As you know, the Bitcoin blockchain does not technically support NFTs. Nevertheless, a new trend has appeared on the market — Bitcoin NFT. The appearance of such tokens became possible due to the fact that 3 technical solutions for the Bitcoin network were combined at once.

We are talking about OP return, a function that creates outputs in the network that cannot be spent. With the help of such outputs, third-party information (prints or inscriptions) can be recorded on the blockchain. Initially, OP return made it possible to write messages up to 80 bytes in size.

With the advent of the Taproot update for Bitcoin, it became possible to remove the message size limits in the OP return. It is now possible to record already large data packets. At the moment, through OP return, you can add information up to 400 KB.

And there is the Ordinals protocol, it adds an accounting system for Satoshi. Ordinals assign each satoshi a serial number, which makes it possible to track them and assign a certain value.

What is Bitcoin NFT

Bitcoin NFTs are actually “inscriptions” written via the OP return function and attached via the Ordinals protocol to a specific, numbered and tracked Satoshi. Taproot allowed you to enter not just a couple of lines of text, but entire files up to 400 KB in size.

When an Ordinal (Bitcoin NFT) is created, all attached data is written to the blockchain, unlike Ethereum, where the NFT image is stored in the cloud or on the servers of the smart contract owner. Taproot qualifies the “inscription” as witness data, the fee for writing to the whitness data blockchain is lower than for standard transaction data.

That is, it became possible to “write” images and other types of data directly into Satoshi on the Bitcoin blockchain, without requiring a separate token or network branch. Each “record” is considered a digital artifact.

On the Bitcoin blockchain, Ordinals released a collection of NFT punks. The cost of transactions with them reaches tens and hundreds of thousands of dollars. Some NFTs are up for sale at prices in excess of $1 million.

What are the advantages of Bitcoin NFT

The advantages include the fact that a new trend has appeared on the market, which allows expanding its infrastructure. More interest began to be shown in Bitcoin, activity on the network increased, new users were attracted. However, there are also some drawbacks.

Disadvantages of Bitcoin NFT

The appropriate infrastructure for storage, transmission and trade has not yet been created. There are risks of scam projects. In the future, Bitcoin NFTs can even overload the blockchain, because they take up ten times more block space than regular transactions, and Taproot allows you to record this data relatively cheaply. If all of a sudden Bitcoin NFTs become mainstream, then Bitcoin could really face congestion.

Conclusion

So far, a new trend in the market is just being formed, but there are already those who believe that any non-financial information in the Bitcoin blockchain is spam. Supporters of Bitcoin NFT believe that with the help of the new trend, there will be a wider demand for the Bitcoin blockchain, which will stimulate the development of a market for fees that compensate for the costs of maintaining the network.

For now, it remains to be seen how the new trend will develop further, and what benefits it will bring to the cryptocurrency market as a whole.