Ordinals Controversy

In January 2023, Bitcoin Core software engineer Casey Rodarmor launched the Bitcoin Ordinals Protocol, taking first place in crypto news. This was made possible by the Segwit and Taproot Upgrades, which bring added capabilities to the Bitcoin blockchain.

Digital artifacts such as images, text, programs and more can be inscribed directly on satoshis, the smallest BTC unit, thus essentially bringing NFTs to Bitcoin. Until Bitcoin Ordinals, Bitcoin NFTs were only possible through Stacks, a blockchain layer that enables smart contracts, dApps, DeFi and NFTs secured by Bitcoin. Ordinals inscriptions or Ordinals NFTs, live directly on the Bitcoin blockchain, and this upgrade has caused a rift in the Bitcoin community. While "Bitcoin maximalists" see Ordinals as an attack on Bitcoin, others see true opportunity in this new development.

Although the idea of inscribing data on the Bitcoin blockchain isn't new --- long ago, a few Bitcoiners floated the idea of incorporating a domain name system into Bitcoin, but the project was shut down by Satoshi Nakamoto in 2010 --- the rise of Ordinals has brought back an important question to the crypto space: should Bitcoin be used for non-financial purposes?

Why the uproar?

Since the rise of Ordinals in January 2023, the Bitcoin community has been engaging in heated debates about the impact of Bitcoin NFTs on Bitcoin itself. The ecosystem disagrees at a technical level, as well as at a narrative level, about the way the Bitcoin blockchain should be used. To some, Bitcoin is an identity, a means of protecting savings and fighting inflation, as well as political statement. To them, Bitcoin is a way of showing the federal reserve, the government and every bank out there, that the world doesn't need them. To others, Bitcoin is just another chain and cryptocurrency, where NFTs are as valid and welcome as on any other chain. Ordinals don't require a separate token or side chain, and the data is inscribed directly in a Bitcoin block, with the metadata living on-chain, making inscriptions a revolution in the world of NFTs.

What Ordinals bring to Bitcoin

According to Ordinals proponent Udi Wertheimer, Bitcoin NFTs will have a positive impact on the ecosystem, with improved security and incentives.

The spike in creation of Ordinals in the weeks following the launch of the new protocol, contributed to the increase in transaction fees and typical block size on the Bitcoin network. The scarcity of block space in the system boosts the demand, hopefully incentivizing miners. The block subsidy decreases with every blockchain halving, so the hope is that inscriptions will bring more fees to miners, who will be better incentivized to secure the network.

With the rising demand for Ordinals, it is also possible more and more users who are willing to pay to keep the blockchain safeguarded will join the network and run Bitcoin nodes, making the network more sustainable in the future.

Ordinals inscriptions also add new capabilities to the chain and enhance its functionality beyond its original design. Ordinals can help promote mass adoption of the digital currency. Ordinals can bring more users, more bitcoin transactions and more overall value to the Bitcoin ecosystem.

While NFT projects have been running toward Ordinals, and inscriptions can be anything from JPEG digital art to PFP projects, use cases aren't limited to non-fungible tokens and memes. It's also possible that NFT collections on the Bitcoin blockchain will become more valuable than digital assets on other chains such as Ethereum (ETH) or Solana.

The negative aspects of Ordinals

Originally, Bitcoin was created to be a peer-to-peer electronic cash system to make financial transactions. It wasn't meant as a decentralized data storage system. Part of the Bitcoin community is concerned that inscriptions will pose unforeseen threats to the security of the network, and threaten the core ethos of the project.

Inscribing arbitrary content onto the Bitcoin blockchain will make it bigger and harder to download. For this reason, users might reconsider running a Bitcoin node as their Initial Block Download ("IBD") process will become longer, more expensive, and less private. As new technologies make the process less cumbersome or if Bitcoin Core adds more granular tools for handling IBD and data storage, it is possible some of these concerns could be alleviated in the future. Bandwidth is also becoming more accessible as internet access and new technologies such as Starlink become common.

For some, increasing block size with non-monetary data also harms fungibility. To them, the changes made to the network with the Segwit upgrade shouldn't be used for inscriptions. These changes were a way of incentivizing Lightning usage. Some users have blamed Bitcoin Core developers for not making it well-known that the SegWit and Taproot upgrades would enable something like inscriptions. It is important to note that even a massive increase in inscription activity would only result in a negligible number of satoshis being inscribed.

The future of Bitcoin NFTs

While just because we can mint NFTs on Bitcoin doesn't mean we have to, NFTs aren't the end-all use case of Ordinals inscriptions. In the same way NFTs on Opensea (Ethereum's leading marketplace) will transform from JPEG apes to digital housing deeds or medical records, use cases for Bitcoin will also change. Largest NFT marketplace on Stacks, Gamma.io, offers a place for creators and collectors to come together, explore the world of Ordinals and lead the change.

But until new use cases are explored and discovered, NFTs directly on the Bitcoin blockchain have already brought more users, collectors and artists to the chain, meaning wider adoption of the Bitcoin blockchain. If more people join the community, that essentially means more people exchanging amounts of currency without trust in a central authority or third party, just as Satoshi Nakamoto envisioned.

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