Is Bitcoin About To Rise Even Higher With A New NFT Launch?

by James · March 2, 2023

During its 14-year history, Bitcoin (BTC -0.84%) has primarily existed as a new form of money made possible by blockchain technology. The goal, as established by Bitcoin founder(s) under the name Satoshi Nakamoto in 2009, was to become a truly decentralized, peer-to-peer digital currency for financial transactions. But all this could be about to change in 2023.

In late January, a new protocol called Ordinals was launched that will enable the creation and storage of non-fungible tokens (NFT) on the Bitcoin blockchain. The launch has already sparked an outcry in the token community, and it is sure to influence how investors think about Bitcoin, and how they value it.

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What are Bitcoin NFTs?

These new Bitcoin NFTs are going to be very different from the NFTs you find on, for example, Ethereum (ETH -0.50%) or Solana (SUN -1.58%), which are the two heavyweights when it comes to NFTs right now. Current NFTs are cryptographic tokens powered by smart contracts. They sit on top of a blockchain and are separate from that blockchain.

A token bitcoin on a computer circuit board.

Image source: Getty Images.

In contrast, these Bitcoin NFTs are works of art that are literally “inscribed” into the blockchain itself. Using a clever bit of programming and a deep knowledge of how the blockchain works, developers were able to find a way to add NFT data to blocks that were previously only able to contain financial transaction data.

New use cases for Bitcoin

Most notably, the introduction of NFTs means that Bitcoin can be used for more than just financial transactions. Thus, from an investment perspective, the introduction of NFTs can actually increase the digital currency’s value.

Anything that adds utility to a digital coin should increase the value of that coin, right? And given the size of the NFT market (which sold almost $25 billion in 2022), it could have a huge impact on future valuation if Bitcoin starts to take away the NFT market share of Ethereum and Solana.

Also, these new NFTs could potentially attract a whole new demographic to Bitcoin. When it comes to crypto, many people want to have a little fun. This is why meme coins are so popular and why NFTs took off in the first place.

So NFTs could be a way to open up Bitcoin to new investors and make the cryptocurrency even more attractive to a mainstream audience.

Limitations of Bitcoin

On the downside, these NFTs have the potential to clog up the Bitcoin blockchain and make it slower than it already is. Right now it can only process seven transactions per second, so anything that slows down processing will reduce its value as a payment method.

Moreover, these NFTs, far from opening up new use cases and new market opportunities, may actually end up highlighting the limitations of Bitcoin.

For example, it is known to be incredibly energy intensive, causing miners to consume huge amounts of electricity to mine a single block. So why would anyone want to make the process even more inefficient? Some miners have already said they will refuse to mine Bitcoin blocks containing NFT data.

For many purists, NFTs go against the original vision of Satoshi Nakamoto and the famous Bitcoin white paper. In their minds, adding NFTs to Bitcoin is as controversial as the addition of the giant glass pyramid to the Louvre in Paris.

Some developers have even called the new NFTs an “attack on Bitcoin.” So it’s unclear how much appeal these NFTs will have.

Does this increase Bitcoin’s value?

At the end of the day, I don’t think Bitcoin needs NFTs. Not every blockchain needs to be all things to all people, and it shouldn’t try to become Ethereum.

And these new NFTs are not trying to “fix” anything wrong with current NFTs. If anything, they are a step back for NFTs because they are not tokens, and thus cannot be moved off-chain or easily traded.

As even the creator of the new Ordinals protocol acknowledges, these NFTs are more like “digital artifacts” that will reside on the Bitcoin blockchain forever.

I don’t think these new NFTs are going to move the needle for investors. But I think they will generate much more public debate about Bitcoin, and suggest new ways to make it even better.

As for me, I look at developments that will improve the efficiency and speed of the blockchain, because that is the best way to add long-term value to Bitcoin.