Don't censor the Bitcoin monkey jpegs! Ordinals FTW?
What are Ordinals, how might they benefit bitcoin, and how should I feel about them?
Sunday morning, apparently out of nowhere, bitcoin twitter exploded with people talking about something called Ordinals. As any good degen does, I saw this Twitter trend and the article by Dennis Porteaux that seemingly sparked it and I dug all the way in. In a few hours, I learned that “ordinals” was actually referring to ordinal theory, or “a protocol for assigning serial numbers to satoshis, the smallest subdivision of a bitcoin, and tracking those satoshis as they are spent by transactions.”
A peculiar feature of the Taproot upgrade has combined with ordinal theory and enabled something called inscriptions, or “a protocol for attaching arbitrary content to individual satoshis, turning them into bitcoin-native digital artifacts.” Basically these are just NFTs on bitcoin without all the security, centralization, and counterparty issues of altcoin NFTs. These “digital artifacts” - pdfs, jpegs, etc. - can be “inscribed” onto individual satoshis and benefit from all the security guarantees, censorship resistance, and immutability that every other satoshi enjoys as a function of living on the bitcoin time-chain. You can learn all about them at Ordinals website, and in this lighthearted but informative podcast with their creator, Casey Rodarmor.
I then watched as a bunch of very high profile bitcoiners got very angry about this “wasteful” use of blockspace. Ordinal inscribed transactions are quite large – near as I can tell after staring at my mempool for hours yesterday, they were taking up about 90.83kvb for a single transaction, versus a rough average of about 140vb for a “normal” bitcoin transaction. Presumably, some ordinal opponents are people concerned about transactability and the dampening effect that ordinal inscriptions could have on adoption if they challenge transactability on the base-layer any more than it already is. Though I don’t purport to know the entirety of his argument, this feels like one of NVK’s primary complaints (as well as his apparent hatred for monkey jpegs).
Luke Dashjr, a well-known core dev, sees ordinal inscriptions as spam, or less charitably, as “lying and tricking the code.”
Anyway, there were even some well known players in the space who own very large mining interests that were decrying this new use case for bitcoin block space. Adam Back of Blockstream tweeted out a call for censoring blocks that include ordinal inscriptions “as a form of discouragement.”
This, combined with the fact that he just closed a $125M down-round to support his growing miner hosting business line, was something I found to be odd given what ordinal inscriptions could do for miner transaction fees (more on this below). In fairness to a true OG and well-respected contributor to the bitcoin space for years now, I believe he walked this call for censorship back subsequently.
All in all, it seems that there is a general sentiment that this is either some kind of dire attack on Bitcoin (feels like Dashjr is close to this camp) or just a stupid misuse of scarce blockspace for “stupid monkey jpegs” (feels like this is where Back, NVK, and others are).
Other conflicting interests notwithstanding (some think Back is just bitter because no one uses Liquid), opposition by those with significant exposure to mining in particular is strange. On the other side of the debate, there were loud voices celebrating ordinals as a potential solution for the historically low fee market we’ve been living through, and its concomitant negative implications for the long term viability of mining – and therefor – bitcoin’s security model.
Indeed, if demand for these very large transaction types increases with proliferating use cases of NFTs secured by the bitcoin blockchain, it could be a significant boon for bitcoin’s tx fee market. This, in turn, would be a boon for miners, who have been languishing through a fee market that has averaged between 1-4% of the block subsidy for well over a year now. For reference, tx fees were consistently above 5% for most of the last two bull runs, with periodic spikes north of 20% as demand for block space drastically increased.
Source: https://data.hashrateindex.com/chart/bitcoin-transaction-fees
If the practice of inscribing objects onto sats as truly immutable “digital artifacts” gains real traction, it could materially increase transaction fees, perhaps even sustaining them at higher levels through periodic bear markets. Though it’s early days, ordinals seem to already be affecting the bitcoin fee market. In the four days since ordinals gained widespread notoriety, there has been a material increase in average transaction fees:
This, if sustained through proliferating use-cases of inscriptions, has the potential to materially enhance large-scale mining viability through bear markets, and perhaps even extend large-scale mining profitability deeper into bitcoin’s halving schedule than would otherwise be possible. The hope here is that we can increase tx fees to the point that we can compensate miners for the security function they perform without just having to rely on NGU technology outstripping the rapidly declining block subsidy.
To be clear, no serious human being today sees Bitcoin NFTs as the end-all panacea to fix the fee market issue. This is a nascent technology with almost no adoption as yet – a fanciful new idea with a lot of promise but very little real world adoption to rest on. But the potential here is enticing if you really walk the dog. And it’s not just for tx fees - it’s not hard to imagine a world where these could really help drive bitcoin adoption, full stop.
Love them or hate them, NFTs have generated a significant amount of buzz over the last two years. Sure, it’s mostly grifters trying to monetize jpegs through affinity scams on fundamentally insecure, centralized, and unnecessarily complex blockchains like Ethereum, Solana, etc. But the underlying idea of non-fungible tokens has a fairly mind blowing design space for innovation and disruption of multiple industries.
