Bitcoin was first created on January 3, 2009 by its mysterious creator Satoshi Nakomoto. The legacy of the first successful implementation of blockchain technology and its solid foundation that uses public key cryptography.
Since then there has been very little changes to the Bitcoin protocol. Any divergence in perspective would lead to a hard fork, so the rules in the original code still remain.
In 2023, new narratives around the protocol have emerged from recent developments that introduce unprecedented features. Let's discuss two of those narratives, which are Bitcoin ordinals and the BRC-20 token protocol.
Ordinals
The fact that you can inscribe messages in the Bitcoin protocol is not new. The first Bitcoin block, also referred to as the genesis block, included the message:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”
This is the basis for ordinals, which allows inscribing data into individual satoshis (the smallest unit of Bitcoin). There are 2100 trillion satoshis (also called sats) in existence on the Bitcoin blockchain, giving it a near infinite way to use inscriptions. This opens up the possibility of using the Bitcoin blockchain for applications like storing images and other data types.
This became possible with the Taproot upgrade. While its key feature is privacy, it also allows inscriptions via BIP-342 which allow for the execution of larger scripts without constraints from file size. This allows data to be stored on-chain, with associated satoshis.
Bitcoin is not just a protocol for transferring value, it can also be used to encode data that is open to the public and cannot be easily manipulated. This is an example of how immutability and transparency features can be applied.
This narrative has also given rise to the creation of NFTs (Non-Fungible Tokens) on the Bitcoin blockchain. Individual satoshis are inscribed with digital content that lives on the Internet, that is unique, irreplaceable, and secured by the Bitcoin network.
Ordinals can be used for content like collectibles and digital art. This brings value to creators since there are now services available that allow users to buy, trade or sell ordinals.
BRC-20 Tokens
BRC-20 is a protocol that enables the creation and management of tokens on the Bitcoin network. Although it is still in its experimental phase (as of 2023), that could potentially bring more flexibility and functionality to Bitcoin, allowing for things like stablecoins and digital governance tokens.
This is similar to Ethereum's ERC-20 token standard. BRC-20 is still in the early stages of development so it is not as robust as the ERC-20 ecosystem.
It is not the same as the ERC-20 implementation. Instead of smart contracts, BRC-20 leverages the use of ordinals. Each token is represented by a specific inscription containing details like token name, supply, and potentially additional information encoded in JSON format.
Developers can use this protocol to issue their own tokens on the Bitcoin blockchain. This is like token ecosystems that exist on the Ethereum blockchain.
Although they lack the complexity of smart contracts, BRC-20 offers basic functionalities. These include transferring tokens, burning (destroying) tokens, and potentially holding additional data within the ordinal inscriptions.
ORDI is the very first example of a BRC-20 token. It was deployed on March 8, 2023 and has since reached a significant market cap in a short amount of time.
Key Points And Takeaways
While these narratives give new applications on the Bitcoin blockchain, there are some things to consider. Although they are looked at as innovative, their practical use in the Bitcoin ecosystem has been put to question.
Bitcoin maximalists are not too particularly fond of the whole idea. This is because it adds features that are not a part of the core principles of Bitcoin ideology based on the white paper.
The main concern is that ordinal activity can further congest the already limited Bitcoin network. It raises concerns about increased block size, potential spam, more network latency, higher storage capacities, and deviation from Bitcoin's primary function as a monetary network. This in turn can increase network fees as well.
There are proponents who believe that this can be a secure way to store data. The cost is justified by the security on the blockchain that ordinals offer. That means once inscribed on the Bitcoin blockchain, the data is testament to a transaction that should be able to last for as long as the Bitcoin network is in existence.
The use of Layer 2 (L2) can offer a solution to alleviate network congestion and provide more efficiency to the Bitcoin base layer. L2s can also lower the cost of transactions, while helping to scale the network.
Even if L2s are not able to help, increased transaction fees on the network incentivizes miners. The demand for ordinals and BRC-20 tokens can also increase the hash rate to further strengthen the Bitcoin network's overall security.
Other proponents are for ordinals because of the commercial value it can bring to the market. Obviously, their aim is to make money from the applications, tokens, and services that will grow around this narrative.
One thing is for certain and that is on-chain storage is expensive. In return you get the security from the network. Those who will use ordinals will be paying a premium for this, but that is what makes them valuable.
The higher cost for ordinals can also help deter spamming on the blockchain. As the demand for ordinals increases, spamming can become too costly for even the most consistent attackers.
There are already efforts underway to undermine ordinals and call for its ban. In an X tweet it is claimed that inscriptions are “exploiting a vulnerability” in the Bitcoin Core network, resulting in "spamming the blockchain."
The Bitcoin Core code allows users to set limits on the size of extra data in transactions since 2013, but ordinal inscriptions bypass this limit by obfuscating data in the program code. A bug fix to this vulnerability could end ordinals and the issuance of BRC-20 tokens.
Final Thoughts
To call for a ban that is decided by an individual or group does not follow the core ideology of a cryptocurrency. This puts the philosophy of cryptocurrency to a test with regards to decentralization. If decisions can be made by just a few people, it is veering towards a more centralized network that is really not serving the interest of all users.
If anything, perhaps it should be put to a vote in the Bitcoin community. Let the users decide if this is the direction Bitcoin should follow.
This can be a case of fear of change or just bias towards an agenda that serves the interest of some users only. In crypto things are usually worked out by market forces, and not decided upon by a few people who don't hold the interest of the community.
Bitcoin can remain the way it is forever, and that is understood. The problem is that lack of further developments can hinder interest for the potential uses of the Bitcoin protocol.
If ordinals are bound to fail or degrade the Bitcoin network's performance, there is an incentive from users to find a solution. This is what makes cryptocurrency not just market-driven but also community-driven.
New possibilities create new opportunities in the network. This can help to further drive innovation that not only brings new applications to the ecosystem, but also adds more utility that gives the Bitcoin protocol more value.
Disclaimer: This is an opinion piece and not financial advice. Bitcoin and cryptocurrency is not without risk. Please do your own research always for education and further understanding.
