Is Bitcoin King of the JPEGs?

Leonidas Answers all your Burning Questions about Ordinals

Jul 03, 2023

👋🏽 Hello everyone, GM, GM!

We’ve had ~quite~ the weekend in JPEGs and as we watch the fallout from the Azuki Elementals debacle work it’s way through the entire space (including seeing BAYC falling under 30ETH!), we’ve been thinking about the things that make us feel excited about NFTs and where we go from here.

If you’re a fan of Overpriced JPEGs, you know that we’ve been interested and intrigued by Bitcoin Ordinals. Not only is there a use case that makes sense (as a store of art on the OG chain of chains) but the energy feels fresh in a way that ETH projects seem to be struggling to create.

We recently invited Leonidas on the podcast to help break down inscriptions, satoshis, and ordinal theory, and today we’re bringing you the biggest takeaways from that convo.

Leonidas is the psuedonymous co-founder of Ord.io, an online platform that he describes as a “window into Bitcoin.” He’s been in Bitcoin since 2014, started playing CryptoKitties in 2017, and quit his job as a software engineer in late 2021 to collect NFTs full-time.

Having been active in the Ordinals community really early on, Leonidas has a unique perspective on the simmering culture war between Bitcoin maxis and web3 enthusiasts, and what’s worth collecting. He also sheds light on how we got here in the first place.

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Let’s dive into our convo with Leonidas below.

Before we get going, it’s helpful to understand some of the key terms, so here’s a little cheat sheet:

There will only ever be 21 million Bitcoin. Each individual Bitcoin can be split into 100 million Satoshis (or Sats). All 2.1 quadrillion sats are capable of being “inscribed” with metadata. This process is called Ordinals theory. These newly inscribed sats are called digital artifacts. Or, Bitcoin NFTs.

This conversation has been edited for brevity and clarity. The answers below are Leonidas in response to Carly’s questions from the pod. We encourage you to check out Carly’s full interview with Leonidas below or in any of our podcast feeds.

On The Ordinals Origin Story

Leonidas: Bitcoin was thought of as a fungible currency for a very long time. Last summer this guy named Casey Rodarmor said he found potentially the oldest NFTs ever by creating this method of numbering every satoshi. He numbered each of these and allowed all 2.1 quadrillion sats to be individually tracked, effectively turning them into non-fungible tokens.

So you can now take a file on your desktop, drag and drop that file - most people are doing images - and inscribe it onto Bitcoin. The larger the file, the more expensive it is. And the idea is that this is the most immutable, resilient, decentralized database, right? So people value the provenance of their art being inscribed there. And it's not even just art. I'm seeing people inscribing family photos from when they were a child on to Bitcoin, knowing that they'll be there in 100 years. That's sort of neat.

On The Collective Delusion of Rare Sat Hunting

Leonidas: There's all kinds of fun moments from Bitcoin’s history involving drugs, Lamborghinis and Papa John’s pizzas. Some people are interested in owning sats that might have been part of some cool historical moment. You could own a sat from the first Bitcoin transaction ever, which was mined by Satoshi Nakamoto. So now there’s this group of ‘sat hunters’ hunting these down.

Casey calls Ordinals and rare sats this collective delusion. You want to hold a sat that you know he’s called rare, uncommon, or epic based on a rarity tier and index that he created and baked into the protocol. That market is now hundreds of millions of dollars, so there's obviously a lot of people buying into this collective delusion that he created.

On Bitcoin Maxis v. web3 Degens

Leonidas: There’s very much a cultural divide on Bitcoin. You could probably even call it a cultural war, where the Bitcoin Maxi crowd, who doesn't like change, is laser-focused on the Bitcoin currency use case, and will make arguments that everything else is some degree of unethical, essentially.

And over here in web3, we're just trying all kinds of crazy stuff. So the web3 crowd is now coming over to Bitcoin and we just have two very different sets of values. The developers and web3 is largely, ‘Hey, let's just try thousands of crazy experiments, we know most of them will fail. And hopefully one or two are very successful.’ And we know from Silicon Valley, that's the pattern of how you get innovation.

The Bitcoin Maxi model is, we're going to endow two or three projects, and basically gate-keep from a cultural standpoint, any developers doing anything other than these various specific use cases. And what you eventually end up with is this period of stagnation on Bitcoin, where web3 just moved way beyond, and many different use cases are very superior on Ethereum. And Bitcoin, in my opinion, was kind of falling behind from a use case perspective. So this totally flipped on script on that, where Bitcoin can now do many of these use cases in web3 and the maxis are not super thrilled.

On Whether Higher Fees Caused by Ordinals a Good Thing

Leonidas: Bitcoin did have this existential crisis of how are you going to fund miners once the rewards run out, and it was one of the more serious critiques because this wasn’t a solved problem. And ordinals introduced a potentially interesting way to solve that problem. Miners get rewards for every block they mine, but they also get fees.

