This is an opinion piece by Roy Sheinfeld, co-founder and CEO of Breez, a Lightning Network mobile app.
The more wonderful something is, the more passion it will arouse. Bitcoin is one of the greatest wonders of the late modern world, which is why Greg Foss is understandably very passionate about it. So passionate in fact, that he dropped 11 F-bombs in 31 seconds out of concern for his future (despite the fact that he is Canadian!).
Why is such a staunch Bitcoin supporter so worried? Because two guys in cheap wizard costumes did a grumpy Fortnite dance? Certainly, the stakes must be higher.
According to some, a battle is underway for the future and soul of Bitcoin. According to others, we just got a fun, cheesy, harmless way to play Bitcoin that makes it even more fun and cheesy, but no less revolutionary.
Ordinals, registrations and the BRC-20 protocol are the bone of contention(s). Ordinals identify individual sats; inscriptions allow writing objects such as text, images and data files; and BRC-20 allows second order tokens to be hit directly on them, like an Ethereum-lite. In effect, they are introducing storage as a new use case for the Bitcoin blockchain in addition to its current and primary use as a ledger for currency transactions. These features affect block sizes, transaction fees, and validation times, so they are not without consequence.
The bone of contention is what they mean for the future of Bitcoin. Are they pathological, like a tumour? Do they offer a competitive advantage, like chlorophyll and claws? Or are they just harmless and benign, like male nipples or that little dangling thing at the top of your throat?
Ordinal ABC One two three
Of the recent bitcoin developments listed above, ordinals came first. Casey Rodarmor, the guy who “invented” ordinals (this time around), sought to design “stable identifiers that can be used by bitcoin applications.” In other words, he wanted to index the sats by giving each a serial number that would survive through time and UTXOs.
Of course, giving each sat a unique id means they are no longer Perfectly fungible because they are no longer strictly identical, when applying the ordinal convention. just like the Library of Congress Classification System (LCC) for books in research libraries or web page URLs, ordinals make each sat unique and retrievable. Identifiability affects fungibility without eliminating it.
Listings are the second recent and controversial development in the Bitcoin world. The “Handbook of Ordinal Theory” gives a wonderfully succinct definition of inscriptions, usefully relating them to ordinals:
“Inscriptions inscribe sats with arbitrary content, creating bitcoin native digital artifacts, more commonly known as NFTs…These inscribed sats can then be transferred using bitcoin transactions, sent to bitcoin addresses, and stored in bitcoin UTXOs. These transactions, addresses, and UTXOs are normal bitcoin transactions, addresses, and UTXOS in all respects, except that to send individual sats, transactions must control the order and value of inputs and outputs according to ordinal theory.
Of course, Bitcoiners are far too sophisticated to get sucked into all of this. bored monkey. If we had to protect cartoons on our blockchain, we would. magicians instead of monkeys. I mean monkeys? Let’s go.
Never mind. Think of inscriptions as blockchain tattoos. Some will love them, others will despise them. The world (and the cookie data of a transaction) is big enough for both.
Bitcoin’s third recent development is the BRC-20 protocolwhich allows people minting and distributing tokens according to predefined parameters. These tokens are written as inscriptions on sats marked with ordinals, allowing us to come full circle. These three features allow users to create digital artifacts/NFTs and use the Bitcoin blockchain to distribute and trade them.
So how are you? Not surprisingly, some people are drawn to particular numbers, like one, seven, or 69,420, so certain sats are coveted because the ordinals created them.”rare(although, if you think about it, every ordinal number is unique, so each is exactly as rare as the other).
There is also a market for BRC-20 tokens, many of which are just second-rate bitcoins. For example, the Token $OG$ and the $PIZA token both have a supply of 21 million (much like bitcoin) and at one point had a market capitalization of around $10 million.
The result is that:
- Satellites are now uniquely identifiable according to a new convention
- People can add data to sats
- Token minting algorithms are a kind of registration data, so people can mint tokens on the Bitcoin blockchain
It is important to note that while Ordinals, Enrollments, and BRC-20 are recent developments in how Bitcoin works and how we use it, they are not really “innovations” because they are not are not really new. Something like Ordinaux has been proposed as BitDNS back in 2010. Use OP_RETURN to store data strings on UTXOs dates back nearly a decade. And minting second-order “tokens” on an underlying blockchain is essentially the idea behind ethereum, which is not really new. (Tip of the hat to Giacomo Zucowho looked into this subject a presentation he gave in Prague.)
