OODA Loop – The Future of Bitcoin and the Exponential Growth and Risk of Ordinary Inscriptions
Bitcoin-based ordinary inscriptions are the “new, new thing” and an opportunity to frame and make more accessible issues around the design, quantification and measurement of exponential innovation.
To start: the recent growth figures for what are being described as the “NFTs of Bitcoin” – Ordinal Inscriptions aka Ordinals – from Jason Nelson at Decrypt: “On Monday, February 13, Inscriptions using Ordinals passed 100,000 as users flooded the network with images, video games, and other content.” (1)
Additional calculations for recent and future exponential growth of ordinary inscriptions in the bitcoin blockchain:
Ordinals are currently being entered at a rate of:
212 / hour
5,088 / day
152,640 / month
1,857,120 / yearIf this rate continues, we will cross 100,000 inscriptions on February 24th and 1,000,000 inscriptions on August 20th 🤯
— Leonidas.og (@LeonidasNFT) 8 February 2023
Comparing numbers @CounterpartyXCP (CP) assets to #Ordinals
CP: 124k tokens (since Jan 2014), mostly semi-fungible, few 1/1s
Ordinals: 58k (since December 2022), all 1/1s pic.twitter.com/rHr3zXTDNt
— Doggfather (@DoggfatherCrew) 11 February 2023
Today, Bitcoin reached the #2 position on our fees and earnings dashboard, having accumulated $2,552,183 in gas fees paid by users in the last 24 hours. This is the highest amount since the beginning of 2023 pic.twitter.com/EkxztRZMAI
— DefiLlama.com (@DefiLlama) 3 February 2023
What are Ordinals?
Our friends at Ark Invest describe the rise of Ordinal Inscriptions:
“With the launch of the Ordinals protocol, the Bitcoin network can now support non-fungible tokens (NFTs)1 directly on the chain. Users can enter images and other data in satoshis, the lowest denomination of bitcoin.
Thanks to two Bitcoin software upgrades – Segwit in 2017 and Taproot in 2021 – the Bitcoin network can incorporate new metadata onto the blockchain. SegWit expanded Bitcoin’s block size from 1 megabyte to 4 megabytes, and Taproot increased data limits, allowing developers and users to encode different data types.
To understand Bitcoin Ordinals, consider the analogy of the dollar: just as 100 pennies make up $1, 100 million satoshis make up 1 bitcoin. Similarly, just as one can engrave a design on a dime, bitcoin owners can “etch” satoshis, thanks to BTC Ordinals.
To date, users have created more than 100,000 Ordinals on the Bitcoin blockchain, some of which have received large prizes. Ordinal Punks, a spin-off project from the pioneering Ethereum-based CryptoPunks NFT collection, sold for 9.5 BTC, or ~$218,000. The Ordinals project has sparked intense debate in the Bitcoin community. Bitcoin “purists” oppose it, arguing not only that ordinary inscriptions clog up block space at the expense of valid financial transactions, but that they also jeopardize bitcoin’s fungibility because certain satoshis are worth more than others.
In contrast, Ordinal proponents argue that inscriptions increase demand for block space and generate fees, compensating miners for securing the network. They also cite libertarian, free market principles, noting that the market should determine the optimal use of block space. In response to concerns about bitcoin’s fungibility, proponents liken Ordinals to “coin collections” and note that the market for collectible coins has not affected the dollar’s fungibility. (2)
What now? The exponential growth of block space and content responsibility on the Bitcoin Blockchain
A positive perspective is offered by Yassine Elmandjra at Ark Invest: “In our view, Ordinals has enabled a new wave of Bitcoin users and developers – a net positive. By enabling new types of innovation, Ordinals has rejuvenated developer interest in building Bitcoin infrastructure. During the in the next few months, wallets and marketplaces will likely support Ordinals, expanding the range of Bitcoin use cases.” (2)
OODA Network on Ordinals
Less bullish was a recent conversation during the OODA Network Monthly Meeting, which voiced the following concerns about: the exponential growth of ordinals, the storage capacity of bitcoin, and what it means for stakeholders up and down a bitcoin blockchain added with (and exponentially overwhelmed by ) ordinary inscriptions of a dubious (if not outright illegal) nature.
