The Rise of NFTs on the Bitcoin Blockchain

Non-fungible tokens on the Bitcoin blockchain? Is that even possible? Many people, including some crypto natives, would never have thought this possible; in a sense, they would be right. 

Traditionally, Bitcoin is not suitable for running complex applications. That is why it has not had a use case outside of being a decentralized medium to own and transfer monetary value. Bitcoin was never intended to host applications on its base layer. Satoshi Nakamoto, Bitcoin’s creator, envisioned it as a censorship-resistant, peer-to-peer method of settling payments. However, newer solutions have made it possible and even easy for developers to build and run decentralized applications on the platform. One of these solutions was the Taproot upgrade, activated at block 709,632 in June 2021 after 90% of miners signaled their support for the update.

What Is The Taproot Upgrade?

In technical terms, Bitcoin typically uses the Elliptic Curve Digital Signature Algorithm (ECDSA) to generate keys and verify transactions. The Taproot upgrade incorporates Schnorr signatures, which are more secure and simple to implement. One of the properties of Schnorr signatures which makes this possible is linearity. In simple words, this property enables you to use a sum of public keys to sign a sum of signatures. Thus, multiple Bitcoin transactions can be verified quickly in batches instead of simultaneously evaluated as a single transaction. Taproot enables the aggregation of transactions and, thus, their compression into smaller block spaces. That improves the scalability of the blockchain, enabling wider adoption and facilitating the building of decentralized applications. It improved the viability of on-chain smart contracts. It is this upgrade that the Ordinal Protocol has come to utilize 15 months later.

What Is The Ordinal Protocol?

Ordinals Protocol was launched on the 21st of January this year by the software engineer Casey Rodarmor but has recently made the big news when one Ordinal Punks NFT, Punk 94, sold for 9.5 BTC, or roughly $214,000, according to a tweet last Wednesday. The Ordinal NFTs utilize Bitcoin’s Taproot to store NFTs through inscriptions – a method of “inscribing” data in satoshis (or sats), representing one hundred millionths of one Bitcoin. An inscription is when arbitrary content (like text or an image) is added to sequentially numbered satoshis (sats) – the smallest units in Bitcoin – to create unique “stores of value.” The “Punks” collection by Ordinal is replicative of and nicknamed after the famous Punks by Yuga Labs on the Ethereum blockchain. The Ordinal Protocol minted and sold its first 100 NFTs in January but has since seen more demand from curious folks. At the time of writing, they are minting roughly 1,400 NFTs daily. The Ordinal Protocol refuses to refer to them as NFTs; instead, they call them digital artifacts and how priceless they are turning out to be since the currently existing secondary markets are over-the-counter and without a trusted escrow service.

Asides from “Punks” by the Ordinal Protocol, there is also a host of other collections, including; Bitcoin Rocks, Bitcoin Shrooms, Shadow Hats, The Toruses, MS, The Classics, Shitposts Only, etc.

How to Acquire and Own Ordinal NFTs

Step 1: Set up a Sparrow Wallet

You can’t yet hold Ordinals in a browser wallet like MetaMask. You must set up a Bitcoin wallet that allows enough customization to receive Ordinal inscriptions. Sparrow fits that bill.

To start, go to Sparrow Wallet.

Click on the download link associated with your computer’s operating system.

Step 2: Set up your Wallet (s)

Sparrow wallet is a desktop application that requires a handful of steps to make it compatible with Ordinals.

Once you’ve downloaded Sparrow, follow this detailed tutorial on Github to make an Ordinal-compatible wallet. Following this guide, you should not send BTC to or from this Ordinals wallet. This Wallet is only for receiving Ordinals. If you send BTC from this new Ordinals wallet, you may accidentally lose both your BTC and your Ordinal(s).

Now that you have your Wallet set up, you have three options for getting an Ordinal:

  • Run a node and inscribe an Ordinal yourself.
  • Find an Ordinal owner and buy directly from them.
  • Use a service to inscribe an Ordinal without running your node.

That should be all for setting up your Wallet.

Step 3: Find Ordinals on Discord

The Ordinals market is purely OTC, peer-to-peer right now. To find Ordinal projects, join the Ordinals Discord channel.

Go to the link-your-project channel and see what projects are out there. In that channel, collection creators link their Discords where you can buy their Ordinals.

NB: Buying Ordinals OTC will require you to break almost every rule you’ve ever heard about not getting scammed in Web3: you might have to connect with people on Discord, send money before receiving an Ordinal, conduct direct transactions with other people, etc. We cannot emphasize enough how much caution is required here. Remember, only ever risk what you may be willing to lose.

Step 4: Use a Service to inscribe an Ordinal for you

If you’d like to create your own Ordinal but don’t want to run a Bitcoin node, several services have already popped up to inscribe Ordinals for you.

