Although we do not know the true identity of the ccreator of bitcoin, known by his pseudonym, Satoshi Nakamoto, the fact remains that the primary purpose behind the creation of this flagship cryptocurrency has never been a mystery. He created bitcoin as a peer-to-peer version of electronic money to take back the financial control held by institutions serving as trusted third parties in processing electronic payments.
The goal was crystal clear: create a flawless electronic transaction system. The Bitcoin whitepaper study further shows that Bitcoin was designed to focus solely on financial transactions.
In fact, Nakamoto previously opposed adding other use cases to the leading cryptocurrency. In 2011, the pseudo-creator of Bitcoin rejected the idea of integrating a domain name system (DNS) to bitcoincalled BitDNS, claiming that combining all proof-of-work consensus systems into a single dataset would not be scalable.
Sebastian Jan Menge, co-founder of FitBurn, commented that “The primary purpose behind the creation of Bitcoin was to serve as a means of transferring value”. However, this purpose has evolved many times over the past decade.
Early adopters of cryptocurrency mostly believed that the hard cap of 21 million coins set for bitcoin would make it a hedge against inflation. Therefore cryptocurrency has gained a certain reputation as “digital gold”or strong store of value.
Even Goldman Sachs has advanced the “store of value” thesis for bitcoin. Nevertheless, this thesis recently failed when the bitcoin plunged 75% despite inflation reaching record highs.
Proponents of cryptocurrency then turned to the thesis that the main cryptocurrency is a means of protect against “currency depreciation“. This basically means that when central banks create more money, the value of bitcoin will increase because the new money reduces the value of money already in circulation.
This discourse has also failed, because central banks around the world continue to raise interest rates and shrink their balance sheets, reducing the money supply. If bitcoin were a hedge against currency depreciation, it shouldn’t be up 40% year-to-date despite shrinking money supply.
That’s when NFTs came in. The recent arrival of Ordinals protocol sparked a new era for NFTs and smart contracts on the bitcoin blockchain. This created a much-needed buzz in the usually quiet world of bitcoin.
Bitcoin NFT: What is the Ordinals protocol?
Bitcoin Ordinals is a new protocol designed and deployed by former Bitcoin Core contributor Casey Rodarmor. It allows users to explore, transfer, and receive individual satoshis, the atomic unit of Bitcoin, which may include unique data.
The protocol uses “inscriptions”, i.e. arbitrary content such as text or images that can be added to sequentially numbered satoshis to create unique “digital artifacts”. These artifacts, which are actually NFTs, can be held and transferred over the Bitcoin network like any other sat.
” Ordinal Protocol is a satoshi numbering system that tracks and transfers individual sats. These numbers are called ordinal numbers. According to the Ordinals documentation, satoshis are numbered in the order in which they are mined and transferred from transaction inputs to transaction outputs, on a first-in, first-out basis.
Numbering schemes and transfer both depend on the order. The numbering scheme is based on the order in which satoshis (Bitcoin units) are mined. The transfer scheme is based on the order of transaction inputs and outputs. This is why they are called “Ordinals”.
The Ordinals have won the hearts of many despite initial reluctance.
At the beginning, the Ordinals project sparked some controversy among bitcoinists. So-called bitcoin purists have criticized the project, arguing that bitcoin was designed to focus only on financial transactions and that other features could be expensive in terms of scalability and costs.
Adam Back, CEO of Blockstream and longtime bitcoiner, said: ” THE bitcoin is designed to be censorship-resistant. This does not prevent us from making a few comments on the waste and stupidity of an encoding. At least try to do something effective.”
On the other hand, proponents have noted that the Ordinals protocol can attract more people and expand the use cases of the Bitcoin network. Dan Held, for example, described it as a net benefit for Bitcoin: “It brings more financial use cases to Bitcoin and drives greater demand for block space, in other words, fees.”
That being so, Ordinals turned out to be a success, taking the Bitcoin blockchain by storm. Indeed, according to a Dune Analytics dashboard, more than 252,000 Ordinals have been registered on the Bitcoin network since January, which has brought in more than $1.42 million in fees to miners.
