The Bitcoin Ordinals buzz, explained

The Bitcoin Ordinals buzz, explained

New Bitcoin “NFTs” have stirred interest and debate about the original crypto’s primary purpose. [Francesco Carta via Getty Images]

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

Bitcoin “NFTs” are sparking hype. But not everyone agrees that Bitcoin's blockchain needs them.

Key quotes from the cryptoverse. Turns out Keanu Reeves is a big crypto fan. Plus, the SEC’s Hester Peirce criticizes recent enforcement actions.

Noteworthy numbers. The amount raised by an AI-meets-crypto startup, and other key stats from the week.

BTC UPDATE

What are Bitcoin Ordinals, and why is the cryptoverse buzzing about them?

Bitcoin is most famous for doing one thing really well: being decentralized digital money. But while Bitcoin’s core ethos involves peer-to-peer digital payments, some developers have long wondered whether the blockchain could support different functionalities like NFTs or be more programmable, like Ethereum. With the most recent craze to hit the crypto ecosystem, they may finally be getting their answer.

That craze? Bitcoin NFTs called “Ordinal Inscriptions.” Ordinals involve putting any kind of digital file — people have minted playable games, videos, and images — on Bitcoin’s blockchain, and they have taken off in 2023.

Yet, this trend has also generated controversy among some of Bitcoin’s most ardent supporters. Let’s take a closer look.

What are Ordinals?

  • Ordinals are essentially NFTs, but for the Bitcoin blockchain. Like NFTs, they represent digital assets. But instead of being minted, Ordinals are “inscribed” onto a single satoshi (the lowest denomination of BTC, similar to a penny vs. a dollar). Inscribing is the process of putting a piece of data onto the blockchain, where it will remain forever accessible and unchangeable. 

  • Ordinals began rising in popularity at the end of January, and to date more than 160,000 inscriptions have been created, including a playable version of the 1993 video game Doom and a picture of a Bored Ape morphed with a CryptoPunk.

How are Ordinals different from NFTs on other blockchains?

  • Bitcoin’s blockchain isn’t smart-contract compatible like those of Ethereum and Solana, so it’s more difficult to create applications like games and NFTs via BTC’s network.

  • Ordinals are also far more technologically limited than traditional NFTs. While they can inscribe most forms of digital content, Ordinals are limited by the size of data that can fit in a BTC block, which is about 4 MB at maximum. Additionally, the barrier to create an inscription is high – typically one must be running a Bitcoin node to be able to inscribe into a satoshi.

  • In an effort to make Ordinals more accessible, however, BTC marketplace Gamma.io recently launched a tool to create a 60kb inscription for 21,000 satoshis (or, sats) which is about $5. And on Wednesday, crypto wallet maker MetaMask released an Ordinal wallet available to its 30 million users.

What does the Bitcoin community think of Ordinals?

  • Detractors in the Bitcoin community, like Adam Back, a prominent developer, believe that inscriptions are a “waste” because they are consuming blockspace that should be used for financial transactions, which is Bitcoin’s founding, primary purpose. Because inscriptions can contain audio or video files, creating them has increased the cost of transacting on Bitcoin’s blockchain.

  • Others argue that because inscribing into satoshis can alter their value, it would cause Bitcoin to lose an important trait that money has — fungibility — since all satoshis would no longer have equal value.

  • Alex Miller, CEO of Hiro, a developer for the Bitcoin smart contract platform Stacks (which has seen its native STK token jump by more than 100% in the last week amid the Bitcoin NFT hype) believes that inscriptions being fundamentally different from traditional NFTs will help spur their adoption — even if Bitcoin’s blockchain wasn’t originally intended to be used for things like preserving digital versions of housing deeds of government documents.

Why it matters… It’s still too early to tell if Ordinals are the beginning of new use-cases for Bitcoin, or just a short-term fad. Will their functionality ultimately be eclipsed by Ethereum’s dominance as a programmable blockchain? Or will they usher in a new era for Bitcoin? People like Miller argue that Ordinals have a real future. “The Stacks community [has] been saying for so long that things should be getting built on Bitcoin,” Miller said. “Because it is the most trusted thing that’s been around the longest, it’s not going anywhere.” 

TAKES

Keanu Reeves praises crypto, the SEC’s Hester Peirce criticizes her agency, and other key soundbites

Orange pill… “To pooh-pooh crypto, or the volatility of cryptocurrency, it’s only going to make it better in terms of how it’s safeguarded,” was how “John Wick” star Keanu Reeves described crypto technology amid the negative headlines of recent months. Reeves, speaking to Wired magazine for its latest cover story, also declared that the “ideas behind an independent currency are amazing.” 

Peirce-ing remarks..."If investor protection is about just shutting programs down or preventing people from purchasing certain things — that's a very unimaginative form of investor protection," was how SEC Commissioner Hester Peirce characterized recent actions by her agency targeting the crypto industry, during an episode of the Block’s podcast. Peirce has been an outspoken critic of the agency’s enforcement decisions, including its move to shut down crypto exchange Kraken’s staking program.

Fare thee well… “Crypto will endure. These setbacks are temporary and will come to pass. Stay strong and good luck,” was how Galois Capital concluded a Twitter thread confirming the news that it was shutting down. The crypto-focused quantitative hedge fund had been battered by FTX’s collapse, which had resulted in half of its assets being stuck on the defunct exchange.

Should I stay or should I go?… “Every single lawyer we have met with has advised us against considering the U.S. due to the regulatory uncertainty,” was how crypto executive Boyd Cohen described the outlook on launching new crypto businesses in America in an opinion piece for CoinDesk titled “I’m American, but My Crypto Startup Won’t Be.” 

NUMBERS TO KNOW

$5.3 million

Amount raised by Kaito AI, an AI-powered search engine for crypto that aims to integrate the buzzy (and sometimes unsettling) ChatGPT/GPT-3 language models into a comprehensive search aggregator for crypto information, which is famously fragmented across the web and often hard to locate. Sequoia Capital and Dragonfly Capital were among the investors in the project, which is currently in beta with institutional clients.

$900,000

The price of a *checks notes* Scottish golf course that a golf-obsessed crypto club called LinksDAO intends to buy with the proceeds from the sale of 9,090 NFT-based memberships. According to its website, LinksDAO is “on a mission to own one of the world’s greatest golf courses.”

2,027

Number of Bitcoin whales (wallets holding 1,000 or more BTC) on Sunday, February, 19 — the lowest whale count since August 2019. In contrast, the number of BTC investors with 1 or more BTC sits at 982,000, up from 814,000 at this time last year and 788,000 in February 2020.

5

Number of Bitcoin “maintainers” — developers who are responsible for implementing patches from roughly 1,000 active developers working on the Bitcoin network. Bitcoin Core, an open-source project that keeps BTC’s digital ledger up-to-date across thousands of computers, describes maintainers as “a final check to ensure that patches are safe and in line with the project goals.” Some have noted that Bitcoin Core’s role is in tension with the cryptocurrency’s goal of remaining decentralized.

DISCLAIMER

This material is the property of Coinbase, Inc., its parent and affiliates (“Coinbase”). The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Coinbase or its employees and summarizes information and articles with respect to cryptocurrencies or related topics that the author believes may be of interest.

TOKEN TRIVIA

What is proof of work?

A

The way miners secure and scale Bitcoin’s blockchain

B

A way to verify transactions on a blockchain

C

The predecessor to proof of stake

D

All of the above

Find the answer below.

Trivia Answer

D

All of the above