Ordinals: Will the future of NFTs be written… on Bitcoin?


NFTs and Bitcoin, two subjects that everything seems to oppose. The first is unique and indivisible, the other wants to be the embodiment of the digital monetary exchange of the future. Following numerous debates around the question of the fungibility of Bitcoin, a compromise was found in 2014 within the community. But recently, this status quo has been challenged by an initiative that aims to create fully hosted NFTs…on Bitcoin.

Bitcoin: currency or database?

Since Bitcoin is Bitcoin, its community is faced with an existential question: is the queen of cryptocurrencies intended to be used for financial transactions or, on the contrary, to act as a secure database, intended to support different applications?

The answer to this question is crucial because it will determine where Bitcoin in the blockchain trilemma:

  • If the protocol is intended for financial transactions, all transaction history will only require an external hard drive. This allows anyone to download the blockchain to verify information on it.
  • Conversely, if the protocol is intended to be a database, the blocks will contain much more data and it will be more difficult for the general public to verify the transactions themselves.

This problem, which comes back very directly to the size of the blocks, has been the subject of much controversy, so much so that it has generated a “ blo warcs within the community years later. But let’s go back to 2010, when Satoshi was still living on the bitcointalk.org forum and had time to express himself on this issue.

BitDNS: a DNS service finally on Namecoin

A year after its publication, the idea of ​​using Bitcoin for its robustness and security for something other than financial transactions began to appear. One of the first ideas proposed on bitcointalk was BitDNS, a DNS service hosted on the bitcoin protocol.

Although the idea was sound, the problem remained the same: it risked drastically increasing the size of the blockchain and deviated from the original purpose of Bitcoin. Ultimately, Satoshi Nakamoto spoke on the subject:

Stacking all the world’s proof-of-work quorum systems into a single dataset doesn’t scale. Bitcoin and BitDNS can be used separately. Users shouldn’t have to download both together to use one or the other. »

Satoshi (Dec. 2010)

Always putting the end user at the center of priorities, Satoshi believes that no, Bitcoin is not made to support BitDNS but that another protocol could very well do it. AND that’s what happened, BitDNS was finally going to be supported by the blockchain Namecoinmore calibrated to exchange data.

But another blockchain is not Bitcoin. Discussions continued until a compromise was reached in 2014 when the teams behind BitcoinCore have adopted the OP_RETURN function. This function made it possible to include messages in transactions, first within a limit of 40 bytes and then 80 in 2016.

The OP_RETURN function and Taproot

Thanks to the OP_RETURN function, transactions can therefore contain text such as haikus, a link to an image or an IPFS hash. Used by Counterparty for the RarePepe, Veriblock (an altcoin) or Omni for the first version of the USDT, this function was less and less appreciated in favor of other protocols better supporting the exchange of data.

These three projects totaled approximately 32 million OP_RETURN transactions, adding 10 GB to the blockchain in the process. Bitcoin (which weighs in January 2023 approximately 450GB). Fortunately, these transactions are said to be “prunable”, that is to say that the nodes are forced to download them but they no longer need to be kept in memory.

In 2021, a new soft fork was going to take place: Taproot. Its goal was to increase the confidentiality, the flexibility and above all the scalability of smart contracts thanks to three Bitcoin Improvement Proposals (BEEP):

But does the proposal unwittingly Tapscript was not going to make it possible to circumvent the size limit imposed by OP_RETURN? In 2023, a new NFT protocol on Bitcoin will answer this question: Ordinals.

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Ordinals, a new NFT protocol on Bitcoin

Before going into more detail on the tour de force that Ordinals is attempting, let’s come back to the notion of fungibility. A so-called fungible asset is interchangeable with another asset of the same nature, quality and quantity.

You might think that 1 BTC = 1 BTC but in reality, it depends on the history of their use because the slightest satoshi can be traced like a ledger. If an activity in the history displeases a potential buyer (for example: bitcoins having been used for a purchase on the darknet), he may prefer to buy freshly mined bitcoins. Therefore, the condition that an asset must also be of the same quality to be fungible is no longer met.

Ordinals will use this principle of variable quality fungibility to transform each satoshi into potential NFTs without sacrificing their nature or quantity. To achieve this balance, exchanges can only be made between users wishing to use the satoshis identified by the software.Ordinals. Bitcoin software that does not follow this method uses satoshis as payment for transaction fees and in which case the NFT would be lost.

Lost, yes, because Ordinals NFTs are stored 100% onchain. But with the 80 byte limit imposed by the OP_RETURN function, how Ordinals found room for larger files? Taking advantage of the latest update Taprootwhich relaxes limits on the size of cookie data (such as signatures) in a transaction.

Consequently, an Ordinals transaction can therefore fill the 4MB of a Bitcoin block, i.e. 5000 times the limit imposed by OP_RETURN!

The setbacks of this feat

Have succeeded in taking advantage of tapscript in this way was not originally planned by the developers of Taproot. But even though Ordinals transactions are prunable, they raise a number of questions and criticisms.

First, by going through cookies, transaction fees are cheaper than using the OP_RETURN function. Then, occupying the entire space of a block, the transactions Ordinals risk leaving no room for other types of financial transactions.

Of course, other blockchains and services are more suitable for minter NFTs in many editions. But today, the ability to have NFTs fully hosted on the most secure blockchain there is is ending the status quo regarding this part of Bitcoin’s identity.

Is this a good or a bad thing? Just like the author who inspired this article said, I don’t think I’m smart enough to answer that question.

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