How Bitcoin Slowly Became Compatible With NFTs Through Ordinal Inscriptions

Hey friend! Have you heard about how Bitcoin recently became able to support non-fungible tokens (NFTs) through something called ordinal inscriptions? I know, it sounds very technical. Let me walk you through the history…

In the early days of Bitcoin, the blockchain was designed solely for financial transactions. But over the past decade, developers have introduced a series of incremental upgrades that paved the way for more diverse data storage.

The culmination of these optimizations finally enabled true NFT functionality in 2024 through ordinal inscriptions. This lets users permanently embed digital artifacts like images, videos, and more onto individual satoshis.

Transforming Bitcoin into an NFT chain required careful coordination within the open source developer community. It didn‘t happen overnight. Rather, it was the result of years of protocol improvements that gradually increased Bitcoin‘s flexibility:

Here‘s an overview of 5 key events between 2012-2023 that made Bitcoin NFTs possible:

1. Colored Bitcoins Introduce Non-Financial Data (2012)

In 2012, the concept of colored bitcoins emerged as one of the first attempts to store non-financial data on the Bitcoin blockchain.

Traditionally, all bitcoins were treated equally, with no differentiation. But colored bitcoins allowed users to assign attributes or meaning to specific coins.

For example, someone could mark a bitcoin as representing:

  • A share in a company
  • Ownership of a digital asset
  • Voting power
  • Gaming item
  • More!

This represented a shift beyond just using Bitcoin for payments. Unfortunately, adding this extra metadata did have some drawbacks:

  • Took up block space, slowing transactions
  • Overran bitcoin nodes with excessive data

So colored coins demonstrated early appetite for non-financial use cases, but also revealed limitations in Bitcoin‘s capacity.

Key Stat: Over 50 different colored coin implementations were developed, with over $1 million raised in related startup investments by 2013.

2. OP_RETURN Opens the Door to Arbitrary Data (2014)

To enable more useful metadata without bloating the blockchain, Bitcoin Core developers added the OP_RETURN function in 2014.

This allowed users to store 80 bytes of arbitrary data on the blockchain by attaching it to transaction outputs. OP_RETURN opened the door to applications like:

  • Timestamping
  • Document notarization
  • Basic messaging

It was still limited, but a stepping stone. Storing data separately from transactions was more efficient than colored coins embedding metadata directly into coin transfers.

Fun example: The first OP_RETURN message immortalized on Bitcoin‘s blockchain was the text: "Bitcoin: A Peer-to-Peer Electronic Cash System"

3. SegWit Lays the Foundation for Expanded Capacity (2017)

The SegWit upgrade in 2017 was a landmark moment. It introduced a new structure that separated transaction data from witness data, such as signatures.

By pulling signatures into a separate merkle tree (the "witness"), it freed up space for transaction data and metadata. This building block enabled future optimizations:

  • Doubled Bitcoin‘s effective capacity
  • Laid groundwork for fraud proofs
  • Solved transaction malleability

Key Stat: In 2024, over 90% of Bitcoin transactions use SegWit, up from 10% in early 2018.

4. Taproot Increases Privacy and Reduces Signature Data (2021)

The Taproot upgrade built on SegWit by introducing a new digital signature scheme called Schnorr.

Compared to the old Elliptic Curve Digital Signature Algorithm (ECDSA), Schnorr signatures offered improvements:

  • More privacy – signatures looked the same, whether single or multi-sig
  • Smaller in size – batches could be aggregated into one signature
  • Greater flexibility – support for complex smart contracts

This enhanced efficiency and confidentiality enabled larger metadata attachments and smarter Bitcoin scripts.

Key Stat: Taproot reduced the space consumed by multisignature transactions by over 25%.

5. Ordinals Enable True NFT Functionality (2023)

Ordinals represent the culmination of a decade of upgrades. By combining innovations like Taproot and OP_RETURN, they enable users to embed digital artifacts directly into satoshis.

With ordinals, Bitcoin transactions can carry:

  • Images, video, audio, PDFs, JSON
  • Full NFT metadata
  • Up to 1 kilobyte of custom data

This finally brings true NFT functionality to Bitcoin in a decentralized, permissionless, and censorship-resistant package.

As Casey Rodarmor, creator of ordinals, said:

"With ordinals, Bitcoin can now compete feature-for-feature with any other NFT chain."

The path to Bitcoin NFTs was long, but ordinals mark an exciting new chapter in its history.

The Future Looks Bright

Bringing NFT support to Bitcoin required careful planning by its open source developer community. Through backwards-compatible upgrades, they slowly enhanced Bitcoin‘s flexibility and capacity over time.

It‘s still early days for ordinals and Bitcoin NFTs, but they unlock new possibilities like uncensorable NFT trading markets.

By leveraging Bitcoin‘s security and decentralization, ordinals could help bring digital collectibles to a mainstream audience. The next decade promises to be just as transformative as the last!

Let me know if you have any other questions about the winding road to enabling NFT functionality on top of Bitcoin. I‘m happy to chat more about the key events and innovations covered in this article.

Similar Posts