The Bitcoin Maxis, very much want the fees to be very, very low and the increased demand for block space is driving up the fees. So we saw for the first time in several years, the fees actually surpassed the reward and a block. So miners are extremely happy, because it means they're making an extra boost in revenue. And when you have a halving coming up, and rewards going down, this is potentially a very important alternative source of revenue for them.

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On Bitcoin: Is it the King of the JPEGs?

Leonidas: On the flip side, I don’t think high fees will discourage people from buying Ordinals. I look at Bitcoin as kind of being premium block space, personally. I hold a lot of Ethereum NFT's, I love them. And I think Ethereum and Solana and some of these other chains, will be really good for creating mass, scaled products like gaming. But Bitcoin is going to be really good at just taking a very simple JPEG, storing that in the most decentralized, secure way and storing that value very, very well. And for that reason, for the reason that people value Bitcoin, the currency, they'll also value high end assets living there.

On the Definition of Recursions

Leonidas: Generative artists weren’t taking Ordinals very seriously because it was so expensive to create art on Bitcoin, and recursion totally changed that. Recursions introduce a standard that allows one file to call another file and pull it into itself. So all these other people have done the heavy lifting and paid millions of dollars to inscribe these other files and now you can leverage that to create interesting generative art very similar to Art Blocks, for example.

What we’re seeing now with OnChainMonkey is a great example. They’ve kind of been pioneering some of this stuff for a few months now. And it's finally coming out where any artists can come, take files that are expensive to inscribe - all those JavaScript packages are already on the Bitcoin Blockchain. Now they can just write 200 lines of code, make some really cool art, and then for like, 30 cents, they’re able to make a pretty amazing piece of art. That's super exciting, because one of the biggest complaints we get is this is just way too expensive. Most people don't have $100,000 to release 1,000 pieces of their art

On the Idea of Truly Decentralized JPEGs

Leonidas: There's a few main differences with Ordinals and Ethereum culture. Because we've mixed in Casey’s ethos of Bitcoin into this NFT protocol that he created, he wants everything to be very immutable, and does not want anybody being able to mess with your JPEGs. Whereas on Ethereum, it’s got a bunch of amazing things going for it, but I just think in a few different ways, it's maybe lost its way slightly.

Specifically, in order to ensure we have royalties, we're doing permissioned smart contracts. This to me is kind of a line you just don't cross. I personally want self-sovereign ownership of the assets that I hold, I don't want any multisig or OpenSea employees or anybody in the way of that. I want to be able to hold these for a very long time. On Ethereum, there’s not a strong culture of collectors demanding that metadata is frozen.

I want my JPEG to just be my JPEG. And for that reason - the simplicity of the way the Bitcoin protocol works - we can't do the fancy stuff. And unfortunately, that means there's cool stuff that we can't do, but we also avoid some of the stuff that I’d say isn’t the right direction.

On Value: All the Bags are Still Going to Zero, Right?

Leonidas: It was really interesting the way Casey created the protocol, every single inscription is numbered based on the order it’s created. So there was a lot of junk early on, because people are just copy / pasting other people's stuff on-chain. Interestingly, the earliest inscriptions have actually held their value really, really well - even though the art is not at all interesting. People just want to collect one of the first 10,000 inscriptions.

More recently, we’ve seen the quality of art and projects step up their game. For example, I just saw someone create a piece of art on a palindrome sat (spelled the same backwards and forwards). And the actual art that was inscribed was a butterfly, which is the symbol that we use to identify Palindrome sat. That's somebody taking a primitive understanding of how this actually works, and using Bitcoin sort of as a medium to create the art and tell this really cool story. So I'm excited for the artists doing neat stuff like that.

On the Taproot Wizards Video Shower Allowlist (yes, it’s a thing)

Leonidas: We're a little bit different here. There is an allowlist concept where people are “grinding,” but there’s this really popular project called Taproot Wizards that created a website, Wizard School, where you go and complete a bunch of tasks. A skeptic or critic would say you were really making people grind for these lists, but on the other hand, the tasks that they're having people do are mostly cool, helpful tasks. They're teaching people how to set up a lightning wallet and how to learn Bitcoin. So they're onboarding people.

One of the tasks was to buy a wizard costume, wear it in the shower, and videotape yourself taking a shower in this outfit. So we’ve seen people doing crazy stuff in wizard costumes, like driving a Corvette into a carwash with the top down. Somebody rented a helicopter. The funny part is like, when this project releases, it very well may be worth like 2 BTC each - 4 BTC would not be that crazy. When you’re essentially giving people millions of dollars, it turns out that they will do pretty absurd stuff and I'm not gonna lie, it's very entertaining for the rest of us. So I'm a fan of the video shower allowlist.

🧙🏽 If the Taproot Wizards team is reading this, feel free to let Carly know where she can send her wizard shower vid 😶‍🌫️

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