NFTs, like most assets, saw a tumultuous 2022 and early 2023. That is, except one specific type of NFT – Bitcoin Ordinals. A recent chain analysis report shows it bucking the trend with activity rising while the rest of the marketplace around it falls.
As a result, Ordinals has become a contentious topic of discussion around the crypto industry. So what’s the deal with this new open-source Bitcoin protocol, and why is it controversial?
The basics of Ordinals
Ordinals was launched in January 2023 by Bitcoin developer Casey Rodarmor. It uses an open-source protocol that assigns unique identities to individual Satoshis (Sats) – the smallest units of Bitcoin. Using the Ord software, the protocol adds data to these Sats and allows software users to track them based on a system called ordinal numbers. In summary, it’s a way of using the mechanics of Bitcoin to track something new – in this case NFTs.
For a long time, Ethereum has been the go-to blockchain for minting and deploying NFTs. But Bitcoin Ordinals could shake up the market. Users can trade and transfer these uniquely-identified Satoshis just like any normal Bitcoin unit. A key difference is that unlike most Ethereum NFTs, the digital item itself is stored entirely on-chain.
Creative controversy
Some Bitcoin maximalists have been quick to point out that the Bitcoin whitepaper is clear on its intended purpose: peer-to-peer electronic cash. Viewed from this strict lens, the extra increased network activity Ordinals create could be perceived as a distraction from the network’s initial purpose, as peer-to-peer transactions will be slowed down.
However cryptocurrency has no ‘scripture’, not even the Bitcoin whitepaper. The community is rarely aligned on anything, and has been experimenting with Bitcoin constantly since its inception. Maximalists from both the Bitcoin and Ethereum camps are excited about the new opportunities these digital artifacts present.
Early doors for Ordinals
Compared to the ‘traditional’ Ethereum NFT ecosystem, Ordinals present a far more difficult technical challenge to use and trade.
To ‘inscribe’ a Bitcoin Ordinal (which is similar to minting an NFT on Ethereum), you’ll need Bitcoin Core, the “Ord” client and an Ordinals wallet. The inscription process then writes the data of the content stored into the witness of the Bitcoin transaction.
It’s a clever combination of existing tech to create Ordinals, and so it requires you to thoroughly understand each of these pieces of technology in order to get it right. If you don’t, it’s not a smooth experience.
That said, the level of initial enthusiasm for Ordinals makes it a promising prospect despite these shortcomings. For example, Yuga Labs (the team behind the famous Ethereum-based NFT collection ‘Bored Ape Yacht Club’), has introduced the first Bitcoin Ordinals collection. If this interest is sustained, it is likely the big NFT exchanges will likely begin work on creating a user-friendly experience in trading Ordinals, just as they have done with NFTs
Despite the crypto winter, the resilience of the blockchain space comes from these experimentations with both existing and new blockchains. Bear markets are for building – Ordinals is a sign that Bitcoin, despite its reputation as ‘digital gold’, has far more tricks up its sleeve than most give it credit for.
It will be interesting to see how this space develops in the years to come.
This article was developed in collaboration with Kraken Australia, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.