The BRC-721E enables the transfer of NFTs from Ethereum to the Bitcoin Blockchain
[gpt3]rewrite
On Monday, the collaboration between Ordinal’s market and Bitcoin Miladys gave birth to a new smart contract called BRC-721E. If the nomenclature looks familiar, it ties to Ethereum’s ERC-721 smart contract standard for minting non-fungible tokens (NFTs).
In contrast, the ERC-20 standard is reserved for common Ethereum-borne altcoins such as MATIC, DAI or PEPE. Therefore, the new BRC-721E has a special function, bridging Ethereum NFTs (ERC-721 tokens) to the Bitcoin network (“B” in BRC), which then become Ordinals.
BRC-721E Bridges Brings Ethereum NFTs to the Bitcoin Blockchain
In both cases, ERC or BRC, “RC” stands for Request for Comment. In other words, call a function on a smart contract to do something. In the case of tokens, it requires addresses and their balance, colloquially known as a token transfer.
The BRC-721E brotoken turns NFTs into Ordinals by calling a burn address on Ethereum, meaning users send their ERC-721 NFT to an unrecoverable wallet, with the ETH gas fee paid. In turn, the BRC-721E provides Ordinal inscription on the Bitcoin network as a single, irreversible on-chain inscription request.
Because these requests can go unfulfilled, someone else can make an inscription on the users behalf so that they don’t have to use rate (100 millionths of 1 BTC) on their side as a fee. Once bridging is complete, the NFT becomes visible on Bitcoin’s NFT marketplace – ordinals.market – with full metadata available.
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Why did Bitcoin inscriptions become controversial?
Since the launch of the Ordinal protocol in January, it has caused much controversy. Should the Bitcoin network offer additional utility in addition to sound money? What if the popularity of a new tool clogs the network?
Predictably, the Bitcoin network overloaded, quadrupling transaction fees. Some Bitcoin maximalists have even framed this development as a denial of service (DoS) attack, as it became possible to spam the network with inscriptions to make it costly. Some core developers even suggested canceling the code that made Ordinals possible.
However, all that happened was a glimpse into Bitcoin’s future if it was adopted globally. After all, transaction fees would rise if the Bitcoin network brought in millions of users with no Ordinals in sight. This is why we are likely to rely more on layer 2 scalability solutions.
Just as Ethereum relies on Optimism, Arbitrum and Polygon, Bitcoin relies on the Lightning Network to alleviate congestion issues.
New Bitcoin market provides new source of income
After the drop in Ordinals traffic, which resulted in over 500,000 unconfirmed transactions in mid-May, BTC transaction fees returned to the normal of around $2. However, Bitcoin miners had a field day in late May. Due to so many inscriptions waiting in the mempool, miners could increase fees and set new priority levels.
As a result, Bitcoin transaction fees, as a percentage of total miner earnings, increased to 14.3% as of May 29. According to The Block’s Data Dashboard, this is the highest since April 2021.
Nevertheless, NFT trading volume dropped like a rock from its heyday in January to May 2022.
NFT/Inscriptions volume down
OpenSea (blue) previously held over 70% market share dominance in the NFT market, and appears to be pulling back against newcomer Blur (orange).
In addition to NFTs being inherently speculative, the high-quality AI image generation likely puts a damper on the concept of entering unique art into the blockchain. If such AI apps were widespread back then, Beeple would hardly have sold their artwork for $69 million.
When it comes to Bitcoin Ordinals, demand is also surging. So far, the Bitcoin network has hosted over 10.2 million inscriptions, incurring ~$44.2 million in cumulative fees. Compared to the first half of May, weekly registrations fell by -85%.
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Do you think Bitcoin inscriptions will eventually be code canceled or will this be a new market? Let us know in the comments below.
About the author
Tim Fries is the co-founder of The Tokenist. He has a B. Sc. in mechanical engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate in the investment team at RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
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