NFTs on Bitcoin

Ordinals And The Dawn Of NFTs On The Bitcoin Network

Ordinals are a new digital asset that can be created on the Bitcoin blockchain. They were designed to improve on the traditional Non-Fungible Tokens (NFTs) and offer a complete form of digital ownership.

A Bitcoin is divided into 100 million units called satoshis, and the Ordinals protocol allows these satoshis to be inscribed with data. This data can include smart contracts and enables the creation of NFTs. In simpler terms, Ordinals are NFTs that can be minted directly on the Bitcoin blockchain.

Ordinals are different from NFTs in several ways. NFTs on the Ethereum blockchain often point to off-chain data on the Interplanetary File System (IPFS), a decentralized file storage system. The data for NFTs can be changed using dynamic metadata, but this alludes to a deficiency that the Ordinals protocol was created to improve.

Ordinals are "complete" because all the data is inscribed directly on-chain, which means that the data cannot be changed once it has been inscribed. This makes Ordinals more secure than NFTs, which often require off-chain data and can have their metadata changed. Additionally, NFTs often have creator royalties, while Ordinals do not.

How are Ordinals Different From NFTs In The Ethereum Ecosystem

The creation and use of Inscriptions on Bitcoin differ from NFTs on Ethereum. NFTs on Ethereum are created using token standards and given a unique token ID and smart contract account, but they can have high transaction costs. 

Inscriptions on Bitcoin have lower costs because of transaction fee optimization, and they are stored directly on the blockchain, making them immutable and decentralized. However, this also means any illegal or undesirable content will remain on the chain forever. This issue is not unique to Inscriptions; it is a problem storing data on blockchains.

Technicals For Nerds

Ordinals store the entire NFT image/content on-chain, not just a link/reference to it like most other NFT standards.

The NFT's data and content live in the Transaction Witness field. This field is where the content of the NFT is minted onto the Bitcoin blockchain, representing ownership. The content is called an "Inscription," engraved on the transaction witness section of a UTXO. This inscription is tied to the first satoshi of the first output in a transaction.

The inscriptions are stored in an "envelope" composed of Opcodes, the script-based bitcoin language. These codes instruct the Bitcoin blockchain; in this case, they keep the inscribed file. The codes also ensure that this data is never executed and pushed through the stack, meaning that full nodes don't need to process and validate the inscription.

Ordinal numbers are used to distinguish individual satoshis as "digital artefacts." These numbers mark a specific satoshi of the first output of a transaction as the NFT. Once labelled, this satoshi can be traded and change hands like any other NFT.

Projects

While a bunch of projects are being minted on the Bitcoin network, two have special caught everyone’s attention.

OnChain Monkey

OnChain Monkey is a collection of 10,000 NFT profile pictures minted on Ethereum in 2021. The company behind the project, Metagood, put all 10,000 NFTs onto the Bitcoin Network with a single transaction through Ordinals Protocol.

This has caused the prices for the Ethereum NFTs to go up, and the trading volume for the project has increased by over 12,000%. 

Bill Tai and Danny Yang co-founded Metagood. They aim to use Web3 initiatives to benefit communities and raise funds for good causes. These include efforts to fund coral restoration and provide aid to Ukraine amid the Russian invasion.

Yang, a co-founder of Metagood, suggested in a Twitter Spaces that the next step for the team is to enable trading but that some tools need to be created for Ordinals to make this possible. He added that Metagood intends to build a connection between Ethereum and Bitcoin so that NFT holders can switch between the two versions.

Bitcoin Punks

Ordinal Punks, a unique set of only 100 NFTs, have recently gained popularity in the crypto community. These NFTs were created within the first 650 inscriptions on the Bitcoin blockchain, with the highest-ranked one taking the 642nd spot. The NFT collection consists of generative profile pictures (PFPs) that were produced using an open-source algorithm designed by the pseudonymous Web3 creator, FlowStay.

Due to the infrastructure requirements of the Bitcoin network, bids and offers for Ordinal Punks are taking place on a Google Sheet managed by FlowStay. The community effectively uses FlowStay as an intermediary and escrow service through Discord. 

The lowest bid for an Ordinal Punk is 3.7 BTC or 51.26 ETH, equivalent to approximately $84,000. On the other hand, the highest asking price for an Ordinal Punk is for number 78, which is being offered for 50 BTC or 692.66 ETH, translating to about $1,132,500. Recently, a Web3 enthusiast dingaling made a significant investment in the Ordinal Punks by purchasing seven for 15.2 BTC or 211 ETH, which is approximately $331,715.

Bitcoin Has Had A Funny History With NFTs

Long before collections like CryptoPunks and CryptoKitties and the OpenSea marketplace helped popularize non-fungible tokens on Ethereum—even before the term "NFT" ever existed—an ecosystem for verifiably unique digital assets was already thriving on Bitcoin, circa 2014.

Counterparty is a platform that was created in 2014 to help people own unique digital items like art and collectables. It used Bitcoin's technology to make this happen and was one of the first platforms to do so. Counterparty lets people create and buy certain digital assets, which is common now but was a big deal back then. Counterparty was vital because it showed that Bitcoin's design could be used for more than just money.

Counterparty is similar to a second layer on top of Bitcoin, which means it uses Bitcoin's security but has more features. Transactions on Counterparty work just like transactions on Bitcoin and are just as safe. The only difference is that Counterparty nodes don't talk to each other like Bitcoin nodes do. People still have to pay fees when using Counterparty, just like they do when using Ethereum.

Counterparty also set the stage for the global crypto art and collectables movement, as seen with native projects like Spells of Genesis in 2015 and Rare Pepes in 2016—both considered seminal precursors to the modern NFT boom.

Interestingly, Collectors can wrap their Bitcoin-based assets like Rare Pepes and Spells of Genesis Cards to bring them onto the Ethereum blockchain—as a native ERC-721 token—through the vault. That allows these projects to be traded via the leading NFT platform and through significant marketplaces like OpenSea.

What’s Next?

The Ordinals protocol has unlocked the potential of tokenizing assets on Bitcoin's secure blockchain. It allows permanently storing digital content directly on-chain, an unusual feature in NFT space. This could solve the problem of lost NFTs and create new revenue streams for creators. Bitcoin and Ethereum supporters are excited about the new possibilities Ordinals presents.