The Satoshibles NFT collection team has created Ordinals Bot, which will inscribe an Ordinal on your behalf. Gamma also has an Ordinal inscription service. These services will ask you to provide the BTC address where you’d like to receive your Ordinal. You’ll use your address from the new Ordinal Wallet you created in Sparrow. They’ll also provide you with the number of sats you owe for the transaction, a service fee, and an address to send the BTC to. The transactions can range from less than $50 in BTC to several hundred dollars, depending on your file size. If you send the BTC, and this trust-heavy transaction goes according to plan, you won’t receive your Ordinal in your Wallet in seconds or minutes. It could take hours or days.

As you can see, it is a tedious task to go about “playing” with these NFTs

What Impact Will NFTs Have On The Bitcoin Network?

The concept of Bitcoin NFTs has caused a heated debate within and across the dominant blockchain community. Some purists believe the blockchain should be limited to financial transactions as imagined by its creator. Meanwhile, others point to the Ordinal Protocol’s popularity as a positive catalyst that will fuel more development on the blockchain. It is not out of place for a project to grow beyond its founder’s “microscopic” imagination and wishful thinking. Yet, one cannot but consider what costs accompany these expansions.

Higher Transaction Fees

The amount of data predominantly determines Bitcoin’s transaction fees in each transaction. Since these NFTs add more data to each block, Bitcoin’s transaction fees spiked significantly after the Ordinals launch. In no small part because groups like Taproot Wizards decided to troll the network with ever-larger blocks, including the largest block in Bitcoin history, with 4MB of data. This block contained the giant image of what appears to be a bald, bearded wizard donning sunglasses and promoting “magic internet JPEGs” on the Bitcoin blockchain via the Ordinals protocol. It had been minted by an Independent developer, Udi Wertheimer, in collaboration with a miner – the Luxor Mining Pool. The image is a throwback to an early Bitcoin meme featuring a similar wizard, crudely rendered in MSPaint, inviting all and sundry to “Join us” on the then-popular r/bitcoin subreddit. If trends like this continue, Bitcoin will be forced to scale its infrastructure or force out the NFT gangs from its ecosystem.

More Miner Revenue

With another Bitcoin halving happening next year, conversations have started to spring up as to how the security of the blockchain should be incentivized. At the current block reward of 6.25 BTC, miner profit margins are barely positive, while the upcoming halving will take it to 3.125 BTC, further stressing the venture’s profitability. Therefore, miners are incentivized to allow for more fee competition. Ordinal supporters argue that the ability of miners to make more money from larger blocks will increase demand for block space and fees. That could lead to wider markets and stronger demand for block space, providing a much-needed boost to the ecosystem. Miners, for example, could prioritize transactions with higher fees, leading to increased revenue for them. That, in turn, could make the network more secure as miners are incentivized to maintain it.

Wider Taproot Adoption

Like the other preceding scalability updates (like Lightning Network) and layered innovations (like Stacks), the Taproot upgrade has yet to be utilized. Powered by Bitcoin NFTs, taproot adoption may receive wider acceptance.

Just as Sam Callahan, a Bitcoin analyst at financial services company Swan Bitcoin, clearly puts it that while the popularity of Ordinal Punks will drive demand for block space, miner revenue, and eventually Taproot adoption, it doesn’t come without risks.

“In the long term, if demand for these inscriptions proves to be long lasting, there is a risk that these inscriptions could impact other Bitcoin use cases like payments via the Lightning Network due to distorting Bitcoin’s fee market away from its use as an open monetary protocol.”

Current State of Things

You must go through a secondary OTC market, including Discord channels, to acquire a Bitcoin NFT. You also need a full node to create, sell, transfer, or trade them. You can buy them without a node on these secondary markets, but you cannot sell them. Some of these NFTs are listed as high as 1000 BTC.

Since payment is not trustless, transactions do not necessarily need to be in BTC. Other cryptos are acceptable depending on a seller’s discretion. Interested persons should note that they can be scammed and should always research. Over 10,000 have been minted so far, and there are no signs of slowing down. Transaction fees on the blockchain, which previously averaged between 3 – 200 sats, now look fixated between 25 – 1000 sats. It is quite earlier to predict what will happen, but whatever it is, the Bitcoin maxis are surely in for a turbulent ride.

Several research and development endeavors have also commenced building infrastructure for these NFTs. A trustless marketplace and a “light” wallet for Bitcoin NFTs are currently in the works, so it is unlikely that the buzz will die anytime soon. 


Long before Ordinals, a few old-school Bitcoiners floated the idea of incorporating a domain name system into Bitcoin. The project, dubbed BitDNS, was quickly shot down by Satoshi. “Piling every proof-of-work quorum system in the world into one dataset doesn’t scale,” Satoshi wrote in 2010, sealing its fate.

The Ordinals drama, petty though it may seem, has rekindled a necessary and ancient (in crypto terms) question: Should Bitcoin be used for non-financial purposes? Only time will tell.

Interested in marketing your blockchain/Web3 project? Please contact Off-Chain Communications for a free consultation and quote.

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