Until now, the primary utility of Bitcoin was limited to transferring and storing value. This meant that developer activity on the network always remained on the lower side. This emergence of protocols, such as Wrapped Bitcoin (WBTC), Rootstock (RBTC), and others, brought more utility to Bitcoin. Now, the introduction of Ordinals has taken Bitcoin by storm and further increased its utility. According to Dune Analytics, there have been a total of 174,444 Ordinals inscribed to date.
At this point, you may wonder, what exactly are Bitcoin Ordinals? Are they the next big innovation Bitcoin has been waiting for? And how are they different from Ethereum NFTs? Whatever the answer, there is no denying that Bitcoin Ordinals have kicked up quite a storm in the community.
Bitcoin Ordinals vs Ethereum NFTs: The Introduction
What Are Bitcoin Ordinals?
Its well known that developers have been tirelessly working to implement NFTs on the bitcoin blockchain. The first serious attempt at this was in 2014 by the creators of the Rare Pepe NFT collection, Counterparty, followed by Stacks in 2017. Ordinals are the latest innovation in this area, making it possible to mint NFTs directly on the Bitcoin blockchain. Bitcoin Ordinals are Satoshis or “sats” that have been ordered and inscribed with a small piece of information. Now, this information can range from anything, such as text, an image, or even a video.
Each bitcoin can be broken down into 100,000,000 Satoshis. Users can then inscribe individual Satoshis with data using the Ordinals protocol and create an Ordinal. Ordinals were made possible thanks to the Taproot soft fork that was implemented in 2021. This added the “witness section,” where users can inscribe data such as audio, video, and JPEGs into individual satoshis, giving users a new way of exploring, transferring, and receiving NFTs. Since their launch, Ordinals have garnered a staggering amount of inscriptions.
Ordinals use “Ordinal Theory” to mark and track the inscriptions embedded in the blockchain. The “ordinal” refers to a specific number defining a particular position in a series. When referring to them in the context of Bitcoin Ordinals, the ordinal describes a UTXO (Unspent Transaction Output) for a satoshi containing an inscription. All Satoshis with inscriptions are defined as special transactions trackable by users.
What Are Ethereum NFTs?
Non-fungible items cannot be exchanged for another, while fungible items are those that individuals can seamlessly exchange with each other. This is because fungible items are not unique. Bitcoin is an example of a fungible asset that users can easily exchange. Even fiat currencies are considered fungible. In the case of non-fungible items, because each asset is unique, users cannot simply exchange one for another. A rare painting or a limited edition collectible is an excellent example of a non-fungible item.
Non-fungible tokens, or NFTs, are unique digital tokens primarily based on the Ethereum blockchain and represent a unique asset. The asset can be either digital or tokenized versions of real-world assets. Each NFT is unique, with its identifying information stored in smart contracts, allowing them to act as proof of authenticity or ownership in the digital world. Fungibility is considered beneficial when it comes to currencies. However, the opposite is applicable in the case of NFTs. NFTs have several characteristics designed to set them apart from their fungible counterparts, such as,
- Non-interoperability – NFTs are non-interoperable, meaning one cannot be used in place of another and vice versa. This is because each NFT is unique and has specific characteristics and information.
- Verifiable – Data related to NFTs is stored on the blockchain, making it extremely easy to trace the original owner of the NFT.
- Indestructible – As mentioned earlier, all the data related to the NFT is stored on the blockchain, meaning that the data can neither be replicated nor destroyed. The ownership of the NFT is also immutable, which means users actually own their assets. This is different from purchasing music from a streaming service, which only allows users to purchase the rights to listen to the music.
Bitcoin Ordinals vs Ethereum NFTs: The Functionality
How Do Bitcoin Ordinals Work?
Ordinals utilize two recent innovations to function.
- They utilize the segregated transaction witness section of a bitcoin block.
- They also use tapscripts, introduced during the Taproot upgrade.
By leveraging these innovations, Ordinals can store the entire data (image/gif/video) on-chain. This is in contrast with other NFT standards, which can store only a reference point. Ordinals also have a significant advantage over counterparty NFTs because they are not subject to any data limit apart from the 4 MB data limit placed on the transaction witness field. The ability to add data in the witness field of a SegWit transaction is crucial in making Ordinals possible.
How Do Ethereum NFTs Work?
All NFTs are created by utilizing a process called minting. Information about the NFT is recorded on the blockchain during the minting process. NFTs differ from standard ERC-20 tokens because each NFT is unique and cannot be shared or divided. These tokens represent ownership of a unique asset or data and can be tracked using the Ethereum blockchain. NFTs can represent a variety of things, such as digital art, videos, music, and even real-world assets, such as legal documents and real estate.
However, each NFT can have only one owner. This is because it uses metadata and a unique ID that cannot be replicated by other tokens, with smart contracts governing the ownership and transferability of NFTs. All ownership information is publicly available, with each NFT carrying a unique identifier to distinguish it from others.
Bitcoin Ordinals vs Ethereum NFTs: The Difference
Bitcoin Ordinals can be considered NFTs, depending on who you ask. However, there are a few key differences to consider before we add labels. To start with, Most NFTs are created and tracked by utilizing smart contracts. However, the assets represented by these NFTs and smart contracts are often hosted at another location. Let’s look at an example. Some NFT platforms utilize the decentralized storage system IPFS (Inter Planetary File System) to store NFT artwork or the data associated with a particular NFT. Ordinals, on the other hand, are inscribed directly onto Satoshis, which means they are stored on chain.
Ordinals are validated in blocks and other Bitcoin transactions and then stored on the blockchain. Another key difference is that traditional NFTs utilize metadata allowing creators and NFT holders to change the appearance or characteristics associated with a particular NFT. NFT projects regularly ask their users to update metadata so that their NFT can feature higher-resolution images. Ordinal holders can do no such thing since the ordinals are stored on-chain. Once the ordinal is inscribed, it cannot be changed. Ordinals also do not allow creators to receive royalties on any sale of their creation, unlike NFTs.
Trading ordinals is also a tricky affair, given that Bitcoin needs to have smart contract functionality. There are no decentralized exchanges or easy-access wallets. Users can only trade their ordinals via OTC or peer-to-peer trades. Both Ordinals and Ethereum NFTs can be lost, albeit in slightly different ways. Users can lose their NFTs if they lose access to their wallets. Ordinals inscribed on Satoshis can accidentally be spent. The miner validating that particular transaction would then, knowingly or unknowingly, gain custody of the ordinal.
Bitcoin Ordinals vs Ethereum NFTs: In Closing
While Ordinals share similarities with Ethereum NFTs, the two have some differences. Unlike NFTs, Ordinals are a recent phenomenon. However, they hold staggering potential and have generated considerable hype around themselves. Several developers believe that Ordinals will positively impact Bitcoin, reigniting developer interest and incentivizing them to build on the network and improve its security. While the market is nascent, and purchasing them is tedious because of OTC processes, we could see Ordinals establish themselves in the market as interest continues to grow.