Live Rollup : Bankless 07/02/2023

About Ordinals

How Ordinals work

Ordinals is a two layer system :

The base Layer is called Ordinals, a convention essentially for numbering individual Bitcoin Satoshis (every single Sat has an unique individual identity) and tracking them across transactions

It doesn't take up any data on the base layer, and doesn't change Bitcoin. It is purely an opt-in convention

And the top layer is inscriptions which are NFTs can be used to contain content. It is just a piece of content that is included in a part of a Bitcoin Transaction (called the witness) and that content is arbitrary

Bitcoin Feature Timeline

When did this feature became possible ?

Building meta protocols on top of Bitcoin has existed for a long time. We have always been able to embed arbitrary data inside Bitcoin using OP_RETURN but it was limited

In 2017, SegWit came and we got up to 4 MB of witness data could now be assigned to bitcoin blocks. However, there were still data limits into individual transactions

After Taproot, you could basically make a single transaction that takes up the entirety of a Bitcoin block

It just became significantly simpler with Taproot to embed sizable sums of data in a single transaction, and Ordinals + Inscription leverages it to create a more user-friendly and toolable experience

Bitcoin NFTs =/= Ethereum NFTs

From the Ethereum perspective, when you create an NFT, you actually create a token. That's not what's being created on Bitcoin, in the understanding that it is the actual individual Satoshi that is the Transferable unit with data appended to it and these two properties together make it feel like NFTs

According to Casey, whether or not these are NFTs is up for everybody to decide according to their own definition :

• Unique
• Transferable
• Something associated with

It also depends of the scope : the Sats are very fungible on the Bitcoin layer, they become non-fungible through the lens of Ordinals, and then NFTs if you additionally use inscriptions

Ordinals origins

When Casey made Ornidals, the intent was to be utility for art. He got interested in NFTs in 2022 with generative art getting popular

He wrote a test ERC-721 contract, but the tooling didn't fit well to him : every NFT is a separate smart contract with different properties, audit them for security, think about storage...

=> Casey could make NFTs on Ethereum but wouldn't be comfortable about users buying them because of those concerns

The controversy

Violating Bitcoin’s Core Philosophy

The Bitcoiner philosophy wants Bitcoin to only be money so Bitcoin block space must be preserved for it. Any usecase not using BTC as money is considered "illegitimate"

At first glance, Ordinals seems weird cause we've had issues with usescases on Bitcoin since forever (The OP_RETURN Wars didn't help that cause either). But in the end, a poll shown that 50% people consider Ordinals ok if their users pay the fees. So the controversy isn't that big

No Bloat Problem

Some Bitcoiners are against that stuff cause they believe that it's going to weigh down the chain and fill it with nonsensical data. In fact, the more we look at the technique, the weaker this argument becomes

Most Bitcoin blocks don't actually weight 4 Megabytes. Not because there aren't enough transactions, it's because only the witness data is allowed to fill out the block up to 4MB.

With inscriptions using Witness data, it might become more common to see 4MB blocks, and Witness data is cheaper on Bitcoin as you can prune it (throw it away) after you validate it, and No need to do the computational processing thanks to Assume Valid

Assume Valid : when you're syncing a Bitcoin node for the first time, it assumes that the signatures are valid up until a certain block height (downloaded but not validated). We start validate signatures after a specific block, it sounds like a soft checkpoint

If more of the Bitcoin data is getting gobbled up by inscriptions (which is witness data), it has a higher concentration of blob space that we can prune => the node is easier to sync

Insciptions are in fact making the node leaner and increasing the security budget

Haters (unintentional) advertising

Bitcoin was starving for fun, and Ordinals' detractors gave the community something to eat

If you really don't like inscriptions and think that people souldn't do it, don't mention it                           Casey

Fixing Bitcoin's security budget

Why Security budget is a problem

97.7% of miners' current income comes from the creation of new BTC. So for every halving of Bitcoin, the miners' income is literally cut in half, and miners pull the plug when it is not profitable. To ensure the long-term sustainability of Bitcoin, it must have more network fees

Fortunately, Ordinals has generated real demand for Bitcoin blockspace with all the degens it has brought, and Eric thinks Ordinals opened a new market for miners

Eric Prediction & Miner Game Theory

If you can make a full block NFT and put enough BTC on the table, miners would probably try to get it first

A block like this have to go directly to the miner to be validated, otherwise the standardness rules will reject it

Miners are in a special position : assign block space for those large transactions is a very specific service, so they can charge a lot more

Actual network fees are ~$2 400 per block (at actual price). There are going to be people lining up to get full block inscriptions able to charge $25k, $50k (or more) to outcompete other miners and include their full block in the blockchain

This also creates as an "All or Nothing" situation where miners choose between full block transaction or all the others. It reduces incentive to mine junk

Fixed Bitcoin Fee Structure ?

While the Ordinals are a boon to minors, it is kindly reminded that it's just a theory and they have been here since only a month. This may turn out to be a flash in the pan or a fun meme to be overlooked as well

We don't know how long Ordinals can last and what impact they will have on Bitcoin fees, but having a new source of demand for block space is still a better outcome than having no solution at all

If full block transactions have to persist, we just need to harmonize fees from normal blocks and full block tx (maybe find Bitcoin's own EIP-1559)

Pros and Cons

Pros

• A way to make Block Space demand
• Additional utility plug into Bitcoin
• All of this extra data doesn't need to be validated. No need to do the computational processing thanks to Assume Valid
• There doesn't need to be a parallel infrastructure. This is made up stats, stored in normal Bitcoin adresses, transferables with normal Bitcoin transactions

Cons

• Even though you can make NFTs on Bitcoin, they can't be as programmable as Ethereum's : Auction Logics, Minting Rules, Harberger Tax...Such rules can't be implemented with Inscription
• Bandwidth requirements go up as it might become more common to see 4MB blocks

Fun facts

Inscription 466

This is basically Doom on Bitcoin

The inscriptions content model is very compatible with the web :

• Normal content types (PNG, JPEGs...)
• HTML
• SVG

Some devs also have uploaded Snake on Bitcoin

It's cool to remember how small we could make PC games when they were limited, and even more cool to see them fit in one Bitcoin transaction

TTP

Time to Penis, abbreviated to TTP, is a video game development metric and term for the time it takes players to generate a penis-shaped object via any available means.

The first ever Inscription is a dick butt picture, which makes the TTP hilariously short for Ordinals

Bitcoin is fun again

It may be possible that dick butts are saving the security budget problem for Bitcoin        Eric

Once upon a time, Ethereum had ICOs and lots of them were terrible, but some of them matured thanks to experiments and iterations. The thing is, you need degeneracy to experiment

The degen level is extremely high on Ordinals, but it also means we've unlocked something on Bitcoin. We don't know what yet to do with it, but meanwhile, we can have some fun trying things

Casey's Twitter : https://twitter.com/rodarmor