【Research Navigation】Interpreting Bitcoin NFT New Narrative Ordinals Protocol｜BRC-20 Token｜Bitcoin Stamps (Part 1)

🌟 【Special Topic Overview】Since the launch of the Bitcoin NFT realization protocol Ordinals on December 14, 2022, as of May 5th this year, over 3.7 million NFTs have been minted based on this protocol. Galaxy Research predicts that the market size of Bitcoin NFTs will expand to $4.5 billion by 2025. The Bitcoin NFT eco has become a hot new narrative, including the new experiment ‘BRC-20’ based on the Ordinals protocol, which also creates new token standards and eco gameplay.

What are the risks and opportunities of Bitcoin NFTs? Where is the controversy surrounding the Ordinals protocol? What projects in the Ordinals eco are worth paying attention to? What is BRC-20, which has recently become popular? This investment research guide will break it down for you one by one.

【Contents】Bitcoin NFT Research Selected Information Sources

Bitcoin NFT Overview

1. [English] Galaxy Research: By 2025, the market size of Bitcoin NFTs will reach $4.5 billion (03/04/2023)

Introduction: Since December 14, 2022, over 200,000 Inions have been minted on the Bitcoin network. On February 27, 2023, Yuga Labs announced the launch of TwelveFold, a new NFT series based on Bitcoin, which is the first NFT series to be issued on Bitcoin. According to Galaxy Research, the market size of Bitcoin NFTs is expected to expand to 4.5 billion USD by 2025.

Inion expands the design space of Bitcoin, adding considerable data storage and strong usability guarantees, opening up various use cases, including new decentralized software or Bitcoin extension technologies, etc. New use cases will drive interest and adoption of Bitcoin, whether in the NFT market or other markets; Inion reduces block space requirements, benefitting Bitcoin’s security and fee market. Miners will receive more fee income from the inion, benefiting the transition of income from block subsidies to transaction fees; The market infrastructure supporting Bitcoin NFTs will be developed in the second quarter of 2023, and new wallets, markets, and other tools will be widely used in a short period of time.

The emergence of Bitcoin NFT is a true narrative renaissance, which will challenge the existing views of users and investors on the value proposition of Bitcoin as a currency, settlement layer, and application protocol; inions will become the home of high-value collectibles, catering to high-quality art projects and valuable 1 of 1. Traditional PFPs and collectibles with large circulation will be mainly reserved on chains such as Ethereum; Yuga’s participation will drive other artists to join, which in turn may drive major NFT markets such as OpenSea.

Venture capital will lay out, but may be disappointed. Although there are great opportunities and growth potential for inions, the highly decentralized and open-source market technology of Bitcoin will result in many tools lacking monetization opportunities; there are no smart contracts on Bitcoin and royalties cannot be enforced. A broader trend in the NFT eco is zero royalties or complete non-enforcement; the inion market may see a large number of second-hand transactions. Although the cost of inions is high, the cost of transferring inions is not higher than other transaction costs. The cost of transferring NFTs on Bitcoin is lower than on Ethereum, and users may be more willing to actively trade inions; [Original text is in English]

The scaling solution for Bitcoin will become even more critical. With the significant increase in transaction fees on-chain, Bitcoin’s reliance on Layer 2 solutions like the Lightning Network for payment use cases will be paramount. The upcoming Lightning-based asset creation protocol Taro may lead some NFT activities to move to L2. Taro can benefit from the “ordinal effect” and provide viable alternatives for different categories of users, which in turn can increase the profit opportunities for Lightning Network routing nodes and provide greater scalability for the entire Bitcoin eco.

1. [English Long Push] Bitcoin NFT vs. Ethereum NFT: Pros, Cons, and Challenges (2023/02/20)
   Introduction: The popularity of Bitcoin NFT remains high, and the number of inions is about to exceed 150,000. Blockworks CTO Dennis compares the advantages and disadvantages of Bitcoin NFT and Ethereum NFT from a technical perspective, and explains the challenges faced by Bitcoin NFT in areas such as purchasing and trading.

