Elon Musk commented on The Joe Rogan Experience podcast on October 31 that NFTs do not actually store artwork on the blockchain. He said: You should at least encode the JPEG in the blockchain. If the company storing the image goes out of business, then you no longer own the image. While Musk criticized NFTs, his comments also emphasized that Benefits of Bitcoin Ordinals (also known as Bitcoin NFTs). Ordinals permanently stores image data on the Bitcoin blockchain, making it more decentralized and independent of third parties, making NFTs more counterfeit-proof.
Videos engraved on the Bitcoin blockchain via the Ordinals protocol. Source: Ord.io
Since the emergence of the Ordinals protocol in 2022, Bitcoin-based NFTs have divided the blockchains global user community. On the one hand, advocates of the technology argue that no other blockchain platform offers the same on-chain functionality, guaranteed security, and active user base as Bitcoin, making it a natural home for NFTs. Purists, on the other hand, argue that Ordinals represent an unnecessary departure from Bitcoin’s original premise, potentially causing congestion in an otherwise streamlined payments network.
Bitcoin network congestion caused by Ordinals
In October, the Bitcoin network recorded more Ordinals transaction volume than in any previous month. As of the first week of November, more than 175,000 transactions have been recorded on the blockchain. These two BRP-20 tokens have quickly become popular in recent times, experiencing a surge in activity due to growing interest in NFT series such as Bitcoin Bees and OrdiRats.
Of course, Ordinals’ transaction volume still pales in comparison to blockchains like Mythos, which are built specifically for NFTs. Bitcoin Ordinals transaction volume is also overshadowed by faster blockchains such as Ethereum and Polygon, which regularly record tens of thousands of NFT transactions every day. The reason for this phenomenon is mainly due to a key difference between Bitcoin and later generations of blockchains, which is that many of these blockchains were designed with data-intensive NFT transactions in mind.
Ordinals activity drives Bitcoin transaction fees higher
Even running at maximum load, Bitcoins processing speed is capped at just 7 transactions per second (TPS). In comparison, faster, more lightweight blockchains can achieve tens of thousands of TPS. For example, the TON network recently set a new record of 104,715 TPS, making it faster than Visa and Mastercard.
What’s immediately apparent is that Bitcoin’s transaction processing speeds are sluggish compared to its younger, more nimble cousins. As a result, Ordinals skeptics warned that the protocol would cause network congestion, and their fears were confirmed when Bitcoin transaction fees began to climb in October. This summer, the average Bitcoin transaction fee fluctuated within 20% of $1, but on November 8, the average Bitcoin transaction fee rose to $7.168, a six-month high.
The last time Ordinals transactions clogged the Bitcoin network in May, some members of the community came up with proposals to modify the underlying protocol to limit Ordinals transactions. As one developer put it, the “worthless” BRP-20 token “threatens the smooth and normal use of the Bitcoin network as a peer-to-peer digital currency.”
But Bitcoin purists may never be able to complete the restriction on Ordinals. After all, it is notoriously difficult to establish the necessary consensus to force changes to Bitcoin’s core codebase. Likewise, convincing miners to support an upgrade that could negatively impact their transaction fee revenue is an impossible task, especially now with the upcoming Bitcoin halving.
Bitcoin Ordinals and NFTs
The Ordinals protocol was created by Casey Rodarmor in December 2022, and previous Taproot updates enabled complex smart contracts on Bitcoin. According to Dune, there are approximately 38 million Ordinals inscriptions permanently etched on the Bitcoin blockchain. In early May, the number of Bitcoin Ordinals surged, overwhelming the Bitcoin network. On May 7th and 8th, the number of daily inscriptions peaked at 400,000, causing Bitcoin fees to spike and the mempool to fill with pending transactions.
NFTs, on the other hand, were first conceived in 2014. They were created to allow, for the first time, digital art, collectibles, and game items to be traded as if they were as scarce as physical objects. As we all know, NFTs have quickly grown into a multi-billion dollar market and become a cultural phenomenon since their launch a few years ago. However, it wasn’t until years later that NFTs finally took hold. In 2021, with celebrities like Justin Bieber and Madonna rocking their Bored Apes, it seems like everyone has an opinion on the infamous expensive JPEG. The market didnt peak until January 19, 2022, nearly eight years after it was conceived.
Bitcoin Ordinals differ from traditional NFTs in two key ways. NFTs on platforms like Ethereum typically only store links to the artwork off-chain, rather than encoding the actual artwork on the blockchain. As Musk said, this means that if the link fails, the NFT will lose its associated artwork, and the NFT will lose its original value. Additionally, NFTs often embed creator royalties into smart contracts, allowing artists to receive a percentage of the resale value. Bitcoin Ordinals have no such royalties, or at least not per se, since the data cannot be changed once it is inscribed on Bitcoin.
Digital Artifact
Bitcoin Ordinals encodes the artwork directly on the Bitcoin blockchain, ensuring that the artwork will exist as long as Bitcoin exists. For this reason, there is an argument that Ordinals more purely reflects the original vision of NFTs as irrevocable proof of ownership and provenance. It is for this reason that their creator Casey prefers the term Digital Artifact to Bitcoin NFTs.
Conclusion
In the future, we may see the differentiation of irreplaceable markets. One is NFT, which allows for more complex and evolving functionality, and the other is Bitcoin Ordinals, which guarantees irrevocable ownership and proof of provenance. The “digital artifacts” Casey created may become what we now know as NFTs—digital collectibles with greater staying power. Data is engraved on the blockchain, not just a link.
Cited information:
https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2023-May/021648.html
https://docs.ordinals.com/digital-artifacts.html
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