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Your primer on Bitcoin NFTs (Ordinals)
1.2k Plays1 year ago
Ordinals, an innovative and divisive new project has brought NFTs to Bitcoin.
Coined as “Digital Artifacts” by Ordinals founder, Casey Rodarmor, the NFTs have been the topic of much debate. On one side, there’s the argument that Bitcoin should be exclusively used for financial transactions, with anything outside of this being a deviation from its mission. On the other side, Ordinals is paving the way for new use cases on Bitcoin that can both drive additional revenue for miners and increased interest from end users.
Whatever your stance, it’s clear that Ordinals has brought renewed interest in the Bitcoin blockchain. And with some of these early NFTs being sold for over 1 bitcoin (~$23,000) it’s been capturing the imagination of speculators.
In this episode, we share a full overview of how the technology works, why it's important, and how you can start exploring it yourself, featuring commentary from a few great minds building in the Bitcoin NFT space.
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Transcript
Introduction to Ordinals and Bitcoin NFTs
00:00:18
Speaker
Something big is happening on Bitcoin right now, and it's capturing the whole community's attention.
00:00:25
Speaker
Ordinals, a new protocol that's enabled NFTs to be created, traded and transferred directly on Bitcoin, has created quite a star. In one corner, you have the Bitcoin maximalists. Their primary argument against Ordinals is that Bitcoin should only be used for financial transactions. Anything outside of that use case is counter to its mission.
00:00:52
Speaker
In the other corner, you have people that are pretty excited about a new use case for Bitcoin that could potentially onboard a whole wave of new users.
00:01:02
Speaker
And then there's another pretty large group of people trying to figure out what the hell all of this means, how it works, and why they should even care in the first place. Well, I've spent the past couple of weeks diving deeper and deeper and deeper into Bitcoin NFTs and the Ordinals project as a whole.
00:01:24
Speaker
Thankfully, I've been able to speak to a whole host of incredibly helpful people with much bigger brains than mine to help get a better understanding of how it all works and whether or not this could become a major part of Bitcoin in the long term.
Decrypting Crypto Podcast Overview
00:01:39
Speaker
Now, I'm going to share an overview of everything you need to know to understand ordinals and the future of Bitcoin NFTs. I'm Matthew Hausbarbe and you're listening to the Decrypting Crypto Podcast.
00:02:00
Speaker
Over the past couple of weeks, Bitcoin has been thrown to the forefront of the conversation. This has all stemmed from the launch of a controversial new protocol called Ordinals. It's brought
00:02:12
Speaker
NFTs to Bitcoin, and it's done so in a pretty novel way, so it's creating a whole new market that people are rushing to be involved in. I've dived deep into the depths of Discord channels and Telegram groups, just so that you don't need to, to find out exactly what's going on. I even managed to mint an NFT of my own on Bitcoin within the first 1500 to be minted through Ordinals, which was pretty cool.
00:02:39
Speaker
To explain how all of this works, I've enlisted the help of two people with significantly larger brains than I do.
Philosophy Behind Forgotten Runes
00:02:47
Speaker
Dotter and Elf are the founders of Forgotten Runes, which if you haven't heard of it, it's a pretty popular NFT project that was launched on Ethereum back in 2021. They're now taking this adventure all the way over to Bitcoin. Here's why.
00:03:04
Speaker
The core philosophy behind Forgotten Runes is this idea of putting your mark on the world, or as we say in the cult, putting your rune on the door. You put your rune on the door so that history does not forget you. And you can think of countless figures throughout history who have done this, like Alexander the Greater,
00:03:25
Speaker
Leonardo da Vinci, Mozart, Martin Luther King Jr., Steve Jobs, and so on. These are figures who have put their mark on the world and thus we will never forget them because of it. But now this mechanism of putting your mark on the world weirdly has become democratized. It's available to everyone through blockchain technology.
00:03:50
Speaker
we all have a chance to put our mark on an immutable historical record through decentralized ledger technology. So we really wanted Forgotten Runes to leave a very early mark on this chain and we released a very small collection of what we call shadow hats or just shadows.
00:04:12
Speaker
And there's sort of a commentary on the shadowy character that we all know as Satoshi Nakamoto, who is history's ultimate shadow hat hacker, someone who we all agree has left their mark on the world. So that's something that we did recently, but I think we're just now beginning to see new ways that people are using this Ordinals project.
Inscribing NFTs on Bitcoin
00:04:41
Speaker
There's a lot of excitement about the future of Bitcoin NFTs, but before we get into that, let me explain the building blocks of how all of this works. So content is added to a Bitcoin transaction. For example, a piece of artwork, an audio clip, or a video.
