NFTs Attacking Bitcoin? with Eric Wall & Casey Rodarmor

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. I'm David Hoffman, here without my co-host, Ryan Shawn Adams. But nonetheless, we are here to help you become more bankless. And on today's show, this is a very special episode, we are talking about NFTs on Bitcoin. And this has been the absolute talk of the Bitcoiner world ever since Ordinals, this new protocol, has started to fill up all the Bitcoin block space with JPEGs. Yes, you heard that right with NFTs. NFTs are now part of Bitcoin. And it's through this brand new protocol called Ordinals, which is doing some interesting stuff with Bitcoin block space. And it has caused a bunch of controversy as to whether or not this is a legitimate use case of Bitcoin. Is that even a fair thing to charge an app with being illegitimate? Some people think that this is spamming the Bitcoin blockchain. Other people think that this is just what you're allowed to do with Bitcoin. If you pay the Bitcoin fee, then you're able to get into the Bitcoin blockchain. There's been some other conversations as well as what can you do with NFTs on Bitcoin? Is this really anything useful or is this just a place to put monkey pictures on Bitcoin? Did you know, Bankless Listener, that you can actually run Doom on Bitcoin? And I actually do play a little bit of Doom live here on the show. My two guests are Casey Rodemore, who is the creator of Ordinals, this protocol that is filling up Bitcoin block space with JPEGs, and also my good friend Eric Wall, who is somebody that I frequently tap into in order to get help navigating the Bitcoin world, because, as of course, I don't pay nearly as much attention to Bitcoin as I do with Ethereum, and just the way that Bitcoin works is fundamentally different than how Ethereum works. So I'm bringing in Eric Wall as a technical co-host, co-moderator to help me guide through this conversation with Casey. In this conversation, we talk about how ordinals work, how NFTs even come to be on Bitcoin. We talk about some of the reactions from the Bitcoin community. While some leaders are offended, most people are actually more okay with it than what Might Light let on. And actually, Eric walks us through about how this new use case for Bitcoin is perhaps bringing a sustainable fee market to buying Bitcoin block space. While it actually doesn't bloat Bitcoin, actually makes it even more streamlined. So we actually perhaps get a win-win where Bitcoin can actually become more sustainable due to block space demand because of ordinals, because of NFTs on Bitcoin, while also making the Bitcoin blockchain easier to process. How do we get this win-win? Eric Wall walks us through that and more. And of course, we poke fun at some Bitcoin fundamentalists, a hobby as old as time on the Bankless program. It's not often that we do Bitcoin content here on Bankless, but when something comes to my attention via crypto Twitter or whatnot about new utilities on Bitcoin that is external to the actual base Bitcoin protocol, yet it is still a valid purchasing of Bitcoin BlockSpace, I get really, really excited. I hope you're excited as well. Definitely pay attention, and I definitely take some time at the very beginning of the show to really parse out these details. The way that Bitcoin is constructed, the philosophy behind Bitcoin is very different from Ethereum. Bitcoin and its soft forks, which we go through in this episode, SegWit, Taproot, they're actually about taking features away from Bitcoin, allowing for the second layer around Bitcoin, something like ordinals, to be built upon Bitcoin. And so rather than hard forking features in, which is the Ethereum philosophy, Bitcoin hard forks take features out, but that still does enable some expressivity on higher order layers around Bitcoin. So definitely pay attention to the different philosophy behind these two systems. It is a topic of conversation that's always super interesting to me. And you can unpack some of the ways that Bitcoin is built differently. But of course, we are ultimately going to be talking about NFTs on Bitcoin and all the other second order consequences to that as well.

Bankless Nation, I want to introduce you to Casey Rodamer. Casey is an open source Bitcoin developer who is building ordinals, which has caused a little bit of a stir in the Bitcoin community, but overall a bunch of conversations as to what's going on in this small corner of Bitcoin, which has now been the host of many cool NFTs. At least I think they're cool. Other people don't. And also joined with me is Eric Wall, who is my substitute teacher for Ryan Sean Adams when we need to talk about Bitcoin and all things technical Bitcoin. So Eric is going to help me guide us through this conversation as probably one of the most knowledgeable people about Bitcoin and other related technologies. Casey and Eric, welcome to Banklist Guys.

Thanks so much for having me. It's awesome to be here. Awesome to be able to talk to your viewers. So yeah, thanks so much.

Always a pleasure, David.

All right, so let's get this thing kicked off. This has created a bunch of hubbub in the Bitcoin world, but I want to start first and foremost with just diving into ordinals specifically. So Casey, can you just walk us through ordinals? What's Ordinals?

Yeah, absolutely. So there's kind of two layers to the whole thing. There's the base layer, which is this thing called ordinals.

Mm-hmm.