OODA CEO Matt Devost observed that “this is an interesting development in what to me – until a week or so ago – was a relatively static technology. I didn’t expect much innovation out of Bitcoin other than continuing to grow as a potential value store. And now you have this adaptation that takes it in a different direction.”
Additional perspectives offered by the OODA Network include:
- It’s always been possible with Bitcoin – people have been embedding text and links to images with the current version of Bitcoin – but now there’s the ability to embed images. That will cause all kinds of complications for the technology because people running nodes obviously have a complete copy of the blockchain in their possession.
- What happens if entered images contain illegal material, illegal images or revenge porn?
- What responsibilities do stakeholders up and down the blockchain have for these embedded data types?
- What are the unique identifiers and tracking mechanisms for the inscribed data on the bitcoin blockchain?
- What is the risk to organizations running nodes that have a complete copy of the blockchain that includes ordinary inscriptions with an exponentially increasing volume (such as illegal material, classified documents and/or illegal images)?
- Am I as a security clearance person barred from running a blockchain node because I store classified documents in a way that is not approved or legal?
- Sometimes these technologies adapt and evolve in ways that are not expected. From a bitcoin perspective, what if the blockchain moves away from a store of value to a storage of information as a priority?
- Finally, if you look at storage utilization and bitcoin, it’s on an exponential curve, so the storage blocks fill up that much faster – at potentially exponential speed – which of course increases transaction costs and makes the miners very happy. . But what are the long-term risks and unintended consequences of this need for storage? And, as with all risks and threats, what are the parallel opportunities that will be created by this technology?
Decrypt’s Nelson offered the following:
So you want a Bitcoin ordinal?
Start with a Bitcoin full node, then install…no, no.
For the past year, we’ve focused on making the best creator tools possible.
Today, we are launching ordinary inscriptions without code to anyone with a BTC address.
🔗 https://t.co/WQzKZUWMw1
— Gamma.io (@trygamma) 9 February 2023
Hiro Systems announced on Tuesday that it is rolling out support for Odinals on the Hiro Wallet, and on Wednesday Xverse, a Bitcoin-based online wallet, also launched support for Bitcoin NFT. (1)
We have started rolling out support for Hiro Wallet for Bitcoin, NFTs and Ordinals for a true cross-protocol Bitcoin Web3 experience. https://t.co/OAVriTraFq
🧵 A thread with details… #bitcoin #web3 #stx #nfts #ordinals pic.twitter.com/SiWrIluFhk
— Mark Hendrickson | mark.btc | Hiro Wallet (@markymark) 14 February 2023
William M. Peaster of Metaversal (a bankless newsletter) offered this insight (pro and con):
- “Ordinals has been met with criticism from some hardliner Bitcoiners, but is being hailed by others as potentially revolutionary for the future of Bitcoin’s NFT scene.
- New NFTs increase transaction fee income for Bitcoin miners, potentially indicating a future where cultural activity supports the network.
- Inscriptions are stored exclusively on the Bitcoin blockchain, making them always traceable and x7 cheaper to create than on-chain Ethereum NFTs.
- Onchain Bitcoin NFTs are becoming more popular in the Bitcoin ecosystem, driven by the need for a teeming blockchain market to secure the network as BTC block support declines.
- Ordinals are seen as a step in the direction of a teeming blockchain market on Bitcoin, despite opposition from some hardliners.
- Bitcoin’s declining block support would eventually pose an existential crisis for Bitcoin if a booming, organic blockchain market did not take hold of the chain. Funnily enough, the emergence of Bitcoin Ordinals NFTs is the first such indication in recent memory that such an organic blockchain market can actually came into being and it is entirely through the latest Bitcoin native version of NFTs.
- These experiments because they represent the boldest opportunities yet to break Bitcoin out and evolve it from the grips of “old guard” hardliner Bitcoin OGs, many of whom believe Bitcoin NFT is spam and have been an anti-progress presence in the crypto-economy for years now. (3)
About the OODA Loop Exponential Innovation Series
Designing, quantifying and measuring exponential innovation
The OODA Loop: On Exponential Disturbance
The Future of the Internet and Artificial Intelligence: Non-fungible Tokens (NFT) and AI-generated art
OODA Loop 2022: The Global Crypto and Digital Currency Initiatives Series
