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For the first time, bitcoiners can store digital artifacts on the Bitcoin blockchain. Casey Rodarmor’s ordinals protocol lets users inscribe any data type on their satoshis. This transforms a regular satoshi into a Bitcoin NFT (non-fungible token) that follows the Bitcoin protocol/Bitcoin core and can be included in valid transactions on the Bitcoin network.
We’ve already covered ordinal inscriptions, ordinal inscriptions benefits, and how you can create your own ordinals, with Gamma.io, and use them in your bitcoin transactions. This article examines how the Bitcoin blockchain became compatible with storing digital art. To explain that, we will touch on 5 specific events from 2012 to 2023 that transformed the Bitcoin blockchain.
Clarification:
We will be using these terms interchangeably:
- Ordinal inscriptions
- Digital artifacts
- Bitcoin NFTs
- Ordinal NFTs
- Bitcoin inscriptions
- Ordinals
We might have missed some events in between those which we are discussing in this article. If that’s the case, please inform us in the comments.
1. Colored bitcoins (2012)
In the traditional Bitcoin system, all bitcoins are treated equally and are not differentiated based on their source/intended purpose.
Developed in 2012, colored bitcoins signified their purpose/attribute. This extra, non-financial data highlighted each colored bitcoin amongst millions of others others. Moreover, the concept moved Bitcoin away from only being a P2P currency. That’s because by using colored bitcoins, users could reflect:
- Asset ownership
- Firm shares
- Voting rights
- Digital collectibles
- Real estate
- Gaming elements
However, adding the “non financial data” took up block space and overran the bitcoin nodes. So the Rare Pepes images being traded were slowing down the processing speed of the “pure” financial transactions.
2. OP_RETURN function (2014)
Colored coins used “metadata injection” to add metadata. This involved using the scriptSig field of a transaction’s input script. But metadata injection was inefficient and limited in capacity.
The Bitcoin community introduced the OP_RETURN function as a part of the Bitcoin Core 0.9.0 release in 2014. The function allowed users to “store” arbitrary data on a bitcoin transaction output, which would then be stored on the bitcoin block space (Figure 1).
Because the data was added on the output, the inscription content size could have been as high as 80 bytes. It was still big enough to only house a string of text, but was an example of how Bitcoin was moving towards incorporating more diverse data types on it.
3. Segwit upgrade (2017)
In 2017, the Bitcoin community proposed SegWit, or the segregated witness data. Before SegWit, the OP_RETURN function included the arbitrary data on the transaction block, which already included the transaction time, address of the sender/receiver, etc. on the Bitcoin chain.
SegWit proposed the witness block, which could house the witness data in higher capacity.
4. Taproot upgrade (2021)
Taproot upgrade, in 2021, built on SegWit’s separation of transaction signature data from transaction data. It introduced a new type of transaction signature called Schnorr signatures, which are
- More efficient
- More secure than the previous (Elliptic Curve Digital Signature Algorithm) signatures
- Smaller in size
These allow transactions to have larger metadata attached to them, be processed faster, and cheaper.
5. Ordinals
The ordinal theory is built atop all preceding four developments. It uses the Taproot upgrade (see Figure 2– the use of the Taproot function has jumped since the release of ordinals), SegWit protocol, OP_RETURN function, and the principle of colored bitcoins. For the first time in bitcoin’s history, users can trade Bitcoin NFTs on the Bitcoin blockchain.
Users can inscribe videos, images, text, PDFs, audios, etc. on individual satoshis. This expands Bitcoin’s use case and enables the trade of Bitcoin NFTs. In the long term, the hope is that NFT enthusiasts trading their digital assets for Bitcoin could lead to more people using Bitcoin and the possibility of an unrivaled, uncensored exchange of data. In the short term, this could raise the value of the Bitcoin network and make the chain compete with others to get more shares of the NFT market.
Transparency statement
AIMultiple works with many companies, including Gamma.io mentioned in this article.
Sources
- Annison, Tara (February 6, 2023). “A Comprehensive Explanation of Ordinals: NFTs on Bitcoin.” Medium. Retrieved 14 March, 2023.
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