On the Ordinals website, Rodarmor goes through some use cases of Inscriptions and starts with the classic NFT use-cases around art and collectibles. To pause here for a moment and consider the benefits of Inscriptions for Bitcoin just in their classical use-case form, think to yourself: If all artists that got so excited and largely rugged by the NFT craze a few years back came to Bitcoin and inscribed their art onto a truly secure blockchain, they would bring their fan base over to Bitcoin. If all the collectors and people who just found NFTs a fun digital version of Magic the Gathering card-collecting realized they could have the same fun without the high risk of losing material amounts of money to hacks or centralized servers being turned off, they would come to Bitcoin. They would use Bitcoin. Bitcoin adoption would grow.
Put another way, Inscriptions - bitcoin NFTs - are really just a trojan horse for increased adoption by the NFT degen class! Indeed, it seems this isn’t lost on the Ordinals creator himself:
Beyond just artists and collectors, NFTs have long been theorized to have real-world commercial use cases. The classic example is for moving legal documents like titles and deeds onto an immutable ledger, to be transferred back and forth digitally. This could be a primary use case, or as a security back up, but these use cases will likely never materialize without a secure foundation to build upon. Solana, with its on-again off-again operations, and Ethereum, with it’s rainbow unicorn labyrinthine roadmap and overly complex EVM structure, will likely not be the basis for serious minded yet tech challenged normies to build innovative new solutions to age-old problems on. But bitcoin inscriptions really do have a shot at this. Probably not this year or next, but once the UI/UX is improved enough, Bitcoin’s very serious security guarantees and long track record of running flawlessly, combined with ordinal theory’s beautiful simplicity, could be a legitimate foundation to build from.
And then there are the use cases that have yet to emerge. Given what I do for a living, I’m curious how else we can use ordinal theory and inscriptions in the mining and power trading business. There are already new and exciting things happening with the Lightning network around immediate settlement of power contracts, and I could see ordinals opening further doors here.
I can tell you one thing: Most of my friends are miners and we are having A LOT of fun with ordinals. Not only are we all pretty hopeful that they are going to be accretive to our bottom lines by creating a firmer fee market, we are also just having fun with them. We aren’t just a bunch of doomsday preppers and energy junkies - we also like to have fun, think art is cool, and like to tinker. I’ll leave you on the edge of your seat waiting for Steve Barbour’s Coal Rocks Bitcoin NFT collection to drop… With the technical savvy of Nick Hansen, Tom Masiero’s AI art prowess, the capital formation skills of Amanda Fabiano, and unwavering moral support from the rest of us, I’m quite certain we’ll all be able to retire sooner than we thought. Here’s a sneak preview:
Though detractors see ordinal inscriptions as a waste of valuable blockspace, a few salient points are relevant here as we close. Blockspace “value” is subjective and only the market can really tell us with any certainty what is valuable. As it stands right now, blockspace is in fact not very valuable, as evidenced by the tx fee bear market we’ve been mining through since 2021. The last 4 days of the ordinal fever dream notwithstanding, it’s clear bitcoin block space isn’t valued very much right now.
Further, as I and others have pointed out, it feels contradictory to decry the advent of a new technology that takes up block space as being bearish for bitcoin, while excitedly proclaiming that L2 technologies like Lightning are going to be how most day to day transactions are going to occur in the future. If this is true, which I believe it likely will be, then we should expect only extremely large financial transactions that require immediate final settlement to occur on chain, with block space commanding a high premium in the form of high tx fees.
If the market finds a use case for digital artifacts to be permanently inscribed into the bitcoin time-chain, then these use-cases will compete with other financial transactions – the so-called “legitimate transactions” to ordinal detractors – and all will be well as a clearing price is discovered block by block.
At the end of the day, we’re early in Bitcoin and we’re EARLY in these types of edge use-cases that are going to continue to emerge over time. We need to debate these things, and it’s perfectly legitimate to voice concerns publicly and loudly when things like ordinals emerge from the beautiful design space that is bitcoin. I’m thankful I can be a part of these debates, and as a miner, my mind goes to fees first and foremost, and therefor I am cautiously optimistic here.
I also accept there may be technical nuances to this debate that are beyond my comprehension, and I will be following the debates and musings of much more talented people than me so I can continue to learn and refine my position. A word of caution though – we should maintain consistent adherence to our values as we debate these things. We as a community have come to rough consensus around the idea that censoring transactions – censoring free speech – is a bright red line for us. And we have also come to rough consensus around the value of the free market in determining which ideas emerge as the winners and setting the clearing price for those ideas or the products/services they instantiate. To the extent we debate ordinals in the future, we would do well not to forget that, and we would do well to avoid calling for censorship to solve a perceived problem that we probably all agree should be solved by the market and its myriad participants.
great read