Ethereum NFT files exist in smart contracts or contract hosting platforms, while Bitcoin NFTs are stored on-chain and therefore limited by the Bitcoin block size. The maximum file size for an Ordinal is 4MB, which makes it impossible for us to see huge 3D animation videos and also makes Bitcoin NFTs difficult to be used.1⁄1Possible reasons recognized by artists. [Original text is in English]

By default, each inion is pegged to 10000 stats (0.0001 BTC). This is the minimum amount for an inion, and users also need to pay miners’ fees based on the image size. For example, at a rate of 10 sats/vB, users need to pay 2500 sats (0.000025 BTC) for every kb of image size. Technically, there can only be 10K inions per BTC, compared to Ethereum contracts that can create an unlimited number of NFTs. This concept makes Bitcoin NFTs scarcer than Ethereum NFTs.

Challenge: 1. Want to Buy Bitcoin NFT requires running a fully synced Bitcoin node and ord wallet; 2. There is a significant risk in transferring funds; 3. Creating a user-friendly marketplace like Opensea is not easy due to the lack of trustless transactions in the current official Bitcoin standard.【Original text in English】

1. Forbes: Examining the Risks and Opportunities of Bitcoin NFTs through the Rise of Ordinals (2023/02/18)

Reading guide:Ordinals protocol can add NFTs to Bitcoin transactions,But people have different opinions on this。 Forbes author Leeor Shimron analyzes the risks and opportunities of Bitcoin NFTs from the perspective of the Ordinals controversy. This article was compiled by Chain Catcher.

Bitcoin purists opposed to the Ordinals project believe that Ordinals is spam in block space that only clogs up the space and occupies the space that should belong to legitimate financial transactions on the network. However, supporters argue that Ordinals increases the demand for block space, promotes the development of a healthy fee market, and allows miners to receive subsidies by protecting network security.

Opportunity: Ordinals have increased miner transaction fee revenue, ensuring that blocks are filled, and attracting new Bitcoin users and developers. Stamping in Bitcoin transactions may encourage further experimentation and development of the network, stimulating new innovations in the Bitcoin eco. Other artists and NFT collections may deploy new NFTs on Ordinals.

Risk: The part of the value increase of Ordinals NFT projects may be due to the fact that they represent the ‘first’ projects deployed on the protocol, but they are still primarily speculative investments. Similar to other NFT standards, the issue of intellectual property rights for Bitcoin NFTs remains unresolved. NFT projects based on Ethereum have developed innovative creator royalties and auction mechanisms, and it remains to be seen whether these structures can be reused on Bitcoin.

1. [Long English Push] Opinion: Bitcoin NFT is more likely to bring social innovation rather than technological revolution (2023/02/12)

Introduction: As a hot topic last week, Ordinals NFT launched on the Bitcoin mainnet has sparked many discussions from both positive and negative perspectives. Teng Yan, a researcher at Delphi Digital, affirmed the historical value of the first 1000 Ordinals, but also believes that due to technical limitations, Bitcoin NFTs are more likely to bring social rather than technological innovation.

The theory of “Historical Artifact” holds that historical origins are very important in the NFT world. Similarly, I believe that the greatest historical value will belong to the interesting top 1000 Ordinals: unique. 1⁄1Works and small communities. Currently, Ordinals has over 40,000 inions, and anything over 10,000 is unlikely to be purely valuable based on its source alone. [Original text is in English]

The only type of NFT that makes sense on Bitcoin is value storage NFTs, such as high-quality artwork. Compared to Ethereum NFTs, Ordinals NFTs are minimally programmable, severely limiting their use cases. Bitcoin also lacks an NFT community, with almost zero NFT infrastructure and tools.

Are there enough builders on Bitcoin who really want to use these NFTs to create something innovative? If there is innovation, my guess is that it is more likely to be a social innovation, such as using the unique community or DAO of these NFTs rather than technological innovation.

