This month’s debut of the Ordinals protocol, which stores NFTs on the Bitcoin blockchain, is driving a wedge between Bitcoin purists who say the blockchain should be restricted to financial transactions, and those who see the network as large and versatile enough to host a range of use cases – even if that means meme-themed art.
Ordinals creator Casey Rodarmor says the protocol uses “inscriptions,” or arbitrary content like text or images that can be added to sequentially numbered satoshis or “sats” – the smallest units in Bitcoin – to create unique “digital artifacts” that can be held and transferred across the Bitcoin network like any other sats.
Ordinals, in its current form, wouldn’t be possible without Bitcoin’s 2017 Segregated Witness (SegWit) upgrade and the more recent 2021 Taproot upgrade. SegWit helped scale Bitcoin by introducing a block field to hold “witness data” – signatures and public keys for Bitcoin transactions. Potential vulnerabilities forced developers to impose limits on the size of that data. When Taproot came along, it resolved those security concerns, allowing the old SegWit restrictions to be removed and paving the way for large chunks of NFT data to be stored on-chain. Turns out it’s the perfect foundation for Ordinals.
The new protocol has reignited an age-old debate on whether Bitcoin should be used for non-financial purposes. In 2010 the pseudonymous inventor of Bitcoin, Satoshi Nakamoto, answered with a resounding “no.”
Long before Ordinals, a few old school Bitcoiners floated the idea of incorporating a domain name system (DNS) into Bitcoin. The project, dubbed BitDNS, was quickly shot down by Satoshi.
“Piling every proof-of-work quorum system in the world into one dataset doesn't scale,” Satoshi wrote, sealing the fate of BitDNS which eventually morphed into a separate chain called Namecoin.
With that as the backdrop, some members of the Bitcoin community are characterizing the NFT project as an “attack,” even as others move to embrace it.
“My response to that is, you know, Bitcoin isn't really for anything, it just exists.” Rodarmor explained. “It has really transcended the intentions of its creator.”
The protocol’s opponents argue that Ordinals will compete with traditional payment transactions by crowding blocks and driving up transaction fees. Rodarmor disagrees. “To that I say, well, there's this fee market pricing mechanism that bitcoin has, that lets people pay the amount of fees according to how valuable doing the transaction is to them,” Rodarmor told CoinDesk in an interview. “And that applies both to financial transactions and to inscriptions. And so, the fee market already handles what people pay for transactions, what they think they're worth and then miners just pick the transactions with the highest fees. So it all sort of fits into Bitcoin’s security and incentive model.”
Satoshi’s chiding didn’t settle the debate and two opposing schools of thought emerged – those who supported non-financial applications on Bitcoin and those who were against it.
Rodarmor has poured gasoline onto that fiery debate with the launch of Ordinals. “It’s also fair game for miners to censor the crap as a form of discouragement,” said Blockstream CEO and renowned Bitcoin cypherpunk, Adam Back, in a now deleted tweet.
He later posted: “We can recognize we can't really stop them and it's a free world with anonymous miners. But we can also educate and encourage developers who care about Bitcoin's use case to either not do that or do it in a prunable space-efficient e.g. time-stamp way.”
Others are in the hard-no camp. Longtime Bitcoin Core developer, Luke Dashjr, told CoinDesk that Ordinals is an “attack” on Bitcoin.
On the other side of the debate, some thought leaders have embraced Ordinals, hailing it as a solution to the ever-decreasing Bitcoin block subsidy – the amount of bitcoin (BTC) a miner wins for solving a block.
“Ordinals = NFTs on Bitcoin. This is good for Bitcoin,” tweeted Bitcoin educator, Dan Held.
The Bitcoin subsidy – the amount of bitcoin awarded to a miner for successfully mining a new data block – gets cut in half every 210,000 blocks (roughly every four years). The current subsidy is 6.25 BTC, which will be reduced to 3.125 BTC at block height 840,000 in 2024. As this amount gets increasingly smaller, miners will become more reliant on transaction fees.
If Ordinal inscriptions do indeed drive up competition for block space, the higher transaction fees may make it worthwhile for miners to continue securing the Bitcoin network, or so the theory goes.
Another Bitcoin Core developer, Peter Todd, says the hullabaloo might be all much ado about nothing.
“This freakout re: ordinals is stupid,” Todd tweeted. “You've always been able to embed as much data as you can pay for in BTC transactions. Taproot didn't change that.”
The surgeon and longtime Bitcoiner, Dennis Pourteaux, wrote a blog post laying out the connection between Taproot and Ordinals.
“Taproot made it basically so that the transaction size is unlimited,” Pourteaux told CoinDesk in an interview. “Save for that it must, of course, be smaller than a block itself.”
Pourteaux is a self-admitted NFT aficionado, but he isn’t taking sides in this debate. He believes the squabbling over Ordinals is a blessing in disguise for the Bitcoin community.
“That's how we keep Bitcoin safe,” Pourteaux said. “By having these technical debates and by putting the smartest minds together and figuring out next steps if any next steps are needed.”
As for Rodarmor, NFTs on Bitcoin are simply decentralized, permissionless fun.
“My vision is that Ordinals is a fun art project, and I hope that it encourages people to learn more about Bitcoin,” Rodarmor said. “To use Ordinals and to make inscriptions requires that you run your own full node. And so I hope that people get interested in running their own full nodes because I think that's good for Bitcoin. There's no sidechain, there's no token, there will never be a token. It just uses plain Bitcoin.”
All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.
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