Since the new Ordinals protocol allows people to attach data files to specific satoshi's, the demand for Bitcoin blockspace has gone up. These files, some of them big, drive up the fees too. Some Bitcoiners welcome this, while others scoff at the idea of jpegs on their holy chain. 

Are 'evil JPEGs invading the sacred Bitcoin blockspace'? Simply to push the limits and prove a point, Udi Wertheimer attached a 3.9 MB file to a satoshi, taking up almost the entire data space of a Bitcoin block. Typical Bitcoin transactions can cost a few cents to a few dollars but attaching NFT's can cost tens of dollars in comparison. In the first week of the launch, the percentage of the miner rewards that consisted of fees, rose from 1% of total to 6%.

Tweet about the 3.9 MB image that Udi minted on-chain

Background

The newly launched Ordinals protocol makes it possible to map and track all satoshi's that were ever issued and will ever be issued. In a sense, the Ordinals protocol makes the entire stack of 2.1 quadrillion satoshi's that will ever exist a giant Bitcoin NFT collection. 

This ability of ordering and tracking alone makes some satoshi's more interesting than others, in the same way that a dollar bill that Lady Gaga throws at a fan becomes a collector's item, and an ordinary dollar bill doesn't.  

Imagine being able to track the first or final satoshi mined by... Satoshi Nakamoto! For sure, some people would pay extra to own that one (too bad Satoshi isn't selling). 

Engraving Satoshi's

The ability to order and track satoshi's, makes them a breed of fungible (normal coin) and non-fungible (NFT like). But with inscriptions, made possible by Bitcoin's Taproot upgrade, the likeness to NFT's is cranked up even more. Why? Because inscriptions allow people to 'engrave' satoshi's with extra data. These data can take many forms, ranging from images, certificates, music files, you name it. 

Compare this extra functionality with a dollar bill signed (or lipstick-smeared) by Lady Gaga. It's still worth a dollar, but people will pay much more for such a dollar than $1.

Examples of NFT's on Bitcoin

Things that have been inscribed in recent days: 

• Lots of CryptoPunks
• All kinds of memes
• GIF of Rick Astley dancing
• Sound of a 1990's modem connecting to the internet
• A recipe for shrimp dip
• A playable Doom (game) clone
• Kama sutra porcelain dolls

 On ordinals.com you can see recent files that users have minted.

One of the images now on the Bitcoin blockchain: recipe for shrimp dip

Difference between Bitcoin NFT and other NFTs

The Bitcoin NFTs are a category on their own. Let's compare them with for example NFT's on Ethereum: 

• A Bitcoin NFT is not a separate token type, such as NFT's on Ethereum. It's a certain satoshi with an extra script added to the transaction
• One can't transfer a single satoshi like an NFT, it's below the dust limit for transaction amounts. One can only transfer chuncks of BTC that hold a certain sat.
• Unlike Ethereum NFT, which is a pointer, ordinal NFT's are inscriptions in the transaction/blockchain data. The 'jpegs' are actually on-chain.
• There is a data limit, as inscription data take up space in a block.

Pros and cons

Pros

• It's a Bitcoin-approved way of creating NFT's: (image) file data are not on some server but actually on the Bitcoin blockchain.
• It creates more demand for block space and thus higher fees. This is crucial to keep Bitcoin secure in the long term, after the vast majority of Bitcoin's will have been mined and miners can't live off block subsidy any longer.

Cons

• It makes BTC deviate from its core purpose as a blockchain for monetary transfers, which could be bad for its image.
• It makes BTC more politically charged: all kinds of uncensored, harmful data could end up on-chain forever. This could invoke attempts by governments to censor or ban Bitcoin.

Conclusion

As Bitcoin is a conservative protocol, it's nice to see new development: in this case an unforeseen consequence of Taproot. Of course, this innovation sparks debate. Do 'memes' deserve a place on-chain? It could be argued, as Bitcoin has benefited from memes for its existence. 'Hodl' comes to mind. Imagine the man inventing this term could have attached an image to a satoshi, on the Bitcoin blockchain? Even to Bitcoin maxi's that would sound better than minting it on Ethereum...