Ordinals bite the dust
First there were Bitcoin clone forks, then a flood of Defi.
Maybe you've heard about the new blockchain hype known as 'ordinals'. Since the Taproot softfork of Bitcoin [BTC] and SegWit it now is possible to inscript any kind of data in a block. Where the actual data gets connected to 1 Satoshi, the smallest part of 1 BTC. There will be about 2.1 quadrillion Sats (short for Satoshi) available to do so. With a possible (current) limit of storage of about 4 MegaByte per Sat that leads to an enormous amount of data. Hard to imagine how huge the Bitcoin blockchain can become within a relatively short time span. And not only Bitcoin, but every UTXO [Unspend TransaXion Output] coin out there that follows the same software core, like Litecoin [LTC] does. Keywords: Segwit and Taproot. (Which some of the forked clones seem to have messed up, like Peercoin and Pandacoin.)
You might be familiar with the mysic composer from ages ago named Beethoven. For some reason many people actually know the first 8 notes of his ninth symphony. "Ta ta ta taaaa ... ta ta ta taaaa ...", and then starting to sing the lyrics to 'Roll over Beethoven', but that's a different story. Point being that his 9th is an ordinal. Just like you could number the notes in sequence. Now let me make a bold assumption here, as I dare to claim Beethoven made at least 8 other symphonies. And when you set them to ordinals they would be his 1st, 2nd, 3rd, 4th, 5th, 6th, 7th and 8th. Okay, I now assume you get what ordinals are. It is actually quite simple, is it not?
Right, but what does Beethoven have to do with Bitcoin or any other UTXO coin out there. Well, it is about ordinals, because just like Beethoven his symphonies you can count every Satoshi ever mined in an ordinal way. And then connect some digital data to every single one of them. That is, to any Satoshi than you control. Remember: not your keys, not your Cryptocurrency? So, you cannot use the Sats that are owned by others. You so not need to have a full blockchain node running to get in on the ordinal game though. There are sevices that offer inscription in the Bitcoin and Litecoin blockchain at a certain price. And there are also wallets available that support ordinals. No need to run a full blockchain node to get in on the action. But should you anyway?
Storing digital data on the Bitcoin blockchain, or any Segwit Taprooted UTXO blockchain, comes at a price. And the more ordinals are being stored, connected to 1 transferable Satoshi (a 1 hundred millionth of a UTXO coin), the higher the transaction costs will become. It is a question of demand. Miners will be quite happy with ordinals becoming a hype, as it raises their income. Of course they also need to update their computer hardware capacity to keep up with demand. Those who just want a blockchain to be used for transactions of value might be part of the opposition. And to some extend they are right when they state that ordinals will create a bloated blockchain causing congestion. With payment transactions taking way too long to get through. Only small ones might be added to the large ordinal inscripted data filled blocks. Currently the average Bitcoin [BTC] blocksize is more than 3 MB. Mostly caused by ordinals inscripred data getting stored onto the blockchain.
But it comes at a certain price, which I think will also temper the NFT [Non Fungible Tokens] flood at some point. Or the creation of fungible Tokens, for that matter. As I do see some utility in using ordinals, creating NFTs and Coins / Tokens aint none of them. That is, in the long run, as the current hype will have early adopters spend a lot with the idea to get a huge return on their investment. While I believe that at one point NFTs and DeFi will fade out. Except the ones that have a real utility connected. Or have a real world usage. Of course there will be a huge wave of speculative ordinal inscriptions at first. Almost like just storing something on a Bitcoin blockchain, because it can be done. Yet, just for storing an image of a few KiloBytes in size I am not willing to pay 60 euro. Even if it gets connected to a rare ordinal Satoshi. At some point in time it will become economically a waste to just store any kind of data on a blockchain. And then some of the more serious uses of ordinals will become dominant. Without causing any UTXO SegWit Taprooted blockchain to become bloated.
Because of the transaction dust limit every UTXO transaction will use at least 546 Satoshi. Where SegWit transactions cut that down to 294. Still, for a digital data inscription using 1 Sat there is a minimum cost. Not only the dust limit, but also the cost for the transaction itself and the cost of storage per Byte of data. Meaning that not every Satoshi ever created can not will be used as an ordinal. And what to think of some Token / Coin created using an ordinal inscription? Minting it, sending it and so forth, it all seems mainly speculative. There are blockchains that make it way more economical to do so, like the Tokel blockchain. And a blockweave chain like Arweave is way better suited to store digital data on. While adding up to 2 KiloByte in tags to every item. Ordinals can easily be ported to the Arweave Permaweb at a much lower cost and a very high transaction speed. While it can host a complete website. Or store a library of public domain books. Arweave, as I see it, is much more cost effective to store digital data on. And it's way faster and flexible to use.
Still, the ordinal hype has just begun and it will take a while before the FOMO [Fear Of Missing Out] has settled to dust. And there might be some utility to it. But I think this will be connected to high value objects, like real estate. Or to registar certain names or ideas, that need to be proven. Contracts might fit the bill. Using a solid secure unmutable blockchain like Bitcoin might be the right choice to use for that purpose. For really valuable storage, where it is okay to pay maybe even hundreds of euro to just store one item, ordinals could be perfect. A real house connected to an unique Satoshi ordinal, that might have a real utility. Because of the price tag that comes with storing digital data on an UTXO blockchain the current NFT and Coin/Token flood will at some point in time come to a halt. Or maybe just used by a few. As systems like Arweave are build for storing massive amounts of digital data, while blockchains like Bitcoin are not.
Thanks to the open sourced Bitcoin software a lot of different Cryptocurrencies emerged. A lot of them where, back in the days of miracle and wonder, just pump and dump schemes. It was even possible to have a Coin created online, if the right price was payed. Some of the many had mistakes in the copied software. Which would lead to a future disfunction. It was like a gold-rush. Where some struck the jackpot. Copy code Coins, with no innovations, some of those are still around. While some, like Litecoin [LTC], actually have proven their utility. The same goes for DeFi [Decentralized Finance], where a lot is mainly rubbish running on an EVM [Ethereum Virtual Machine] used to pull the rug at a certain moment in time. (Learned my lesson well, I hope.) And the next bandwagon to come along was known as NFTs. Where also those that have real utility to them will last.
Next up are ordinals. And at first I think it will be like many will want a piece of the pie. While as far as I see it the moment to get into that already seems to have passed. Jumping on already might be something like being the last in line, or catching some of the slower trains that are the same track. Some will make big bucks, others will help them do so, while losing a lot themselves. While it might just be fun to store ones identity on an UTXO blockchain, or a happy event, it will come at a certain price. Some are willing to pay for it, while others, me included, will look for more economical and job suited system. But not matter what, the current ordinal hype will pass, until something more exciting will come along.
By the way: remember to only invest what you are willing and can effort to lose.
This 24 MegaPixel, 4.74 MB, image is stored on Arweave, costing me a one time fee of € 0.02
Image CC0 licensed.
