Nonfungible tokens (NFTs) have become a prominent topic in the world of cryptocurrency, capturing the attention of enthusiasts and opening up new opportunities for blockchain and digital art. While NFTs have primarily been associated with Ethereum-based platforms, a new protocol known as Ordinals has emerged to enable the creation and trading of Bitcoin-native NFTs. This protocol was launched in January 2023 by Casey Rodarmor, a former Bitcoin Core contributor who took advantage of the Bitcoin Taproot upgrade to expand the capabilities of the cryptocurrency.

Taproot Upgrade and Expansion of Bitcoin

The Bitcoin Taproot upgrade, implemented in 2021, offered a way to enhance the base layer’s block capability by condensing transaction sizes and encouraging the use of smart contracts. This upgrade significantly increased the types of transactions possible on the Bitcoin blockchain, including decentralized finance (DeFi) and NFT applications.

Yuga Labs and TwelveFold

In February 2023, Yuga Labs, the world’s largest issuer of NFTs, announced the creation of TwelveFold, a new NFT collection issued on Bitcoin. This move served as an endorsement of Bitcoin NFTs and demonstrated their potential for success in the market.

What are Ordinals?

Ordinals are serial numbers that are imprinted in satoshis, which are the smallest unit of Bitcoin. This concept is based on the ordinal theory, which assigns serial numbers to satoshis in the order they are mined. For example, the first satoshi in the first block is assigned the ordinal number 0, while the last satoshi of the block has the ordinal number 4,999,999,999. This framework allows satoshis to be tracked, transferred, and imbued with meaningful arbitrary data through Bitcoin transactions, making them collectible and tradeable as rarities.

Inscriptions

The process of assigning assets to individual satoshis is called inscription. Inscriptions are digital artifacts that are native to the Bitcoin blockchain, functioning as the digital equivalents of physical artifacts. Unlike traditional NFTs, which often rely on off-chain content stored on the interplanetary file system (IPFS), inscriptions are stored on-chain, leveraging Bitcoin’s immutability and security. Inscriptions can be viewed using Ordinals-compatible wallets and online explorers.

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How to Create Bitcoin NFTs

There are currently two primary ways to mint ordinal NFTs. The first method involves running a full Bitcoin node and installing Ord on this node to inscribe satoshis into an Ordinals wallet. There are two types of Bitcoin wallets that can process Ordinals: the Sparrow wallet and the Ord wallet. The Sparrow wallet is recommended for receiving Ordinals, while the Ord wallet allows for the creation of inscriptions and offers additional features such as freezing inscribed satoshis to prevent accidental spending.

Alternatively, a no-code tool such as Gamma or Ordinalsbot.com can be used to inscribe ordinal NFTs. These tools simplify the process and do not require extensive technical skills. Minting an Ordinal on Gamma involves selecting the type of file to use, uploading the necessary file, setting the transaction fee, providing an Ordinal-compatible or Taproot address to receive the NFT, waiting for the minting process to complete, and viewing the minted Ordinal on OrdinalsViewer.

How to Trade and Buy Bitcoin NFTs

While proper infrastructure and marketplaces for trading Bitcoin Ordinals are still being built, the digital artifacts are currently traded peer-to-peer over-the-counter (OTC) in dedicated Discord servers. These trades often involve the use of escrows as intermediaries and are tracked on Google sheets. To buy Bitcoin Ordinals, Taproot-compatible wallets must be used. Examples of such wallets include the Ordinals wallet, the Xverse wallet, and the Hiro wallet. These wallets provide a secure way to store and trade Bitcoin NFTs.

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How to Sell Bitcoin NFTs

Selling Bitcoin NFTs requires selecting a Taproot-compatible wallet and downloading it. Once the wallet is set up and the seed phrase is secured, the seller can upload their inscription and choose a transaction fee based on the desired completion time. After inscribing the file onto the blockchain, the seller can view it on the Ordinals.com inscriptions page. To sell the inscription, peer-to-peer over-the-counter markets, such as the Bitcoin Ordinals Discord server, are commonly used.

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It is crucial for participants in these trades to exercise caution, as unregulated peer-to-peer OTC markets can be susceptible to scammers looking to exploit the growing interest in Bitcoin NFTs.

Ordinals vs. Traditional NFTs

Bitcoin Ordinals and traditional Ethereum-based NFTs exhibit several differences. Ordinals, imprinted in satoshis, are always immutable, whereas Ethereum-based NFTs can technically be modified or deleted by the contract owner. Additionally, Bitcoin inscriptions always have on-chain content, ensuring that they cannot be lost and imbuing them with more permanence than NFTs stored on platforms like IPFS. Bitcoin inscriptions are more secure due to the overall security of the Bitcoin blockchain, and they can be sold without the need for a royalty. On the other hand, traditional NFTs often grant intermediary platforms unlimited permission over the asset, and their use of complex smart contracts can be challenging for non-technical users.

Unlike traditional NFTs, which are minted as completely new tokens, Ordinals have the raw file data directly inscribed onto specific satoshis on the Bitcoin blockchain, further enhancing their authenticity as digital artifacts.

Bitcoin NFTs Controversy

The introduction of the Ordinals protocol has sparked a debate within the NFT community regarding the role of Bitcoin and its expansion into other use cases. Some individuals question whether Bitcoin should solely function as a medium of exchange or if it should embrace additional functionalities. There are also concerns about the impact of Ordinal NFTs on block space, confirmation times, and the fungibility of Bitcoin.

Opponents argue that Ordinals, with their varied content types, which can range from images to audio clips and games, may consume significant block space and slow down on-chain confirmation times. They also express concerns about the potential impact on Bitcoin’s fungibility, as inscribed satoshis become rare units rather than maintaining equal value.

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Another point of concern revolves around the costs associated with running a full Bitcoin node, particularly in the face of record-breaking-sized blocks created after the launch of Ordinal NFTs. Critics fear that increasing the blockchain’s size may lead to higher requirements and costs for devices operating full nodes. However, supporters contend that fuller blocks enhance the security of the Bitcoin blockchain and justify the need for higher fees.

The controversy surrounding Bitcoin NFTs and the Ordinals protocol will continue to unfold as the market develops and new opportunities arise. Ultimately, Bitcoin’s future direction will be determined by its resilience and the preferences of its users.

Conclusion

Bitcoin NFTs, facilitated by the Ordinals protocol, have opened up exciting possibilities for artists, collectors, and enthusiasts within the crypto space. This expansion illustrates the ongoing evolution of the cryptocurrency landscape and the exploration of new use cases for blockchain technology. While Bitcoin Ordinals differ from traditional NFTs in various ways, they present unique opportunities for the creation, trading, and ownership of digital artifacts on the Bitcoin blockchain. As the Ordinals market matures and infrastructure continues to develop, it will be fascinating to witness the growth of Bitcoin NFTs and their impact on the wider digital art ecosystem.