Disclaimer: This article aims to convey more market information and does not constitute any investment advice. The article only represents the author's viewpoint and does not represent the official stance of MarsBit

Disclaimer: This article aims to convey more market information and does not constitute any investment advice. The article only represents the author's viewpoint and does not represent the official stance of MarsBit.

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Source: MarsBit

brief introduction

Since its establishment, Bitcoin has been hailed by some as a revolutionary technology that may change the way we use new financial layers for trading. Recently, a new innovation has emerged that can open up new possibilities for the Bitcoin network, enabling it to also function as a cultural layer. Ordinal "1" refers to assets similar to NFT "2" on the Bitcoin network, which began when Bitcoin developer Casey Rodarmor released the ORD software in December 2022. Each Bitcoin can be subdivided into 100 million smaller units, known as "satoshis". Although these satoshis are usually replaceable "3", the ORD assigns numerical values to each satoshis, allowing them to be unique. More specifically, ORD runs on all Bitcoin Core nodes, allowing users to add arbitrary data ("insertions") in Bitcoin transactions and link the data to a single Satosh "4" ("ordinal"). Ordinal has attracted great attention in the cryptocurrency ecosystem, breaking through 1 million inscriptions on April 8, 2023 (Figure 2) and sparking a conversation about unleashing new possibilities for the Bitcoin network.

Figure 1: Simplified Bitcoin Inscription and Serial Number Example

Source: GrayscaleResearch

This process effectively creates a non homogeneous token ("NFT") on the Bitcoin network. Although some people hold a critical attitude towards ordinal, warning against inflating blockchain or damaging replaceability, we believe that ordinal represents one of the greater opportunities for Bitcoin adoption, especially since the Bitcoin network has always been seen as a rigid blockchain ecosystem.

Figure 2: Ordinal ordinal count

Source: Dune, @ dgtl_ Assets as of April 21, 2023

A Brief History of Bitcoin Network NFT

Despite its recent popularity, ordinal numbers are not the first instance of NFT on the Bitcoin blockchain. The famous Bitcoin NFT project, such as RarePepeCards (Figure 3), uses a Layer2 "5" network called Counterparty, which was established in 2014. However, Counterparty's Layer2 infrastructure has been criticized as complex, leaving room for other methods. Although the Counterparty network may not seem as important today, it still represents one of the earliest examples of users creating and trading unique digital assets in the history of cryptocurrencies - it can be said that it can stimulate the large-scale excitement surrounding NFT more widely.

Figure 3: Rare Pepe Cards on the Counterparty Network

Source: Rare Pepeka

Ordinals stands out in the efforts of Bitcoin NFT as they are independent of the Layer2 solution. Ordinal does not rely on these solutions, but instead utilizes previous Bitcoin network enhancements such as SegWit (conducted in 2017 and increased Bitcoin block size limit to 4MB) and Taprot (conducted in 2021 and added more complex footnotes in the '6' section of the transaction witness). Ultimately, ordinal enables data to be directly embedded into the witness segment of Bitcoin transactions. Ordinal can be composed of almost any type of data, from images to videos to applications (Figure 4).

Figure 4: Example of Bitcoin Ordinal

Source: Doom Clone NFT

breach the normal rules

Because the use of ordinal deviates from the traditional point-to-point electronic cash system, there have been many criticisms from those who disapprove. Generally speaking, these criticisms can be summarized as follows:

• Deviating from the original intention of Bitcoin: Using Bitcoin network to store arbitrary data contradicts the main goal outlined in Nakamoto's 2013 white paper, that is, Bitcoin should be used as a "point-to-point electronic cash system".
• Blockchain inflationEmbedding additional data in the blockchain increases its size, making it more challenging to download, and some people believe that ordinal can confuse irrelevant information in the blockchain.
• Impaired substitutabilityIf a large number of Satoshis are engraved, the substitutability of Bitcoin will decrease, which may affect its primary use as an electronic currency.

Blockchain inflation inscription. ordinal satoshis 238 7 BTC ~24%.

Potential Opportunities

We believe that ordinal has two key positive implications compared to the Bitcoin network: leading to an increase in the cost of Bitcoin miners and potentially promoting cultural transformation within the Bitcoin community.

Support network security

One of the biggest openness issues related to the Bitcoin economy model is the security budget, which concerns that once all new tokens are mined, miners' rewards from trading activities may ultimately prove insufficient to motivate miners to maintain sufficient hash rates to ensure network security. The emergence of Ordinal has led to an increase in the total cost paid to miners (Figure 5), which may establish a sustainable baseline level of transaction costs to incentivize miners and ensure sustained network security throughout the entire lifecycle of the Bitcoin network.

Figure 5: Total Bitcoin Costs

Source: Glassnode, as of April 21, 2023. For illustrative purposes only.

Rekindled the enthusiasm of developers

Bitcoin, the largest digital asset by market value and mainstream recognition, has been criticized by some cryptocurrency industry insiders and developers as a relatively stagnant community and blockchain. Based on the adoption speed of NFTs witnessed on Ethereum and other chains, we believe that ordinal may attract new users who may not have considered using Bitcoin before. We believe that the emergence of ordinal may promote a development oriented community and culture to support the Bitcoin network.

Compared to Ethereum's ERC7218

Since its establishment in 2017, the ERC721 standard has been adopted by some of the most well-known NFT collections on Ethereum. Although other blockchains use their own standards, considering that Ethereum's NFT accounts for nearly 90% of the total NFT market share, comparing Bitcoin ordinal with Ethereum's ERC721 is a natural reference point. Ordinal showed several significant differences in comparison.

In the end, compared to ERC721, due to its immutable nature, lack of programmability, and mandatory on chain inscription requirements, ordinal presents a direct representation of unforgeable digital assets. Although Ethereum NFTs have greater programmability and currently dominate the NFT market in terms of quantity and popularity, ordinal may be an attractive choice for those seeking direct and more scarce digital assets on the most mature blockchain.

conclusion

Although ordinal has only recently developed, it has accumulated over one million ordinals in just four months, even in a bear market. This unexpected popularity may indicate that although Bitcoin is referred to as a rigid blockchain, people's broader views on it have changed. Although there are reasonable concerns, we believe that in the long run, ordinal may have a positive impact on the Bitcoin network, attracting a new wave of enthusiastic users and developers to embrace the Bitcoin community.

1. Ordinal "refers to the numbering scheme of satellites, which can track and transfer individual satellites.
2. Non homogeneous tokens are a unique digital identifier recorded on the blockchain to prove ownership and authenticity.
3. Substitutability is an attribute of a commodity, and its various units are basically interchangeable, with each part indistinguishable from any other part.
4. The smallest unit of Bitcoin; One Bitcoin has 100 million Satoshis
5. The Layer2 blockchain solution is a protocol designed on top of the Layer2 blockchain (such as Bitcoin or Ethereum), with the aim of enhancing the scalability, privacy, and other attributes of the underlying blockchain.
6. The witness section in Bitcoin transactions is responsible for storing transaction signatures. This information can be transformed into content that can be accessed by any Bitcoin node using ORD software.
7. 500 million insertions, assuming approximately 10000 satoshis per inscription, equivalent to approximately 50000 BTC insertions, or 0.24% of the total terminal supply of 21 million
8. Ethereum Request for Comments (ERC) 721 is a data standard for creating non homogeneous tokens, meaning that each token is unique and cannot be split or directly exchanged for another ERC-721 token. The ERC-721 standard allows creators to issue unique cryptocurrency assets, such as NFT, through smart contracts

InterPlanetary file system is a protocol, hypermedia and file sharing peer-to-peer, which is used to store and share data in a distributed file system.