Bitcoin NFTs or NFI? What’s all the fuss about the ‘playful innovation’ that is Ordinals?
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The Bitcoin and crypto community at large seems divided about something called Ordinals – a project that enables NFT-like assets on the Bitcoin network. To learn what the fuss is all about, Stockhead spoke with Kraken Australia’s MD, Jonathon Miller.
Before we get into Miller’s expert perspectives (he certainly knows far more about it than we do), a bit of background…
Reasonably simply put, Ordinals, created by software engineer Casey Rodarmor and launched late last month, is a new protocol deployed on Bitcoin enabling what are effectively non-fungible tokens (NFTs) attached to the Bitcoin blockchain.
Although they’re not technically tokens, for ease that’s how many observers are referring to them – as NFTs on the Bitcoin network. That said, we’re not sure why no one seems to be using the acronym NFI – non-fungible inscriptions. Come on, Cryptoverse, that works doesn’t it? Ah, okay, guess we know why.
But that’s what they are – inscriptions of data on individual satoshis on the Bitcoin chain. Satoshis are fractionalised units of Bitcoin. Each Bitcoin can be broken into as many as 100,000,000 satoshis or “sats”.
Furthermore, Ordinals is essentially a numbering scheme for satoshis that allows the tracking and transferring of individual sats. “Satoshis are numbered in the order in which they’re mined and transferred from transaction inputs to transaction outputs first-in-first-out”, reads Rodarmor’s Ordinal Theory Handbook.
The project allows anyone operating a Bitcoin node to inscribe each sat with data, creating an Ordinal, which can include smart contracts which in turn can enable non-fungible assets that can include images, audio files, videos and even video games.
Rodarmor prefers to call them “digital artifacts” as opposed to NFTs – as all their data is inscribed entirely on chain. “These inscribed sats can then be transferred using Bitcoin transactions, sent to Bitcoin addresses, and held in Bitcoin UTXOs,” he noted.
Ordinals’ fans even tend to think they’re a purer form of NFT than those found on other chains. Certainly Rodarmor thinks so: An Ordinal “is intended to reflect what NFTs should be, sometimes are, and what inscriptions always are, by their very nature.”
What then, are some other pros and cons of the Ordinals project worth highlighting? Kraken’s Jonathon Miller has some views.
“In a way, Ordinals is nothing new,” says Miller, referring to the background of innovation in the development of Bitcoin and the blockchain space.
“There’s a history of people experimenting on the Bitcoin blockchain,” he notes. “And the idea that you might use a blockchain for more than a peer-to-peer transaction layer was inspired by some of those earlier experiments, such as Colored Coins.
“Ordinals is really an extension of that spirit of innovation seen in the early days of Bitcoin and an extension of the kinds of ideas where you might put additional data alongside a transaction on the Bitcoin blockchain.
“And that’s really cool, and fun. It’s about playful innovation.”
A lot of people seem to agree with Miller on that score. According to a Decrypt article citing data from analytics firm Dune, more than 76,400 inscriptions have been created to date, with the number spiking last week on February 9, exceeding 20,800 created in a day.
Hal Finney would like Bitcoin NFTs. pic.twitter.com/z4cO468pcA
— Dan Held (@danheld) February 6, 2023
There are those, largely within the hardcore “Bitcoin maxi” camp, though, who believe Ordinals goes against the grain of what Bitcoin should stand for, and stand for alone – pure, decentralised, “hard” money built on a deflationary, immutable system.
Some say Ordinals, as non-financial transactions, are not what Satoshi designed Bitcoin for and have the capacity to taint the purity and security of the Bitcoin network and cause unnecessary network congestion and higher transaction fees.
Rodarmor has argued, however, that Bitcoin has already “transcended the intentions of its creator”.
Digging further into why some see Ordinals as a controversial project, Miller says that “some people describe it as kind of like graffitiing an ancient artifact”.
But he also cites the history of scalability of blockchains as an important consideration and debate.
“There’s always been a huge amount of contested debate about how to tackle scalability on the Bitcoin network and how to go about doing that, and how much data that’s ideally wanted on the chain.
“So the moment you start talking about adding more data, then that’s why some see it as controversial. Admittedly with Ordinals, there’s not much data there at this point, but if everyone started creating Ordinals, then it would all add up. So it does highlight the scalability debate for Bitcoin.”
One consideration or question there, adds Miller is: “Are layer 1 blockchains (the base layers) the right place for this kind of data?” And that goes for Ethereum and other layer 1s, too, notes the Kraken MD.
In the case of Ethereum, there’s a case to suggest layer 2s, such as Polygon, ImmutableX, Optimism and Arbitrum and the like – all scalability solutions for the base layer – are better places to house such data.
“Essentially, there’s a huge amount of disparate opinion on whether Ordinals is a good idea or not,” says Miller, “but I think it comes down to being a fundamental part of a long story of innovation.
“And that’s the whole reason we have all these amazing protocols and ideas, layer 2s and so forth. All the stuff that we see developed in the space is a function of this kind of playful innovation. And that’s the core, in my view, of what crypto is about.”
And regarding that spirit of crypto innovation, Miller adds that he wouldn’t be at all surprised to see people start building “additional tooling” on top of the Ordinals idea – e.g. a layer 2 network in the vein of Lightning (fast, off-chain bitcoin transactions) or something that leverages the Lightning network, for example.
This… is tricky.
There are no major, organised, Ordinals marketplaces as yet, which makes obtaining one a little difficult and risky, but also a little bit like what buying Bitcoin in the early days must’ve felt like.
“I think I saw that Punk Ordinals have got a Google Sheet out there somewhere for bids and offers,” says Miller. “So it is kind of like going back to 2014 – it reminds me of the start of the crypto internet.”
For actual details on obtaining, we’ll defer to an excellent article put together by nftnow, which details, in the first instance, setting up something called a Sparrow wallet (you can’t store Ordinals in browser wallets like MetaMask).
“You must set up a Bitcoin wallet that allows enough customization to receive Ordinal inscriptions. Sparrow fits that bill,” reads the article’s instructions.
Once you’ve figured out how to set that up, nftnow says you have three options, which include:
• Running a bitcoin node and inscribing an Ordinal yourself (which doesn’t sound easy).
• Finding an Ordinal owner and buying it directly from them (which sounds fraught).
• Using a service to inscribe an Ordinal without running your own node (which also sounds risky).
In other words, best tread with extreme caution and with no more than you can afford to lose, if you think jumping into the Ordinals market early doors sounds like a good idea to you.