Did Taproot ruin Bitcoin with NFT inscriptions of monkey jpegs?

NFT-like bitcoin inscriptions have become a hot topic in a long-running debate among Bitcoiners: How much non-financial transaction data should the Bitcoin community want to include on its blockchain?

The debate is old enough to trace back to Satoshi Nakamoto. Indeed, in a 2009 proposal to decentralize domain names, Satoshi came down on the side of using alternative data storage instead of Bitcoin’s ledger. Satoshi reasoned that users should not have to download data from other applications (like BitDNS) to use Bitcoin’s network for its primary utility: peer-to-peer digital cash.

Then in 2011, an off-blockchain altcoin called Namecoin was launched with the goal of allowing users to log domain name servers (DNS) on a distributed ledger. Namecoin failed but the Ethereum community revived parts of the project as Ethereum Name Service or ENS, a DNS-like naming service that associates a .ETH “domain name” with Ethereum wallets.

Although ENS is used mostly for vanity wallets like FirstName.ETH, ENS never overtook traditional DNSs that resolve domains for web browsers.

Bitcoin inscriptions spark heated debate about file storage

A novelty has emerged that has half enraged and half delighted the Bitcoin community: on-chain NFTs using Taproot-inscribed satoshi ordinals.

Ordinals are basically a numbering system for satoshis — the smallest denomination of bitcoin (one bitcoin equals 100 million satoshis). Bitcoin developer Casey Rodarmor recently popularized an ordinal ruleset that assigns an ordinal number to all 2.1 quadrillion satoshis.

Inscriptions, in turn, attach on-chain data to satoshis through SegWit witness data (more on that later) using Taproot-compatible transactions, which is altogether rendered by Bitcoin block explorers and wallets that integrate Rodarmor’s ruleset for ordinals as a picture, video, or even arcade game.

The ultimate result of the above process is an inscription, which is very similar to an NFT.

In summary, a Bitcoin inscription (also called an on-chain Bitcoin NFT) is simply extra data saved forever on Bitcoin’s blockchain. Lots of extra data. Inscriptions can be enormous files. In fact, one inscription from the past weekend is already the largest Bitcoin transaction since 2016.

As opposed to traditional Ethereum NFTs which are ERC-721 tokens (not ETH itself), Bitcoin inscriptions are entirely on-chain satoshis. ERC-721 NFTs can be traded on OpenSea while Bitcoin inscription NFTs cannot. Inscriptions are 100% on Bitcoin’s blockchain. They’re fully on-chain NFTs and aren’t separate tokens.

Half of the community is delighted at the art project. Half is enraged, saying Taproot is ruining Bitcoin.

Reviving the contentious Block Size Wars

For most of its history, blocks in Bitcoin’s blockchain couldn’t exceed 1MB of storage capacity. Near the end of the Blocksize Wars in 2017, Bitcoin’s Segregated Witness (SegWit) upgrade allowed compatible transactions to include extra Witness Data. SegWit effectively increased Bitcoin’s block size limit to 4MB per block.

Since the inception of Bitcoin, on-chain data storage has always been possible. Indeed, Satoshi embedded an 80-character newspaper headline into Bitcoin’s genesis block: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

Besides the implication that Satoshi likely read the London Times around the time of Bitcoin’s inception, Satoshi introduced the idea that information besides financial transactions can be stored on Bitcoin’s blockchain.

However, Bitcoin’s file storage has always been very constrained. Whether at 1MB or 4MB, the threshold barely allowed a few pictures or pages of text. For years, Bitcoin developers have proposed upgrades to drastically increase the block size limit and allow larger file storage. Most failed.

One successful upgrade, OP_RETURN, saw heavy use during 2018-19. An impressive one-fifth of Bitcoin transactions once used this operation code. Most OP_RETURN activity involved the Tether/Omni layer of Bitcoin, an experimental token network called Veriblock, and an early Bitcoin-pegged NFT platform called Counterparty.

This activity contributed to the clogging up of Bitcoin’s block space and drove up fees. The transaction backlog and rising fees annoyed members of the Bitcoin community who argued that it could squeeze out users who believed Bitcoin’s early promise of cheap, quick transactions. Eventually, Omni became Tether, Veriblock fell by the wayside, and Counterparty collapsed.

Ordinal Theory began to popularize the idea of inscribed satoshis, i.e. data attached to individual satoshis.

If you can find these inscriptions, you might be in for some neat surprises. A game called Zork showed up on Satoshi 507756490124595 as part of this transaction. Satoshi’s whitepaper is embedded on the Bitcoin blockchain with this transaction. Rijndael from Jack Dorsey’s company Block figured out how to transform one of Donald Trump’s NFTs into an inscription using satoshis mined as early as 2009.

Read more: Ethereum echoes the Blocksize Wars (why Bitcoin doesn’t need coffee)

Blockstream co-founder Adam Back thought they were silly and inefficient compared to other ways to do essentially the same thing using other methods.

Others disagreed since the Ordinal Theory-based inscribed satoshis can use Taproot to store arbitrary data in SegWit’s witness data. SegWit can discount the data in the witness field, which can save the amount of data nodes need to store.

Ordinals developer Casey Rodarmor chimes in

Casey Rodarmor describes inscribed satoshis as a form of “digital artifact.” He says users of his command-line wallet, which he appropriately calls “ord,” can render as well as create inscriptions.

His readme documentation in the ord repository on GitHub warns that Bitcoin Core cannot recognize the inscriptions. Instead, he recommends an ord-compatible block explorer or wallet software. One possible explanation for no default support for rendering inscriptions? Bitcoin Core developers apparently do not like inscriptions.

Rodarmor affirms that inscribed satoshis are native and on-chain, despite their lack of compatibility with Bitcoin Core clients by default. He even described them as a possible way to create decentralized NFTs that cannot be rug-pulled because no JPEGs are stored on any individual server, no separate token exists, and no unaudited smart contracts exist.

Inscribed satoshis — fully on-chain Bitcoin NFTs — might become no more than an interesting way to embed art onto the Bitcoin blockchain. Many Bitcoiners are a fan of the art project. Others decry the wasted data. The entire community is reckoning with this unintended use of the Taproot upgrade. In any case, inscriptions have revived a multi-year debate about saving large amounts of non-financial data forever within Bitcoin’s blockchain.