Bitcoin NFTs
A new NFT project is causing some controversy within the Bitcoin community.
The project, created by Casey Rodarmor, is called Ordinals. And, unlike most NFTs these days, they are native to Bitcoin.
Many of you will have seen this making the rounds on Twitter, where the debate is predictably focused on censorship because of a comment that Adam Back made.
Once again, you can count on the loudest and least interesting corner of crypto Twitter (Bitcoin Maxis vs Ethereum Maxis) to drain all the nuance out of an otherwise interesting development.
To me, the debate around Ordinals highlights a worthwhile discussion about the norms of permissioning in an appchain environment.
But first, a bit of backstory on what Ordinals are, and why they are controversial.
The Origin of the Controversy
For those interested in diving deeper into this topic, there is a great piece on the subject by Porteaux here.
The TL;DR is that Ordinals have reignited a debate among Bitcoin core devs going all the way back to 2010, about what Bitcoin blockspace should be used for.
In one camp, you have the fundamentalists that argue that Bitcoin blockspace should be reserved solely for financial ("legitimate") transactions.
In the other camp there are advocates for the notion that Bitcoin's blockspace could be used to store a wider variety of data, including domain names, NFTs, etc.
Our own Bessie Liu has some further analysis of these pros and cons here.
In 2014, a compromise was reached when Bitcoin Core (the primary reference software of Bitcoin nodes) implemented the OP_RETURN function.
OP_RETURN enables short messages (80 bytes) to be included in blocks, which is basically just enough to reference an external file. And, critically, messages stored on OP_RETURN are prunable, which limits the strain on Bitcoin nodes.
Ordinals have inadvertently reignited this debate by taking advantage of an unintended consequence of Taproot, which relaxed the limit on witness data sizes.
If you are interested in the design of Ordinals (which is quite elegant) or how Taproot enabled them, again I am going to direct you to this piece because it gets a bit too technical for this newsletter.
But the important takeaway is this: Ordinals figured out a way to post non-financial data to the Bitcoin blockchain in a very cheap way.
In fact, Ordinals have found a way to post NFT data that is significantly cheaper than financial transaction data that has no limit outside of the blocksize.
As you can imagine, some people in the Bitcoin community aren't happy about this. It has led some, notably Adam Back, to suggest that mining pools should censor these transactions.
Different Flavors of Bitcoin Censorship
Zooming out for a minute, blockchains are slowly being divided into two camps.
Blockchains that produce generalized blockspace (L1s like Ethereum)
Blockchains that produce app-specific blockspace (s.c. Osmosis).
The advantage of generalized blockspace is a larger TAM. Ethereum blockspace can be used to secure DeFi apps, NFTs, games or anything else the devs can dream up.
The disadvantage of generalized blockspace is that dapps compete with each other, which could lead to DeFi apps getting throttled due to a popular NFT launch.
Appchains, on the other hand, limit their blockspace to a single use, which arguably reduces their potential addressable market but solves the performance issue and reduces the load on validators.
In my opinion, it has been increasingly helpful for me to think of Bitcoin not as a general blockchain but as the original appchain.
If you think of Bitcoin as the money appchain, then it makes sense that the miners and devs want to reserve its blockspace for solely financial, money-related transactions.
The problem is, Bitcoin is permissionless. So the question is, how can Bitcoin simultaneously remain open and permissionless while limiting (censoring) certain types of transactions?
Right now, the answer is unclear. It is a question that other appchain builders are thinking of as well.
In last week's episode of Bell Curve, my co-host Myles and I spoke with Sunny Aggarwal (co-founder of Osmosis) about this very topic.
Censorship is one of those words which elicits a strong emotional reaction. It conjures up images of shadowy governments, book burning, and Orwellian dystopias.
But in reality, we all (even in the US) live with bits of censorship every day. You can't yell "Bomb!" in a crowded theater or publish snuff videos on the internet.
There are basic norms around what type of information and actions we allow in society, and it makes sense to me that we will have some kind of blockchain equivalent.
For instance, I don't have a problem with Bitcoin limiting itself to financial transactions. This trade off feels worthwhile to me, because, while it limits some types of activity (NFTs), there is a greater chance that the money use case will succeed.
It would be far more problematic to me if Bitcoin miners were limiting certain types of financial transactions due to something like political views, national affiliation, etc…
But that's just my opinion.
In Conclusion
I have long since stopped lamenting the tribalism in crypto and now accept it as a fact of life.
In this case, I do think that the gut reaction from many (ha ha look at the Bitcoin maxis censoring NFTs) broadly misses the point.
I expect that app-specific blockspace (today referred to as appchains) will become an increasingly important part of the conversation in the next couple of years.
The natural tension between blockspace that is both permissionless and dedicated to a single application will result in more of these conversations about censorship as well.
One man's opinion, but we would be wise as a community to recognize this tension now and begin to develop norms and solutions.
As a final parting note, even though I disagree with it, I do understand why derision is being aimed at the Bitcoiners here.
I say this as a fan of Bitcoin, but I worry that Bitcoin's loudest advocates are increasingly open to parroting wild hyperbole at the same time as the community is relaxing some of its core values.
Personally, I would love to see Bitcoin outgrow the "cyberhornet" phase of growth marketing and welcome a change of attitude that's a little more pragmatic and a little less dogmatic.
The below is just one datapoint, but I feel pretty confident in saying that I'm not alone here.
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