Interpreting Bitcoin NFT Implementation Protocol Ordinals

1⃣️ A Brief Explanation of the Basic Principles of the Ordinals Protocol and the Rarity of “Satoshi” (2023/03/20)
Introduction: The emergence of the Ordinals Protocol has changed the Bitcoin eco. Cryptography researcher Wang Yishi analyzes the basic principles of the Ordinals and introduces the rarity of “Satoshi”, believing that the serial number of the inion is not absolutely related to its collection value.

Each Bitcoin can be divided into 100,000,000 units called satoshis (or sats), known as ‘satoshi’ in Chinese. The Ordinals protocol proposes to arrange the ‘satoshi’ in a certain order, assign them an ordinal number, and then connect them to other information: pictures, text, videos, or even a string of code. This makes each ‘satoshi’ unique and irreplaceable. This is equivalent to giving Bitcoin the native ability to create NFTs.

Protocol core: 1) Each ‘satoshi’ has a unique number. 2) First in, first out, meaning that the sorting of each satoshi’s number is determined by its index in the transaction output. The rarity of satoshis consists of a series of periodic events: 1) Blocks; 2) Difficulty adjustments; 3) Halving of block rewards; 4) Cycles, halving every 6 times, and halving and difficulty adjustments will occur simultaneously. This is called ‘overlap’, and the time between two overlaps is called a ‘cycle’.

“Clever” rarity levels: 1) Common, not the first clever of its block. 2) Uncommon, the first clever of each block. 3) Rare, the first clever of each difficulty adjustment period. 4) Epic, the first clever of each halving period. 5) Legendary: the first clever of each cycle. 6) Mythical: the first clever of the genesis block. However, the inion number is not necessarily related to the collectible value.

2⃣️ [English Long Push] Analysis of Bitcoin’s New Narrative Ordinals: More than just “Bitcoin NFT” (2023/02/20)
Introduction: In the past month, nearly 140,000 Bitcoin Ordinals NFTs have been minted. Cryptocurrency research institution Delphi Digital has explored and analyzed Ordinals from the casting method, differences and comparisons with NFTs, and the impact on Bitcoin.

The Ordinal theory assigns a unique number to each Bitcoin sat. Users input data into these specific sats, fundamentally changing the replaceability of Bitcoin. This metadata recorded on Ordinals will always exist on Bitcoin, and the data recorded through spending s on the Taproot path is fully stored on the chain. This is in stark contrast to the traditional NFT tendency to store metadata on centralized servers.

There is a subtle difference between Ordinals and NFTs. Developers can use unlimited NFTs to create contracts, while Ordinals are bottlenecked by the amount of sat in each block. In theory, the maximum capacity of each Bitcoin block should be 1MB, but with SegWit and Taproot, Ordinal users can add 3MB of data to each block. As fees rise and blocks get larger, this increases Bitcoin’s security budget and miners’ profitability.

Bigger blocks mean that Bitcoin nodes must store more data as the chain grows. As the demand for node storage increases, this could lead to centralization of Bitcoin. It also increases the fees paid to miners. Ordinals account for 12.5% of Bitcoin’s daily fees. Ordinals have brought new users to Bitcoin: users who pay fees to maintain the chain, while also bringing security and culture to the chain.

3⃣️ Bitcoin NFT “Pioneering Time”: Ordinals Protocol, FOMO, and Controversy (2023/02/09)
Synopsis: On January 21, Casey Rodarmor, a core contributor to Bitcoin, released version 0.4.0 of the Ordinals protocol, officially bringing NFTs to the Bitcoin mainnet. So far, about 9000 NFTs have been minted on the Bitcoin mainnet through the Ordinals protocol. This article introduces the basic information and participation tutorial of the Ordinals protocol, and summarizes the FOMO emotions and related controversies it has sparked.

The protocol has a numbering scheme that supports tracking and transmitting individual Bitcoin’s smallest unit, Satoshi. Different Satoshis are numbered in the order they are mined and are transferred from transaction inputs to transaction outputs in a first-in, first-out order. Once each Satoshi has a unique number as an identity, it can be tracked or traded individually. Based on this, writing data into each Satoshi (such as images, text, SVG, HTML, etc.) completes the transformation of Satoshi from ‘Bitcoin’s smallest unit’ to ‘Bitcoin NFT’.

