GLASSNODE:BTC_TXS
Bitcoin: The total amount of transactions. Only successful transactions are counted
With the Launch of NFTs on the Bitcoin chain by Ordinals last month, the community is divided on what this means for Bitcoin as a chain and its future.
NFT's have been a mainstay on several blockchains for years now, but until now their prevalence on the Bitcoin chain was understated. With the launch of the project Ordinal Protocol, that's changing.
What is Ordinal Protocol
Ordinal Protocol, created by Bitcoin Core contributor Casey Rodarmor, enables users to explore, transfer, and receive individual satoshis (1 millionth of a BTC), which can include unique inscribed data such as videos and images. Inscriptions make it possible to put content in a Bitcoin transaction and assign it to a satoshi. Once mined, the inscription is made on the first satoshi of the first output of the transactions, marking that satoshi permanently with the inscribed data.
This process stays entirely on the main Bitcoin blockchain and does not require a sidechain or additional tokens. The protocol is enabled by Taproot - a BTC soft-fork upgrade that was activated in 2021 and brought enhanced security and smart contracts to the network.
In addition to inscribing data into a single satoshi transaction, Ordinal also allows people to assign a unique serial number to each satoshi. This means that the first satoshi's in the output of notable transactions can have value for collectors even without an inscription within them.
For instance, the first satoshi of the genesis block, or the first satoshi after each halving could become collectible due to their historical significance.
In a way, this compromises the fungibility of Bitcoin but in reality a parallel could be drawn between these non-fungible Bitcoin's and bank notes or coins that people collect. They do not affect the fungibility of all Bitcoin, and regular users can continue to use them normally as well.
Ordinal Inscriptions are, in many ways, superior to the NFTs that most people are familiar with. Ordinals are digital artifacts which means they are decentralized, on-chain, immutable, and unrestricted. Many popular NFT projects don't actually meet these requirements as they are often stored off-chain, controlled by centralized minters, and often on very centralized blockchains.
Even with its novel and Bitcoin native approach, the project remains controversial among the community.
Detractors
Many prominent Bitcoin developers, including Adam Back, were quite opposed to the idea of Ordinals on Bitcoin, claiming that it was a waste of block space. This also led to a discussion over whether miners should censor these resource intensive and "useless" transactions.
Proponents
Although, Ordinal protocol transactions provide a potential path to addressing a long-term security concern for the Bitcoin network, it also disincentives normal users of the network in the short-term. Overall, Ordinal transactions have led to a spike in BTC network activity as well as fees.
Still, as with most NFT projects, there is a high chance that the hype surrounding the project ends up fading away and Ordinal related transactions drop off again. However, the project has prompted an interesting discussion about the long term security and utility of the Bitcoin Blockchain. Regardless of whether Ordinals end up being a fad or a mainstay on the network, they've illustrated that blockspace and fees will be dictated by the free-market.
We could soon see more similar projects now that Taproot allows smart contracts to be executed on Bitcoin.
What are your opinions on Ordinals, NFT's, and the long term security model of Bitcoin?
NFT's have been a mainstay on several blockchains for years now, but until now their prevalence on the Bitcoin chain was understated. With the launch of the project Ordinal Protocol, that's changing.
What is Ordinal Protocol
Ordinal Protocol, created by Bitcoin Core contributor Casey Rodarmor, enables users to explore, transfer, and receive individual satoshis (1 millionth of a BTC), which can include unique inscribed data such as videos and images. Inscriptions make it possible to put content in a Bitcoin transaction and assign it to a satoshi. Once mined, the inscription is made on the first satoshi of the first output of the transactions, marking that satoshi permanently with the inscribed data.
This process stays entirely on the main Bitcoin blockchain and does not require a sidechain or additional tokens. The protocol is enabled by Taproot - a BTC soft-fork upgrade that was activated in 2021 and brought enhanced security and smart contracts to the network.
In addition to inscribing data into a single satoshi transaction, Ordinal also allows people to assign a unique serial number to each satoshi. This means that the first satoshi's in the output of notable transactions can have value for collectors even without an inscription within them.
For instance, the first satoshi of the genesis block, or the first satoshi after each halving could become collectible due to their historical significance.
In a way, this compromises the fungibility of Bitcoin but in reality a parallel could be drawn between these non-fungible Bitcoin's and bank notes or coins that people collect. They do not affect the fungibility of all Bitcoin, and regular users can continue to use them normally as well.
Ordinal Inscriptions are, in many ways, superior to the NFTs that most people are familiar with. Ordinals are digital artifacts which means they are decentralized, on-chain, immutable, and unrestricted. Many popular NFT projects don't actually meet these requirements as they are often stored off-chain, controlled by centralized minters, and often on very centralized blockchains.
Even with its novel and Bitcoin native approach, the project remains controversial among the community.
Detractors
Many prominent Bitcoin developers, including Adam Back, were quite opposed to the idea of Ordinals on Bitcoin, claiming that it was a waste of block space. This also led to a discussion over whether miners should censor these resource intensive and "useless" transactions.
- NFTs take up valuable block space on the network that will raise the cost per transaction for all users.
- Full nodes need to download the inscribed data when they receive confirmed blocks. With JPEGs and Videos, these blocks can be far larger than conventional transaction blocks requiring node operators to dedicate more resources.
Proponents
- Blockspace in Bitcoin is assigned using a free-market auction. This allows Bitcoin to be fair, open, and accessible to everyone. As such, the free-market should be left to dictate how blockspace is assigned instead of a perceived "utility".
- With Bitcoin's tokenomics, most miner revenue currently comes from block rewards instead of fees. Although this is not currently a concern, as the block reward continues to become smaller, the security model of Bitcoin comes under threat.
- A Bitcoin native application like Ordinal provides an additional use-case for Bitcoin, which is mainly used as a transaction protocol for exchanging value right now.
- By filling up unused block space, Ordinal transactions incentivize users to pay higher-than-minimum fees to make sure their transaction is included faster which will drive organic revenue towards miners.
Although, Ordinal protocol transactions provide a potential path to addressing a long-term security concern for the Bitcoin network, it also disincentives normal users of the network in the short-term. Overall, Ordinal transactions have led to a spike in BTC network activity as well as fees.
Still, as with most NFT projects, there is a high chance that the hype surrounding the project ends up fading away and Ordinal related transactions drop off again. However, the project has prompted an interesting discussion about the long term security and utility of the Bitcoin Blockchain. Regardless of whether Ordinals end up being a fad or a mainstay on the network, they've illustrated that blockspace and fees will be dictated by the free-market.
We could soon see more similar projects now that Taproot allows smart contracts to be executed on Bitcoin.
What are your opinions on Ordinals, NFT's, and the long term security model of Bitcoin?
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