- Ordinals grew faster in their early stages than NFTs launched on other networks.
- Bitcoin recorded the third highest NFT trading volume in the first three quarters of 2023.
A year ago, no one could have imagined Bitcoin [BTC] becoming a network of choice for facilitating non-fungible token (NFT) transactions. However, things took a sharp turn in 2023 as Ordinals emerged as one of the year’s biggest blockchain success stories.
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Ordinals make a fantastic debut
Simply put, Ordinals are NFTs that can be minted directly on the Bitcoin blockchain, unlike NFTs on Ethereum. [ETH]which point to off-chain data and rely on token standards to create a collection of tokens.
Ordinals focus on the smallest units of BTC, satoshis. The protocol allows users to provide each satoshi with data. This data can include smart contracts, which are then used to enable NFTs.
Ordinals, launched in January, saw moderate growth in its first few months. However, the ecosystem has exploded since March, with nearly 35 million inscriptions minted through September, according to a report from the blockchain analytics firm Galaxy research.
It was worth noting that text-based inscriptions made up 95% of all mints. This is despite the fact that much of the hype surrounding Ordinals was fueled by digital artifacts or image-based files.
Source: Galaxy Research
However, by focusing only on image-based inscriptions, Bitcoin Ordinals grew faster than NFTs launched on other networks in the early stages.
As shown below, approximately 1.14 million digital artifacts were minted on Bitcoin during the first 200 days of activity. Ethereum and Solana, on the other hand [SOL] have experienced much slower coin activity on their respective networks since the debut of NFTs.
Source: Galaxy Research
Oasis of growth amid an NFT desert
The standout feature of Ordinals’ growth trajectory was that it took place during the NFT crypto winter. As part of the analysis, Galaxy Research noted:
“Despite the broader NFT market struggling to pull itself out of a bear market, Ordinals have gained significant traction and the idea of digital artifacts on Bitcoin has come to fruition.”
NFT trading volumes have fallen dramatically in 2023, with monthly numbers steadily downhill since peaking in February. Amid the gloom, however, Ordinals wrote a winning chapter.
Source: Galaxy Research
Apparently, Ordinals made up 18% of all NFT volumes in May. And while Ordinals has since faded from the spotlight, it has managed to provide a major boost to Bitcoin’s NFT activity.
The payment settlement network overnight turned into a hotspot for digital artwork trading. Bitcoin recorded the third highest NFT trading volume in the first three quarters of 2023, eclipsing major companies like Polygon [MATIC] and only Ethereum and Solana follow.
Source: Galaxy Research
Ordinals mania is driving up transaction costs
Ordinals’ frenzy also pushed network activity on the Bitcoin network to unprecedented levels. As previously mentioned, Ordinals trading volume peaked in May, mainly due to the bulk production of BRC-20 tokens.
For the uninitiated, BRC-20 is a token standard that allows users to issue transferable tokens directly over the network.
Due to the high demand for blockspace, a transaction glitch choked the Bitcoin mempool. In fact, Galaxy Research noted that the outage has not been resolved for about four months.
This was the longest running streak for a lagged mempool since the bull run-induced spike in on-chain activity in 2021.
Source: Glassnode
The increase in unconfirmed transactions in the mempool caused users to offer higher fees to jump the queue. This is because miners would most likely include transactions with higher fees in the block and ignore transactions below a certain threshold.
The findings were verified by the dramatic increase in transactions and fees shown in Glassnode’s data above.
A bright future ahead?
Although Ordinals had a promising debut, they still had a long way to go. Bitcoin’s coin activity was significantly less than other chains in its first 200 days. The fact that other networks had experience and a well-developed ecosystem for NFT transactions helped.
Source: Galaxy Research
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Furthermore, the BRC-20 standard proved to be an inefficient method of striking inscriptions, according to the report. To make it easier for users, more efficient token standards were proposed.
Moreover, a substantial push was needed to place more emphasis on creating image-based NFTs.