An unprecedented phenomenon has shaken up the Bitcoin community in the last few weeks: NFTs.

Yes, you read that right. By leveraging features added in the SegWit and Taproot upgrades, thousands of users are now “minting” NFTs called Ordinals on the Bitcoin network through a process called inscription.

However, this newly discovered possibility has greatly polarized the community, and while some are enthusiastic about Bitcoin having new functionalities, others remain reluctant to accept this new trend.

One thing’s for certain: the craze for these Bitcoin NFTs has driven increased activity to the network, leading to a spike in transaction fees and, therefore, providing additional revenue for miners.

In this article, we’ll take a deep dive into Bitcoin Ordinals, explain how they work, and analyze their potential effects on the Bitcoin network and mining industry.

Bitcoin Ordinals: Understanding the Basics

Ordinals are a new open source project that allow users to inscribe data on each individual satoshi.

Remember, satoshis — or sats for short — are the minimum divisible unit of a bitcoin. One bitcoin contains exactly 100,000,000 sats.

The new Ordinals project enables Bitcoin node operators to imbue a single satoshi with unique data of any kind — including smart contracts, which enables the creation of NFTs.

In other words, an individual satoshi can be inscribed with arbitrary content, creating a unique Bitcoin-native digital artifact that can be held in Bitcoin wallets and transferred using Bitcoin transactions.

One of the proposals for the satoshi symbol.

In turn, these inscriptions are as durable, immutable, secure, and decentralized as Bitcoin itself.

As a consequence, “minting” these NFTs on Bitcoin doesn’t require a side-chain, token, or contract of any kind. It can be done natively on Bitcoin without any additional changes to the network.

Differences Between Ordinals and ERC NFTs

NFTs have been around for a while now, and were one of the most popular trends during the last bull market.

So, why is everyone so excited about NFTs on Bitcoin, then? Besides the fact that they’re on the most popular and largest blockchain network in the world, they are also fundamentally different from previous NFT standards.

NFTs on Ethereum and other EVMs often refer to off-chain data on the Interplanetary File System (IPFS) which is a decentralized file storage system.

Yet, these NFTs can be modified using dynamic metadata to enhance image quality, for example. Some NFT projects even update the metadata of individual NFTs to ensure the latest, higher-quality image.

While these NFTs can be immutable, the metadata they point to rarely is. It can even be deleted, leaving holders with nothing but a token containing broken links.

According to Casey Rodarmor — the Ordinals project developer — Ethereum NFTs are “plagued with end-user security vulnerabilities.”

It is commonplace to blind-sign transactions, grant third-party apps unlimited permissions over a user’s NFTs, and interact with complex and unpredictable smart contracts. This creates a minefield of hazards for Ethereum NFT users.

On the other hand, Bitcoin NFTs — or, as Rodarmor refers to them, digital artifacts — mitigate these risks since all data is recorded immediately on-chain.

Plus, Ordinals do not include author royalties, unlike NFTs. Rodarmor believes that Ordinals are designed to mirror what NFTs should be, occasionally are, and what inscriptions always are, by definition.

This implies that Ordinals on Bitcoin could represent not just a cultural shift for Bitcoin but also a technical improvement over NFTs.

Ordinals Craze Improves Mining Profitability

While the community remains polarized towards Ordinals — some argue they’re positive innovation, while others claim they’re a waste of blockspace and sats — there is one party that has been benefited from this trend’s collateral effect: Bitcoin miners.

After the launch of Ordinals and their sudden increase in popularity, Bitcoin users have made over 150,000 inscriptions in a month. Now, inscribing data into Bitcoin requires ample block space, which is a critical factor in determining transaction fees.

In short, Bitcoin transaction fees depend on how much space is available on the next block and how fast the user wants it to be completed.

If you want your transaction to go through during periods of high traffic, you can choose to pay higher fees to get it pushed through faster.The less blockspace there is, the more you’ll have to pay to get your transaction included.

Well, with users inscribing significant amounts of data with Ordinals, blockspace has become scarcer. As a result, transaction fees have increased and, naturally, it’s miners who are profiting from this.

Total revenue from transaction fees has reached a daily maximum of $607.7K since the launch of Ordinals, while median transaction fees have jumped from $0.22 to a maximum of $0.78.

This, along with a positive market performance, has allowed miners to enjoy a rather unusual source of additional revenue, reaching a daily maximum of $25.63M — the highest since June 2022.

What Can We Expect From Ordinals?

The recent emergence of Ordinals and their use for minting digital artifacts on Bitcoin has generated mixed reactions from the community.

Regardless of these differing opinions, data indicates that the Bitcoin network has experienced increased activity from these new assets, as well as providing additional revenue for Bitcoin miners.

Whether the broader Bitcoin community decides to embrace or reject this type of cultural shift remains to be seen. For now, Ordinals continue to evolve and capture the interest of more people.

In any case, and regardless of how the argument turns out, Bitcoin inscriptions are not going anywhere anytime soon.