Unlike the widely used centralized NFT trading market on Ethereum, everything on the Bitcoin mainnet appears so primitive, like “pioneering”. There is no NFT trading market, all relying on OTC; there is no Mint page, and the sales model is mostly “paying the creator -> the creator puts the NFT on the chain -> manually distributing the NFT to the buyer”; Ordinals has not even had time to release a lightweight wallet app. If you want to put NFT on the chain or transfer it to another address, you must install the Bitcoin core wallet and use Ordinals’ full functionality through the command line.

The Taproot Wizard nearly filled the entire block with a 3.94 MB image, resulting in the largest block ever mined on the Bitcoin network. Another Bitcoin core developer, Luke Dashjr, referred to this transaction as ‘spam’ and quickly developed a ‘spam filter’ for miners to screen and filter transaction broadcasts that include Bitcoin NFTs created with the Ordinals protocol. What will be the long-term impact of the Ordinals protocol on the Bitcoin network: will it bring greater incentives for non-financial applications to miners, or will it result in higher costs for financial applications?

According to Dune Analytics data, the spending on Inions using the Bitcoin-based NFT protocol Ordinals has been steadily increasing. As of February 7th, the Ordinals protocol accounted for 12% of the total transaction fees on the Bitcoin network and 0.3% of the block rewards, and it continues to grow exponentially, causing the most severe Bitcoin mempool congestion since the bankruptcies of FTX and 3AC.

4⃣️ Messari: Ordinals Bring a New Narrative to Bitcoin(2023/03/11)
Reading guide:Messari researcher Sami Kassab wrote a report to interpret the “renaissance” brought by the inion to Bitcoin,Messari official tweeted to summarize the report,Bitcoin’s identity as an inflation hedge tool、A store of value and a mature institutional asset has been shaken,After the upgrade of SegWit and Taproot,The emergence of Ordinals has brought a new narrative to Bitcoin。

The soft-fork upgrade Segregated Witness (SegWit) makes it easier and cheaper to store large amounts of data, while Taproot eliminates the limit on the amount of data that can be included in BTC transactions. The Ordinals protocol has emerged based on both, with over 342,000 inions published on Bitcoin in less than three months, including images, text, videos, applications, audio, and models. How do inions and Ordinals affect the underlying Bitcoin? Inions account for 6% of TX fees. The average size of Bitcoin blocks increased by 71% last month. The Bitcoin memory pool has experienced a surge in activity related to inions.

5⃣️ 【English】Grayscale: Can Ordinals Unlock the New Potential of Bitcoin? (2023/05/01)
Summary: Grayscale’s article discusses the impact of Ordinals on the Bitcoin network. Grayscale believes that despite the current opposition in the community, in the long run, Ordinals will have a positive impact on the Bitcoin network and attract a new wave of users and developers to embrace the Bitcoin community.

The criticism against Ordinals can be summarized in the following three points: 1. Deviating from the original vision of building a peer-to-peer electronic cash for Bitcoin; 2. Embedding additional data in blocks increases their size and causes blockchain bloat; 3. Impairing Bitcoin’s fungibility, thereby affecting its primary use case as a digital currency. [Original text in English]

We believe that Ordinals have a positive impact on the Bitcoin network in two key ways: increasing Bitcoin miner fees and potentially promoting a cultural shift within the Bitcoin community. The former may establish a sustainable transaction fee benchmark to incentivize miners, ensuring network security throughout the lifecycle of Bitcoin. The latter may promote a development-oriented community and culture to support the Bitcoin network.

Unlike ERC721, Ordinals present a direct representation of non-fungible digital assets due to their immutability, lack of programmability, and mandatory on-chain inion requirements. Although Ethereum NFTs have stronger programmability and currently dominate the NFT market in terms of quantity and popularity, Ordinals may be an attractive choice for those seeking simple, scarce digital assets on the most mature and usable blockchain.

