The History of Bitcoin NFTs Explained

January 18, 2024

Bitcoin NFTs, also known as “Ordinal Inscriptions,” or “Bitcoin NFTs” are a new type of digital asset that are created directly on the Bitcoin blockchain. They are created by inscribing data, such as images, videos, or text, onto satoshis, the smallest unit of Bitcoin.

Bitcoin NFTs have several key differences from traditional NFTs, which are typically created on Ethereum or other blockchains that support smart contracts. The Bitcoin blockchain is known for its immutability and security, and this is also true for Bitcoin NFTs. Once an NFT is inscribed on a satoshi, it cannot be tampered with or deleted.

Introduction to Ordinals

Ordinals have introduced a novel way to create NFTs (Non-Fungible Tokens) within the Bitcoin ecosystem. This innovation involves embedding various types of data like images or videos into a single satoshi, the smallest unit of Bitcoin, then later stored in an Ordinals wallet.  This concept was brought to life on the Bitcoin mainnet by developer Casey Rodarmor in early 2023.

Ordinals vs Traditional Bitcoin NFTs

Previously, Bitcoin-based NFTs were primarily facilitated by secondary layers on the Bitcoin blockchain, like Counterparty and Stacks. However, ordinal NFTs distinguish themselves by integrating directly with the base layer of the Bitcoin blockchain, not requiring additional layers or modifications. Since their introduction, they’ve seen significant adoption with over 200,000 creations, indicating a growing interest in this new form of NFT.

How Bitcoin NFTs Differ from Traditional NFTs

Bitcoin NFTs, particularly ordinals, significantly differ from traditional NFTs in several aspects. One of the key differences lies in how they integrate with their respective blockchains. Bitcoin NFTs are directly embedded into the Bitcoin blockchain at its base layer. Each NFT is linked to an individual satoshi, the smallest unit of Bitcoin, through a unique numbering system that is part of the Bitcoin protocol itself.

This integration means that these NFTs are inherent to the Bitcoin network, making them a native feature. In contrast, traditional NFTs, like those commonly found on the Ethereum blockchain, are created on top of the base blockchain layer. They are typically built using smart contracts, existing on separate layers or platforms such as ERC-721 or ERC-1155. This structure allows for a broader range of functionalities and greater flexibility in NFT design but also separates them from the core blockchain technology.

The Mechanics of Ordinal NFTs

Ordinals are a unique system that assigns a distinct number to each satoshi using ‘ordinal theory’. Unlike previous Bitcoin NFTs, they don’t require extra layers or alterations to the Bitcoin protocol, making them native to the Bitcoin network. The idea is to preserve the uniqueness of each satoshi, allowing them to serve as individual and distinguishable units.

The Role of Bitcoin Updates in Ordinal Development

The foundation for ordinal NFTs was laid by two key updates to the Bitcoin protocol: Segregated Witness (SegWit) in 2017 and Taproot in 2021. These updates were not originally intended for NFTs but inadvertently made ordinals possible by increasing the capacity for storing various data types within the Bitcoin blockchain. 

The Concept and Functionality of Bitcoin NFTs

To comprehend how ordinal NFTs function, it’s essential to understand two terms: ‘ordinals’ and ‘inscriptions’. ‘Ordinals’ refers to the numbering system that makes each satoshi unique, while ‘inscriptions’ are the actual content, like images or videos, associated with these unique satoshis.

The Debate and Future of Ordinal NFTs

The rise of ordinal NFTs has sparked a debate within the Bitcoin community. Some members argue that Bitcoin’s primary purpose should be secure financial transactions and express concerns about ordinal NFTs cluttering the blockchain and driving up fees. In contrast, others appreciate the cultural and memetic value that these NFTs bring to the blockchain.

The Decision Ahead for Bitcoin

The future of ordinal NFTs is in the hands of the Bitcoin community. Any decision to change how ordinals are treated or to potentially remove their ability would require an update to the Bitcoin protocol, reflecting the decentralized nature of decision-making in the Bitcoin ecosystem. This debate highlights the dynamic nature of cryptocurrencies and the evolving ways in which blockchain technology is being used. Whether ordinals will become a permanent feature of the Bitcoin landscape or a transient experiment in blockchain innovation remains to be seen. The decision will likely hinge on how effectively they blend with the core principles of Bitcoin and the community’s vision for its future.

Conclusion

The introduction of ordinal NFTs represents a significant milestone in the evolution of the Bitcoin ecosystem. It showcases the blockchain’s versatility and its capacity to support emerging technologies like NFTs. This innovation is not just a technical feat but also a testament to the ongoing creativity and adaptability within the cryptocurrency community.

As the Bitcoin community navigates the integration of ordinal NFTs, it faces the challenge of balancing traditional views of Bitcoin as a transactional currency with the progressive potential of blockchain technology. This balancing act is crucial for maintaining the integrity of Bitcoin while exploring new possibilities that could enhance its value and appeal.