Robert Quartly-Janeiro, chief strategy officer of the Bitrue platform, said that the bitcoin community’s predilection for bitcoin ordinals “remains a matter of conjecturebecause it depends on the needs and wants of the wider user base. He adds:
“While this is an innovation, there is a risk that it will undermine the belief in bitcoin by using the smaller denomination of it and seeking to cash in the value it contains by exchanging a name and this process is not easy to achieve.”
Quartly-Janeiro mentions that if the success of the Ordinals project is due to the community, it indicates that Bitcoin is “inherently adaptable and can evolve over time to adapt to new use cases“The acceptance of Ordinals on the network demonstrates this adaptability and serves as a good indicator for the future growth of the network.”
However, Simon Davis, CEO and co-founder of Mighty Bear Games, believes that there is still a long way to go before Ordinals become what NFTs are on the ethereum blockchain. Indeed, in a comment, he explains that
“Wallets are not there yet and they cannot trade properly on a marketplace. Ordinals have to be traded over-the-counter, which is very risky right now.”
Davis noted that he does not see no rivalry between Ethereum and Bitcoin regarding the introduction of NFTs. “More utility for BTC can only be a good thing for the ecosystem. Indeed, it has the deepest liquidity of any crypto asset class. The BTC audience’s interest in the applications of technology and on-chain assets should help the industry as a whole.
Have Ordinals had an impact on the price of bitcoin?
The arrival of the Ordinals protocol coincided with a big jump in the price of bitcoin. Since January 20, when Rodarmor officially launched the program on Bitcoin’s mainnet, the cryptocurrency is up around 12%. This rise came despite a series of aggressive regulatory measures by US authorities.
According to Bryan Courchesne, founder and CEO of DAIM, a crypto-asset management company, it is not certain that the recent rise in the bitcoin price be linked to Ordinalsbut the project is seen as a favorable development in the eyes of investors.
Courchesne noted that bitcoin has long been touted as digital gold, a numerically scarce store of value. Critics have argued that, like gold, it has no use and therefore the value proposition is weak. He also added that “the ordinals are helping to change that”
“The addition of bitcoin’s programmability element shows that the digital asset can be more than a digital store of value. You may dispute the merits of Ordinals, but the crypto space has responded favorably in the past to expressions artistic works stored on a blockchain.”
Courchesne said: “Just like THE NFT have generated billions of dollars of economic activity on the chain, Ordinals could do the same. And that’s just a sign of what’s to come. Who knows what future updates might bring?
“We know that through it all, bitcoin will maintain its status as a digitally scarce hard asset with a proven track record. We believe the Ordinals only improve the investment case.”
Project Ordinaux rekindles community interest in bitcoin development: Will DeFi be next?
After the arrival of Ordinals, the construction of products on the Bitcoin platform has seen a major boom. Research firm FSInsight said in a report earlier this month that this has led to an increase in bitcoin’s average block size as more users have started joining the network.
The report notes that the Ordinals, which resulted higher fees per block, could ultimately create long-term demand for the blocks. This could address a reasonable criticism of Bitcoin’s security model, namely the lack of miner revenue due to fees.
Besides, the excitement surrounding NFTs on the Bitcoin network brought new experimentation to the network, including more efforts to bring DeFi to this cryptocurrency phase. Concretely, the success of Ordinals has renewed interest in the Stacks ecosystem.
Stacks is a project that seeks to unlock the full potential of the Bitcoin blockchain by bringing smart contracts and decentralized applications. Originally known as Blockstack but rebranded as Stacks in 2020, the project was designed as a Layer 1 solution that uses Bitcoin as its base layer.
The platform is powered by the Stacks token (STX), which powers the execution of smart contracts, transaction processing, and registration of new digital assets. According to data from CoinGecko, the token has gained over 162% over the past month.
Nikolay Denisenko, co-founder and CTO of Brighty, a neo-digital banking app, said thehe Bitcoin community had anticipated the arrival of decentralized applications, claiming that these would benefit the entire ecosystem. He said in a comment:
“They are expected to add more utility and encourage the development of commercial projects, and eventually attract new developers and expand the range of use cases.” As the most secure blockchain, the capabilities of Ordinals and smart contracts would complement what Bitcoin has to offer.”
The scope of the new NFT saga and smart contracts on the Bitcoin blockchain is unclear. Nevertheless, the fact that bitcoin advocates can switch from one theory to another proves how well the leading cryptocurrency can adapt to changing times.