Bitcoin NFTs: A Billion Dollar Emerging Market
Ordinals, satoshis, the new frontier and what comes next
Hi 👋 welcome to Brian’s Bulletin. I write essays about blockchains, cryptocurrencies, and NFTs to figure out what’s happening and where it’s going next.
Amid the rubble of the crypto market collapse, one area is growing exponentially: NFTs on Bitcoin. From what was virtually unknown just a few months ago, Bitcoin ordinals NFTs are now predicted to be a $4.5 billion market by 2025.
And this is not a flash in the pan; there is real differentiated value to creating NFTs on Bitcoin.
In this article I'll cover:
Intro to Bitcoin ordinals NFTs
Why this is happening now
What this means for the NFT creators and buyers
What comes next
Bitcoin Ordinals NFTs
In December 2022, bitcoin developer Casey Rodarmor introduced the ordinals protocol that runs on the bitcoin network. It's a way to verifiably own a digital media asset. And this asset is stored on arguably the most secure and indestructible data file storage in the world: the bitcoin blockchain.
Here's how it works.
First, let me state that the smallest denomination of a Bitcoin is called a 'satoshi.' Its like the penny to the dollar, but there are 100 million satoshis in a Bitcoin.
Ordinals works by doing two things: first, it defines an ordering of the satoshis from the date they were created. This is like adding a serial number to the US Dollar—while all dollars appear the same, actually each is marked differently. Second, it enables you to attach a data file to that satoshi. This is something like if Picasso painted his famous self-portrait on top of a dollar. It would be valued as a collectible artwork more than the money itself.
With ordinals, the media asset can be any file type from text to video and audio. You can see the exponential growth:
The Gold Standard for NFTs
Bitcoin is digital gold because of its unrivaled security and decentralization. It would make sense then, that Bitcoin could set a new premium standard for NFTs. Owning one of these assets would carry a premium because of its added durability. And beyond the blockchain's security properties, the ordinals protocol stores the media file completely on-chain. This is in contrast to, and more reliable than, most existing NFTs where the media file is stored off-chain on a less robust decentralized storage network or a centralized server with its own centralization risks.
What This Means for the Industry
In this down-market, ordinals are a revenue making opportunity for NFT creators. It's a new frontier for the industry filled with early adopters who want to be early and learn. And it appeals to a whole new audience of Bitcoin holders—with market cap of $500+ billion.
Ordinals appear to be attractive for high-value assets from the leading creators. Yuga Labs, who's NFTs command 6-7 figure prices, netted $10+ million with their Twelvefold NFT art project. Later this month, another NFT collection OnChain Monkey is hosting a generative art drop, selling 300 pieces for 0.08 BTC, which will net them 24 Bitcoin, or almost $700,000.
What Comes Next
The ordinals ecosystem infrastructure is ramping up quickly. Companies are going to build the tools similar to the NFT ecosystems on other chains—wallets, explorers, marketplaces, token-gating APIs, physical displays.
New standards will be introduced to unlock new use cases. For example, the BRC-20 standard was launched recently to create fungible tokens on ordinals (i.e. the ERC-20 parallel.) Danny Yang, serial web3 founder including OnChainMonkey NFT, calls out one critical standard needed. He explains that ordinals all fall within the same NFT collection, so it's hard to distinguish between collections like you can with ERC-721 on Ethereum (i.e. the Bored Apes are a separate smart contract and separate collection from CryptoPunks and all others.) A new ordinals standard for collections will unlock the user experience and use cases we expect.
Lastly, more NFT companies will launch on Bitcoin. It's a way to add value to their holders, a way to make money in this down market, and a way to show they're at the edge of the industry.
NFTs were first invented on Bitcoin between 2012-2014 with Colored Coins and Counterparty. The traction since moved mostly to Ethereum, but now Bitcoin NFTs are back to claim their place in the market.