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So you might have heard about NFTs, or non-fungible tokens. They’re basically like digital trading cards that you can buy and sell. They live entirely on the blockchain. Some popular NFT collections include the CryptoPunks and the Bored Ape Yacht Club. While most NFTs are on the ETH blockchain, Bitcoin NFTs are now making their way mainstream. Here's everything you need to know.
Here’s the thing: NFTs exist on different blockchains. Most NFTs are stored on the Ethereum blockchain. This is because the technology that powers NFTs uses “smart contracts,” an innovation that first became available on Ethereum in 2015.
Some other chains like Solana also have their own NFTs, but Ethereum has been the largest blockchain that allows for NFTs… until now.
Today, you can purchase NFTs on Bitcoin. That’s right, the original blockchain (and the most popular cryptocurrency project) now supports NFTs. Bitcoin NFTs work quite differently from those on other chains — in fact, they’re only possible because of an update that was introduced to the Bitcoin codebase in 2021.
Pros
ConsSo here’s the deal: Most blockchains get updated regularly for security and expansion purposes. Bitcoin received an upgrade (codenamed “Taproot”) in November 2021 that made it easy to store large amounts of data on the Bitcoin blockchain. This was meant as a future-proof upgrade in order to help Bitcoin stuff more data into every block.
Some enterprising programmers, however, realized they could use this upgrade to store entire files on the Bitcoin blockchain — thus creating Bitcoin NFTs.
The Ordinals protocol is where the rubber meets the road on Bitcoin NFTs. The basic gist (with as little technical mumbo jumbo as possible) is that Ordinals allows you to “inscribe” a tiny amount of Bitcoin with a unique ID that lets you track that particular digital asset around.
In fact, you can go to the Ordinals website today and see the latest “inscriptions” (or NFTs) that people have created on Bitcoin. These range from profile-picture-style NFTs to messages to time travelers, memes, and even an audio file of Elon Musk talking about the teachings of Jesus. Someone even created a playable videogame as a Bitcoin NFT.
Pretty cool stuff, right?
You will need a wallet to store the Bitcoin Ordinals that you want to purchase. Examples of wallets that support it include the Ordinals Wallet, Hiro Wallet, and Xverse. We’ll use the Ordinals Wallet for this example.
You need to set up your wallet on whichever platform you pick. Select a unique password for it, and you’ll be assigned a seed phrase that lets you recover your wallet in case you forget the password.
Send BTC tokens to the address of your wallet, which you’ll use to pay for the Ordinals.
Once your funds have been deposited, you can browse through the Ordinals collections and select the one you wish to purchase. Pay for it (including NFT royalty fees if they apply) and it'll be added to your wallet. The process is similar regardless of what wallet provider you choose.
TwelveFold is a collection of 300 generative art pieces inscribed on the Bitcoin blockchain, with each piece representing a complete art project. This Ordinals project was created by Yuga Labs, the company behind the famous Bored Ape Yacht Club collection and the APE token.
Because of the limited number of pieces and the clout of Yuga Labs, the TwelveFold collection has the potential to appreciate in the future.
Bitcoin Rocks is a limited collection of 100 art pieces inscribed onto satoshis on the blockchain. Each piece pays homage to the early days of crypto collectibles and NFTs. This is one of the most popular Ordinals projects, and the limited collection gives it the potential to appreciate in the future. Note that the lowest bid one can currently make is 2.7BTC, which represents over $60,000.
Timechain Collectibles is a collection of 21 exclusive Ordinals that showcase different types of timepieces, including pocket watches, ancient watches, clock towers, and more. All the pieces are minted into a single block and have consecutive Inscription numbers from 356-377. Some pieces are rarer than others and thus more expensive. Auctions are held on the project’s Discord channel, with fierce bidding because of the exclusiveness.
People are split on whether Bitcoin NFTs are a good thing. Below are some tweets highlighting different viewpoints on this contentious question.
One of the benefits of Bitcoin Ordinals NFTs is they allow you to store much more data than you can on Ethereum. In the above thread, famous crypto personality Eric Wall explains how he used an Ordinals NFT to create the largest Bitcoin transaction (by data size) the network had seen in seven years. And he paid just $20 in fees to do it. In comparison, to store an NFT this large on Ethereum would have cost close to $140 — a 7x difference.
Securing the Bitcoin blockchain requires “mining.” This is cost-intensive, so the network rewards miners by giving them Bitcoin. Each time a new block is mined, 6.25 Bitcoins are generated and awarded to miners.
Each block, however, gets harder to mine. There are concerns that Bitcoin will soon reach a point where it is not properly incentivizing miners to keep paying the enormous costs to mine new blocks. In response to this, some are saying that finding more Bitcoin use cases — such as Bitcoin NFTs — will help revitalize the Bitcoin ecosystem and solve this looming problem.
It’s generally accepted that Bitcoin was intended to be a payments-only blockchain. Bitcoin “maximalists,” who believe Bitcoin should stick as closely as possible to its original purpose, are skeptical of Bitcoin NFTs.
To them, these projects pollute the Bitcoin ecosystem, using up valuable space on the blockchain. In addition, Bitcoin maximalists bring up an important point about Bitcoin NFTs — they greatly reduce the fees miners collect for their work.
Since the image and video files of Bitcoin NFTs take up so much space, each “block” of the Bitcoin blockchain is composed of fewer and fewer transactions. Fees are normally charged per transaction, so the fewer transactions there are, the fewer fees are collected. This could spell doom for the Bitcoin ecosystem if it cannot incentivize miners to keep the blockchain running.
Interested in more NFT news? Check out our list of top NFT newslettersto stay in the loop.
Bitcoin NFTs bring the important innovation of tradeable digital assets to the very first blockchain to ever exist. While not everyone agrees this is necessarily a good idea, there are positives and negatives to it, and, most importantly, anyone can decide for themselves if they want to use Bitcoin NFTs or not.
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