Grab Bag! Bitcoin (BTC) Ordinals and Ethereum (ETH) LSDs

By Michael @ CryptoEQ | CryptoEQ | 7 Feb 2023

Bitcoin Ordinals

NFTs are marketed as "digital assets" that are provably unique because they are tied to a hash on a blockchain. They are often linked to digital files such as art, movies, or music as a way to prove ownership or membership in a group. They became popular in 2017 with the rise of crypto kitties, but the NFT market has since lost over 96% of its trading volume and the speculation around it has declined.

In the past, NFTs have been a part of the bitcoin ecosystem but never took hold due to the lack of interest among bitcoin holders (Rare Pepes, anyone?). Projects like Colored Coins and Mastercoin, which aimed to add additional data to the bitcoin blockchain, faded away as the blockchain became congested and uneconomical to post information that provided no value. 

However, this all changed in January with the release of a new project, Ordinals. Thanks to the most recent Bitcoin soft fork, Taproot, Ordinals figured out a way to transfer individual satoshis onto the Bitcoin network and create NFTs. Ordinals are a numbering scheme for satoshis that allows tracking and transferring individual sats. The Ordinals protocol allows users to connect satoshis to a digital file and broadcast it to the bitcoin blockchain, enabling the permanent storage of text, images, or HTML on-chain. This is in contrast to NFTs on smart contract blockchains, which store references to files hosted elsewhere and can become compromised if the file storage service is deleted or goes down.

The Ordinals protocol enables users to inscribe assets into individual satoshis, a process called inscription. When the larger, bloated transaction with the inscribed file is broadcast to the network, it competes with other transactions in the mempool to be added to a new block. If block space is limited and competition is high, miners must make a decision about which transactions to add to the block.

The Bitcoin blockchain has seen a growing number of inscriptions being added in a permissionless manner, including JPEG images, NFTs from other blockchains, and even a video game file. The biggest surprise was the mining of a 3.96 MB block by Luxor mining pool that contained an Ordinal inscription #652, a JPEG image of a wizard. 

bitcoin ordinal wizard The infamous NFT that created the biggest Bitcoin block ever.

The proportion of block space used by Ordinal inscriptions is growing daily and has caused concern among Bitcoin maximalists and proponents of small blocks. Bitcoin advocate Jimmy Song has claimed that the Luxor mining pool will be punished by the market and suggested smaller blocks may be necessary. However, this view is criticized by Bitcoin developer Luke Dashjr who views Ordinal inscriptions as similar to attacking Bitcoin.


The first major upgrade of the Ethereum network since the Merge is scheduled for March and is referred to as Shanghai and Copella. There are two upgrades necessary because one is done at the Execution Layer on Ethereum and one at the Consensus Layer. Read more about Ethereum’s design here. Despite this technicality, most simply refer to the uprades as a singular event, most often calling it the Shanghai upgrade. This upgrade includes the highly anticipated EIP-4895, which will enable users to withdraw their staked ETH. The Zhejiang public testnet went live on Feb 1, 15:00 UTC. Users will be able to practice the withdrawal process once the Shanghai and Capella testnets, which handle the consensus layer for withdrawals, are launched at epoch 1350, six days after the Zhejiang launch. After Zhejiang, another open testnet will be run and, assuming there are no issues, a date for the actual upgrade could be set by the end of February.

The upcoming hard fork will enable the 16 million+ currently staked ETH to be unstaked. However, it is not anticipated that all or even a significant percentage of that number will be unstaked for many reasons. For starters, ~30% of all staked ETH is already in the form of Liquid Staked Derivatives using services like Lido and RocketPool. This means that ~30% is already liquid and able to be sold/traded. Additionally, ~50% of all currently staked ETH was staked at a price higher than today (~$1600). This means stakers are “underwater” and probably not looking to sell at a loss. Finally, the unstaking and withdrawal process is throttled, meaning not everyone can immediately unstake and sell their ETH at the same time. This will smooth out the selling over weeks, not days. You can learn more about that process in our latest article about LSDs here

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.

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