Interviews
Ordinals: the next stage in Bitcoin's evolution
(Kitco News) - Ordinals, a protocol that allows for the creation of NFTs on the Bitcoin blockchain, has become the latest trending topic in the crypto community as the ability to inscribe individual satoshis (sats) with unique identities holds a variety of use cases for the world’s most secure blockchain.
While this new capability has excited many in the industry, others have voiced concerns about the effects Ordinals can have on things like the fungibility of Bitcoin and the underlying security of its network.
To help address these concerns and other pertinent questions, Kitco Crypto Spoke with Alex Miller, CEO of Hiro, a company that provides tools for developers to build on top of Bitcoin.
According to Miller, the reason that Ordinals has captivated the Bitcoin community is that “it has done something that no one thought of previously and repurposed two separate independent things in a way that no one really expected.”
It has taken ordinal theory, which is a mathematical way of assigning a serial number or unique identifier to every single satoshi, and combined it with the ability to add arbitrary data to transactions – which was made possible by the tap root upgrade – to enable data to be inscribed that can uniquely identify a single satoshi.
With one hundred million sats in every Bitcoin and a total supply of 21 million BTC, that means theoretically, there can theoretically be 2.1 quadrillion uniquely identifiable Satoshis on the Bitcoin network.
In a sense, this process makes each Satoshi non-fungible instead of totally fungible, which is a big deal, according to Miller. “People have been waiting to use Bitcoin to do more than just be money for a while now.” This is the reason that Stacks (STX) was created, which is a platform focused on bringing smart contracts to Bitcoin.
“Bitcoin is the oldest, biggest, and most trusted chain around, so it makes sense to build things on top of it,” Miller said. “This adds a fundamental building block” to the Bitcoin ecosystem.
What really separates Ordinals from other NFTs is the fact that the data is stored directly on Bitcoin and not somewhere else. “It’s not just making a token that it says represents the data,” like other NFT projects,” Miller said. “The data is actually stored on the chain in the transactions, so that data will always be there. It makes it truly uncensorable. This is a really big deal.”
Miller noted that if an NFT marketplace like OpenSea went away, there would be a lot of NFTs that would be lost. “You'd still have this token that represents a pointer to something, but the pointer that it's to would be gone,” he said. This wouldn’t happen with Bitcoin because the data is hard coded on the network.
When asked if this process impedes the ability to exchange one satoshi for another in a fungible manner, Miller said it doesn’t impact that ability at all, so it will be up to the user to make sure that they separate out any imprinted satoshis from their Bitcoin holdings. This is going to require the creation of new Bitcoin wallets that are capable of segregating satoshis and displaying the information that is encoded on them, he added. “There's going to be a lot of user tooling that has to get built around this.”
This process has already begun, Miller said, as projects like Gamma.io, which is an NFT company in the Stacks ecosystem, have already built no-code tools to help users inscribe on-chain using Ordinals.
“And so if you go to gamma.io and you have a wallet already set up, in about five minutes, you can click through four steps and inscribe something on the bitcoin chain,” Miller said. “I mean, that's literally the level of advancement that we've seen in a couple of weeks on this.”
Wallets are only the beginning of what this will lead to as things like full marketplaces for trading ordinals will need to be created along with other innovations that provide additional use cases. “We’ve seen 150,000 plus inscriptions already happen despite the tooling being in its infancy,” Miller said.
While the data that is inscribed on Bitcoin is permanently coded into specific blocks, users will be able to overwrite an ordinal by making a new transaction involving the satoshi in question and writing new data as part of the transaction.
Competing with other NFTs
On the topic of how Bitcoin NFTs will integrate into the broader NFT ecosystem, Miller said that Ordinals will never serve as a one-to-one replacement for Ethereum NFTs.
“It’s very different,” he said. “It’s more powerful in certain ways because you can store the data on the chain. It's less powerful in others. It's harder to work with. It's not meant to do this per se. The storage space is smaller.”
The issue around storage is where layer-two (L2) protocols like Stacks factor into the equation. Bitcoin blocks only have so much capacity, which has been one of the concerns with projects like Ordinals.
“So this is where I think all the layer two solutions, like Stacks, are going to come in and give you a lot more power, give you the full smart contract functionality that you don't have natively on the chain and that people are used to from other crypto ecosystems,” Miller said. Eventually, he sees other projects like Ordinals launching to help expand the Bitcoin NFT ecosystem to a level equal to or greater than other ecosystems.
One positive that ordinals have in their favor is that Bitcoin is the one cryptocurrency that Securities and Exchange Commission (SEC) Chair Gary Gensler has affirmatively said is not a security, “So Bitcoin itself is not going anywhere, and that’s again part of the big reason to be building there,” said Miller. “The more functionality it gets built onto it, the stronger it's going to be and the harder it becomes to get rid of.”
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NFTs on Bitcoin - How ordinals are shaking up the nonfungible token landscape |
Malicious Ordinals
When asked if there was any way to maliciously add something to a satoshi, Miller replied in the affirmative, but said it “depends on what you define as maliciously.”
To the best of his knowledge, “there is no way you could add something to a satoshi that would damage the Bitcoin network itself. You can't put code in there that's going to somehow cause miners to have problems with their machines.”
That said, there will be other ways that nefarious parties will use this technology, such as putting pornography or other illicit images or data onto a satoshi. “Obviously, people are gonna inscribe words that other people don't like. That's just a fact of life and it's part of Bitcoin being an uncensorable network,” he said. “But I think what you'll see is that as this grows more and more popular, filtering will get built at the application layer.”
As time progresses and the technology improves, Miller sees wallet providers and block explorers giving users the option to filter what’s shown based on their preferences.
Future advancements
When it comes to future advancements and other applications of this technology that haven't really been discussed yet, Miller said he was unsure of where things will go, but highlighted the level of excitement around it and how much people have already started building, saying, “I'm sure we're going to see a lot of very cool stuff that most people haven't thought about yet get built.”
Ordinals have already done a valuable service in bringing more attention to the L2 ecosystem for Bitcoin, he said, and has led to an increase in the fullness of blocks that have been minted and an increase in the cost of transactions. This highlights the truth that not everything can be done on the base layer of Bitcoin, which is why things like the Lightning Network were created.
“A lot of people wanted to send payments with Bitcoin, but it was getting too expensive and too slow. So they built a layer two that settles back to it, is secured by it, and can scale to a greater degree.” As Ordinals rise in popularity, it will lead to an increase in demand for these types of services, he said.
The biggest limitation of the system is the four-megabyte block size of Bitcoin, which “is a good limitation in many ways” for Miller, “and just the cost of doing it right.” He went on to note that he had experimented with the Ordinals platform the previous evening and spent “seven or eight bucks on it in fees,” which shows that the fees aren’t that high, especially when compared to the fees charged to mint NFTs on some networks, especially during times of high network congestion.
Still, the ultimate goal is to get the fees “in the range of cents,” which is what is required to mint an NFT on Stacks.
Ultimately, Miller sees the release of Ordinals as a long-term positive for Bitcoin, in general, as it will help drive adoption and lead to the creation of a host of new user tooling and use cases for the top crypto. Institutional investors have already shown a high level of interest in the potential applications for Ordianals and the impact it will have on the crypto ecosystem, he said.
“They are looking for startups who are building on Ordinals or who are building on the layer-twos. They are not going to build their own Ordinal apps tomorrow, but are looking at the potential for how it grows the ecosystem, that’s what they are excited about,” Miller stated.
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