00:04:59
Speaker
And then it's linked to within the metadata of an individual Satoshi. Now a Satoshi is the lowest denomination of a Bitcoin, just like how you have a way is the lowest denomination of Ether on Ethereum.
00:05:16
Speaker
While it's been possible to add content to a Bitcoin transaction for some time, it's the linking of this content's location from a Satoshi that's the main innovation here. This process of linking a Satoshi is known as an inscription. And once inscribed, the Satoshi works as a non-fungible token, an NFT, that can be traded in a similar way to that of an NFT on Ethereum.
00:05:46
Speaker
Here's how Dotter explains things. Right. So there's Bitcoin as like the chain. Then there's BTC as the currency. And then Ordinals is the name of the project and also the software that you use to kind of assign metadata on the Bitcoin chain that creates these, I'm going to call them NFTs, even though, like you said, they don't actually.
00:06:15
Speaker
They actually use the term digital artifacts, which I love the term digital artifacts more than NFTs. I think at this moment, it's a bit of semantics. For all intents and purposes, what they're talking about is NFTs on Bitcoin. The term inscription is a lot like how you might use the term NINT on Ethereum.
00:06:34
Speaker
What's happening is we're actually inscribing this NFT onto a particular satoshi and it uses basically the scripting language that is built within the Bitcoin to do that.
00:06:47
Speaker
While there's been a lot of innovation here, the user experience of interacting with ordinals is, I think it would be kind to say, still very poor and just lacks many of the basic building blocks that will bring these NFTs to the average user.
00:07:09
Speaker
At a high level, there will eventually be no difference, right? You'll have your wallet, which you can use in your browser, and you'll be able to kind of make offers, accept offers, and the software should control all of it behind the scenes for you seamlessly, right? You shouldn't actually as a user have to have too much of a technical in-depth knowledge in terms of what's happening behind the scenes in order to actually use the system.
00:07:35
Speaker
That said, today, part of the reason why it took so long for this to happen and part of the reason why people are so excited about it now is that they actually uncovered a really elegant mechanism for how to attach data like NFTs to individual satoshis.
00:07:53
Speaker
Since its launch, several thousand inscriptions have already been created. And this is only within, I think, two to three weeks. Each one has its own serial number, starting from zero for the first ever inscription made and increasing by one chronologically. So inscription one, two, three, four. And that's all based on the time that it was mined on the Bitcoin blockchain.
00:08:19
Speaker
For example, the inscription that I added to Bitcoin is number 1326, meaning it's the 1326th inscription to ever be made, which was a very fun experience and required a lot of help along the way. But you can kind of see how the numbering, the sequential numbering of these inscriptions
00:08:46
Speaker
could lead to some being deemed more notable and hold a certain level of provenance in the future. Some of the earliest inscriptions are already considered very valuable, right? The inscriptions below 500, below 1,000. So there is a project called Ether Rocks, and someone has made a derivative called a Bitcoin Rocks. And we've already seen some of the Bitcoin Rocks go for over one BTC. So that exchange has happened already.
00:09:15
Speaker
You know, what we are sort of stumbling into is this idea of someone potentially trading one Satoshi for one Bitcoin. But because that one Satoshi has this piece of culture appended to it, i.e. an artwork or something else, suddenly that one Satoshi is
00:09:48
Speaker
What's pretty crazy right now is that while some of these big sales are happening,
00:09:55
Speaker
There's still no marketplace to buy, sell
Marketplaces for Bitcoin NFTs
00:09:59
Speaker
and swap Bitcoin NFTs. You can't just jump into OpenSea or Blur or Magic Eden. It's all been done via OTC trades within Discord groups. When you go into these groups, it's essentially like one person kind of operating as escrow and brokering the deal between two people.
00:10:22
Speaker
This is going to change very soon, but if you are planning on trading, speculating, whatever it may be, be really vigilant because honestly, this is an environment that is ripe for scams. While I'm not saying that all of these trades are scams, it is pretty much the best environment you could possibly be dealing in as a scammer. So just kind of bear that in mind.
00:10:48
Speaker
It's really interesting. It's basically speed running the Ethereum NFTs in a lot of different dimensions. You see a lot of reflections or echoes of what happened with ETH. For example, when you look back at Punks and you look back at CryptoKitties, it wasn't easy to use those things. Then of course, the people who participated early on now are seen as these like
00:11:13
Speaker
geniuses who have made very well for themselves. And so I think that you're basically seeing the same thing here with ordinals. The tooling is very rough. One of the first things that they're working on is this idea of a trustless exchange. And so there are not smart contracts in the same way to speak of on Bitcoin. But what you can actually do is you can have almost like a multi-sig transaction. It's called partially signed Bitcoin transactions.
