NFTs on Bitcoin – How Word of mouth is shaking up the non-fungible token landscape

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(Kitco News) The non-fungible token (NFT) community is undergoing its most notable evolution in years thanks to the emergence of the Ordinals protocol, a project that facilitates the tokenization of assets on the Bitcoin (BTC) blockchain.

Ordinals use an open-source software protocol known as Ord that assigns unique identities to individual satoshis (sats), the smallest units of bitcoin. Using the Ord software, the Ordinal protocol adds data to rate and allows software users to track it based on a system called ordinal numbers.

The Ord system inscribes each set of content, thereby creating bitcoin-native digital artifacts. Users are able to transfer and trade these uniquely identified satoshis just as they would any regular bitcoin unit, and unlike most Ethereum NFTs, ordinals are stored entirely on-chain.

The Ordinals protocol was launched by bitcoin developer Casey Rodarmor on January 21. The functionality of the protocol was made possible by the SegWit and Taproot soft fork upgrades from 2017 and 2021, respectively, which helped increase Bitcoin’s block capacity.

Rodarmor’s goal was to create a system for numbering satoshis that would give each a unique serial number that could be used to track each satoshi across the blockchain. He wanted to ensure that the process was completely Bitcoin-native and did not require the use of sidechains or separate tokens.

By assigning a unique identifier to each satoshi, Ordinals enable a way to transform inherently fungible satoshis into non-fungible objects. This identifier makes them completely unique, just like NFTs.

The January 21 launch of Ordinals coincided with bitcoin’s rise above $22,000 for the first time in 2021, which occurred on January 20. Bitcoin continued to trade sideways over the next few weeks as traders digested the 40% gain the top cryptos experienced. in January.

Increased traffic on the Bitcoin network

Since the project’s launch, activity on the Bitcoin network has been on the rise. In the post-launch period, Bitcoin’s average block size jumped from the normal 1.5-2MB average to between three and 3.5MB in early February.

Bitcoin average block size. Source: Glassnode

Data provided by BitMEX Research shows that in some cases Ordinals’ data has comprised more than 50% of Bitcoin’s block space.

[2/2] Ordinals data continues to consume a large percentage of the Bitcoin block weight, often over 50%

Data over rolling 40 block periods pic.twitter.com/7ffJ44JMRM

— BitMEX Research (@BitMEXResearch) 13 February 2023

On-chain data provider Glassnode referred to the launch of Ordinals as a “new and unique moment in Bitcoin history, where an innovation generates network activity without a classic transfer of coin volume for monetary purposes.” The protocol has resulted in a growth of the bitcoin user base and “an upward pressure on the fee market from uses beyond the typical investment and spending cases.”

Further evidence of the impact Ordinals are having can be seen in the number of Bitcoin wallets with a non-zero balance, which recently pushed to a new all-time high of 44.06 million addresses, according to Glassnode.

Bitcoin addresses with a non-zero balance. Source: Glassnode

“Overall, this shows that there has been a short-term increase in Bitcoin network usage recently, but it hasn’t necessarily moved in terms of coin volume,” Glassnode wrote. “The primary source of this activity is due to Ordinals, which instead of carrying a large payload of coin volume, instead carry a larger payload of data and new active users.”

And to the delight of crypto enthusiasts, the increase in network usage has not led to an increase in fees since a “new lower limit of transaction fees required for block inclusion” has been reached since Ordinals launched on January 21, Glassnode said.

So far, there have been over 78,400 NFT-like images and videos entered so far. Data from Dune Analytics shows that images are the most common type created, followed by text.

Ordinals by type. Source: Dune Analytics

Overall, the launch of Ordinals has been welcomed with open arms by the crypto community as it has added yet another field of use to the Bitcoin network and expanded the NFT ecosystem into the world’s top cryptocurrency network.

“Bitcoin continues to be on the rise due to the renewed interest in Bitcoin productivity. Ordinals, through taproot scripts, are a solid example of uncensored demand driving BTC,” said Rena Shah, head of operations and strategy at Trust Machines . “Given the changing regulatory environments, bitcoin remains one of the only asset classes that is viewed as a commodity. The interest in NFTs and other Bitcoin DeFi use cases is likely to drive larger institutions to continue to double down on Bitcoin for its long-term potential.”