What it means for Bitcoin: transaction fees
BRC-20 ordinals, inscriptions and tokens are, of course, controversial. While some love them, as recent months’ transaction fees attest, others are puzzled or annoyed. Even the guy who invented the BRC-20 said“These are worthless. Please don’t waste money on mass hitting.
OK, but “worthless” is not synonymous with “evil”. Some people think tattoos and Big Macs are worthless, others love them. So what’s the problem ?
Opposition to new Bitcoin features generally stems from assumptions that:
- Ordinals and Listings Make Bitcoin Less Like Cash
- They make transactions more expensive
Let’s deal with the last point first. Thanks in part to ordinals, the number of transactions in the mempool has increased by about two orders of magnitudeand the backlog data was multiplied by about 150.
The effects are ambivalent. On the one hand, more data per transaction increases storage and computational loads for node operators, for which they receive no compensation. Not great.
On the other hand, more data to calculate means higher fees for miners. In fact, the average on-chain transaction fee has reached $30.91 recently. High in chain transaction fees are not bad. In fact, high fees are a good thing. They incentivize miners, which attracts miners and encourages them to invest, which keeps them hash rate high and makes Bitcoin safer. It’s about as diabolical as a Saint Bernard carrying a barrel of brandy.
Additionally, high on-chain fees only reinforce the different use cases between on-chain bitcoin and sats on the Lightning Network. On-chain payments have arguably never been well suited for fast-paced microtransactions, as they treat small and large transactions pretty much the same. On the other hand, Lightning fees are proportional to the amount of the transaction. If you’re paying two, or three, or 10 times the price of your beer or pizza in transaction fees for an on-chain payment when you could pay a thousandth on Lightning, you’re wrong.
If on-chain fees prevent you from paying with bitcoin, you should probably take advantage of Lightning’s proportional fees. If Lightning fees prevent you from paying with bitcoins, you should probably take advantage of one-time on-chain fees.
What does this mean for Bitcoin: Money-ness
As to whether bitcoin is still money in a world of ordinals, there are several ways to answer this question. First, we could comb through miscellaneous definitions of What money i.e. draw up the ultimate list of criteria and use it to assess Bitcoin White Paper And all subsequent protocols. Aristotle would be proud, but the answer would be unnecessarily theoretical and abstract.
Alternatively, we could actually observe what people are doing out there in the world. As reasonable as this new use case is, people love signups and are willing to pay for it.
- Who are they paying? Minors.
- How do they pay? Transaction fees.
- What do miners do with transaction fees? Reinvest a portion to cover the costs of mining more bitcoins.
- Where is this bitcoin going? From the miners to the world, where it circulates.
There you have it: payment and circulation. People pay miners, miners pay people, they use bitcoin, so bitcoin is money. We found the essence of currency without a dictionary (sorry Aristotle).
In other words, bitcoin is still money, but the bitcoin blockchain can Also be used for storage. Note the boolean operator: (money And storage) not (money Or storage). Indeed, adding new sensible use cases could be a prerequisite for any currency from now on. The question is simply, what counts as “sensitive”? But time – and the market – will tell.
Good, bad or benign?
So back to the original question: are ordinals, listings, and BRC-20 good or bad for Bitcoin? Or are they just a new feature of the world that we will adapt to without too many consequences?
Well, those functions weren’t at the top of my personal list of priorities. i can’t say that Taproot helpers or “ordinal tokens” really make the world a better place.
But I am not afraid of these developments either. They increase fees, and higher fees have beneficial side effects for the blockchain. What’s good for Bitcoin is good for the world, whether it’s intentional or not.
And they reinforce the case for Lightning as a low-cost way to use bitcoin as currency for small, everyday purchases and transfers. Generally, what’s good for Lightning is good for Bitcoin, which is good for the world. The GIF Wizards and subsidiary tokens can’t really do much harm, so I’ll just stay cool, stack the sats, and keep making Lightning as good as possible.
This is a guest post by Roy Sheinfeld. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