Ordinals Ecology

1. veDAO Institute: Bitcoin NFT Protocol Ordinals Ecological Summary (2023/03/14)

Introduction: NFT, as a cryptographic token, did not have wide development in the early blockchain for certain reasons, but has gained popularity after the addition of Ordinals. veDAO Research Institute takes stock of and interprets the BTC NFT eco.

Minting: 1) Ordinals Bot is a tool for minting Bitcoin NFTs on the Ordinals protocol, which eliminates the need for users to run a Bitcoin node when minting Bitcoin NFTs. 2) The Gamma.io platform consists of three core products: an NFT marketplace, Launchpad, and a social platform. Gamma.io supports both the primary and secondary markets for Bitcoin NFTs.

Wallet: 1) Ordinals Wallet is a browser wallet for sending and receiving BTC NFT on the Ordinals protocol. In addition to basic wallet functions, it also supports Bitcoin NFT inion browsing, retri, Collection upload, and other functions. 2) Sparrow Wallet is an open-source wallet based on Bitcoin, supporting multiple transaction types and hardware devices. Users can use Sparrow Wallet to create, receive, manage, and transfer BTC NFT. 3) Hiro Wallet is a based on Stacks Chain-developed wallet mainly used for managing STX tokens. Currently, support for Bitcoin NFTs has been launched. 4) Xverse is a Bitcoin non-custodial wallet based on Stack and is also one of the largest markets in the Bitcoin NFT eco. Xverse supports trading with STX tokens or other cryptocurrencies such as BTC, ETH, etc., and also supports connection with Hiro Wallet or other wallets. 5) Bitcoin.com Wallet is a mobile wallet that supports multiple cryptocurrencies, including BTC, and NFTs (called BNT) minted on the Satoshi Vision (SV) network. The wallet also plans to support BTC NFTs minted on the Ordinals protocol.

Market: 1) Twetch is a ‘Play to Earn’ social network built on BSV, which allows users to earn money by posting content. The platform also includes an NFT market, a BSV wallet, and several other features such as chat and job boards. 2) Ordinals Market is an open and decentralized platform where anyone can post their own works or collect other people’s works. It also supports third-party applications and services for additional functionalities and experiences. 3) OpenOrdex is a decentralized trading platform for Ordinals. It is worth mentioning that the centralized order book of OpenOrdex is developed based on the once popular Web3 communication protocol Nostr.

1. [Long Push] Bitcoin NFT Market Gamma Analysis: PSBT Mechanism, Advantages and Disadvantages, and Overall Market (2023/03/22)
   Introduction: Bitcoin NFT researcher xiyu released an analysis of the Ordinals NFT Market Gamma project, introducing the characteristics of the Partially Signed Bitcoin Transaction (PSBT) mechanism, outlining the transaction process, and analyzing the advantages and disadvantages of Gamma as well as the current development of the Bitcoin NFT market.

PSBT: Partially Signed Bitcoin Transaction (PSBT) defines a precise format for passing Bitcoin transactions. This format can carry metadata for a transaction, making it easier for signers to sign and verify the transaction. The standard also defines the process for signature merging and transaction finalization, allowing multiple parties to sign the same transaction in parallel, and then merge the corresponding PSBTs to form a fully signed transaction.

Gamma advantages: No need to trust, no need to worry about whether the platform will take away our private keys. Compared to the method of generating private keys on the platform, the security has been greatly improved. It is equivalent to the experience of Metamask+Opensea, and there is currently no problem in terms of transaction experience for low-frequency transactions such as NFTs. Disadvantages: 1.5% handling fee, although not high, but Openordex has a 0 handling fee, which killed the market at the beginning.

Ordinals Eco: Currently, in the Ordinals eco, from minting to wallet to trading, although not as mature as the Ethereum network, it is almost there. What is currently lacking is the wealth effect, which is related to the overall downturn in the NFT market, and Ordinals still needs some time to evolve.

