NFTs are Non-Fungible Tokens. These are unique digital assets that people can buy/collect and trade. You might have heard of some of these during the mania when a handful of projects skyrocketed in price in 2021. Most of these are pictures of something (there's a lot of cartoon animal pictures). Because these are pictures stored on a blockchain, you can digitally prove ownership.
Ethereum helped make these popular, although the original NFTs were on Bitcoin (Google Rare Pepes). In late Jan/early Feb 2023, Casey Rodarmor developed a method of identifying individual satoshis and inscribing data to them, and Ordinals were born. NFTs are flooding back to Bitcoin thanks to this creation. Ordinals is based on the idea of the sequence or order of satoshis (the smallest unit of a bitcoin) based on when they were created. The Ordinals Theory ascribes rarity to sats mined in the first block during a halving period. This is kind of like deciding certain coins are more valuable based on when/where they were created. Along with this counting methodology, users are inscribing data onto an individual satoshi. Ordinals Wallet is watching the sequence as they are being inscribed, and people are getting excited and assigning value to the earlier ordinals. As I type this on March 21, 2023, there have already been >560,000 ordinals minted.
Many of the Bitcoin purists are insisting that this is bad for Bitcoin and that it should or is going to go away.
If you think that Ordinals is going to go away, I believe you are mistaken. The rules of Bitcoin allow NFTs, and people are gonna trade them, because humans like to collect things, and they like to show off what they have collected. It's as old as time.
This past week, DeGods minted some NFTs. I didn't buy one (they were 0.333 BTC), but I did look at the project and some really neat things occurred. Firstly, they minted all the art on the Bitcoin Blockchain prior to the sale. Look at block 776408:
That block is perfectly filled because they coordinated with a miner in advance (Feb 13, 2023) to get all their art on chain in the same block. There was an auction mint that occurred March 17 2023, and was finalized at block 781279. Let's take a look at that block.
If you didn't know, the way you get your transaction into the bitcoin blockchain ahead of others is to pay the miners (in bitcoin). Prior to ordinals, fees were usually around 2-3 sats/vbyte. Ordinals have moved that price up, and often it is in the 10s, sometimes 20sats/vB.
The DeGods sale actually settled at 42 sats/vB !!! The block after that was the same, and then after the demand surge was over, price went back down. (Fees at the top in the blocks.)
Take another look at that particular block. The total fees in the block were 3.552 BTC and the block reward (subsidy) was 6.25, so that particular miner (AntPool) earned 9.802 btc for that block. Ordinals are a value-add to the ecosystem. They are NOT going away.
If fees become higher and prohibitive to trading NFTs/Ordinals, I do suspect someone will create an innovation to store a function on chain that calls to an offchain asset. All this excitement over ordinals only started in early February. Keep that in mind as we go forward. This is REALLY early.
A point of clarification and/or confusion is the interchangeability of the words Ordinal and Inscription. Technically, Ordinals are the number sequence of the satoshis in terms of their rarity, and Inscriptions are the data written into the blockchain. However, you'll see people using these words interchangeably, I suspect it will be quite a while before consensus is reached on the nomenclature.
One of the things that this increase in fees creates is a reason for miners to keep mining bitcoin as the block reward diminishes with time. Currently, miners collect 6.25 per block + fees, but that reward is cut in half in 14 months or so, and then every 4 years thereafter. We collectively will need a reason to ensure miners want to continue to participate in the network to help secure it. Transaction fees rising is one way to help motivate them to participate.
And, for full disclosure, I've bought a small number of NFTs, but not a DeGod for 1/3 bitcoin and neither a Twelvefold which minted for 2.25 btc! Mine are much cheaper :). Here's one that I bought.
One final point, those are >560,000 transactions in the last 2 months on the bitcoin network that undoubtedly would not have occurred before Ordinals was launched. That is value changing hands. That is enthusiasm and excitement moving into the Bitcoin network.
If you want to learn more, jump in on Twitter with me.
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