A comprehensive understanding of the technical principles and ecological impact of Bitcoin NFTs
The most important thing the Bitcoin network does is decentralize money. All other use cases are secondary, including ordinal theory.Author: alertcat.eth, ChainCatcher
To judge the recent explosion of NFTs, the NFT craze brought by the Ordinal protocol on the Bitcoin mainnet cannot be ignored. Although there is currently no mature trading platform on the Bitcoin network, and all transactions rely solely on a spreadsheet as the basis for orders and offers, transactions based on the Ordinal protocol have been very active recently, even causing congestion on the Bitcoin network.
According to data from the crypto analytics platform Glassnode, the launch of Bitcoin NFTs has pushed the number of non-zero Bitcoin addresses to a historic high of 44 million, "This is a new and unique moment in Bitcoin history, where an innovation is generating network activity without the classic token transaction transfers for monetary purposes."
Given its undeniable influence, this article will analyze the current development status of Bitcoin NFTs from two aspects: the technical principles of the Ordinal protocol and its ecological impact.
First, we must start with Bitcoin itself. The smallest divisible unit of Bitcoin is called a satoshi, with one Bitcoin equivalent to one hundred million satoshis. The Ordinal theory gives satoshis financial value, allowing them to be collected and traded as collectibles. Individual satoshis can be inscribed with any content, creating unique Bitcoin-native digital artifacts that can be stored in Bitcoin wallets and transmitted using Bitcoin transactions. The inscriptions are as permanent, immutable, secure, and decentralized as Bitcoin itself.
In a BIP created by Bitcoin core contributor Casey on February 2, the technical principles of ordinals are described as follows: "Each satoshi is sequentially numbered starting from 0 based on its mining order. These numbers are called 'ordinals' because they are ordinal numbers in the mathematical sense, indicating the order of each satoshi in the total supply." The term "ordinal" is very specific as it is not used elsewhere in the Bitcoin protocol. Based on the size and order of transaction inputs and outputs, the satoshis in the transaction inputs are transferred to the output satoshis in a first-in-first-out manner.
Each block on the Bitcoin blockchain contains one or more transactions, with the first transaction called the coinbase transaction. In the ordinal protocol, for the purpose of allocation algorithms, the coinbase transaction is considered to have an implicit input equal to the subsidy size. The principle of transfer is: satoshis are transferred in a first-in-first-out manner. Treat the transaction inputs as a list of satoshis and the outputs as a list of slots waiting to receive satoshis. To allocate input satoshis to slots, each satoshi in the input is checked in order and assigned to the first available slot in the output. Transaction fees are treated as additional inputs to the coinbase transaction and are sorted according to their respective order in the block.
In the ordinal protocol, inscriptions can be made with any content, creating Bitcoin-native digital artifacts, commonly referred to as NFTs. Inscriptions do not require sidechains or separate tokens. These inscribed satoshis can then be transmitted using Bitcoin transactions, sent to Bitcoin addresses, and stored in Bitcoin UTXOs. These transactions, addresses, and UTXOs are all normal Bitcoin transactions, addresses, and UTXOs, except that to send a single satoshi, the transaction must control the order and value of inputs and outputs according to ordinal theory. The content model of inscriptions conforms to web protocols, where an inscription consists of a content type (also known as MIME type) and the content itself, which is a string, allowing the inscription content to be returned from a web server and used to create HTML inscriptions that utilize and remix other inscription content.
This is the same data model used on the internet, allowing inscription content to evolve with the web and supporting any type of content that web browsers can handle without changing the underlying protocol. The inscription content is fully on-chain, stored in taproot script-path spend scripts. Taproot scripts have few restrictions on their content and additionally gain witness discounts, making the storage of inscription content relatively economical.
Since taproot spend scripts can only be generated from existing taproot outputs, inscriptions are done using a two-phase commit/reveal process. First, in the commit transaction, a main root output is created that commits to a script containing the inscription content. Second, in the reveal transaction, the output generated from the commit transaction is used to reveal the inscription content on-chain. The inscription content is serialized using data pushes in unexecuted conditions, referred to as "envelopes."
The envelope consists of an arbitrary number of data pushes wrapped in OPFALSE OPIF … OP_ENDIF. Since the envelope is effectively a no-op, it does not change the semantics of the script containing it and can be combined with any other locking script. According to the protocol, a text inscription containing the string "Hello, world!" is serialized as follows:
OP_FALSE
OP_IF
OP_PUSH "ord"
OP_1
OP_PUSH "text/plain;charset=utf-8"
OP_0
OP_PUSH "Hello, world!"
OP_ENDIF
The string "ord" is pushed first to eliminate ambiguity between the inscription and other uses of the envelope. OP1 indicates that the next push contains the content type, and OP0 indicates that the subsequent data push contains the content itself. Large inscriptions must use multiple data pushes, as one of the few restrictions of taproot is that a single data push cannot exceed 520 bytes. The inscription content is included in the reveal transaction's input, and the inscription is made on the first satoshi of its first output. The familiar rules of ordinal theory can then be used to track this satoshi, allowing it to be transferred, bought, sold, lost, and recovered. This is the technical principle of writing data on satoshis for Bitcoin NFTs.
The founder defines the attributes that inscriptions should have, which is why he created this protocol:
For a digital thing to be a digital artifact, it must be like your coin:
- Digital artifacts can have owners. Digital items are not digital artifacts because no one can own them.
- Digital artifacts are complete. NFTs that point to off-chain content on IPFS or Arweave are incomplete and therefore not digital artifacts.
