lengths to keep their privacy and disassociate themselves from bitcoin moving around online, and for several good reasons.
In ordinals, you create a serial number for satoshis and then add additional data that can be attributed to your wallet and your bitcoin; you’re advertising yourself online and making your on-chain behaviour easier to track.
Your inscription can be pruned.
Bitcoin nodes are not be required to keep the signature data, which means an individual node could prune that data from its storage and should the nodes achieve consensus on pruning certain witness data, proof your inscription is gone. This is highly unlikely, there is usually some node that wouldn’t be too bothered to house a full copy of the data, but if it does become a real issue nodes could approach ordinals in two ways, other than ignoring and removing the data.
- Some nodes could choose to specialize in storing all inscription data. This gives those nodes special weight (as a trusted source) to verify and authenticate ordinal transactions.Â
- Companies and individuals operating a node can keep their own copies of transaction records so they have access to the signature data later.
But this is antithetical to the idea of bitcoin as a decentralized, trustless system, with no central authority; as you now create a federation or custodian for ordinals and inscriptions.
Do ordinals have “staying” power?
“Bitcoin NFTs” are having their moment in the light, but it remains to be seen if the novelty carries over into a real ecosystem where wallets support inscriptions and platforms exist at scale to promote the creation and sale of the various NFTs.
Past efforts to bring Web3 style features to Bitcoin, either on side chains or secondary layers in the past have been met with an underwhelming response. So the verdict is out on whether inscriptions is nothing but a fad and the “current thing” only to be relegated to the history books of bitcoin.
Do your own research.
If you want to learn more about ordinals on bitcoin, use this article as a jumping-off point and don’t trust what we say as the final say. Take the time to research other sources, and you can start by checking out the resources below.
Which side of the ordinals debate are you on?
Do you like the idea of bringing NFTs to the bitcoin base chain, or do you think it is a distraction? Does it bring additional utility or a new set of narrative attack vectors for bitcoin? How do you think the incentive structure around transactions will change with this new form of transaction competing for on-chain block space?
Let us know in the comments below.