00:11:39
Speaker
where what I actually could do is I can sign a transaction saying, oh, I'll offer you, you know, 300,000 satoshis for this one satoshi, which has an NFT inscribed on it, right? I want to buy that from you. And then if you sign that, then you can submit the transaction to the network and then the exchange happens.
00:11:59
Speaker
Interestingly enough, to my knowledge, no one has actually written code to exchange multiple satoshis for one satoshi. Because why would you? You'd assume that the value is the same. But with ordinals, now there's actually a reason for that to exist. And the technology basically is very close to be able to do that. So that's an important piece. Then once you have that, you'll have a website where you can basically organize the inscriptions into collections.
00:12:28
Speaker
where you can make and accept offers, right? You can use a web app to basically create those transactions or at least to help you.
00:12:36
Speaker
Right now, the ordinal software does require that you run a full Bitcoin node, which is like an impossible hurdle for most people. There are ways that you can buy and receive ordinals, but you can't sell or transfer them without a full node. And so, yeah, there are people working already on sort of this light node software that I think we'll see within a couple of months. So you're basically going to see all these tools fall into place probably much more quickly than anyone expects.
00:13:02
Speaker
So things are going to get better from a user experience point of view. And what's pretty clear is that this inscription mechanic for linking content stored on the Bitcoin blockchain to individual satoshis is the key to why this all works. But there's definitely more to this.
00:13:24
Speaker
I mean, why is this different to any other blockchain launching NFTs?
Technical Differences Between Bitcoin and Ethereum NFTs
00:13:29
Speaker
And what's so different about the way this is being done versus on Ethereum? Well, to begin with, unlike Ethereum, where the content that's linked to from an NFT, for example, like the digital artwork, is hosted nearly always off-chain within platforms like
00:13:53
Speaker
IPFS or Arweave. Ordinals, on the other hand, host this content directly on the Bitcoin blockchain. In fact, the entire process is managed end-to-end within the Bitcoin blockchain without the need for sidechains or even any new tokens or token standards, etc.
00:14:12
Speaker
It's worth hammering home this point because, you know, most people don't actually realize this, that on Ethereum, the actual artwork, or whatever the kind of content is, from the NFTs, is nearly always, not always, but nearly always, stored on a completely different platform. Not on Ethereum at all. For example, you may remember that $69 million NFTs sold by the artist Beeple. Well, the artwork,
00:14:42
Speaker
It doesn't actually live on Ethereum. It's hosted on IPFS, the interplanetary file system. The actual NFT on Ethereum simply links to the location of the content and just stores some very basic metadata.
00:14:58
Speaker
If anything were to happen to the IPFS network, well, the artwork would be gone and it would create a pretty awkward situation for the holder of that NFT. Now, this isn't to kind of fud the IPFS network, it's just merely pointing out these are two systems that have a dependency upon one another. With ordinals, it is different.
00:15:20
Speaker
The content, artwork, let's just say, interchangeably, is stored on the Bitcoin blockchain directly. And as long as Bitcoin remains alive, so does the content. There are limitations that come with this, of course. One of those is that Bitcoin blocks have a maximum size of four megabytes, not to uncover the block size debate that's been going on pretty much since we launched this podcast.
00:15:48
Speaker
But that means that content added to Bitcoin can never be greater than this size. But people are still finding innovative ways to use ordinals, and one of my favourites is inscription number 466 that links to a playable version of the classic video game Doom, which is just... it's a great moment. And it's these moments, combined with the feeling that Bitcoin is experiencing a new, important moment in its history,
00:16:16
Speaker
that's capturing the attention of so many. Look at what NFTs did for ETH. I mean, you could argue that NFTs brought ETH to the mainstream because it brought culture, and perhaps more importantly, it brought fun.
00:16:34
Speaker
People love trading NFTs and playing with NFTs. It's more of a gut visceral feeling you get when you buy and trade an NFT. If the Bitcoin community wants to stay this niche community of maxis who just
00:16:52
Speaker
repeat the store of value narrative ad nauseam. I think that the community is going to grow very slowly and painfully. And honestly, I think an argument can be made that that store of value narrative is actually against Satoshi's vision. To my knowledge, Satoshi never talked about store of value, but
00:17:13
Speaker
They did talk about a monetary system built for daily transactions of goods and services.
Impact of Ordinals on Bitcoin Usage
00:17:20
Speaker
And that's what NFTs do. You know, I'll say that like when Dota and I first minted or inscribed our shadows last week, I remember someone in this ordinals discord, he said, wow, I finally have something to spend my Bitcoin on.
00:17:38
Speaker
That comment just hit me like a ton of bricks. This is what NFTs did for ETH. If you want to buy an NFT, you have to buy and spend ETH. And it gives a whole new reason for Bitcoiners to spend Bitcoin. And thus, the network just started seeing a ton of activity. To the Bitcoiners, I think you're going to want this community to come in.
