Print PDF
Ordinals nugget header

Digital Nugget: Ordinals, inscriptions and NFTs

Digital Nugget

“Bitcoin NFTs” called Ordinals have gained tremendous popularity since the beginning of 2023. The “inscriptions” methodology used in their creation has since spread to other networks. We explore how they differ from NFT token structures, and the implications of their popularity.

Last 30 days’ NFT sales volumes by blockchain

Orddinals nugget

Source: CryptoSlam

Inscription vs. smart contracts

As NFTs gained popularity during the 2020-2021 bull cycle, most of them were created as smart contracts – computer programmes stored on the blockchain. However, this year has seen a rise of NFTs created through inscribing metadata onto the blockchain.

Smart contract based NFTs usually store the digital image, video or other form of data externally, with the NFT itself containing a link pointing to the file. While off-chain stored NFTs are less secure, fully on-chain NFTs were only a small percent of the NFT market until recently due to the prohibitive costs involved.

Inscription-based NFTs (called Ordinals on the Bitcoin blockchain) offer the security of on-chain NFTs but at a much lower cost. Just as smart contracts, inscriptions can also be used to create fungible tokens.

Inscriptions on the Bitcoin blockchain are immutable. Other blockchains like Solana have both mutable and immutable inscriptions. Unlike smart contracts, inscriptions cannot automatically enforce creator royalties for NFTs.

Inscription based NFTs have become extremely popular since the beginning of the year, allowing the Bitcoin network to achieve a dominant market share in NFTs. It also changed Bitcoin’s mix of use cases. Used predominantly as a medium of exchange and store of value traditionally – “sound money” and “digital gold” – Bitcoin is now increasingly used as a platform.

Recursive inscriptions which create a chain by calling data from existing inscriptions support the creation of complex data structures, surpassing Bitcoin’s original block size limit. Recursive inscriptions enable use cases such as 3D video games, music videos, or large data sets for real world assets (RWA), vastly expanding the Bitcoin network’s ability to compete as a platform.

The popularity of Bitcoin Ordinals, and their greater security and lower cost vs. smart contract based NFTs, has inspired other blockchain communities to implement inscriptions.

Controversies

The inscriptions frenzy has led to the impacted blockchains getting congested and transaction fees rising, inspiring a debate about their benefits vs. drawbacks and possible solutions to the latter.

On the Bitcoin network, the debate is even more heated due to Bitcoin’s limited scalability and the long-standing philosophical debate on whether Bitcoin’s multiple use cases detract from its primary intended purpose as an alternative monetary system.

In response, Bitcoin mining firm OCEAN began rejecting Ordinals transactions, citing denial of service attacks and increased congestion risks. Over Christmas, another developer created a script for miners, designed to reject blocks containing Ordinals.

Concerns about centralisation and censorship have arisen. On the one hand, the higher cost to run a node due to the need for storage space and bandwidth for the much greater volume of data could lead to miner concentration and the resulting centralisation of Bitcoin’s ledger – especially as miners face increasing regulatory pressure to filter and block transactions. On the other hand, censoring Ordinals transactions on the network is also seen as contradictory to Bitcoin’s decentralised ethos.

Summary

Inscriptions have revitalised innovation on the Bitcoin network and inspired other protocols. Inscription-based NFTs have also injected fresh excitement into the NFT market. While controversy and concerns have arisen, the issues encountered will encourage further innovation.

Read more about crypto assets from Sygnum here.

Disclaimer: The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorisation or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.

Read next article

Local restrictions – Provision of cross-border services

It looks like you are using a computer with an IP address located outside of Switzerland.
If you are located in Switzerland, please click “Continue” to access the Sygnum Bank AG (Sygnum) website.

If you are not located in Switzerland, please read below.

This website and the information contained herein are addressed solely to persons residing or domiciled in Switzerland.

Sygnum is a regulated bank supervised by the Swiss Market Financial Authority (FINMA). The products and services on this website are authorised in Switzerland. Sygnum cannot promote its products and services in other countries where it is not authorised by the supervisory authority of that country to do so.

If you click on “Continue” to visit this website, you confirm that you have read and understood the above and you are visiting this website on your own initiative without any active promotion or solicitation from Sygnum.

RETURN CONTINUE

Investor qualification

The following content is available to qualified investors. Please confirm your details below to visit this page, or please see our other digital asset updates here.

Qualified investor - As defined in Art. 10 (3) ff. of the Swiss Collective Investment Schemes Act. In particular, natural persons who have the knowledge required to comprehend the risks of the investments based on their individual education and professional experience or based on comparable experience in the financial sector and hold liquid assets of at least CHF 500,000.

A US Person is defined as (a) an individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organised under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income taxes regardless of whether such income is effectively connected with a United States trade or business.

Disclaimer:

The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorization or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.

Mandatory fields

Security alert

Stay alert to fraudulent communications. Sygnum will never post messages on social media or private messaging applications regarding Sygnum banking access or logins. If you have concerns, contact us.

Close