We should note that something resembling NFT in Bitcoin network appeared quite a long time ago. One of the first such projects was the release of Colored Coins in 2012. In a nutshell, we are talking here about BTCs with special marks on them, which allowed separating certain coins from each other and made them essentially unique.

In addition, the developers wanted to use some marked bitcoins to link them to the value of a certain asset. In other words, such a BTC was supposed to represent a tokenized version of some commodity or financial instrument, which is extremely common today.

How NFT works on Bitcoin

As a reminder, NFTs are tokens on the blockchain that serve as proof of ownership of assets, which can be digital or physical. The trend of unique tokens is most associated with Etherium and Solana, but the idea of supporting NFT specifically on Bitcoin has been something developers have been trying to implement in a convenient form for quite some time, according to Decrypt.

One of the issues preventing the integration of NFT into Bitcoin is the need for smart contracts. NFTs use smart contracts for almost any interaction, including selling on centralised platforms or transactions between users. Bitcoin does not have enough features for smart contracts to work.

To solve this problem, earlier projects like Counterparty or Stacks developed their own alternative solutions. Counterparty, for example, released a second-tier Bitcoin-based solution back in 2014, that is, before the emergence and popularisation of Etherium. In this case, it is a complementary chain based on Bitcoin’s core network – that is, something like the Lightning Network.

However, Ethereum’s native support for smart contracts has made it a much more user-friendly platform in the context of NFT, both for developers and users.

Counterparty token price over time

The Ordinals project takes a slightly different approach. Unlike Counterparty or Stacks, it is not a second-tier cryptocurrency solution. Its developers aim to integrate NFT directly into the Bitcoin blockchain itself.

Project Ordinals

The startup is led by former Bitcoin Core member Casey Rodarmore. In general, Ordinals allows users to transmit and receive individual satoshis or sats, the smallest bitcoin unit of 0.00000001 BTC. They can include video and image data, and adding assets to individual satoshis is possible by modifying the signature in the transaction.

Many crypto-enthusiasts were outraged by Rodarmor’s idea, and this is what Bitcoin is Saving user wrote about it.

People with minimal wealth in developing countries will have to pay more to run their Bitcoin nodes and send transactions, because privileged rich whites want to put pictures on the blockchain as status symbols. Just because it can be implemented doesn’t mean it has to be done.

In general, members of Bitcoin's core development team were hostile to the idea. Some of them advocated creating so-called spam filters and at the same time suggested that miners block NFT-related transactions. So in essence they advocated censorship, which is contrary to the idea of cryptocurrencies.

Graph of the average Bitcoin network commission over the past three months

The problem is that the active use of such NFTs in the Bitcoin blockchain will lead to more congestion on the network and higher transaction fees. The concern is not unfounded – according to the Hashrate Index platform, transaction fees as a percentage of total miners’ remuneration have increased significantly in the last few weeks since Ordinals began.

Transaction fees as a percentage of total miner remuneration

As a reminder, Bitcoin transaction fees do not depend on the value of the transfer, but on its size. Modifying the signature of a transaction to transmit NFT results in a significant increase in its size and value. And the larger the size of each individual transaction, the fewer of them can get into a single block. In other words, the active use of Ordinals causes the Bitcoin network to become congested, and the average fee for any transfer at all on the network grows.

We believe that there is nothing wrong with Bitcoin-based NFT proliferation, because this way the blockchain of the first cryptocurrency will become more diverse. Perhaps, the release of non-interchangeable tokens will not be a hit, but that is not a reason to call such projects spam and try to block them in every possible way. Therefore, the hostility of the Bitcoin Core team's representatives here is nothing short of surprising.

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