So... now that the fuss has died down a little bit, I have had a bit of time to think and hear more about Ordinals (aka. NFTs on Bitcoin). For those who haven't heard the hype and shrillness from CryptoTwitter and those who know what they need to talk about to get the clicks... well, Ordinals is a way of implementing NFTs (data storage) on the Bitcoin blockchain, and it was enabled by Taproot fork that happened in 2022.
Now, my first impression was similar to many of the more hardcore Bitcoiners... this is bad for Bitcoin. Clogged blockspace and well... I'm still not sold on the idea of NFTs as they stand, and when they are essentially making some sats even more non-fungible (sats already have a history which is technically non-fungible, but close enough) and people were exchanging multiple sats for... one sat? It did make me think, what is the purpose of this... Bitcoin will have lost its way with whatever it was being designed to be doing. Store of value, right?
However, many of the hardcore Bitcoiners came on the side of proposing that miners censor Ordinal transactions... so, a sort of social layer governance. But that is completely at odds with the ethos of Bitcoin (but not all chains...) in that... if it is possible, then it is possible. Plus, it really exposed one of the problems with Bitcoin... that being, the miners are really one the ones with the real power here. You would need a majority of them to agree to this to have it work... and when the economic incentives for including an Ordinals block is far better than the zero of NOT doing it then you have a problem. And that is the problem of best wishes, hopes, and dreams versus real economic incentives.
So, censorship is really out the question... which leads to... is this going to be a net good or bad for the Bitcoin network?
The first part of this balance is that is the negative... congested blockspace being taken up by "non-economic" transactions. That is poop for the network... IF it is designed to be a pure store of value or currency.... and I think that is what most of the hardcore Bitcoiners thought, and it was my first instinct as well.
However, if we look a little bit deeper... the incoming problem of reduced miner subsidies for securing the network (the issuance or the coinbase) is decreasing faster than the fees from block inclusion are increasing. This means that UNLESS Bitcoin gets a huge hike in usage... well, this is going to go bad as miners will not be incentivised to secure the network in a manner that is economically rational.
... but Ordinals HAVE suddenly pushed up the usage of Bitcoin... and the fees paid to miners for inclusion have also gone up significantly! This means that these NFTs MIGHT be the solution to the longer term block reward vs transaction fee problem... the only question is, is this sustainable... or is it just a flash in the pan that will die out and leave the problem unsolved?
My sense is that most of the Ordinal activity is NOT sustainable... and that it is mostly coming from people that are more interested in other chains, and either inscribing Ordinals to troll... or just out of curiosity.
So... in the end, this Ordinals thing will die down... and I think it will die out. Perhaps there will be future waves of hype activity again... but I don't think that this will be the solution to the longer term problem of Bitcoin's security model.
... but as always... hedging!
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I’ve been seeing ordinals around. The people talking about it mostly are questionable so I didn’t bother going into it.
Yeah... I've seen decent people talking about it as well... but I think it will blow over. I'm not convinced... but I've been wrong before!
Todos esos juegos son buena 👍 pinta para los amantes del Btc.
Maybe... we'll see!
Interesting take on the impact of Ordinals (NFTs on Bitcoin) on the Bitcoin network. Your analysis brings up some valid points about the challenges of maintaining the network's security model with decreasing miner subsidies and the potential benefits of increased usage and fees from Ordinals. I have a couple of questions for you, the author:
What do you think is the future of NFTs in the cryptocurrency world and how do you think it will impact other blockchain networks, not just Bitcoin?
You mention that you think the Ordinal activity is not sustainable and will die down, what do you think will drive the adoption and usage of NFTs in the future, and what factors will contribute to their sustainability?
Not sure about NFTs... I did hear one interesting thing about NFTs being the pure dilation of "flex". In a similar way that people invest in art that isn't yet famous... it is an investment into the idea that you were "there before it was cool", and that actual "art" is less meaningful. I'm not completely sold on that argument, but there is something to it as well... personally, I invest in art because I like it and I would sort of PREFER that it remained inexpensive and only valuable to me just because I liked the artwork. However, I can see that some other people would invest HOPING it would get more expensive and famous. Different ideas of what is important in life...
Anyway, NFTs don't currently serve the purpose that they purport to serve... they aren't really much of anything without enforcement of some sort of "ownership". Otherwise, they are claims of ownership that anyone can ignore.
However, they do serve as "tickets" to drops or other events... so they do have a use-case there.
In the future, enforceable ownership would be a huge thing... real-estate titles and that sort of thing... but that would require some government recognition. And that I believe, would be sustainable.
From your post, I see it as interesting to watch over time. I think a lot more projects on blockchain fail than those that progress to be adopted long-term, so it's worth watching.
Always worth watching... and hedging... what I think is useful/good doesn't mean that anyone else will agree! Especially in crypto where things are at best... irrational!
Lol...very true. In recent times some people faked a Robinhood token and people fell for it head first...People invest first and read later
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As I've been busy in Lightning Network for over a year now, I can see this is going to cause big problems. Lightning's cost basis is marginal unless you have huge amounts to invest and you don't care about returns. Higher transaction fees for opening and closing channels will have to push up fees on Lightning. As I'm working back to back with Hive (zero fee) I just look at Lightning and laugh at how ridiculously complicated it is: if its cost to use rockets up too, it's completely pointless.
But the most stupid part of using Bitcoin for NFTs is they miss one of the most important aspects of NFTs on a proper smart contract layer: ongoing compensation for the original artist through a cut in future trades.
I don't see NFTs in their ridiculous speculative light, but as a way of truly supporting a content creator you like and in a way that starts to form a community around the content. And also as a reward for participation which can be given out. BTC Ordinals lack all of this.
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I agree with your take on the BTC Ordinals... I'm think that they might be just a flash in the pan. I hadn't really thought about the knock-on effect for Lightening. I've only used that in passing.
But I'm still not really sure about the ongoing royalties for the original artist. I'm pretty sure that you are aware of the debate about this on the Ethereum side of things. They aren't enforceable at the smart contract level as things stand at the moment... and although there was much made of this to lure in artists (and I would dearly love it to be true...), I don't think it is a thing (at the moment...).
Even as an artist (albeit as a musician...), I'm still not convinced that the NFT thing is everything that it has been promised to be.
The work we're doing in Podcasting 2.0 to release albums as podcast rss feeds with Lightning streaming payments I think will be bigger for artists than NFTs.
The community building work that @spknetwork is putting forward is another important part.