Non-fungible tokens (NFTs) have been a standout feature in decentralized finance over the last few years. The NFT concept was considered a revolutionary breakthrough for artists and collectors when it emerged. The prospect of huge financial returns from ownership of these digital assets led to a surge in the NFT marketplace.
Initially, the Ethereum blockchain and Solana Network were the dominant forces in NFTs — helping launch marketplaces and mint NFTs. However, the innovative layer 2 scaling solutions of the Bitcoin blockchain have enabled the network to catch up in the NFT space. This piece looks at how Bitcoin technology has evolved in the NFT space.
Bitcoin's layer 2 scaling solutions
Bitcoin's base layer blockchain has limited programmability and lacks complex smart contracts, which does not allow developers to mint non-fungible tokens. However, Bitcoin's Layer 2 solutions, such as Counterparty, Stacks, Rootstock, and Liquid, have allowed developers to create NFTs on Bitcoin.
These layer 2 solutions also enhance NFT scalability on Bitcoin while offloading some computational workload from the main chain. For instance, Liquid supports the creation and transfer of NFTs among other Bitcoin-based assets. On the other hand, Rootstock operates as a Bitcoin sidechain, allowing developers to mint NFTs on the RSK network. Others, such as Stacks, enable DApps and smart contracts on Bitcoin while allowing the creation and trading of NFTs.
Bitcoin's layer 2 solutions have increased the network's transaction throughput while lowering transaction fees and environmental impact. They have also enhanced Bitcoin's programmability, helping unlock new utilities such as De-Fi.
Emergence of ordinal inscriptions
Ordinal inscriptions were developed on the Bitcoin network by Casey Rodarmor in early 2023. This approach allowed satoshis to be easily numbered and tracked. These inscriptions allowed for the creation of ordinal NFTs. Ordinals attach arbitrary data such as images, videos, and games to an individual satoshi on the Bitcoin main network.
One satoshi is the smallest denomination of Bitcoin and equals 1/100,000,000 of 1 BTC. Therefore, tying data to the satoshis makes ordinal NFTs completely Bitcoin native. By late 2023, over 200K ordinal NFTs had been minted on Bitcoin.
That said, there is a difference between ordinals and inscriptions. Ordinals create the non-fungible aspect of NFTs by ascribing a number to each satoshi, while inscriptions are the arbitrary data attached to the NFT.
With an ordinal inscription, the number assigned to a sat doesn't change even if it moves to a different wallet. Therefore, each NFT has a tokenID and metadata. The token ID makes the NFT unique. It allows for easy tracking and verification. The metadata inscribed on the Ordinal NFTs differs from that in non-Bitcoin NFTs.
Unlike other NFTs, Ordinal NFTs' metadata is contained in an individual Bitcoin transaction. To create an ordinal NFT, you need to send an individual sat to a Taproot-compatible wallet and attach the metadata to the transaction. Therefore, you cannot separate an Ordinal from the Bitcoin transaction it is contained. This makes Bitcoin ordinals more fluid than the standard NFTs. For instance, an Ethereum NFT is different from ETH. Hence, the Ethereum network treats ETH and an Ethereum token as two different entities.
NFT enthusiasm and increased use case
Interest in NFTs has been on a bearish trend in recent years due to unresolved core issues such as contractual terms and limited practical utility. However, this hasn't stopped multiple industries from adopting this digital age innovation. For instance, online casinos have integrated NFTs, allowing users to purchase and use virtual items within the casino's gaming ecosystem. The NFTs are in the form of exclusive avatars and limited-edition cards that enhance user experience.
While the NFT market has seen a noticeable contraction in general, Bitcoin NFT sales have seen a 23.11% surge. In June, Bitcoin NFTs passed the historic $4 billion in global sales. Besides, the Bitcoin Ordinals sales of $171 million dominated giants such as Ethereum and Solana, who made $159 million and $90 million in sales, respectively. In the process, Bitcoin NFTs climbed to 4th place in global NFT sales.
This sales growth has been enabled by Bitcoin NFT marketplaces such as TradePort, HeyLayer, and Gamma.io. These marketplaces exist on Stacks, a layer that runs on Bitcoin through Proof-of-Transfer (PoX) consensus. Stack's smart contracts are written in Clarity, which ensures the protocol is secure without affecting Bitcoin's mainchain code.
Bitcoin NFTs have come a long way from the era of Rare Pepes in 2016 to the recent Bitmap metaverse project. Besides, the Ordinal Punks NFT series has enabled developers to merge art with the Bitcoin blockchain. The Ordinal inscriptions ensure transparency and immutability in NFT minting and sales.
The ordinal's use cases range from virtual real estate and collectibles to digital art and music, which prove sole ownership. Bitcoin NFTs are also broken into real-world property, such as cars and real estate. Agents confirm an asset's authenticity and obtain its ownership in the form of Bitcoin NFTs.