00:18:07
Speaker
Now, the comparisons to what NFTs did for Ethereum will continue to be a narrative pushed by proponents of ordinals. And, you know, I have mixed feelings about this. I think this is really, it's a useful comparison, but I think Ethereum is fundamentally different in what it was designed for versus Bitcoin. So I'm not sure if the narrative is kind of one to one, but I appreciate the sentiment behind it.
00:18:34
Speaker
But I do think there's something that really separates these Bitcoin NFTs from Ethereum NFTs that goes beyond the content, the artwork that is linked to from the NFTs themselves. And this is related to the actual satoshis on the Bitcoin blockchain. So one part, as I mentioned, is the inscriptions.
00:18:59
Speaker
But even before a Satoshi is inscribed, it has some unique value according to Ordinal's theory. And this is kind of based on the idea that actually, you know, Satoshi's themselves have always been non fungible.
00:19:15
Speaker
One of the interesting things about ordinals and one of the like foundations is built on is they called ordinal theory. And we've been talking here mostly around satoshis that are valuable because they have this like this piece of culture, this piece of art attached to them.
00:19:33
Speaker
One of the things that the hardcore ordinal collectors are looking for are actual rare satoshis within the system themselves. There's actually like a numbering system where they're looking for what halvening was the satoshi in? What block of the halvening was it in? What was the
00:19:53
Speaker
What position within the block and what transaction within the block was that Satoshi actually placed? And so there are a group of people, small but growing, people who actually hunt for these sort of like rare Satoshis within the chain, almost like searching for a rare truffle or something. And there's no art attached to it either. They're just like, oh, this was a Satoshi that was like, you know, the first sat in a block of like the second difficulty period.
00:20:21
Speaker
It's this part that gets me quite excited because it is a completely unique system that we haven't seen before in crypto. It's simple to understand, but clearly brings a whole new dynamic for projects, builders, creators to innovate on top of. But, you know, it's fair to say that not everyone's as excited as I am.
00:20:50
Speaker
A loud section of the Bitcoin community has been very against the Ordinals project.
00:20:56
Speaker
I think that the fraction of Bitcoiners who hate this idea of NFTs is actually probably quite a vocal minority. In my DMs, I've seen quite a lot of folks who have been involved in Bitcoin for a long time, and they quietly think like, this is the most I've been excited about Bitcoin in years. I think that more fundamentally,
Art and Value on Bitcoin Blockchain
00:21:21
Speaker
One of the stories that always was passed around when people were trying to get the idea of Bitcoin in the first place was this idea of, are you familiar with the rhyestones from the island of Yap, where it was basically this island that we discovered that they used these giant stones that no one could move as this store of value. A lot of the objections towards NFTs on Bitcoin is like, I don't want my money to be interesting. I just want it to be like a big dumb rock.
00:21:47
Speaker
I just want it to be this very reliable, consistent store of value. But I think that they'll say, I don't want the blockchain to be used for anything that's not a financial transaction. And I totally think that storing art on chain and using art as
00:22:07
Speaker
using the chain as a record of ownership and for a mechanism for exchange of pieces of artwork is absolutely a financial transaction as well as an artistic one. So I just don't think that there's any kind of like absolute reason why these sorts of transactions couldn't happen on Bitcoin.
Future of Ordinals and Bitcoin
00:22:22
Speaker
love it or hate it, Ordinals is here and it's probably here to stay. We'll be keeping a close eye on the developments happening in the space and be sharing what we find all along the way. It is an exciting time and my hope is that this just brings a new cohort of builders to Bitcoin and they will create unique use cases and applications that can onboard a new cohort of users.
00:22:50
Speaker
I just want to extend a big thank you to Dollar Now for the help pulling this episode together. And if you want to learn more about Ordinals, go check out ordinals.com. That's where you can kind of view all of the inscriptions that have been added to the Bitcoin blockchain. You can read full documentation to get yourself started.
00:23:07
Speaker
will be sharing out and I'll personally certainly be sharing out a lot around Ordinals and Bitcoin NFTs on my personal Twitter and also on my blog mhb.xyz but I would recommend everyone to go check things out and as I mentioned earlier on the episode please do approach any kind of trading in this space with caution until more trustless marketplaces and infrastructure has been built out.
00:23:46
Speaker
Thanks for listening. If you loved this episode and want to show your appreciation, why not subscribe on Spotify, iTunes or your favorite podcasting platform and leave us a positive review. You want to catch up on all of the previous episodes, why not visit decryptincrypto.xyz, follow us on Twitter at Decrypto Podcast. And if you'd like to be a guest on the show or just want to leave us some personal feedback,
00:24:11
Speaker
email us at podcast at decryptincrypto.xyz.