veDAO Research Institute: A Comprehensive Interpretation of the Bitcoin NFT Ecosystem
Although the BTC NFT ecosystem is very prosperous, the current financing situation in the Bitcoin sector is not optimistic.Author: veDAO Research Institute
After the Spring Festival, the biggest highlight in the Web3 industry does not come from the strong rise of the L2 star Arbitrum, nor from the open rivalry between the two new ace public chains, Aptos and Sui. Instead, it comes from the Web3 living fossil, BTC. Since the launch of the Ordinals protocol on December 14 last year, as of March 6, over 300,000 NFTs have been minted, and the first 10K collection Bitcoin Punks, which used Ordinals for free minting, was sold out in less than a day. This was almost unimaginable in the past, as BTC has long been synonymous with slowness and high costs.
People, aside from caring about Bitcoin's price trends, would not pay much more attention to it. As a result, Bitcoin has been mocked as: "A vintage car made of pure gold, its greatest value is to be displayed in a museum."
But now, BTC has undoubtedly welcomed its second spring. According to Dune, Bitcoin NFTs reached a peak in February this year:
Perhaps even now, many people are still confused about concepts like "the prosperity of the Bitcoin ecosystem" and "Bitcoin issuing NFTs." Next, we will explain them one by one:
What is BTC NFT
In one sentence: BTC NFT refers to NFT products released based on the BTC ecosystem. It sounds similar to ETH NFTs and Polygon NFTs.
However, the issuance of NFTs on the BTC chain is defined based on the smallest unit of the BTC network, Sats (satoshis). First, we need to understand what Sats are: the name for the eighth decimal place of Bitcoin, with a ratio of 1 BTC to 100 million Sats, named in honor of Satoshi Nakamoto's great achievement. So how does the BTC network issue NFTs using Sats? This brings us to a protocol: Ordinals.
Ordinals is an NFT protocol based on the BTC network, aimed at assigning a unique identity to each satoshi (sat). By using the Ord software, the protocol adds data to these sats and allows software users to track them based on an ordinal number system. In other words, the Ordinals protocol represents the smallest unit of Bitcoin, sats, in the form of NFTs, endowing them with substantial trading and collectible value. When the smallest unit becomes a new speculative target, it can be seen as a form of expansion for Bitcoin.
Since the birth of the Ordinals protocol, users have been able to inscribe information on the Bitcoin chain, including text/images/audio/video, thus creating NFTs on the Bitcoin chain.
It's like engraving your name and picture on a 10-cent coin, turning that 10-cent coin into an NFT. For example, this one numbered dd 082 adcb 3 aab 2882185 e 3 a 2 f 927 bbff 53 cf 6 ffe 8 ab 47 2d 57740 ea 9 f 95 c 0 acdai 0 has the following characteristics: the time it was mined, its percentile, its name, the block it was mined in, and its rarity, etc. At the same time, this satoshi is also inscribed with a visual jpeg, making it easy to find based on these characteristics. This satoshi is also called Inscription 338381, meaning it is the 338381st inscribed inscription.
How is it different from smart contracts?
From the above, we understand the origin of BTC NFTs. So how do they differ from conventional ETH NFTs on the market? First, we need to clarify the definition of smart contract NFTs.
Definition of Smart Contract NFT:
Smart Contract NFT: How to achieve uniqueness & indivisibility: A token ID composed of integers maps to a URL containing NFT metadata (name, description, image address), and then uses the contract as the boundary of the collection, allowing retrieval of a specific NFT through contract address → TokenID → metadata.
Collection: Issuing and transferring NFT collections using 721 or 1155 protocol contracts.
Metadata: Usually stored on IPFS or centralized servers, with metadata attributes in the collection's smart contract, setting metadata to point to a URL storage address.
Transactions: Transferring NFT ownership through marketplace transaction contracts.
In other words, an NFT should have at least four elements: uniqueness, indivisibility, transferability, and descriptiveness. Let's see how BTC NFTs achieve this.
BTC NFT:
Uniqueness: Ordinals ordinal theory: ordinals are numbered starting from 0 based on the order in which sats are mined, with the first sat in the first block numbered 0, the second sat numbered 1, and the last sat numbered 4999999999, thus each sat has an ID attribute.
Indivisibility: As mentioned above, Sats are the smallest unit of BTC and cannot be further divided.
Transferability: Sats in the transaction input are transferred to output sats in a first-in, first-out manner, achieving directed transfer. However, currently, due to the absence of smart contracts, a centralized platform is needed to act as an arbitrator during the transaction process.
Descriptiveness: Stored on the BTC chain, thus there are size limitations. Since inscriptions are on-chain, they cannot reference off-chain content and cannot be modified, unlike Ethereum NFTs which can index off-chain content through IPFS or AWS. However, due to the lack of smart contracts, inscriptions cannot support on-chain royalties.
How to Obtain BTC NFT?
Hardware Requirements
A computer with more than 1TB SSD. Generally, people will use their personal computers to install a Bitcoin full node. Apart from the space they use, at least 600GB is needed to store Bitcoin blocks.
A normal network environment, as synchronization takes a long time, approximately 10 hours. Users in China may need to use a VPN or may require more time.
Process
Download Bitcoin Core and synchronize the full node, requiring 500GB+ space;
Download Ordinal and create an Ordinal wallet;
Use ord protocol commands to inscribe Satoshis;
Set the inscription; Bitcoin inscriptions can be an image or a txt document. Below is an example of a txt document to mint a sats domain.
Open the built-in 'Text Editor' software, input the content required by sats;
Format - create plain text, then save it as a txt file, and copy the file's save path.
