The Wild World of NFTs: Bitcoin Ordinals vs. Ethereum NFTs
By Tony Gallino October 19, 2023
- Bitcoin and Ethereum are two major blockchain networks with distinct characteristics, reflected by the NFTs produced on each chain
- Bitcoin Ordinals add meaning to fractions of bitcoin, attaching art or metadata to individual "sats" (satoshis), which are tiny fractions of the cryptocurrency
- Ethereum NFTs come in various forms, including art, words, JSON files and more. - they can be stored on different layers of the Ethereum blockchain
- Bitcoin Ordinals derive rarity from the random timing of mining, which is more decentralized, while Ethereum NFTs' rarity is often linked to art and metadata
In the fast-paced world of cryptocurrencies and blockchain technology, two major chains have been making waves with NFTs: Bitcoin Ordinals and Ethereum NFTs.
As digital assets, NFTS have garnered significant attention and investment in recent years, but what exactly are they, and how do they compare? It's time to dive into the fascinating world of Bitcoin Ordinals and Ethereum NFTs to help make informed decisions and understand these NFT ecosystems.
The Blockchains Themselves
Let's start at the bottom floor with the inherent differences between the two chains: the grandfather of all blockchains, Bitcoin, and the second biggest name in crypto: Ethereum.
Bitcoin is the first widely adopted modern blockchain in the world and is known for having a finite supply of 21 million BTC. This makes it desirable as a hedge against inflation, assuming government regulation doesn't muddy up the waters. Bitcoin at its core is a public ledger of decentralized transactions.
Ethereum, on the other hand, doesn't have a tight supply. While transactions are also recorded on a publicly distributed ledger, it has more versatile uses. These uses include running decentralized applications and smart contracts. Bitcoin's primary function is as a ledger while Ethereum's serves as more of a software foundation to build upon.
This difference in basic functionality can play a role in why some NFTs on each chain are worth more than others.
Ordinals: Adding Meaning to Bits of Bitcoin
When viewing Bitcoin through the lens of a transaction ledger, each transaction is merely an exchange of usually fractional bits of bitcoin known as satoshi. Bitcoin Ordinals attach pieces of art (or other metadata), usually as an image, text, or JSON file, to those moments and assigns meaning to those individual "sats".
The majority of Bitcoin Ordinals are text-based. Source: Dune Analytics
The word ordinal itself is defined by Google to mean "relating to a thing's position in a series", hence the name Bitcoin Ordinals. Because bitcoins are mined in a specific order, each "sat" is by definition unique and each transaction happens at a unique moment in time, memorialized by the Ordinal. This makes the timing of the Ordinal a significant part of its rarity - and therefore value.
All the metadata is stored with the "sats" on the Bitcoin blockchain itself, rather than other layers of the blockchain or in different places.
Ethereum NFTs: Digital Art and Access to Communities
There are a wide variety of Ethereum NFTs, ranging from art pieces, words, JSON files and more that differ from Bitcoin Ordinals in several ways. Firstly, they can be stored on different layers of the Ethereum blockchain, while Ordinals are always stored on the Bitcoin chain.
Trading volume of Ethereum NFTs by marketplace the past two years. Source: Dune Analytics
Some ETH NFTs use certain protocols, while others are merely digital art pieces whose ownership can be verifiably tracked. Some serve as access tokens to exclusive communities or entitle holders to earn income, play games or be a part of IRL events. One of the major issues with deriving value from perks such as these lies with the ETH NFT project team's ability to fulfill their promises.
The important takeaway here is that with ETH NFTs, collectability and rarity are more subjective and there are many different contributors to overall value.
Valuation: What All This Means
Ethereum NFTs have their value derived by ownership of and features relating to the art, while Bitcoin Ordinals are more valued based on key moments in time represented by a specific Bitcoin block.
From a collector perspective it's important to consider factors such as chain sustainability (will the chain itself be around in 10 years), liquidity (do enough people care and is there enough currency on the market) and personal preference.
One of the major drivers of value in any NFT ecosystem is rarity. Rarity in ETH NFTs is often determined by the art and the meta-data, while with Ordinals the timing of when the "sats" were mined plays a heavy role. Because the timing of the satoshis being mined is often a random process not controlled by a team of people like ETH NFTs are, there's a strong argument for Ordinals having a more decentralized rarity protocol.
Keep in mind that none of this is financial advice and this article is meant to give ideas. Think of this as a starting place. It's always important for investors to do their own research. Enjoy the wild world of NFTs.