Why Bitcoin NFTs Raise Questions About Censorship

by James · February 14, 2023

Bitcoin is not the first blockchain that comes to mind when you think of non-fungible tokens (NFTs); that would be Ethereum.

Over the past two weeks, however, NFTs have entered Bitcoin’s orbit, thanks to Ordinals.

This newly launched protocol allows users to “enter” images in satoshis, the lowest denomination of Bitcoin – images that then live forever on the anonymous blockchain.

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See: What is Bitcoin and how did it start?

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What happened next shouldn’t surprise anyone familiar with Bitcoin’s immutable infrastructure.

With grim inevitability, a user used Ordinals to enter an offensive image onto the blockchain.

This image – as with all other information about Bitcoin – is permanently inscribed on satoshis. These images also appear automatically on Ordinal’s homepage, in this case forcing creator Casey Rodarmor to take action and manually remove the image from the site.

What Mr Rodarmor could never do, however, is remove the image permanently.

As such, this incident – which may seem frivolous and insignificant to some – has raised serious questions about censorship resistance.

And this is a principle that sits at the heart of the cryptocurrency industry and certainly at the heart of Bitcoin, which is by far the most censorship-resistant of all chains.

Why bother with censorship resistance?

There are mixed views on Bitcoin’s censorship resistance.

Bitcoin proponents argue that it is one of the network’s strongest advantages, a characteristic ensured by its high level of decentralization and absolutely essential to the network’s overall health.

Others – including those longing to see stronger regulations brought to the cryptocurrency industry – believe that some level of censorship may be necessary to weed out those who use blockchain to launder money, finance illegal businesses or publish offensive images, for example.

While block explorers can enforce their own moderation policies, users are free to post any image they want on the blockchain.

Of the Ordinals scandal, Mr Rodarmor observed: “The inscription is still on the chain and if you run your own copy of Ordinals – which everyone is free to do – it won’t have the configuration file and you’ll see [image] if that’s what you want.”

The question is, should we care about this? If someone chooses to use their own money to deface a satoshi with an offensive image or worse, does that warrant our concern?

More than that, does it warrant censorship of Bitcoin or any other blockchain?

The costs of economic freedom

In my opinion, Bitcoin’s uncensorable, immutable and permissionless nature is one of its greatest strengths as a currency, and Ordinal’s imbroglio is unrelated to currency.

Instead, it relates to the “freedom” of everyday users to add their own non-financial contributions (digital objects, etc.) to the network.

A use case that Satoshi Nakamoto, for all his brilliance, could not have foreseen.

There are clearly benefits to some level of censorship when discussing Web3 features such as those offered by Ordinals.

I don’t think any of us can be blasé about the prospect of criminals being able to freely stamp, for example, NFTs with grim images.

We can strongly oppose such degeneration, while being ardent supporters of Bitcoin’s transactional immutability.

Currently, Bitcoin’s fundamental mission as a transparent, independent currency and store of value available to every citizen is under threat.

Cryptocurrencies — in pictures

The crypto market, which includes currencies such as Bitcoin, pictured, has lost $2 trillion in value in six months. Unsplash

The price of Ethereum, the second largest cryptocurrency by market size, has fallen by 70 percent this year. Investors and analysts are watching to see if it will fall below $1,000. Unsplash

Dogecoin, backed by Elon Musk, is down about 90 percent from last May, but it is outperforming Bitcoin and Ethereum in the current crash. Unsplash

The government of El Salvador has invested $105 million in Bitcoin. President Nayib Bukele’s embrace of the cryptocurrency as legal tender is being questioned as the market crashes. Getty

Changpeng Zhao, founder of crypto exchange giant Binance, has compared the current market turmoil to the dotcom bubble of the early 2000s. Nevertheless, the company works aggressively with licensing in international jurisdictions and introduces new products. Getty

Tether is the largest issuer of stablecoins, a type of cryptocurrency tied to a traditionally stable asset such as the US dollar. Most stablecoins are intended to maintain a constant price of $1 and are backed by real reserve funds, making it easy to convert crypto investments into cash. But Tether’s accounting shows that may not be true, leaving the issuer and its investors vulnerable. Unsplash

The recent crypto crash can be partially attributed to the collapse of TerraUSD, a stablecoin pegged to the US dollar through algorithms and linked to a “sister” cryptocurrency named Luna. As the price of Luna fell, so did TerraUSD, creating a “death spiral” to virtually zero for both coins. Unsplash

On June 12, crypto lender Celsius Network said it had stopped customer withdrawals, saying it needed “to stabilize liquidity and operations”. Investors are still waiting, with no sign of the current meltdown letting up. Getty

The predominance of centralized banks and companies adding Bitcoin to their portfolio, not to mention offering crypto custody services to money managers, significantly threatens the network’s decentralization.

In this case, centralized censorship is certainly something to resist, and we can be thankful that Bitcoin is hard-wired against it.

As the past year has shown, centralization is not only a bane of basic principles of the blockchain and cryptocurrency project, but in this space, frankly dangerous.

Decentralization is the only way to ensure the safe growth of a truly censorship-resistant, fully accessible financial ecosystem.

Bitcoin remains the flagship project for this mission, and we should not let an NFT experiment detract from it, regardless of the sensational headlines it attracts.

What we can say in favor of the Ordinals NFT project is that it has brought a new wave of interest in Bitcoin, resulting in an expanded average block size as more users join the network.

But while this is a welcome development, we must not forget basic principles of Bitcoin as a blockchain and currency that can resist censorship and manipulation by central and investment banks, something fiat currencies like the US dollar cannot.

The future of finance may not be Bitcoin, but it must and will be decentralized and censorship resistant.

Stefan Rust is the founder of Laguna Labs, a blockchain development house, and former CEO of bitcoin.com

Updated: 15 February 2023 at 04.00