For a long time, bitcoiners could shout from the sidelines that they don’t like NFTs because this was another crazy invention of altcoin projects. Not anymore. Ordinal has also enabled NFTs on Bitcoin and the community is divided on whether this is a good or bad thing.
Before we dive into that discussion, some background on NFTs and Bitcoin’s capabilities. If you are already familiar with this, feel free to skip the next two paragraphs.
What are NFTs?
NFTs are blockchain tokens that can serve as proof of ownership of assets, including digital assets such as images, videos, music files, memberships, and video game assets. Billions have been made from NFTs in recent years. Virtually all blockchains therefore want to have at least one marketplace where NFTs can be traded.
Started with Ethereum, this blockchain offers the possibility of complex smart contracts and is ideal for digital collectibles. Not long after, the leaders of Solana, Cardano and many other blockchain projects, among others, announced that they would also do something with NFTs.
Bitcoin, smart contracts and NFT
Bitcoin has no leadership and is not owned by any company. So there are no charismatic leaders using their marketing skills to convince the community to adopt NFTs. And while Satoshi may want to resurrect and sell NFTs, everything is technically difficult with Bitcoin.
This is because NFTs require smart contracts and are very limited to Bitcoin. Smart contracts are an integral part of creating new tokens and associating ownership with those tokens. A smart contract updates ownership when the NFT is bought or sold.
Despite the lack of a charismatic leader, Bitcoin development has not stopped. It is often individual players or groups of projects that build something new for Bitcoin. For example, in recent years Counterparty and Stacks have developed alternative solutions for smart contracts so that tokens can be created and processed on the Bitcoin blockchain.
How does Ordinal process NFTs on Bitcoin?
Ordinal was introduced in January of this year. Ordinal allows users to view, send and receive individual satoshis, and these SATS can contain data such as videos and images. A single Satoshi or SAT is the name of the smallest unit of Bitcoin, or 1/100,000,000 of a BTC.
Adding data to individual satoshis is called an inscription, which is stored in the signature of a bitcoin transaction.
Ordinal wouldn’t be possible without Bitcoin’s Segregated Witness update and the latest Taproot update. Thanks to SegWit, Bitcoin grew a bit with the introduction of witness data, which are chained signatures and public keys for Bitcoin transactions.
Potential security vulnerabilities forced developers to limit the size of this data. When Taproot came along, it fixed these vulnerabilities, removed old SegWit restrictions and paved the way for massive amounts of data to be stored on the blockchain (read: NFTs).
The idea of dragging someone along the bitcoin blockchain is, as the Americans say, legendary. But there is also criticism, for “tradition”, but also for practical reasons.
Bitcoin is only intended to facilitate financial transactions
The question, of course, is whether Bitcoin should deviate from its original purpose of enabling financial transactions. Satoshi Nakamoto stated in 2010 that he opposed it. Back then, it wasn’t about NFTs, it was about a Domain Name System (DNS). The project, dubbed BitDNS, was quickly shot down by Satoshi.
At the same time, Satoshi has since taken her (or his) hands off bitcoin development. The future of Bitcoin is determined by the community. Bitcoin belongs to everyone because everyone can do what they want with it. It just exists.
Bitcoin transaction fees are rising
A side effect is increased transaction fees, an already measurable side effect of adding NFTs to Bitcoin. Bitcoin transaction fees are determined by transaction details and the speed at which the user wants to complete their transaction. Users who want their transactions to be collected faster can pay more for it.
Some users believe that the increased transaction fees are particularly bad for bitcoiners and nodes from poorer parts of the world. Or what Bitcoin saves on Twitter says, “Only because some privileged white people want JPEG drawings on the blockchain as a status symbol.”
Bitcoin developer LukeDashjr to call to action Ordinal even attacks bitcoin, in response to a call from well-known bitcoiner Adam Back. Last called Miners censored NFT transactions but later retracted them.
Bitcoin miners benefit from higher transaction costs
An advantage of higher transaction costs is that the revenue model becomes more attractive to miners. Every four years, the reward for miners is halved, the next one will take place in mid-2024. At some point, there will be a tipping point where miners will have to rely more on transaction costs than rewards.
We are curious how this will develop. Ordinal enabled NFTs on Bitcoin without having to build a second layer or design a dedicated altcoin.
At the same time, the last word has not yet been said in this discussion. And that’s a good thing, because it forces the brightest minds in both fields to participate in public technical discussions. And that’s only good for Bitcoin.
Source: Btc Direct
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Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