Magic Eden has also launched a trading market, and a new competition in the trading market has begun. If existing exchanges do not change quickly, trading volume will be transferred immediately. PSBT is currently the best trading model for Bitcoin NFTs and can be applied in more places in the future.

1. Bitcoin NFT new project Chainspace: Loot core Tim Shel’s new work (2023/02/28)
   Introduction: The Ordinals protocol has made it possible for Bitcoin to have financial use cases, but the Bitcoin eco lacks corresponding NFT infrastructure. LeftOfCenter, a columnist for Looper, interprets how the Bitcoin NFT project Chainspace successfully launched the project through the developed dual-chain structure NFT contract model, and through an interview with founder Tim Shel, understands its use cases, future plans, and narrative potential.

Chainspace is an NFT project based on the Bitcoin network protocol Ordinals initiated by Loot core members Tim Shel and Zora engineer Iain. It includes 800 video rendering applications stored in the Bitcoin network, which can be used for selfies. Users can generate selfie versions of gm emoji using preset filters representing different cryptographic community aesthetic styles for identity expression and community interaction. Maintaining anonymity is another important use case for Chainspace.

Chainspace adopts a dual-chain structure NFT contract model, which stores NFT in the Bitcoin network and initiates the initial issuance by creating corresponding mirrored NFT on the Ethereum chain. In addition, the mirrored NFT on Ethereum is compatible with EVM, thus solving the problem of Bitcoin NFT being unable to be traded and circulated due to lack of infrastructure. It not only lowers the threshold for minting, but also fully utilizes the NFT secondary market and other infrastructure in the Ethereum eco.

The purpose of the project is to introduce more new users to the new eco of Bitcoin. Chainspace’s own practical exploration has proved that this simplest feasible issuance model is feasible. Next, Tim Shel and Iain, as developers, plan to open source the contract code of this dual-chain structure model for more creators and developers to use. Tim Shel said that Chainspace can be likened to an art installation in reality. Although it is a public asset open to everyone, it is still owned by specific sponsors.

1. [English] New Project Preview | Yuga Labs’ latest Bitcoin NFT series TwelveFold (2023/02/28)
   Introduction: Yuga Labs announces the launch of a new Bitcoin blockchain-based NFT series called TwelveFold and provides a detailed introduction to TwelveFold.

TwelveFold is an art based on the number 12, designed around a 12x12 grid, which is a visual representation of data on the Bitcoin blockchain. This NFT includes highly rendered 3D elements as well as hand-drawn characteristics, paying homage to currently handcrafted ordinal inions. All of these choices are different from Yuga’s usual style, and it’s nice to do something unexpected.

Bitcoin is a fungible digital currency, but Bitcoin Improvement Proposal (BIP) describes a method called ‘inscribing’ that allows creators to link data to individual satoshis (the smallest unit of Bitcoin).1⁄100and on-chain custodial metadata (especially art). In fact, this allows satoshis to function like non-fungible tokens, essentially making the concept of NFTs on the Bitcoin blockchain possible. Entering Ordinal Discord a month ago felt like glimpsing the 2017 Ethereum NFT eco. This vibrant and passionate atmosphere is exactly what we love at Yuga.

What’s next? More detailed information on the auction time and mechanism will be announced in the next week. Good luck to all bidders, and we look forward to sharing this collection with the world.

5, [English long push] Bitcoin NFT trading protocol Ordyswap concept verification (2023/02/15)

Introduction: The purpose of Ordyswap is to enable the trading of Bitcoin ordinal NFTs. The co-founder of the Bitcoin domain project BNS envisioned a Bitcoin NFT market called Ordyswap based on the Blockstack network.

Ordyswap allows anyone to submit a bid for a specific Ordinal NFT. To create a bid, the submitter needs to lock up enough STX tokens and specify their Bitcoin address for the desired NFT with a specific serial number. If the holder accepts the bid, the Ordinal NFT will be automatically sent to the bidder, while the STX will be automatically paid to the seller of the NFT, the entire process is completely based on on-chain transactions, without involving any centralized custody process.