And then on top of that, there are inscriptions, which are the NFTs. So ordinals are a convention, essentially, for numbering individual Bitcoin Satoshis. So they have a unique individual identity, every single Satoshi, and tracking them across transactions as they are spent. It doesn't require any changes to Bitcoin. It doesn't actually take up any data on the base layer. And it is purely an opt in convention. It doesn't really affect Bitcoin fungibility, which is often a question that I get asked. It's just a convention for people who want to participate in it, like a lens that you can choose to see the same data that everybody else is seeing, but with these additional Satoshi identifiers and tracking.

So this was created. I created it, although there was actually a Bitcoin Forum talk post in 2012 that I found after I came up with it with exactly the same scheme. So I think it's actually kind of like a very natural extension of Bitcoin that when you think about it, everything kind of falls into place.

So, but then those ordinal numbers or trackable Satoshis or whatever, those can be used to sort of

Contain content or be assigned an NFT. And this is called inscriptions, which is sort of a top layer. So an inscription is just a piece of content that is included in a Bitcoin transaction in a part of the transaction called the witness. And that content is arbitrary. The content model is very similar to the web, containing a content type, which is a string that identifies what kind of content it is, and a body, which are just content bytes. That's included in the witness in a Bitcoin transaction. And then the inscription is made on the first set of the first output of that transaction, sort of creating this digital artifact, which is then transferred.

Using the ordinal protocol or ordinal theory when I'm being acute. Yeah, it creates these things. I like to call them digital artifacts because the term NFT is very overloaded and refers to a lot of different things. And I think these have very unique properties that people who collect NFTs will like. But yeah, that's the basic idea.

And just to make it crystal clear, from the Ethereum perspective, when you create an NFT, you're actually creating a digital object on Ethereum, an actual token. That's not what's being created on Bitcoin. Is it the actual individual Satoshi that is the transferable unit that is what we are kind of colloquially calling NFT? You said you are assigning a lifespan to an individual Satoshi. That's right. And then the Satoshi has data appended to it, and these two properties together start to appear to look and feel like the NFTs that we know on Ethereum. Is that fair?

Yeah, that's right. I mean, I think, you know, things are NFTs which have certain properties that users are looking for. They want them to be unique, they want them to be transferable, they want them to have a piece of content associated with them. So I think whether or not these are NFTs is sort of up for

everybody to decide according to their own definition of what an NFT is. But yeah, that's correct. Essentially, the SATs are already the tokens, and they're sort of

Mm-hmm.

On the Bitcoin base layer, they are

very fungible. If you view them through the lens of the ordinals protocol, they become non-fungible. And if you then additionally use inscriptions and have like an inscription wallet or an inscription explorer, so the open source tool, which is the wallet and the explorer that I wrote with additional contributors, is called Ord, and the block explorer is on ordinals.com. And so if you're using that tool, then you can see the individual sets, you can see where they are, and you can see the content that is associated with them. So yeah, and then that behaves like an NFT. You can create content that is then in your wallet, and then you can send it on to others.

The way that you're articulating this, I think, is diving into a particular philosophy that Bitcoin has, where from the Bitcoin blockchain perspective, it doesn't know what is going on with the ordinals, but then you use this word from the ordinal lens, as in you actually have to opt into looking at Bitcoin through this particular protocol called ordinals, and then all of a sudden this NFT expression is able to become out of that through NFTs, but like a normal Bitcoin node doesn't actually know what the hell is going on here. And Erica, this is where I want to turn to you, and maybe you can help us tell this story. When did this feature, some Bitcoiners might call it a bug, but I'll call it a feature. When did this feature become like a possible in the Bitcoin blockchain? And can you kind of help just articulate this difference in vision of how the Bitcoin protocol works, versus what more bankless audience might be used to with the Ethereum world?

Yeah, so creating different clients that interpret what is going on inside the Bitcoin blockchain and sort of sort of building meta protocols on top of the Bitcoin blockchain has existed for a long time.

Like Omni is such an example, which is the first place where

USDT Tether made their stable coins.

MasterCoin and Counterparty are also such protocols.

The thing with ordinals, and especially in how the inscription part is made, leverages taproot.

So

we've always been able to embed arbitrary data inside the Bitcoin blockchain using OPReturn, but it was limited to I think 80 bytes.

So

to the extent that it's been possible to create a protocol that embeds arbitrary data on Bitcoin, that's always been possible. It just became with Taproot, it became significantly simpler to do that in single transactions to embed.

Sizable sums of data in a single transaction. So it's always been possible to create like an NFT layer on Bitcoin. It already exists, like rare Pepis exists on counterparty on Bitcoin already today. It just now you can make much larger content types due to certain limits that were removed in Taproot script versus regular segregated witness scripts. I don't know if I'm explaining that in the most simple way, but the way that you can think about it is that it was always possible to embed arbitrary data into Bitcoin.

And then in 2017,

segregated witness came and we got this extra chunk up to four megabytes of witness data could now be assigned to Bitcoin blocks. However, in individual transactions, there were still limits to how much data you could put into individual transactions. After Taproot happened, you could basically make a single transaction that takes up the entirety of an entire block. So ordinals sort of just

Leverages Taproot to create a more user-friendly experience of a more easily buildable and toolable NFT system for Bitcoin.

