Introduction
Bitcoin Ordinals are becoming a well-established form of NFT. Leveraging the power of “Ordinal theory” to inscribe data on satoshis (Bitcoin’s smallest denomination).
BRC-20 (Bitcoin Request for Comment 20) is the latest trend to catch the NFT ecosystem’s attention.
Here’s a rundown of why this new token is catching mainstream Crypto Twitter attention.
Article Outline
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Background
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Bitcoin Ordinals
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BRC-20
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Analysis
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Future Prospects
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Closing Remarks
Background
Bitcoin Ordinals
Bitcoin Ordinals are akin to Ethereum non-fungible tokens (NFTs), but on the Bitcoin network. They leverage ordinal theory or the Ordinal Protocol to assign a number so the inscribed satoshis (Bitcoin’s smallest denomination) can be tracked.
Ordinals began in December 2022 but only really gained traction towards the end of January 2022. Since then several big-name NFT projects have entered the Bitcoin network including OnChainMonkey, DeGods, and Yuga Labs to name a few.
However, while it is a new innovation and use case on the network it has been met with criticism following the astronomical transaction fees as the network becomes congested.
BRC-20
While the name is similar to the Ethereum counterpart (ERC-20) they are different.
In short, the core function of BRC-20 tokens is to allow users to trade fungible assets via the Ordinals protocol.
To mint a BRC-20, you create a ‘mint’ NFT with the amount to be minted.
To transfer/sell a BRC-20, you create a new ‘transfer’ NFT with the amount to be transferred/sold.
These ‘transfer’ NFTs can be listed just like NFTs where buyers purchase the fixed batch amount (while the ‘mint’ NFT always stays in the original minter’s wallet).
It would be as if you have to create a new ERC721 every time you want to make a transfer or trade of an ERC20.
How do I interpret this? You’re effectively trading the proof of ownership certificate for the underlying mint NFT using Ordinal theory to track it.
Analysis
The number of transactions has gone parabolic as interest ramps up:
Despite the enormous uptick in interest, the overall market cap remains tiny compared to ERC-20 tokens:
But are NFTs (Ordinals) meant for the Bitcoin network? What types are appropriate to be included given the high transaction cost and security value proposition from the most decentralized blockchain?
Transaction Costs Skyrocket
Transaction costs on Bitcoin have gone through the roof! It’s the highest it’s been since May 21, 2021, when the entire crypto market lost 80% of its value overnight.
This exuberant cost has caused centralized crypto exchange Binance, to halt Bitcoin withdrawals as it navigates the 18x month-on-month increase in costs.
What’s driving the parabolic increase in BRC-20 activity? ChainLinkGod provides some insights around the key marketplace for trading these:
Clearly, the fees are not sustainable. But this hasn’t prevented development in the infrastructure surrounding Ordinal inscriptions and specifically meme tokens on the Bitcoin network.
Top Marketplaces
UniSat is leading the charge on the market share of the trading volume since it arrived on the scene late last month (just when BRC-20s started to take off):
But there’s a catch to trading these BRC-20 tokens:
Headline Tokens
So what are the main BRC-20 tokens? Here are the top tokens by volume:
Most of the inscriptions are text based given the prohibitive costs. However, there are some videos and other media being inscribed:
But it’s clear some are inscribing entire applications: 70 were added on May 10th alone.
This Taproot Wizard inscribed 4MB of data in February costing 0.3 BTC ($10k USD).
Since this was inscribed in February 2023, the price to put 4MB of data on the Bitcoin network would cost 32 BTC ($1m USD).
Future Prospects
It’s likely we will continue to see an increase in inscriptions in the short term as the hype continues.
However, there is resistance and a risk that some may attempt to put a stop to inscriptions altogether. Grayscale put their argument forward well:
Utilizing the Bitcoin network to store arbitrary data contradicts the primary objective outlined in Satoshi’s 2013 whitepaper, which is for Bitcoin to serve as a “peer-to-peer electronic cash system.“
When comparing Ordinals to Ethereum’s ERC-721 we can see a distinct value proposition around immutability:
Ethereum offers more flexibility around the NFT whereas Bitcoin offers simplicity, and less flexibility but enhanced security. This value proposition lends itself to the types of assets or data to be stored on each chain.
Market Sentiment
The Bitcoin maxis are making their opposition known. Highlighting the high transaction costs making it impossible to transact on L1 Bitcoin without paying huge fees.
The latest “copypasta” going around Crypto Twitter:
How to Inscribe
For those that would like to play around with the tech and inscribe their own, this is a useful guide:
But err on the side of caution! The infrastructure is clunky in comparison to Ethereum and other smart contract enabled blockchains.
Closing Remarks
Bitcoin Ordinals and the BRC-20 tokens have garnered attention in the NFT ecosystem by offering a unique approach to tracking data on the Bitcoin network.
While the concept shows promise, it faces challenges due to the high transaction costs and concerns about the appropriateness of NFTs on the Bitcoin network.
Despite these hurdles, the marketplaces for BRC-20 tokens have emerged, but sustainability remains a question. As the hype continues, there is a risk of resistance and potential opposition to inscriptions on Bitcoin.
Ultimately, the value proposition of Ordinals lies in the enhanced security of Bitcoin compared to Ethereum's flexibility. The future prospects of this technology remain uncertain, but further exploration and development are likely to continue in the short term.
Origins Analytics
At Origins we leverage data-driven decision-making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs. To find out more, please visit our website or Twitter.
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