New breed of bitcoin NFTs sell for millions

by James · March 14, 2023

A person stands in front of artist Takashi Murakami’s NFT project called Murakami Flowers during a May 11, 2022 preview for “An Arrow through History” at Gagosian Galleries in New York. (Photo: AFP)

BENGALURU, India: Imagine digitally inscribing three-dimensional images of objects like multi-colored spheres onto a small fragment of bitcoin. Then imagine selling them for $16.5 million.

Just when you thought crypto couldn’t get stranger, bitcoin accidentally gives birth to a new breed of non-fungible tokens (NFTs).

The new entrants have materialized in 2023 following bitcoin network upgrades that enabled each satoshi – the smallest denomination of bitcoin, or one hundredth of a millionth – to store a few megabytes of data, from text and images to audio and video.

The data storage was an unintended consequence of the upgrades. Now, crypto enthusiasts have embedded a total of 385,000 “inscriptions” known as Ordinals on bitcoin since January, including more than 200,000 image files and over 150,000 text files, according to Glassnode Market Intelligence.

“I think this is really the start of a fundamental shift in what you can do with bitcoin,” said Alex Miller, CEO of bitcoin developer network Hiro.

The colored balls form part of TwelveFold, a collection of 300 images of 3D objects rendered in a square grid, from NFT developers Yuga Labs, best known for their Bored Ape Yacht Club. It calls the set “a visual allegory” for data on the blockchain.

They became a lucrative allegory this month when the company auctioned 288 of them for $16.5 million, according to data from research firm Delphi Digital.

A representation of cryptocurrency Ethereum is seen next to non-fungible tokens (NFTs) of Yuga Lab’s “Bored Ape Yacht Club” collection displayed on its website, in this illustration photo taken March 24, 2022. (Photo: Reuters)

Other top-selling Ordinals — named for the software protocol that facilitates inscription — include JPEGs of rocks and shadowy crowned figures that have sold for $213,845 and $273,010, respectively, according to Galaxy Digital Research.

Although the market for bitcoin NFTs has only been up and running since January, Galaxy estimates it could be worth $4.5 billion by 2025, basing its bullish forecast on factors such as the growth of the more established Ethereum NFT market and the fact that bitcoin is by far the most popular cryptocurrency.

Caveat emptor, though: Little can be accurately predicted in the highly unpredictable market for non-fungible tokens, it seems.

Total sales of NFTs — excluding Ordinals — were about $1 billion last month, according to CryptoSlam data, a recovery from $324 million in November but still a fraction of the roughly $5 billion seen in January in last year and 2.7 billion dollars in May.

Nevertheless, bitcoin NFTs have built up a steam in a short time. Satoshis inscribed with NFTs are involved in about 7% of the total number of bitcoin blockchain transactions, according to Glassnode data.

– “As frivolous” –

One of the biggest challenges for this new class of NFTs is the lack of user-friendly marketplaces, with early transactions taking place over the counter on shared online spreadsheets, according to market players.

This lack of infrastructure is a clear barrier to entry, Delphi Digital said.

A sign reading “NFT FOR SALE HERE,” is seen inside a small store hosting digital art collection platform Neon’s first personal non-fungible token (NFT) vending machine in Lower Manhattan’s financial district in New York City on March 1, 2022. (Photo: Reuters)

Not everyone is happy about this flurry of activity, especially some bitcoin purists who believe the cryptocurrency should be used exclusively for payments.

The average fee to make a bitcoin transaction, measured over a seven-day period, has risen to $1,981, the highest since November, when Ordinals trading rose from below $1 in early February, according to data from Blockchain.com.

“We want transactions to remain as affordable as possible so that people all over the world can do business and send money,” said Cory Klippsten, CEO of bitcoin-focused financial services firm Swan Bitcoin, who sees problems in “getting it priced out through this non-monetary use which is a bit frivolous”.

Some critics say Ordinals also clog the network; the seven-day average to confirm bitcoin transactions rose to over 186 minutes in late February, the highest since November’s bitcoin sale, according to Blockchain.com.

That has since dropped to over 124 minutes, but that’s still significantly longer than the transaction time of 12.8 to 35 minutes in January and February. “Ordinals has brought a few more eyes to the network,” said Brendon Sedo, a developer at the Core DAO blockchain. “But NFTs on bitcoin are a distraction from the network’s core purpose, which is to serve as a permissionless network that is globally accessible, 24/7, and uncensorable.”