(Bloomberg) — NFTs are coming to the Bitcoin blockchain, sparking debate among those who say the digital representations add a much-needed fresh use and purists worried about straying too far from the cryptocurrency’s peer-to-peer origins. mesh.
Irreplaceable tokens like the now infamous Bored Apes and CryptoPunks are one of the driving forces that have made Ethereum the most commercially important blockchain, where users can mint and trade digital assets that have been worth millions of dollars. Bitcoin was designed as a cryptocurrency, while Ethereum was built as a next-generation version that can handle decentralized applications.
NFTs are now viable on the Bitcoin network after developer Casey Rodarmor recently launched a protocol known as Ordinals that allows digital artifacts to be transferred to the native crypto blockchain.
While Bitcoin miners, who process and verify data on the blockchain, welcome the invention because it can increase their fees, critics worry that the influx of new trading volume could crowd out other financial transactions.
NFTs were made possible by a major upgrade to the Bitcoin blockchain in November 2021. Called Taproot, the upgrade aimed to improve the privacy and efficiency of the platform, opening up a wealth of opportunities for Bitcoin developers to build network-native applications. This allowed people to write certain data, including images and texts, into the transaction data to create an NFT that could be traded and gifted on the Bitcoin blockchain.
“If this gets any traction, it will greatly improve the economics of mining,” said Nick Hansen, CEO of crypto mining services company Luxor Technologies. “Miners were compensated for adding those transactions to the blockchain.”
Bitcoin miners earn a fixed supply of token rewards that are released from the blockchain and transaction processing fees. Fees are a much smaller source of revenue than rewards given the relatively low transaction volume compared to Ethereum.
However, some critics are concerned that the rise of Bitcoin-native NFTs could potentially crowd out other types of transactions. Adam Back, CEO of crypto infrastructure firm Blockstream, thought the captions were “pure waste and coding nonsense. At least do something effective.”
The rapid adoption of NFTs on Ethereum has created high fees and congestion, while the blockchain continues to improve its scalability. Yuga Labs, creator of the popular Bored Apes Yacht Club collection of NFTs, launched the sale of Ethereum-based NFTs in May, transaction costs skyrocketed as people rushed to mint and trade the digital asset. Fees have occasionally risen higher than the value of the tokens themselves around the sale.
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