What are Bitcoin ordinals, and why make Bitcoin NFTs?
Bitcoin ordinals are a way to create NFTs on the Bitcoin blockchain and are the latest innovation to come from the world's oldest cryptocurrency. The Bitcoin ordinals protocol was launched as recently as January 2023, but it still has some fundamental differences from NFTs as we know them that give the Bitcoin blockchain some advantages.
Programmer and artist Casey Rodarmor created Bitcoin ordinals as a way to inscribe a piece of art on the blockchain that would be completely immutable. He proved the concept by creating a pixel art skill on the Bitcoin blockchain in December 2022. Unlike NFTs based on Ethereum's ERC-721, ordinals are more than just an ID that usually points to where a piece of digital content is located or a unique certificate. Instead, they become parts of the smallest unit of transferable data on the blockchain itself.
Ordinal theory is based on the concept of satoshis, or sats. One Bitcoin (BTC) is made up of one million sats. Ordinals serve as a numbering system for sats, allowing them to be identified and imbued with meaning via artworks, messages and other pieces of digital content.
Bitcoin ordinals were an immediate hit, doubling every week in the first month or so despite technical limitations that made them difficult to scale with demand. In fact, the Bitcoin network itself struggled to keep up with the huge increase in usage, suffering rising fees as a result of congestion.
Compared to NFTs on Ethereum (ETH), which are a few years old and relatively accessible to the public, the creation tools for Bitcoin ordinals are less intuitive and user-friendly, being intended for programmers and tech-savvy early adopters. However, this is likely to change rapidly as ordinals become more widely adopted, thanks to the potential to expand the use case of Bitcoin.
How are Bitcoin ordinals being used?
Bitcoin remains the oldest and most prestigious cryptocurrency, but it's beginning to show its age as Ethereum-derived blockchain projects form the backbone of smart contracts, DeFi, NFTs and other new financial technology platforms. Now, thanks to ordinals, Bitcoin can have its own digital collectables that work with Bitcoin wallets.
The first popular products using Bitcoin ordinals were digital art collections with names like Planetary Ordinals and Bitcoin Punks. Unlike with Ethereum-based NFTs, the artwork of the ordinal exists on-chain (whereas NFTs typically point to data hosted off-chain), so they take up space on the blockchain. This makes them permanent and immutable in a way traditional NFTs are not by placing higher computing demand on the Bitcoin ecosystem.
Because Bitcoin ordinals are attached to sats that are generated during Bitcoin mining, 'rarity', and its corresponding value mean different things for Bitcoin NFTs. Instead of the details of a hosted piece of digital art, certain sats, such as the first sat of every newly-mined block, can be valued more highly than others. Historic Bitcoin events, such as the next halving event scheduled for 2024, will create ultra-rare sats that could be treasured by the crypto community. It's no surprise, then, to see the current hype as early adopters and investors are attempting to stake their claim in the system before important events occur.
BRC-20 and the new wave of memecoins
The BRC-20 token standard was created early in March by an on-chain analyst known by the user handle Domo. Inspired by the Ethereum ERC-20 standard, it uses Bitcoin ordinals to facilitate the creation of fungible tokens using the Bitcoin blockchain.
BRC-20 tokens took off in a big way, with the total market cap of these coins sitting at $120 million after a 600% rise in the past week alone. This explosion of value is driven mainly by memecoins such as Pepe (PEPE), the breakout star among a total of over 8,500 different BRC-20 tokens on the market.
Ordinals and the future of Bitcoin
It's difficult to overstate just how much these innovations have made the oldest cryptocurrency exciting again. The number of BRC-20 transactions on the Bitcoin blockchain has grown to eclipse the transactions of BTC itself, and although it has yet to seriously challenge the Ethereum ecosystem with its DeFi integrations and superstar projects such as the Bored Ape Yacht Club, Bitcoin has now left so-called 'Ethereum killers' and rivals in the dust when it comes to NFTs and tokens. The latest data shows that the monthly trading volume of NFTs and memecoins on Bitcoin in May surpassed Solana (SOL), Polygon (POLY) and others.
Now, with the launch of the BRC-721E standard, ordinals will now allow users to migrate their Ethereum ERC-721-based nonfungible tokens (NFTs) to the Bitcoin blockchain. The new standard, jointly launched by the Ordinals market and the Bitcoin Miladys NFT collection, burns the old Ethereum-based token when a conversion takes place, allowing users to move their collectables from one blockchain to another and potentially poaching users from established networks.
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