Your guide to Bitcoin, Ethereum and Web 3.0
For nearly a decade, creators have acquired sidechain or layer-2 solutions to link digital art to Bitcoin blockchain. But how this is achieved – or if it should be done at all – has Crypto Twitter up in arms after new project Ordinals has developed a way to add digital elements to Bitcoin transactions on-chain.
NFTs are blockchain tokens that can serve as proof of ownership for assets, including digital goods such as artwork, videos, music files and memberships. While blockchains like Ethereum and Solana are synonymous with NFTs and digital collectibles, many Bitcoin developers have sought ways to bring them to the typical blockchain.
One problem hindering the development of NFTs on Bitcoin is the need for smart contracts. In the minting process, NFTs use smart contracts to assign ownership to the digital asset in the NFT. The smart contract updates ownership when NFTs are bought or sold.
Bitcoin has only limited support for smart contracts.
To address this, previous projects such as Counterparty and Stacks have developed alternative solutions that use a native token for the contract piece, but ultimately settle the transactions back on the Bitcoin blockchain.
Previous examples
In 2014, Counterparty launched the first layer-2 solution for digital assets using the Bitcoin blockchain. The counterparty, which provides the infrastructure for users to create unique tokens on the Bitcoin blockchain, saw it XCP The token reached an all-time high above $91 in 2018, but it has fallen around 97% since then.
Although Counterparty has been overtaken by Ethereum and other popular NFT chains in recent years, Counterparty still has an active community of supporters – and its assets can be linked to Ethereum. More importantly, the counterparty is best known as the home of historical assets like Weird Pepes, who still have significant sums on the secondary markets. In April 2022, an NFT featuring the opening theme of Larry David’s “Curb your enthusiasm” was characterized by the use of counterparty.
Launched in 2017 as Blockstacks, Stacks (as it is now known) is a blockchain network that can run smart contracts and rolls up all its transactions before they are settled in Bitcoin. Stacks says it doesn’t use a sidechain or layer-2 model, but founder Muneeb Ali told Decrypt in 2021 that he refers to it as “a layer 1.5” built on top of Bitcoin.
The STX token peaked above $3 in December 2021, according to CoinGeckowhen the NFTs began to attract the Bitcoin faithful, and in February 2022, an NFT collection called Satoshibles launched a cross bridge to send NFTs to the Ethereum network. By and large, however, Stacks has not developed a particularly active or valuable NFT market.
What are Ordinals?
The latest example of Bitcoin NFTs is Ordinals, and it requires a different approach. Launched in January, Ordinals aims to add NFT-like assets directly onto the Bitcoin blockchain.
Designed by Casey Rodarmor, a former Bitcoin Core contributor, Ordinal allows users to explore, transfer and receive individual satoshis (the smallest unit of Bitcoin, or 1/100,000,000 of a BTC), which can include data such as videos and images. Adding assets to individual satoshis is called inscription, which is stored in a Bitcoin transaction’s signature.
The idea of filling Bitcoin blocks with JPEGs and videos – or even playable video games – does not sit well with some in the Bitcoin community who have expressed concern that putting NFTs directly on the Bitcoin network will increase the transaction costs.
Despite the controversy, Ordinals brings the search for NFTs on Bitcoin closer than ever, as it does not require a sidechain or layer-2 solution (or similar) or an additional cryptocurrency to function.
Bitcoin remains the top cryptocurrency by market cap, but as Ordinals and previous examples show, some developers are still trying to use the decentralized network to power new use cases.