In the ordinals command window, input
./ord wallet inscribe 'file path' --fee-rate <current fee rate>. You can check the current optimal fee rate here. Note that you must manually set the fee rate, as the default rate is 1, and not setting it will cause the transaction to get stuck and not confirm.Wait for block confirmation, run
./ord wallet inscriptionsto view inscription information. You can also check the latest information on the ordinals official website.Transfer BTC to the wallet.
Set up a minting bot: to facilitate minting and receiving orders.
Mint NFT: You can easily upload images/audio/video and let the bot help us mint them into NFTs. The larger the file size, the more gas fees required for minting, making it more expensive.
Mint Sats domain: Purchasing a domain on Bitcoin is a one-time fee, and it is free forever, with no annual renewal required.
The above process outlines the method for minting BTC NFTs by setting up a full node. This approach requires users to synchronize a BTC full node on their own computers. Although it is cumbersome, it can reduce transaction fee losses during the minting process and is beneficial for deeply participating in the subsequent BTC NFT ecosystem.
If users find setting up a full node too troublesome, there are currently many third-party nodes available for minting. For example: ordinalsbot, Gamma, unisat_wallet, etc. The advantage of these third parties is that they simplify the minting process, but it also means users need to pay higher transaction fees and service fees. Explanations of these products will be elaborated on later.
Interpretation of the BTC NFT Ecosystem:
(1) Yuga Labs: The strongest IP creator in the NFT field, Yuga Labs announced a plan to launch an NFT series called TwelveFold on the Bitcoin blockchain based on the Ordinal protocol. TwelveFold is based on a 12 x 12 grid, which serves as a visual allegory for mapping Bitcoin blockchain data. Additionally, unlike PFPs such as BAYC, the works constituting the TwelveFold series are created in-house by Yuga Labs' art team using 3D modeling, algorithm construction, and high-end rendering tools, paying homage to the currently handcrafted ordinal inscriptions.
Link: https://yuga.com/
(2) DeGodsNFT: The Solana ecosystem NFT project DeGods has destroyed its 535 NFTs on the Solana chain and minted them as "inscriptions" in a separate block on the Bitcoin chain using the Ordinals protocol.
Link: https://degods.com/
(3) Crypto Punks: Crypto Punks is the first project to issue NFTs on the Bitcoin network, and BAYC is also considering issuing NFTs on Bitcoin.
Link: https://bitcoinpunks.com/
(4) Gamma.io: The Gamma platform aims to bring together collectors, creators, and investors in the Bitcoin ecosystem. The platform consists of three core products: an NFT marketplace, a Launchpad, and social interaction. Users can mint NFTs using tools provided by the Gamma bot, addressing the high technical barriers, complexity, and time-consuming nature of creating NFTs on the Bitcoin network.
Link: https://gamma.io/
(5) Ordinals Bot: Ordinals Bot is also a tool for minting Bitcoin NFTs on the Ordinals protocol, which eliminates the hassle of running a Bitcoin node when minting Bitcoin NFTs. Players can upload the NFT files they want to mint, fill in the NFT address they want to receive (it is recommended to use an address starting with bc1), and after clicking "Submit & Pay Invoice," a payment address and QR code will pop up for payment. The friendly part is that payment supports both the Lightning Network and the Bitcoin mainnet. Due to the slower Bitcoin network, it may take 10 to 60 minutes for the payment to be officially confirmed after payment.
Link: https://ordinalsbot.com/
(6) Stacks: Stacks is an open-source project initiated by Bitcoin builders, which is a Bitcoin Layer 2 that can use smart contracts. Strictly speaking, anything that can be built on Ethereum or Solana can also be built on Stacks L2. Currently, contracts on Stacks L2 have locked 250 million dollars and have issued 2200 Bitcoins as rewards to users. The next version of Stacks, set to launch this year, will add a decentralized BTC anchor, making it easy to transfer BTC in and out of Stacks L2.
Link: https://www.stacks.co/
(7) getAlby: Supports Bitcoin Lightning Network payments.
Link: https://getalby.com/
(8) Xverse: Supports BTC NFT storage.
Link: https://www.xverse.app/
Currently, there are many projects based on the BTC NFT concept. This article summarizes several benchmark projects. The veDAO Research Institute will soon release a more detailed summary of the BTC NFT ecosystem, so stay tuned.
Conclusion
Although the BTC NFT ecosystem is very prosperous, the current financing situation in the Bitcoin sector is not optimistic. As of February 22, according to data from The Block, the Bitcoin ecosystem has only raised 500 million dollars in the past year, which is not in line with Bitcoin's status as a blockchain leader compared to the nearly 30 billion dollars raised in the entire industry.
In addition to financing issues, the current BTC NFTs also face many criticisms:
First, the threshold is extremely high:
High memory requirements;
Complicated operational processes;
Expensive gas fees, consuming a large amount of funds, making it difficult for small players to afford.
Secondly, it is resisted by BTC fundamentalists:
As mentioned above, assigning value and meaning to Sats can be seen as a form of expanding BTC, which many BTC fundamentalists believe affects BTC's scarcity.
Furthermore, endowing Bitcoin with NFT functionality is viewed by BTC fundamentalists as contrary to the core spirit advocated by the Bitcoin white paper.
But regardless, the innovation of Ordinals' NFTs is a novel attempt at the future development path of the ancient Bitcoin. Coupled with the massive financial scale of the BTC ecosystem itself, as the Bitcoin ecosystem gradually gains attention, the potential accumulated within Bitcoin will be further released.
References
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