Bitcoin ordinals are arguably the most interesting development to happen on the world’s most valuable public blockchain in years.
In early 2023, bitcoin ordinals were the only topic the crypto community was discussing. Ordinal numbers not only bring new use cases to the Bitcoin blockchain, but also cause a stir and divide opinions within the community.
Some of the bitcoin community criticizes that ordinals clog the blockchain, while others hope that ordinals will save bitcoin in the long run.
Will Ordinal Numbers Save Bitcoin? let’s find out
What are bitcoin ordinals?
Ordinals are a numbering scheme that allows tracking of individual satoshis.
A satoshi is the smallest unit of the Bitcoin cryptocurrency. 100 million satoshis make one bitcoin.
Bitcoin and Satoshi cryptocurrencies are inherently fungible, meaning you cannot tell one bitcoin from another. To give you a real world example, consider a $100 bill. The $100 bill you have in your wallet is the same as the $100 bill in your friend’s wallet and the millions of other $100 bills in the world.
Using the atomic number scheme, we can now create non-fungible satoshis. It does this by infusing satoshi coins with data to make them unique and one of a kind, creating a non-fungible token (NFT).
It’s like scrawling your name, date and location on your $100 bill to distinguish it from the rest.
Are Ordinals Key to Bitcoin’s Long-Term Sustainability?
Let’s split this section in two for a high-level look at how the advent of ordinals is impacting the Bitcoin blockchain.
1. The existence of Bitcoin is questionable
Bitcoin is the oldest and most valuable public blockchain in the world. The cryptocurrency Bitcoin has made a name for itself over the past decade as an inflation-resistant alternative to fiat currency.
Bitcoin is considered a hedge against inflation due to its unique monetary properties. The Bitcoin protocol is expected to halve its emissions roughly every four years.
Emissions refer to the block rewards miners receive each time they create a new block.
Currently, a miner gets 6.25 bitcoins every time they create a new block. At the next halving, expected in April 2024, block rewards will be reduced to 3,125 bitcoins.
Halving events occur every 210,000 blocks (roughly four years) and will continue until block rewards are reduced to zero (expected to be in 2140).
There is concern in the bitcoin community that removing block rewards could lead to the demise of the bitcoin blockchain. This is because block rewards are currently a significant part of the blockchain’s “security budget”.
Block rewards incentivize miners to validate, confirm, and confirm transactions on the Bitcoin blockchain. Without a block reward, miners have to rely solely on transaction fees (gas fees), which may not be profitable due to high electricity and mining hardware expenses. As miners move to greener pastures, the Bitcoin blockchain becomes vulnerable to attack.
1/9) The value of BTC must double every four years over the next century or sustain extremely high fees
Just to maintain the current level of security
Such growth is impossible because, based on current prices, it would exceed world GDP in 31 years
Therefore; BTC security is doomed!
— Justin Bons (@Justin_Bons) April 23, 2023
2. Ordinal numbers support miner revenue
Before the advent of ordinal numbers in early 2023, the bitcoin blockchain had a specific use case: the transmission of value over the internet.
The bitcoin blockchain works like a banking system, allowing users to send their bitcoins (or fractions of bitcoins) to each other. With each transfer, the gas fees are collected from the miners and the transaction is included in the upcoming block.
With people now able to write artwork, text, and other data onto satoshis, a new market for Bitcoin NFTs is emerging.
Every time a satoshi is entered, bought, sold or transferred, miners receive gas fees to facilitate the transaction.
In the first half of 2023, the hype surrounding bitcoin ordinals caused the number of transactions on the bitcoin blockchain to explode. Gas fees rose to as much as $30 per transaction by May 2023, compared to an average of $1 to $2 per transaction over the past two years.
The most incredible thing is that this all happened in the midst of a crypto bear market – a period usually associated with a below-average number of crypto transactions.
BREAKING: #Bitcoin block 788695 contained transaction fees that were higher than the block subsidy.
6.7 BTC transaction fees + 6.25 BTC subsidy
This is the first time in history that this has happened due to competitively high block space demand. pic.twitter.com/J7IcwzIVKE
— Joe Burnett (🔑)³ (@IIICapital) May 7, 2023
Bitcoin ordinals divide the community
The bitcoin community is divided over ordinal numbers. The purists firmly believe that the blockchain should only be used for its original intended purpose: the peer-to-peer transfer of value.
Purists have criticized ordinal numbers for clogging the blockchain. Thousands of digital artworks and meme coins have been created using ordinal number technology, resulting in longer transaction confirmation times and higher gas fees.
Meanwhile, ordinal enthusiasts have pointed out the newfound utility that ordinals bring. This part of the community has also pointed out that the data inscribed on each satoshi is stored on-chain, creating “digital artifacts”.
In contrast, NFTs on other Layer 1 blockchains like Ethereum (ETC) use off-chain storage solutions like the InterPlanetary File System (IPFS) to store their data.
Can Ordinal Numbers Help Bitcoin Avoid a Security Crisis?
The debate surrounding bitcoin ordinals is fascinating. The argument of enthusiasts pointing out that ordinal numbers play a central role in boosting miners’ revenue, or the “security budget” of the Bitcoin blockchain, is valid.
However, increasing gas fees per transaction does not support Bitcoin’s ultimate dream of becoming a global peer-to-peer payment system. Bitcoin just can’t compete with traditional competitors like Visa and Mastercard, as gas fees range from $1 to $2 per transaction (not to mention $30 per transaction!).
Additionally, Bitcoin’s 4MB block size limit only allows a limited number of transactions to be included in a block (although recursive enrollments provide a workaround). This eliminates the possibility of increasing the overall gas rates charged for a block while keeping per-unit gas rates to a minimum.
Being optimistic, we should keep in mind that the blockchain industry is evolving rapidly. We’ve already seen network upgrades for improved scalability on leading blockchain networks like Ethereum. It’s fair to say that we can expect the Bitcoin blockchain to be upgraded to maximize its success.
We also want to highlight the fact that bitcoin ordinals are still in their early stages. Over time, ordinal technology will move beyond artwork and meme coins. The possibility of writing data into an immutable blockchain will certainly fascinate quite a few.
The conclusion
At the time of writing, we have seen the Bitcoin ordinal hype fall from its peak. The crypto world won’t be surprised by the news – people get easily intoxicated by hype, FOMO and the chance of outsized gains. As a product ages, the crowd tends to flee the company in droves.
The real work for the ordinal community starts now. The developers have created a promising product, which has clearly found favor with the first users.
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