The Long-Story Short Of Bitcoin NFTs. Benefits and Downsides of Bitcoin Ordinals. 5 Questions To Ask Yourself Before Investing. Understanding The Risks of Bitcoin NFTs. Number 5 Will Help You Catch The Next Moonshot Early.
The Bitcoin network is on fire.
No, it’s not the miners, the BTC whales, or Michael Saylor posting another penetrating tweet that’s driving the network to new ATH usage every day.
It’s the 250k freshly “inscribed” Ordinals having a rave party on Block 42069 of Bitcoin. Today, I welcome you to the dungeon of knowledge as we explore this new crypto narrative, its opportunities, and risks.
Table of contents:
Here is the compressed version of the history of Bitcoin NFTs
Now, pay close attention to the two Bitcoin upgrades that made NFT projects like Ordinals possible in 2023.
And that gave Casey Rodarmor — Ordinals creator, his eureka moment.
The launch of Ordinals changed the game and started the biggest debate among Bitcoin holders to date…
Since its launch, the Ordinals protocol has been breaking records.
There are already more than 240k inscriptions on the Bitcoin network, with miners making over $600k from the NFT transaction fees alone.
But before getting too excited, let’s look at the benefits and downsides of this crypto innovation.
1. Truly decentralized NFTs that live on the Blockchain
- Bitcoin Ordinals live directly on the BTC blockchain (all images and text are stored on the network)
- Unlike Ethereum NFTs that use metadata on the ETH network, that points to an IPFS hash or an HTTP URL somewhere on the Internet, like Amazon’s AWS database for example.
2. They speed up the adoption
Besides the record creation of new BTC wallets, the interest in utilizing the Bitcoin network to its full capacity is increasing. Instead of just trading with the asset or holding it, users are now using Bitcoin as a true DeFi protocol, which can be seen from the chart below.
3. Miners are getting rewarded higher transaction fees
Inscriptions have caused congestion in the mempool, putting steady upward pressure on fees.
So far, however, this pressure appears to be primarily affecting competition at the lowest fee rate bands, with Inscription creators appearing to be sensitive to the absolute BTC value of the fee paid.
4. NFTs give another use cases for Bitcoin
Until now, the only use cases for Bitcoin were its usage as a medium of exchange and store of value — an alternative to money in other words.
For all the fascinating DeFi use cases, investors use other networks like Ethereum, Solana, and Fantom, but the inception of Ordinals changes the Web3 landscape drastically.
Not only that more users are attracted to the Bitcoin network, but it also raises curiosity about what else can the world’s oldest cryptocurrency be used for. And as we know, curiosity brings innovation.
1. Inscribing and trading are still limited from a UX/UI perspective
Currently, users need to run their own Bitcoin node in order to inscribe their Ordinals’ NFT. Trading is usually P2P (person-to-person) and is directed on the Ordinals’ discord server.
2. Ordinals take too much block space — slowing down the network
Since Ordinals’ launch, the average block size on the Bitcoin network has been increasing, with a recently reached record of a 4MB mined Block.
3. Bitcoin NFTs can be used for sharing illegal materials
There is no filter on the Bitcoin blockchain, which is a benefit, but on the other hand, it gives opportunities to spread illegal content. That, in turn, can provide legislators an excuse to censor BTC usage.
4. Biggest fear: Losing the race to avoid a war with CBDCs
The biggest downside, according to Bitcoin maxis, that is the ideology that BTC should be used as money, and any other use of the network harms the purpose of the network.
In a world where almost every developed country is moving towards CBDC, a decentralized cashless system is required, so I will leave this one for you to decide.
Share on Discord if you think Ordinals are good or bad for BTC.
Alright, now the thought in every investor’s head is how he can profit from all this. Well, here are the 5 most important questions to ask yourself.
Crypto narratives don’t last long nowadays.
The BTC NFT hype began 40 days ago, marked at the time of writing this piece. The data suggests that the trend is still early, with the highest records happening recently.
The development of Ordinals is in its initial phase, and if there are no major obstacles (more on that later), then the road ahead looks promising with the new UI/UX solutions onboarding even more NFT enthusiasts.
If you still haven’t read our article on “Finding The Next 50–100x DeFi Projects” using Web3 clones, please do so now.
While the tool I shared doesn’t apply to this crypto narrative, the principle is 100% the same.
And if you knew how DeFi forks work, then it would be a no-brainer that Bitcoin’s largest forked L1 — Litecoin, wouldn’t be late for the party in creating their own Ordinals clone… And they did.
When it rains, it pours.
