Bitcoin NFTs challenge Blockchain’s biggest use case: money

There has been a lot of fuss and questions lately about Ordinal Inscriptions.

So what are they? The simple answer is that ordinals are NFTs that you can create on the Bitcoin blockchain.

But Orindal Inscriptions are not your ordinary NFTs. Unlike Ethereum NFTs, which rely on off-chain metadata that can be changed, Ordinal Inscriptions allow all data to be written directly on-chain.

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Those in favor of change believe Ordinal Inscriptions could cause an important shift in the bitcoin community and improve the technology behind NFTs.

But many questions I’ve received from clients boil down to “is this good or bad for bitcoin?” and “will this interfere with the usability of it.”

Despite the potential benefits of Ordinal Inscriptions, there has been much debate as to whether they are a “good use” of block space.

The challenge has been that as more Ordinals are entered, the cost of bitcoin transactions has increased. That’s because Ordinals introduce additional, non-financial data on the Bitcoin blockchain that lowers confirmation times on the chain. This includes images, sound clips, even games.

Those who are not in favor of Ordinals see this as an obstacle to Bitcoin’s ability to scale and reach full global adoption.

Inscribing non-fungible properties to Satoshis, the individual increments of Bitcoin, could challenge Bitcoin’s use case as primarily money.

Ordinals challenge the fungability of Satoshis in the bitcoin network. All Satoshis should be equal or it starts to lose a significant property of money.

But ordinals can change the value of these monetary units. Take rare collectible coins as an example: Although a dime may have a face value of exactly one cent, the design and year of mintage may make it worth a dollar or more in the eyes of some observers.

This debate about whether these individual entities must be considered equal is playing out before our eyes, and I think it needs to be understood.

Bitcoin is money, and it is the biggest and most important use case, affecting the most people in the world. That’s why I think that ordinals and other use cases both known today and yet to appear will remain niche.

I see this as an exciting period – but one that, as many fads do, will fade. I don’t see Ordinals being the desire for many to use bitcoin’s block space.

Bitcoin is money. And in my opinion, any changes to the protocol should be slow and methodical.

One of the biggest but baseless claims I often hear is how bitcoin doesn’t evolve or change.

Now, are there kernels of truth in that? Secure. You “move fast and break things” as you work to build the next global monetary system; we leave that to VC startup tech firms.

However, there have been some upgrades that demonstrate the need and value of change. The Lightning Network, for example, can accelerate bitcoin trading and daily use.

Inscriptions are another example of attempts to change the blockchain. Inscriptions became eligible in bitcoin blocks with the latest upgrade to the protocol called Taproot.

Ultimately, the beauty of Bitcoin is that it is permissionless and the ultimate free market to use. And this is what promotes change.

At the same time, free and open markets will dictate whether Ordinals are in demand and valuable. The permissionless nature of bitcoin allows this competition to play out.

Ordinals are not an attack on bitcoin, but can restart conversations with a hard or soft fork. I see a hard fork as Ordinal’s most painful and trying result.

As an advisor to clients with bitcoin and questions about ordinals, the main takeaways revolve around what makes bitcoin unique. Most, if not all, other cryptocurrencies are decentralized in name only – Bitcoin is not.

However, due to Bitcoin’s decentralized nature, developers are free to change Bitcoin’s current ruleset. If the demand is there and the changes result in divisions in bitcoin holders and the community, investors will have a choice about what to do with their money.

If we see a hard fork, any new tokens or projects will go to the customers and they can then decide whether to keep, sell or buy.

Although it may seem scary, I doubt that Ordinals will create so much friction and division within Bitcoin. Even if it did, one could be passive and simply let market forces play out. Being an open, permissionless protocol allows moments like this to happen, and it’s healthy in the long run.

Regardless of opinions on “right” or “wrong”, it’s good to see the conversations and debates happening about Ordinals. It allows bitcoin to test its resilience and robustness. We will continue to have these conversations as Bitcoin continues on its path toward global adoption.