There has been a lot of noise and questions recently about Ordinal Inscriptions.
So what are they? The simple answer is that ordinals are non-fungible tokens (NFT) you can mint on the Bitcoin blockchain.
But Ordinal Inscriptions aren’t your usual NFTs. Unlike Ethereum NFTs, which depend on off-chain metadata that can be modified, Ordinal Inscriptions enable all data to be inscribed directly on-chain.
It was this flaw in Ethereum NFTs that caused software engineer Casey Rodarmor to deem Ethereum NFTs incomplete and launch the Bitcoin Ordinals protocol.
Those in favor of change believe Ordinal Inscriptions could cause an important shift in the bitcoin community and improve the technology behind NFTs.
Yet, many questions I’ve been receiving from clients boil down to, “is this good or bad for bitcoin?” and “will this disrupt the usability of it.”
A case against change?
Despite the potential benefits of Ordinal Inscriptions, there has been a lot of debate over whether they are a “good use” of block space.
The challenge has been that as more Ordinals are being inscribed, the cost of bitcoin transactions has risen. That’s because Ordinals introduce additional, non-financial data on the Bitcoin blockchain that bog down on-chain confirmation times. This includes images, audio clips, even games.
Those not in favor 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 bitcoin’s use case as first and foremost money.
Ordinals challenge the fungibility of satoshis in the Bitcoin network. 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. Take rare collectible coins as an example: While a penny may have a face value of exactly 1 cent, its design and mint year could make it worth a dollar or more in the eyes of some beholders.
This debate over whether these individual units must be deemed equal is unfolding before our eyes, and I think it needs to be understood.
Bitcoin is money, and that’s the largest and most important use case, impacting the most people in the world. Which is why I believe that Ordinals and other use cases both known today and yet to emerge will remain niche.
I view this as an exciting period – but one that, as many fads do, will fade. I don’t see Ordinals being the desire for many to use Bitcoin’s block space.
Bitcoin is money. In my opinion, any changes to the protocol should be slow and methodological.
Ultimately, the markets decide
One of the biggest yet baseless claims I often hear is how Bitcoin doesn’t evolve or change.
Now, are there kernels of truth in that? Sure. You don’t “move fast and break things” when working to build the next global monetary system; we’ll leave that for VC start-up tech firms.
However, there have been some upgrades that demonstrate the need and merit of change. The Lightning Network, for example, could accelerate bitcoin commerce and everyday use.
Inscriptions are yet another example of attempts to change the blockchain. Inscriptions became eligible in bitcoin blocks with the most recent upgrade to the protocol called Taproot.
Ultimately, the beautiful thing about Bitcoin is that it’s permissionless and the ultimate free market for uses. And this is what fosters change.
At the same time, free and open markets will dictate if Ordinals are demanded and are valuable. The permissionless nature of Bitcoin allows for this competition to play out.
Ordinals are not an attack on Bitcoin but could begin conversations again with a hard or soft fork. I view a hard fork as Ordinals' most painful and trying outcome.
The advisor takeaway
As an advisor with clients with bitcoin and questions on Ordinals, the most significant takeaways revolve around what makes bitcoin unique. Most, if not all, other cryptocurrencies are decentralized in name only – Bitcoin is not.
But due to the decentralized nature of Bitcoin, developers are free to modify Bitcoin’s current rule set. If demand is there and the modifications result in splits in bitcoin holders and the community, investors will have a choice over what to do with their money.
If we see a hard fork, any new tokens or projects would accrue to clients and they could then decide if they want to hold, sell or buy.
While it might seem scary, I doubt Ordinals will create that much friction and division within Bitcoin. Even if it did, one could be passive and simply let the market forces play out. Being an open, permissionless protocol allows for moments like this to occur, and that’s healthy in the long term.
Regardless of opinions of “right” or “wrong,” seeing the conversations and debates happening about Ordinals is good. It allows bitcoin to test its resilience and robustness. We will continue having these conversations as Bitcoin proceeds on its path toward global adoption.