What Are Bitcoin Inscriptions and Inscription Minting?
To understand the concept of Bitcoin inscriptions, we first need to understand the structure of Bitcoin and the Ordinals protocol.
Bitcoin has a fixed total supply of 21 million units, and each Bitcoin is fungible, meaning they are interchangeable and identical in value. Unlike Ethereum, which supports smart contracts, Bitcoin does not have this capability. As a result, issuing tokens or NFTs (non-fungible tokens) on Bitcoin was not feasible.
This limitation was addressed by the introduction of the Ordinals protocol on December 14, 2022. Developed by Bitcoin core contributor Cassie Rudomer, the protocol assigns a unique identifier to every single satoshi (the smallest unit of Bitcoin, 1 Bitcoin = 100 million satoshis), making it non-fungible.
Through the Ordinals protocol, users can track individual satoshis on the blockchain. When specific information, such as images, text, or code (limited to 4 MB), is inscribed onto a particular satoshi, it becomes unique, with this additional data referred to as an inscription. The process of adding this information is known as inscription minting.
To explain this concept more simply, imagine two $100 bills. They have the same value, so they are fungible. Now, if one of the bills has a celebrity’s signature on it, its value increases because it is unique. This is analogous to Bitcoin inscriptions, where satoshis, which are originally fungible, become differentiated and unique, effectively turning them into NFTs.
The Background and Reasons Behind the Bitcoin Inscription Boom
After Bitcoin peaked at $64,400 in November 2021, its price plummeted, losing over 70% of its market value by late 2022. However, the introduction of the Ordinals protocol marked a turning point, bringing new momentum to the Bitcoin ecosystem.
Before the Ordinals protocol, most developers focused on Ethereum, which pioneered the concept of a public blockchain that could be used for more than just record-keeping. Ethereum introduced smart contracts, enabling the development of decentralized applications (DApps) such as tokens, NFTs, and DeFi platforms.
The release of the Ordinals protocol allowed similar developments to occur on the Bitcoin blockchain. Additionally, after Bitcoin’s Taproot upgrade in November 2021 (a major update enabling scalability and improved transaction efficiency), developers gained even more opportunities to build on Bitcoin.
Another significant event was the introduction of the BRC-20 protocol on March 8, 2023, by a Twitter user named "domodata." While the Ordinals protocol provided the foundation, BRC-20 enabled practical applications, such as creating and trading tokens, streamlining the process for developers and users. This led to rapid advancements in Bitcoin inscriptions and other applications.
Finally, while Ethereum has been a leader in blockchain applications, Bitcoin’s unparalleled brand recognition and market dominance give it a distinct advantage. Bitcoin’s strong community support and credibility attract more developers and users to its ecosystem.
The Current State of the Inscription Ecosystem and Market
Bitcoin inscriptions saw their first wave of popularity in early 2023. In May, OKX, a major cryptocurrency exchange, listed Ordi, the first Bitcoin-based token, becoming the first major exchange to support Bitcoin token trading. This move significantly boosted the Bitcoin inscription ecosystem.
Previously, creators and investors in Bitcoin inscriptions had to rely on decentralized exchanges (DEXs), which involved high transaction fees and slow processing times. With major exchanges like OKX supporting Bitcoin tokens, transaction costs have been reduced, and transaction speeds have improved dramatically.
By November 2023, Bitcoin inscriptions entered a phase of explosive growth. According to CryptoSlam, as of December 29, 2023, Bitcoin-based NFT transactions had reached $1.84 billion, ranking fourth after Ethereum, Solana, and Ronin. With further development and adoption, Bitcoin inscriptions are poised to climb even higher in this ranking.
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