Tech

Bitcoin’s technological leap or a distraction?

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Participants gathered at the Ordinals event in Dubai, United Arab Emirates, 3D generated image.

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The regional unrest and historic floods that rocked Dubai during Token2049 did not stop over five hundred Ordinals enthusiasts who attended the first “Ordinals Meetup” hosted by the Ordinals Council. Some even had to go knee-deep into flooded neighborhoods, I was one of them, all to find out what the Ordinals are and what they are about.

What are Bitcoin ordinals?

Bitcoin ordinals, introduced in 2022 by developer Casey Rodarmor, represent a transformative addition to the Bitcoin blockchain. This concept allows unique digital content to be inscribed on individual satoshis, the smallest units of bitcoin, each marked with a specific ordinal number that reflects its sequence in the order of minting. These ordinals, tracked via a transaction’s unique identifier or TXID, indicate a transaction’s chronological position within the blockchain. This facilitates inscribing data such as images, text or code directly onto the blockchain via Segregated Witness (SegWit), improving storage capabilities.

This development of ordinals has sparked controversy within the Bitcoin community regarding its potential impact on the efficiency and integrity of the blockchain.

Evolution of Bitcoin’s utility

Historically, Bitcoin has been lauded as a premium store of value, similar to digital gold. Fundamental similarities, such as limited supply, durability and decentralization, are considered the main points to support this argument.

However, supporters of the Ordinals argue that their innovations are a breath of fresh air for the network’s technical capabilities. Indeed, Bitcoin is evolving, and with it the narrative, or at least that’s according to Serge Ajamian, CEO of Centauri Capital and co-founder of the Ordinals Council.

Ajamian believes that Bitcoin is now “transforming from a store of value to a utility for art, culture, data storage, DeFi and gaming.” Taking inspiration from the boom in tokenized smart contracts on Ethereum, Ajamian sees this development as a similar transition, but on Bitcoin. As noted, Ordinals allow Bitcoin to host non-fungible tokens and other assets. While it is similar to Ethereum in principle, there is a big difference in that the assets do not rely on external data links to Amazon Web Service. Instead, the assets reside directly in the Bitcoin blockchain. Supporters see this as a substantial improvement over the limitations of the Ethereum network.

One potential drawback, however, is that the Bitcoin blockchain has limited capacity in terms of block size. In May 2023 the demand for ordinal registrations skyrocketed. As a result, fees for using the Bitcoin blockchain have increased, sometimes dramatically. In fact, excess demand is also processed on Bitcoin’s sister blockchain – Litecoin – using the LTC20 ordinal standard. In other words, we have come full circle and are back to discussing top-level blockchain scaling solutions. But that’s a topic for another time.

Expanding market horizons with BTC infrastructure and investments

Regardless, the technology is here and the BRC20 standard may just be the beginning of a tokenization trend. Last week, MicroStrategy unveiled its plan for a Bitcoin-based decentralized identity via Ordinals. According to the CEO of MicroStrategy, Michael Saylor, the idea is to provide “trustless, tamper-proof and long-lasting” decentralized identities using the Bitcoin blockchain.” A service called “Orange for Outlook” integrates digital signatures into emails, allowing recipients to verify the sender’s identity.

Notably, BRC20 is not the only tokenization standard. Bitcoin developers continue to innovate. New protocols like Runes have the potential to improve pain points like spam on the network. This speaks to the horizontal development currently underway regarding tokenization.

And while this all sounds great on paper, I remain on the fence, not least because the idea of ​​collectibles on a blockchain is strange to me, but also because of the unforeseen consequences that could arise if an oft-clogged Bitcoin network ends up being perpetually clogged. At the same time, being an avid collector of Valentino shoes, I can still perhaps glimpse what all the fuss is about!

Culture, community and concerns

Despite the wide range of applications, lingering questions and concerns remain. For example, will the new enriched Bitcoin ecosystem lead to an influx of spam and speculative excess not dissimilar to the ERC20 NFT market?

According to Ajamian this will not happen. In his opinion, “the promise of the Ordinals is high. Ordinals produce the only persistent NFTs. The data is recorded directly on the blockchain, so only the Ordinals can keep the promises made by the ERC20.”

As previously noted, this is not the first time the Bitcoin network has suffered huge fees due to a clogged memory pool. Such events create slower transaction times, increase energy consumption, and give rise to long-standing debates about layer-one scaling solutions.

But Arjamin and the Ordinal Council do not seem troubled by any of these concerns, despite the fact that the vast majority of the world’s population still does not have a bitcoin standard. “These are just early stage problems. Ordinals introduce more complex transactions to Bitcoin, which can slow down the network, but planned improvements and improved incentives for miners aim to maintain its efficiency and sustainability.”

Time will tell whether the Ordinal Council’s claims are based on fact or wishful thinking. As far as I’m concerned, I don’t think giving up the hand is the best strategy.

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