Bitcoin Ordinals can lift the entire crypto ecosystem

Let me cite two reasons why over the past month, bitcoin has risen to its highest level since mid-August, outperforming all other major assets in both crypto and traditional markets.

Together, they highlight the unique advantage that Bitcoin derives from its status as the oldest, most established and most decentralized protocol and from a surprising new opportunity to exploit it.

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Many “maxis” may celebrate this moment as proof that their beloved Bitcoin is proving itself to be the only one – perhaps except for those who see the addition of “JPEG”to its blockchain as an abuse of Satoshi’s original intention to form a new monetary system.

But I never thought it constructive to view the crypto landscape through maxis’ zero-sum game lens. And right now, while it may seem like they should be riding a victory lap, it’s possible to look at the same landscape and see a much more integrated, constructive future for all crypto protocols emerging from this moment.

Over time, I see a situation emerging where Bitcoin acts as a kind of uber-anchor for everything. Its role will be to be a sort of ultimate “layer 0” record of truth. Meanwhile, Ethereum and other smart contract platforms can take on higher-level functionality, each specializing in different types of transactions and data processing that the rather clunky, limited function the Bitcoin blockchain is not built to perform. It will need greater chain operability, but there are many people working on it.

Most other layer 1 crypto protocols – meaning base-layer blockchains with their own native tokens – are based on a proof-of-stake consensus mechanism, including Ethereum. As the Securities and Exchange Commission shut down Kraken’s staking service in the U.S., signaling that it will be difficult for all but the most sophisticated retail investors in the U.S. to participate in the blockchain’s validation network, investing in ether and other such tokens appears likely. the domain of institutional actors.

This is not ideal – especially because of the risk of censorship and regulatory capture that comes from centralizing stake pools in corporate hands. But this is where, in a world of integrated, interoperable transactions across chains, Bitcoin’s base layer of immutable record-keeping can act as protection against such threats.

Bitcoin’s broad, geographically dispersed community of users and miners ensures that governments will have a hard time shutting it down. The fact that Satoshi’s absence has left the authorities without a lead developer to sue also puts this in a different realm than all the other protocols for which there are largely identifiable founders.

The bottom line is that Bitcoin has proven to be sufficiently decentralized that the US government has admitted that the leading cryptocurrency is not a security. In this new, politically tense environment, this gives it a distinct advantage.

This is also why the Ordinals protocol is so important. The bitcoin blockchain now has a purpose beyond peer-to-peer payments, whose mainstream appeal has always been undermined by regulation of the on- and off-ramps of the banking system and by bitcoin’s own price volatility. Now that it incorporates NFTs—the most important crypto innovation since Bitcoin itself—the Bitcoin blockchain is engaged with digital content creators, the backbone of the Internet economy. It will unleash a stream of new creative innovation in the space.

When that happens, it will drive others in the crypto community to build better bridges and integrations between Bitcoin and alternative protocols. It could accelerate work already being done by developers working with Cosmos, Polkadot, Polygon and other bridging and interoperability protocols to build mechanisms to move assets across chains and reduce crypto industry participants’ reliance on single layer 1 blockchains.

Just this week, the NFT Capsule team at blockchain services company Bloq launched “Ordinary Oranges,” a collection of Bitcoin-encrypted NFTs available on the Ethereum network that have a “burn” option that returns the NFT to the Bitcoin chain.

The beauty of such arrangements is that users can have the security of a Bitcoin-proven asset, while taking advantage of the greater programmability of decentralized applications and layer 2 protocols running on the Ethereum virtual machine, as well as the deeper liquidity found in Ethereum-based NFT marketplaces such as OpenSea.

I see this kind of development leading to a more integrated crypto ecosystem where different protocols perform different functions, with everything anchored in a 15-year-old deeply established proof-of-work blockchain that no US regulator can shut down.