Top 5 Differences Between Ordinal Inscriptions vs NFTs in 2023

In late January, Casey Rodarmor released Bitcoin ordinals. This protocol takes advantage of a loophole in Taproot. By allowing users to inscribe different metadata types (images, videos, PDFs, etc.) on satoshis, they can create and store Bitcoin NFTs (non-fungible tokens) directly on the Bitcoin network. For example, Figure 1 shows an inscription of a video game on a satoshi. 

This is a significant breakthrough for Bitcoin. That’s because unlike P2P traditional bitcoin transactions, Bitcoin users can now store digital artifacts on Bitcoin, a feat previously reserved for other blockchains, such as Ethereum, Polygon, Flow, etc.

Bitcoin NFTs have brought digital assets to Bitcoin, where they can be created, stored, and exchanged. However, there are major differences between ordinal NFTs and traditional NFTs.

In previous articles, we have discussed what ordinal inscriptions/bitcoin NFTs are, how they’ve evolved to be what they are now, their benefits, and how you can make an inscription instantly. In this article, we’ll discuss the differences between ordinal inscriptions and NFTs.

Disclaimer:

We will use these terms interchangeably:

• Bitcoin ordinals
• Bitcoin NFTs
• Ordinal inscriptions
• Ordinal NFTs
• Digital artifacts

1. Ordinal inscriptions are always stored on the Bitcoin blockchain

A major benefit of an ordinal NFT compared to a traditional NFT is its decentralization and higher security standards, thanks to Bitcoin’s cryptographic features.

Ordinal inscriptions are satoshis, always stored onto the Bitcoin blockchain. This mainstay feature decentralizes and secures them. Once you make an inscription on a satoshi, using a tool such as Gamma.io, your Bitcoin NFT will be sent to your Ordinals wallet and stored on the Bitcoin blockchain. There’s no surprises.

In contrast, most NFT types on the NFT marketplace are stored on decentralized apps through self-executing smart contracts like Ethereum Virtual Machine (EVM). This makes traditional NFTs dependent on the rules and logic encoded on the contract. So any unannounced or sudden changes to the Ethereum network or EVM will affect the behavior of the NFTs themselves.

2. Ordinals are more liquid

Bitcoin is the oldest and most popular cryptocurrency traded 24/7 on different exchange platforms. And because digital artifacts are stored on Bitcoin, you’re basically pegging your art to the most liquid cryptocurrency on the market.

Other NFT-compatible cryptocurrencies, such as ethereum, polkadot, binance, etc. cannot boast the same level of liquidity because there might be users who are unconvinced with those platforms’ security features, robustness, market value, etc. 

By creating your digital artifact on Bitcoin, you preserve your art/asset and have access to a wide and deep marketplace to sell it at your time of need.

3. Bitcoin NFTs don’t have royalty dilemma

Bitcoin is inherently incapable of accounting for royalties which makes sales permissionless and makes Bitcoin NFTs instantly liquidable. This creates clarity for creators about their compensation:

• If they rely on on-chain mechanisms, they would not get royalties on secondary transactions so they will price their initial sale accordingly.
• They can rely on off-chain mechanisms like contracts if they want to get royalties on secondary transactions.

Bitcoin is inherently incapable of accounting for royalties because of 2 reasons:

1. Bitcoin transactions’ irreversibility makes it impossible to modify a transaction’s record after it’s done. This makes it difficult to implement mechanisms for managing long-term royalties. For example, if a creator is entitled to royalties on secondary sales, it is difficult to ensure that this payment is made automatically and on an ongoing basis using Bitcoin’s blockchain.
2. Bitcoin’s scripting language is unsuitable for implementing complex contracts for managing digital assets and automated payment flows. While Bitcoin’s scripting language can support basic smart contracts, it is not as powerful as the scripting language used in other blockchain platforms such as Ethereum, which is designed specifically for hosting smart contracts.
   1. However, Gamma.io has found a way  to implement fixed opt-in royalties for Ordinals creators. Gamma will never take more than the creator’s earnings.

4. Ordinal inscriptions are immutable

The inherent properties of the Bitcoin protocol makes transactions immutable via cryptographic hashes and the consensus mechanism. Each block in the BTC blockchain contains a hash of the previous block, creating a chain of tamper-proof blocks. So once a transaction is confirmed by the majority of Bitcoin nodes on the Bitcoin chain, it becomes a permanent record in the distributed public ledger. The benefit for bitcoin users is minimal chances of fraudulent transactions or altering of the existing ones.

This is in contrast to Ethereum NFTs. Even though the NFTs themselves are immutable, the metadata is often stored off-chain in a centralized server, and linked to the NFT through its token ID. This metadata can include information about the NFT’s owner, its image or video, and other attributes. As this metadata is stored off-chain, it can be updated by the owner or creator of the NFT. That metadata is mutable by the NFT creator and/or the owner at any time.

For example, an artist who has made an NFT may want to update its metadata, such as updating the image attached to the NFT, updating the descriptions, title, etc. They can do this by updating the metadata on the central server and linking it to the NFT’s token ID.

5. Bitcoin ordinals are scarcer

Bitcoin has a maximum supply of 21M coins, enforced by a “transaction halving mechanism” and a Proof-of-Work (PoW) algorithm, which reduce the marginal gains for expanding the Bitcoin network and enforce the supply cap: 

• Miners are rewarded newly-mined bitcoins for performing a computationally heavy operation and creating a new Bitcoin block in the blockchain. Every 4 years, the reward is halved. 
• The cost and difficulty of creating new blocks increases every 2016 blocks, or approximately 4 weeks. The difficulty level is meant to ensure that the rate of new block creation remains stable over time.

These 2 factors transform mining into an activity with increasing costs, and enforce a supply cap.  The implication is that your inscriptions can only be made on already-existing bitcoins, or on a finite amount of to-be-mined bitcoins in the future. This eliminates over-flooding of the market and helps protect the value of your digital artifacts. 

Moreover, as Rodarmor explains, NFT on Ethereum works with the ERC-721 contract. And once you create one contract for a transaction, it “may define any number of NFTs in that contract,” meaning a singular transaction could hold an infinite number of NFTs. That’s because the contract doesn’t need to hold the data, but rather point to it off-chain. But to create an inscription, you need to do a Bitcoin transaction and hold that content on the Bitcoin Blockchain. 

This is unlike other cryptocurrencies that are unlimited in supply. The bottom line is that Bitcoin ordinals are expected to be better at preserving their value than other NFTs based on their supply constraints.

Transparency statement 

AIMultiple works with multiple companies including Gamma.io mentioned in this article.