Bitcoin NFTs: Ordinals, Stacks, Gamma, and Maxi Drama
So much is happening in the Bitcoin NFT space. In what feels like a short span of time, Bitcoin NFTs are blowing up online, and everyone is talking about ordinals, inscriptions, Gamma, Stacks, and higher fees per block. Bitcoin appears to be undergoing a change that has been years in the making.
In this article, we’re going to go over what ordinals are, how inscriptions work, Proof of Transfer (PoX), new sites like Gamma, and the pros and cons of this activity on-chain for Bitcoin. An outpouring of opinions have flooded Twitter with valid points on both sides, and I wanted to release an article that would serve as a general overview for people who are not fully caught up to speed. I’ve tried to simplify this without completely diluting what is going on here.
How is this going to impact Ethereum and other chains long term? Are NFTs flooding into Bitcoin going to ruin the chain? Will this prove to be too much of a strain on Bitcoin? Why is Stacks so important?
Let’s dig in and put our thinking caps on.
What are Ordinals?
Ordinals are Bitcoin-native NFTs (also referred to as digital artifacts). On sites like Gamma, creating an ordinal means inscribing images and text onto the Bitcoin blockchain. These are distinct from Stacks NFTs, which are by contrast not stored directly on Bitcoin. We’ll dig into Stacks and the state of the ecosystem later in the article.
Ordinals refers to the numbering of newly minted satoshis (the smallest unit of BTC, satoshi to BTC ratio is 100 million satoshis to one BTC) being sequentially ordered. Each satoshi can have an ordinal number between 0 and 2,100,000,000,000,000.
As the Ordinal Theory Handbook states: “Satoshis are numbered in the order in which they're mined, and transferred from transaction inputs to transaction outputs first-in-first-out. Both the numbering scheme and the transfer scheme rely on order, the numbering scheme on the order in which satoshis are mined, and the transfer scheme on the order of transaction inputs and outputs. Thus the name, ordinals.”
You can find the ordinals open-source project that makes all of this possible here.
If you really want to dig into ordinal theory, check out the writing here. An understanding of Ordinal Theory isn’t necessary for buying or interacting with ordinals, but it is definitely an interesting extension of the inherent mathematics of Bitcoin.
Ordinal Punk NFTs have made headlines recently for selling at higher prices. Ordinal Punk 94 sold on Wednesday (2/8/23) for 9.5 BTC (~214k). Considering how speculative ordinals feel at the present moment, large sales like this are definitely noteworthy. Ordinal transactions per block have blown up since late January.
But how does the NFT part of this actually work? At what point does this theory translate into metadata being attached to an actual satoshi? This is where inscription comes into play.
Inscriptions
An inscription in this context is metadata attached to a satoshi stored within a Bitcoin transaction. Inscriptions are limited by the block size limit, but this allows for inherent non-fungible properties for each satoshi that is inscribed.
The inscription is embedded within the transaction data of a Bitcoin. This is only possible because of a fairly recent segregated witness (SegWit) update.
The inscription process involves two phases:
First, a taproot output is committed to a script that holds the inscription content, which is then serialized within the transaction as an "envelope".
The second phase involves revealing the inscription through another transaction by spending the output created in the first phase, thereby displaying the inscription on the blockchain.
For a much more exhaustive and extensive explanation of how this actually works, I suggest reading Tara Annison’s article here. I also suggest drinking some coffee before reading it.
This is an example of inscription data, showing the satoshi (sat) and associated metadata.
Each satoshi is assigned an ordinal number to distinguish and associate it with a specific bitcoin. Not all ordinals have an inscription, leaving it up to the users to decide whether or not to attach one. The inscription, if present, travels along with the bitcoin in a transaction, allowing for a transfer of the digital artifact.
BTC NFTs vs ETH
When compared to Ethereum, the differences are significant:
Ethereum utilizes token standards like ERC721 & ERC1155 to create collections, and each NFT within a collection is given a tokenID to reference it. This is not how ordinals work.
The recent optimizations of Bitcoin’s Taproot upgrade mean that the fee to send inscriptions is lower when compared to minting on Ethereum.
BTC NFTs usage of inscriptions means the data is fully on-chain. This is in contrast to Ethereum-like NFTs utilizing anything from IPFS to AWS to store metadata.
So, we’ve got an understanding of ordinals, inscriptions, and the key differences at the time of writing between Bitcoin NFTs and how we traditionally think about NFTs on smart-contract based blockchains. But for someone who has been out of the loop with developments in the Bitcoin space, it is still unclear how people are interacting with these new NFTs and applications that are utilizing Bitcoin’s security. What is happening here? Let’s talk about Stacks.
What is Stacks?
Stacks is a Bitcoin layer for smart contracts. It enables NFTs, DeFi and dApps to be created that can benefit from the security of Bitcoin’s network. Stacks has its own smart contract programming language, similar to Solidity, called Clarity. Despite Bitcoin being the largest and most secure cryptocurrency by far, the network has inherent syntax and scalability limitations. Stacks relies on Bitcoin much like how layer 2s operate on Ethereum, but Stacks is maintained with its own nodes, and operates under a ruleset that is separated from Bitcoin. Stacks is a layer 1 blockchain, and simply utilizes the security of Bitcoin for settling transactions. STX is Stacks native token.
However, unlike Ethereum, Stacks doesn’t utilize Proof of Stake (PoS) as a consensus mechanism, it uses Proof of Transfer (PoX). I know, another consensus mechanism? We previously covered other consensus mechanisms here.
What is Proof of Transfer?
