What do Ordinal Inscriptions Mean for the Future of Bitcoin?
A great deal of buzz has been generated by a novel type of non-fungible tokens known as Ordinal inscriptions. What sets these NFTs apart is that all of their data is etched onto the Bitcoin blockchain, diverging from Ethereum NFTs which are reliant on off-chain metadata that can be altered. Here’s a closer look at Ordinal inscriptions and their potential impact on the future of Bitcoin.
Ordinal inscriptions are a type of NFT that can be created on the Bitcoin blockchain, which allows for all of the data to be directly inscribed on the chain. This is in contrast to Ethereum NFTs, which rely on off-chain metadata. Due to this distinction, Ordinals are considered a potential solution to the challenges that are associated with Ethereum NFTs.
Ordinal inscriptions serve as a means of organizing data on the Bitcoin blockchain. The Bitcoin blockchain functions as a decentralized ledger of all Bitcoin transactions, and Ordinal inscriptions provide a unique identifier for each transaction.
While these identifiers are useful for tracking and verifying transactions, there are concerns about the potential for issues, such as “transaction malleability,” to arise as a result of Ordinal inscriptions. Some experts have raised concerns in this regard.
The term transaction malleability refers to the ability of a third party to modify a transaction ID without altering the transaction itself. This can result in confusion and make it more challenging to track and verify transactions.
The concern with Ordinal inscriptions is that if they are not used correctly, they may lead to an environment in which transaction malleability is more prevalent. This could have the effect of making it harder to rely on Bitcoin as a secure and dependable method of payment and transfer.
Fortunately, many experts in the crypto community are aware of the potential risks associated with Ordinal inscriptions and are taking steps to mitigate them. One of the most significant efforts in this regard is the implementation of Segregated Witness (SegWit).
SegWit is a software upgrade that allows for more efficient use of the Bitcoin blockchain by separating signature data from transaction data. This helps to decrease the size of transactions and reduces their susceptibility to malleability.
Beyond SegWit, ongoing efforts are being made to develop other solutions to address the potential risks associated with Ordinal inscriptions. The Lightning Network is one such solution, as it is a layer of two solutions that enables faster and less expensive Bitcoin transactions by conducting them off-chain.
Should you be concerned? If you are a casual Bitcoin user, you likely do not need to be overly concerned about Ordinal inscriptions. The potential risks associated with them primarily affect those involved in more complex Bitcoin transactions, such as multi-signature wallets or smart contracts.
Despite the potential benefits of Ordinal inscriptions, there has been a lot of debate over whether they are a “good use” of block space. As more Ordinals are being inscribed, the cost of Bitcoin transactions has risen. Ordinals introduce additional, non-financial data on the Bitcoin blockchain, which can bog down on-chain confirmation times. This includes images, audio clips, and even games. Those not in favour of Ordinals see this as an impediment to the ability of Bitcoin to scale and reach full global adoption.
Inscribing non-fungible characteristics to satoshis, the individual increments of Bitcoin, may challenge its use in place of conventional currency. Ordinals challenge the fungibility of satoshis on the Bitcoin network, as all satoshis should be equal, or they begin to lose a significant trait of money. But Ordinals can alter the value of these units of money, much like rare collectible coins. This debate over whether these individual units must be deemed equal is unfolding before our eyes and needs to be understood.
Bitcoin is money, and that’s the largest and most important use case, impacting the most people in the world. In the end, I believe that Ordinals will remain niche. While Ordinals may be viewed as exciting, they are unlikely to become the go-to choice for many people who use Bitcoin’s block space.
Ultimately, the markets decide. One of the biggest yet baseless claims is that Bitcoin doesn’t evolve or change. While there may be some truth to this, any changes to the protocol should be slow and methodological. Ultimately, the markets will decide whether Ordinal inscriptions are a viable solution for the challenges associated with Ethereum NFTs.
One key factor to remember about Bitcoin, and any other digital asset, is that its success depends on market demand. If the market values the features offered by Ordinal inscriptions, then they are likely to be adopted and integrated into the Bitcoin network. However, if the market does not value them, then they will remain a niche offering.
While Ordinal inscriptions may pose some potential risks to the Bitcoin network, the crypto community is actively working to address these issues. As long as you take appropriate precautions to protect your Bitcoin holdings, there’s no need to be overly concerned about this discussion in the short term. In fact, these discussions help to strengthen and test the resilience of the Bitcoin network. I see lots of positivity in this.