The ChatGPT hype drove the AI trend to a whole new level, creating an AI crypto coins narrative in Web3. In the past, many NFT projects released native tokens as well, which was appreciated thanks to the success of the main project itself. An example is game tokens and APE coin.
What is the situation in the BTC NFT narrative, though?
Here is STX, for example — the native token of Bitcoin’s Layer 2 solution Stacks that provides a better base for the creation of Bitcoin NFTs, while also being SEC-approved way back in 2019.
Bitcoin is quite intriguing.
Despite being the largest blockchain with a Mcap of $449B, the network’s main purpose was to be a payment system. Therefore, the amount of L2 until now was very limited — 5 compared to Ethereum’s 692.
The largest and most popular Bitcoin Layer-2 is the Lighting Network. It is a payment protocol layered on top of Bitcoin and is intended to enable fast transactions among participating nodes.
Currently, the Lighting Network doesn’t have its own coin, but the usage of the protocol has increased slightly since the beginning of the NFT hype.
As outlined several times, the narrative is still fresh, so there will be quite the developments over the main project over the upcoming months.
Knowing what to look for can make the difference in being early. Here is a list of some things that might come to Web3 in the upcoming months:
Down the road, if Ordinals stay, it is quite possible to see some of the Web3 NFT trends transfer to the Bitcoin network as well, from NFT liquidity pools to mainstream brand adoption.
Always prepare for the worst.
“Some people love Bitcoin NFTs, others hate it — but they are here to stay” is one of the most popular quotes floating around Crypto Twitter.
But is it true? On the one hand, Bitcoin is a decentralized and permissionless Blockchain that does not care about the opinion of a specific group of holders — if the mass of users wants a particular thing.
But can, in a sense, Ordinals be stopped? Let’s look at 3 bad scenarios.
There has already been a discussion with one of Bitcoin’s core developers — Luke Dash, to revert back to the old block limit size on the BTC network.
Yes, that is the same core developer that got his BTC wallet keys “hacked” way back in New Year, which raised quite the conspiracy theories back then.
BTC Developer Hacked For $3.6M. Crypto Weekly Newsletter #033 | One Click Crypto Blog
Happy New Year, We just released a shortened blog version of our December 2022 Crypto Report that you can read on…www.oneclick.fi
The possibility of coordinating enough people to vote for this degrade is quite unlikely, but it would probably slow down the adoption of Bitcoin NFTs and their surrounding projects. Even though the scenario hasn’t yet been analyzed to the fullest detail, it might be more complicated.
Bitcoin and criminal usage — what a love story.
In the early days of crypto, what first drove the mass adoption of Bitcoin, beyond that of the several tech savvies using the network, was the birth of Silk Road — the dark web’s most infamous marketplace, which at the time used BTC as a mean of payment on the store.
Now, a decade later, people fear that the Ordinals concept will provide criminals with a way to use the Bitcoin network to store illegal images, ranging from malicious instructions to unwanted photography.
While a decentralized way to filter out such content is not yet available, there is a debate if these actions would drag legislators to censor the Bitcoin network, making it illegal to use it.
In a scenario like this, without a good solution to the situation, it would be likely to see the faulty protocol go down instead of having the whole network suffer (even though a way to delete what’s already there would be impossible).
The most apparent grim situation is if this crypto narrative dies down and investors get left out with jpegs on the Bitcoin network that don’t have any utility beyond storing the data on the blockchain.
This scenario is tricky because even though the NFT concept is 10+ years old, the mainstream market is relatively new < 3 years, and we still don’t have data on long-term trends of old collections.
If a particular crypto token “dies,” it can easily be revived years later when a new narrative or project update causes speculation in the market. But with NFT collections? Quite unlikely, based on what we’ve seen until now.
If there is a number one lesson that can be learned from the Bitcoin NFT hype is always to expect the unexpected.
For years, the BTC network was viewed as one of the most primitive and boring ones. Young DeFi degens used to call Bitcoin investors boomers, mocking that there is no innovation on the oldest Layer 1.
But now, the tables turned, and the brilliance of one entrepreneur and his team led to the beginning of one of the most exciting phases in crypto. Who will win the debate this time is early to tell, but those specializing in this niche will have plenty of opportunities in the upcoming months.
Be wise. Do your own research. And always dig deeper.
Disclaimer: This article is not intended to serve as financial advice. The sole objective is to provide an educational perspective on the current state of Bitcoin NFTs Ordinals and to identify trends that are gaining momentum. Investing in products, tokens, or company shares associated with these trends will not necessarily result in financial gain. Always conduct your own research and seek the advice of a financial professional.
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