- Digital artifacts are permissionless. NFTs that cannot be sold without paying royalties are not permissionless and therefore not digital artifacts.
- Digital artifacts are uncensorable. Perhaps you can change a database entry on a centralized ledger today, but you may not be able to tomorrow, so it cannot be a digital artifact.
- Digital artifacts are immutable. NFTs with upgrade keys are not digital artifacts.
The definition of digital artifacts is intended to reflect what NFTs should be, what they sometimes are, and what inscriptions always are, by their very nature. The founder believes that the ordinal protocol and inscriptions are a love letter to Bitcoin, the internet, programming, and the World Wide Web. Overall: the authors of the protocol created the Ordinal protocol out of the need for an on-chain, immutable, Bitcoin network security-based NFT protocol that does not support enforced royalties, aimed at Bitcoin maxis to open new markets, with the same data model as the internet.
The authors of the protocol also completed a block explorer, a wallet called ord wallet that can manually select satoshis to send, and an index. If you wish to create inscriptions, you need to download both the Bitcoin Core wallet and the ord wallet to control and select satoshis. Inscriptions are a type of NFT, but the founder prefers to use the term digital artifact because it is simple, evocative, and familiar.
Here are a few well-known NFT series and infrastructures based on the ordinal protocol.
- Ordinal Punks
The NFTs that make up the Ordinal Punks series are minted on the first 650 inscriptions on the Bitcoin network. According to a tweet, on Wednesday evening, Ordinal Punks NFT Punk 94 was sold for 9.5 BTC, approximately $214,000.
- Bitcoin Punks
Bitcoin Punks is the first project to perfectly upload the original Ethereum CryptoPunks bytes to the Bitcoin blockchain using Ordinals.
The project team checked the hash values of each image uploaded to Ordinals and compared them with the original 10k punk images. The link to Bitcoin Punks is the first inscription (lowest ID) that contains these hash values on Ordinals.
- market
This website created a mapping of Bitcoin Punks on Ethereum, allowing buyers to easily purchase Bitcoin Punks on OpenSea. The project team helps buyers avoid scams by providing verified and up-to-date information on all legitimate Bitcoin punks on Emblem Vault.
The emerging Ordinal protocol undoubtedly has an impact on the Bitcoin ecosystem. The creator of the ordinal protocol describes its features as follows: The most important thing the Bitcoin network does is decentralize money. All other use cases are secondary, including ordinal theory. The developers of ordinal theory understand and acknowledge this and believe that ordinal theory contributes, at least to a small extent, to Bitcoin's primary mission. There is a significant divide within the Bitcoin community regarding the development and application of this technology; some purists believe that the blockchain should be limited to financial transactions, arguing that the popularity of the ordinal protocol has overnight increased the average block size, which translates to higher fees per block.
As shown in the figure below: due to the increased block space usage brought by inscriptions, the mempool, which is a collection of Bitcoin blocks waiting to be mined and added to the blockchain, is currently full as of the writing of this article.
Some are concerned that recording non-fungible data on the blockchain may lead to bloat, while others point out that the popularity of the ordinal protocol is a positive catalyst that will drive further development of the blockchain.
Below is a statement from the protocol authors to the Bitcoin community, which I believe serves as a defense of its ecological impact: "Unlike many other things in the altcoin space, digital artifacts have their merits. Of course, there are many NFTs that are ugly, silly, and fraudulent. However, there are many very creative things; creating and collecting art has been part of the human story since the beginning, even predating trade and money, which is also an ancient technology.
Bitcoin provides an amazing platform for creating and collecting digital artifacts in a secure and decentralized way, protecting users and artists in the same way it provides an amazing platform for sending and receiving value, and for the same reasons.
Ordinals and inscriptions increase the demand for Bitcoin block space, which increases Bitcoin's security budget, crucial for ensuring Bitcoin's transition to a fee-dependent security model as block subsidies become negligible.
The inscription content is stored on-chain, so the demand for block space used by inscriptions is infinite. This creates a final buyer for all Bitcoin block space. This will help support a robust fee market, ensuring Bitcoin remains secure.
Inscriptions also counter the argument that Bitcoin cannot scale or be used for new use cases. If you pay attention to projects like DLC, Fedimint, Lightning, Taro, and RGB, you will know this claim is false, but inscriptions provide an easy-to-understand counterpoint that targets a popular and proven use case, NFTs, making it very clear.
If inscriptions become the highly sought-after digital artifacts with rich histories as the authors hope, they will serve as a powerful hook for Bitcoin adoption: coming for the fun and rich art, staying for the decentralized digital currency.
Inscriptions are an extremely benign source of block space demand. For example, stablecoins may influence the future of Bitcoin development for large stablecoin issuers, or DeFi may concentrate mining through opportunities for MEV, digital art, and collectibles on Bitcoin, less likely to produce individual entities with enough power to disrupt Bitcoin. Art is decentralized.
Inscriptions users and service providers are incentivized to run Bitcoin full nodes, publish and track inscriptions, thereby casting their economic weight toward the honest chain.
Ordinal theory and inscriptions will not have a meaningful impact on Bitcoin's fungibility. Bitcoin users can ignore both without being affected.
We hope that ordinal theory can strengthen and enrich Bitcoin and give it another dimension of appeal and functionality, enabling it to serve its primary use case of decentralized value storage for humanity more effectively."
References
https://bitcoinmagazine.com/technical/bitcoin-nfts-protocol-ordinals-50000-inscriptions
https://docs.ordinals.com/faq.html