And the language you're using, like Bitcoin got SegWit, then it got Taproot. If you come from this from an Ethereum perspective, you probably think these are hard forks, but they're not. They're soft forks. Eric, can you kind of walk us through

It feels like we're adding something to Bitcoin when we add SegWit. Is that really the right perspective to take? And how when we already have like this capability to put NFTs on Bitcoin, but then Taproot happened and now we have more of this ability. Can you kind of just walk us through how to think about this?

Yeah, so a hard fork is an expansion

Mm-hmm.

of the consensus rules, a soft fork is a

contraction.

Of the consensus rules. But even though that we're contracting the consensus rules, when you're contracting, it does actually mean that you can attach extra rules that need to be validated. So all the previous rules, you need to validate them, but now you need to validate extra rules. So actually the validity space is shrinking when you're soft forking. And because you're adding extra rules to validate, that also means that you can add extra functionality. So you can actually increase the block size through a soft fork and add new types of scripting features inside of Bitcoin using soft forks.

And so now there's like the and maybe there always was, but there's like this two parts of Bitcoin block space, and this part is kind of fuzzy for me, where there's like the normal I make a Bitcoin transaction and that data goes into one part of Bitcoin, and then there's this other part of Bitcoin, which I think Taproot really unlocked, which is where this NFT data is going into. Can you also walk us through that?

Actually, the other part of the uh Bitcoin data.

Was unlocked in 2017 with segregated witness.

Okay.

Segregated witness stands for like segregating the witness data. And witness data is a strange word, but the easiest way to think about it is maybe like

signatures on transactions are witnesses.

So in 2017, we wanted to increase the block size of Bitcoin. There was a big political push to increase the block size limit of Bitcoin. But we only really increased it for this witness data, these signatures.

And the reason for that is that.

It's okay to have much more witness data in Bitcoin because after you validated a signature, you know that a transaction is valid, and now you don't actually need to keep it on your full node anymore. Because you have validated, you could just say, okay, I know that this transaction was valid. I validated the signature, but after you validated the signature, it doesn't really serve a purpose on your node anymore. So you can throw it away. Therefore, the witness part of the data on the blockchain got segregated out from the regular data. And the big change here was that because this data can be pruned on full nodes without

it stopping being a full node, we changed how much it cost to

embed such data into the blockchain. So now there's a 4x discount for this type of witness data.

So it's four times cheaper where you have something called a virtual byte. So even if you put a hundred kilobyte

File in the witness data of Bitcoin, it's going to get counted as if it's 25 kilobytes because we discount that's why it's called a seguit discount. We discount how much that data actually counts for because it's not necessarily going to be on all full nodes forever. So we can allow that portion of the data to grow faster. So it's kind of like for an Ethereum, I would say like it's kind of like blob space. You know, it's this part of the data, you know, in Ethereum with EIP 4844, we allow the block size of Ethereum to grow rapidly because.

That block space that we're increasing it has nothing to do with execution. We're not validating that to any extent. It's just raw data. And also it's getting thrown away. It's auto-pruned every two weeks. This witness data in Bitcoin is not auto-pruned necessarily, but you can manually prune it. So in that way, it is sort of similar to blob space in Ethereum.

Right. And it's really that the economic cost that's lowered that really unlocks the ability to more viably embed data into the chain. And I think Casey, that's where Ordinals really has carved out its spot in the Bitcoin world, which is like, oh, there's this data that we can take advantage of that's cheaper than the rest of the data and that lets us do things. Casey, this seems to have been always been possible as soon as we had SegWit. When did the idea for Ordinals come into your brain?

Yeah, there are actually some other important advantages of ordinals that we can get into, but just to say them really quick, it's that because the ordinals protocol can, these like made-up stats, can be stored in normal Bitcoin addresses and transacted with normal Bitcoin transactions and kind of sit in normal Bitcoin UTXOs, it means that there doesn't need to be a parallel infrastructure entirely for wallets and services. The Ord utility, it uses the Rust Bitcoin library, which is a great, just sort of standard Bitcoin library for its transaction construction and signing. And it also uses Bitcoin Core as the back end for its wallet for a lot of transaction, also some transaction construction and signing. And so I think that's another one of the big advantages is that it integrates a little bit more cleanly into Bitcoin.

But yeah, that was an awesome summary by Eric.

Everything totally, completely accurate. And yeah, like so

I started thinking about this in early 2022.

I've done some generative art and I sort of saw that, you know, when NFTs got popular in 2017, I wasn't super interested. I just didn't see anything that really spoke to me or anything that like I could, you know, contribute to as a creator.

But then when I saw really, really cool algorithmic and generative NFTs start to get really popular, I thought, like, man, like it would be awesome to be able to like make these myself. And I think I actually I wrote a test ERC 721 contract, but for a variety of reasons, I didn't really feel like