PoX is a relatively new mining mechanism, and you can find the original whitepaper here. Covering the complexity of this new consensus mechanism could easily be its own article, so I won’t go into too much detail on how this works. Take a look at this comparison table from the whitepaper.
Benefits of Proof of Transfer
It reuses energy that was already expended by Bitcoin
The design means anyone can mine, and you don’t need an ASIC or a room full of GPUs
Anything built through Stacks inherits Bitcoin’s security via settlement
Developers and builders benefit from Bitcoin’s properties without making any direct changes to Bitcoin
Bitcoin yields are possible for Stacks network participants
Cool. PoX is more eco-friendly, and seems like a consensus mechanism that is more forward thinking and reasonable when compared to PoW. Before we go over Gamma, I wanted to touch on BNS, because it is arguably as important and worth knowing about.
Blockchain Naming System
Anyone familiar with ENS and DNS will find BNS easy enough to understand. It’s exactly what you think it is – “a network system that binds Stacks usernames to off-chain state without relying on any central points of control.” Decentralized names that are secured on Bitcoin, registered through Stacks. Unlike DNS, they are strongly owned, so you decide where they resolve to.
BNS names are unique, human readable, and DID compliant.
.BTC names are registered through a smart contract, and having names anchored to the Bitcoin blockchain comes with Bitcoin’s security benefits. It’s like DNS, except hostnames can’t be hijacked. You can learn more about BNS here. You’ll need STX in a wallet like Hiro to buy a new .BTC domain. STX is available for purchase on centralized exchanges like Coinbase.
Let’s get back to talking about Gamma.
Gamma
As of writing, the leading no-code NFT marketplace on Stacks is Gamma. Browsing on Gamma is fairly laggy at peak times, and the team is working to scale up the site. The only way to buy NFTs on Gamma is to get a wallet like Hiro and send some STX to it.
Live auctions are already occurring, with categories like collectibles, fine art, photography, communities, utility, and music. While Gamma is still in its infancy, there are clearly a lot of people engaged and actively trading and building projects with utility (or at least the promise of it).
You can check out trending collections on Gamma here. Today, most (not all) of the trending and top collections are derivatives of original collections on Ethereum or Solana.
Here are some of my favorite projects happening right now being sold on Gamma:
Stacks Parrots/Parrot Radio: https://stacksparrots.com/
PepePunks: https://gamma.io/collections/pepepunks
Project Indigo (on-chain music): https://gamma.io/collections/indigo-act1-music
Megapont: https://new.megapont.com/
The Explorer Guild: https://www.explorerguild.io/
Stacksboard: https://www.stacksboard.art/
Now that we’ve covered all of the main topics for the recent changes with Bitcoin, let’s zoom out and try to weigh the pros and cons of what is happening.
The Good
Bitcoin is the most active chain, and holds by far the most value.
While Stacks was slow to gain adoption (I started buying STX in 2021), ordinals may bring enough attention to Stacks to give it the momentum it needs to truly take off.
That isn’t to say there aren’t DeFi protocols currently using Stacks. There are DAO, DeFi, NFT, and social token programs that are being built out on Stacks.
MiamiCoin and NYCCoin both had their five minutes of fame with the CityCoins project.
Explore some more projects on Stacks here.
Being closer to BTC means that an enticing project built using Stacks could potentially grow quickly.
Bitcoin is more decentralized and secure than Ethereum. Long term it may make sense to build there.
The Bad
A downside to inscriptions is that because the content is completely stored on the blockchain, actually removing salacious or inappropriate content is impossible.
Additional transaction size may result in increased transaction fees and demands for nodes.
Average block size has already increased as a result of ordinals popularity, which means higher fees per block. Block space blowing up would be largely negative for the Bitcoin community.
Some miners are advocating for censorship of transactions that involve BTC NFTs and dislike the potential direction this could head if kept unchecked.
The new NFTs and media on Bitcoin have consumed over 500 megabytes (MB) of space, costing creators over 6 BTC (~155k) in a short span of time. That’s a lot of money for not a lot of memory.
Many Bitcoin purists are not thrilled with this renewal of interest in Bitcoin NFT development. While experimentation may mean more exciting changes for the Bitcoin community, the original Bitcoin whitepaper makes no mention of Bitcoin being used for data storage. It was only ever intended for financial transactions. The chain processing NFT interactions means potentially higher fee rates across the board.
Moving Forward
The next few months will be interesting. We will see more awareness in the web3 community of building using Stacks and Bitcoin, and a killer NFT collection may be on the horizon. Adoption may equate to having a tangible, rational reason for using Bitcoin for NFTs as opposed to Ethereum (or any other chains). The strongest argument for having Bitcoin-native NFTs is the ability to have the metadata be fully on-chain, but it will come at a cost. Will Bitcoin maximalists push back against these developments by implementing or proposing permanent changes to Bitcoin? Time will tell. For now, consider playing around with Stacks and exploring the new projects in development.
Thanks for reading! If you learned something or enjoyed reading this article, let me know in the comments below, and consider subscribing and sharing.
References:
https://ordinals.com/
https://ordinalsdirectory.com/
https://semisol.dev/ordinals/
https://www.nftculture.com/guides/ordinals-are-bitcoin-nfts-an-overview-on-inscriptions/
https://www.coindesk.com/tech/2023/02/08/bitcoin-nfts-explode-in-popularity-as-bitmex-research-shows-13000-ordinals/
https://finance.yahoo.com/news/bitcoin-nfts-explode-popularity-bitmex-224700984.html
https://bitcoinmagazine.com/culture/bitcoin-ordinals-can-change-mining-revenue
