The Bitcoin blockchain doesn’t generally take up a lot of column inches these days. It doesn’t need to. It just quietly gets on with its intended job, providing a secure peer-to-peer network to facilitate the transfer of value in a decentralized and trustless manner.
At least, that’s what it was quietly doing until developer Casey Rodarmor unleashed Bitcoin Ordinals on the world back in January in an attempt to ‘Make Bitcoin fun again’. The idea behind Ordinals is pretty simple, although arguably it throws a spanner in the works of one of Bitcoin’s core facets, its fungibility.
There will only ever be 21,000,000 bitcoin in existence, and each bitcoin is split into 100 million satoshi. This means that there will eventually be 2.1 quadrillion satoshi, which would all have had equal value and been completely interchangeable… until January.
Ordinals gives each of the 2.1 quadrillion satoshi unique identifiers, based on the order (hence ordinal) in which they were mined. This means that all satoshi are no longer equal, as certain ordinals may be more desirable to collectors than others.
Rodarmor suggested that rarity levels could be defined by periodic Bitcoin events. The first satoshi in a block (approximately every ten minutes) would be uncommon, while the first in a difficulty adjustment (2016 blocks, or around two weeks) would be rare.
The first satoshi in a halving (every four years) would be epic, and the first satoshi in a cycle (once every six halvings when the halving and difficulty adjustment coincide) would be legendary. The very first satoshi created in the genesis block would be mythical (and not accessible anyway), and all other satoshi would be common.
Other desirable attributes may include interesting identifying numbers (squares, cubes, palindromes, etc), satoshi related to historical events, or anything else that a collector may deem to make a satoshi ‘exotic’.
Which is all harmless enough you might think, although it will likely make me check for any potential permutation of rare and/or exotic satoshis that I could sell on to the greater fool before I cash in any BTC for face value in the future.
However, Rodarmor also found an interesting loophole introduced in the 2021 Taproot upgrade, which allows users to inscribe any particular satoshi with an image or any other type of data. Previously this function had allowed miners to add text inscriptions of up to 80 bytes to bitcoin transactions.
This loophole essentially enabled what has become the latest iteration of NFTs on the Bitcoin blockchain, although Rodarmor prefers to call them digital artifacts, as the metadata is held on-chain, making them arguably superior to Ethereum NFTs, most of which rely on off-chain data held on third-party servers.
Where an Ethereum NFT is often little more than a link to an external image or other file, Bitcoin Inscriptions and Ordinals could be considered more similar to a doodle, signature or message written on an individual dollar bill with a particular serial number.
Cue a wave of all the predictable punks, apes, MS Paint ‘artworks’ and Pepe memes that Crypto Bros for unknown reasons find hilarious, being inscribed onto the Bitcoin blockchain (or at least the SegWit part of it) for all eternity.
Cue also the equally predictable backlash from Bitcoin maximalists, complaining that such frivolities were taking up valuable space on the blockchain and getting in the way of Bitcoin’s stated purpose, to be a superior form of money.
And of course cue the almost inevitable inscription of an obscene pornographic image, which can now never be removed from the Bitcoin blockchain.
[As an aside, while it may seem fairly harmless to immortalize an early internet shock-meme image on the blockchain for all time, the ‘joke’ takes a far darker turn if somebody decides to inscribe a piece of revenge porn, for instance.]
Anyway, back to Ordinals and Inscriptions, the supporters claimed that they would drive Bitcoin adoption and provide a stream of low-fee transactions to fill up blocks when the network is less busy. The detractors said that they were already increasing fees for ‘genuine’ bitcoin transactions and leading to unnecessary chain bloat.
But if the OG Bitcoin maximalists were foaming at the mouth over Bitcoin NFTs, there was infinitely worse still to come.
In March 2023, pseudonymous developer domo decided to try a little experiment to see if they could create off-chain balance states using only Ordinals and Inscriptions, and thus the BRC-20 fungible token standard was born.
The tokens don’t actually exist on-chain, but each ledger entry relating to their creation and movement is inscribed into an ordinal satoshi and resides permanently on the Bitcoin blockchain.
Want to create a new token? Inscribe a satoshi with a JSON ‘deploy’ function. Want to mint some of those tokens? Inscribe another satoshi with a ‘mint’ function. Want to transfer those tokens?… well you get the idea.
The balance state is then calculated by aggregating all of the JSON inscriptions, and as an experimental proof-of-concept it worked perfectly reasonably. However, as a disclaimer in their gitbook depository, domo stated, “These will be worthless. Use at your own risk.”
Sadly, such warnings have a tendency to fall on deaf ears with a crypto crowd hypnotized by the dollar signs in front of their eyes, and this week the total market cap of all BRC-20 tokens reached $1 billion.
Virtually all of this consists of meme coins, with the current top five being ORDI, VMPX, PEPE, DOMO and MEME. Because what could be funnier than gambling real money on a quasi-real off-chain token based on an in-joke, that somebody has literally created from thin air?
Sadly for those who rely on the Bitcoin blockchain for actually transferring bitcoin, notably those in African and Latin American countries, this additional network activity has pushed transfer fees significantly higher, and led one Bitcoin core developer to ‘declare war’ on what he describes as network spam.
Miners, however, are rubbing their hands with glee, as the Ordinals and BRC-20 craze temporarily pushed transaction fees above the block rewards for the first time since 2017.
While some see the latest craze for NFTs and BRC-20 tokens as breathing new life into what is generally a fairly staid network, others see it as a distraction from Bitcoin’s key aim of becoming better money. For now, the jury’s out, but we shall continue to Observe as the discussion continues.