Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Hood podcast,
Speaker 1: and I'm Philip Logger Crancer, Senior editor for Crypto at
Speaker 1: Bloomberg News. In Today for Stacy Marie Ishmael. It is Monday,
Speaker 1: February the twenty seventh. In a major twist to the
Speaker 1: digital assets world, Bitcoin has added non fungible tokens or
Speaker 1: NFTs to its blockchain. The new protocol that makes them
Speaker 1: is called Ordinals, and just like anything in crypto these days,
Speaker 1: fierce debate has ensued about this on social media. Bitcoin
Speaker 1: NFT proponents called the move a game changer. Naysayers, however,
Speaker 1: worry about potential pitfalls and bitcoin NFTs like rising transaction
Speaker 1: costs an environmental concert. Joining me today to discuss the
Speaker 1: ins and outs of bitcoin NFTs are Bloomberg reporters Emily
Speaker 1: Cool and David Pan. Emily and David, Welcome to the show.
Speaker 1: We're gonna talk about NFTs on bitcoin. And they've been
Speaker 1: around for a while, the NFTs, but they really it
Speaker 1: was really kind of mid twenty one something like that
Speaker 1: that they started to really rise into the public consciousness,
Speaker 1: wasn't it? That is correct? So the first NFT went
Speaker 1: back as early as twenty fourteen, but I didn't really
Speaker 1: start gaining any momentum until later in twenty twenty one.
Speaker 1: I think that was one of the best moments for
Speaker 1: NFTs and a lot of artists that got involved in it,
Speaker 1: and there are new marketplaces like open Sea super super rare,
Speaker 1: and a lot of investors started paying attention to it
Speaker 1: at the time. And Emily, what would you say, So far,
Speaker 1: are the most famous or infamous if you want to
Speaker 1: use that word instir NFTs? Up to this point, there
Speaker 1: have been quite a few collections out there. I mean,
Speaker 1: probably the biggest ones are either crypto punks they came
Speaker 1: a little bit before, and then board apes, the ones
Speaker 1: that really hit the scene in twenty twenty one. Those
Speaker 1: are probably the two biggest out there, the ones that
Speaker 1: seemed to attract it own million dollar sales. But obviously
Speaker 1: in the last year or so, along with the rest
Speaker 1: of the crypto market, prices souring. NFTs were no stranger
Speaker 1: to that, and if anything, actually they were probably hit
Speaker 1: a little bit worse. But because of that kind of
Speaker 1: collectible nature of them, they're not seen as vital to
Speaker 1: the ecosystem as cryptos like bitcoin, U and ether. When
Speaker 1: we go back to looking at the rising popularity of
Speaker 1: NFTs in twenty one and early last year. It wasn't
Speaker 1: without any impact that you know, when these things started
Speaker 1: getting minted and traded on mass, there was some impact
Speaker 1: on the Etherium blockchain, which is where most of these
Speaker 1: things are minted and live. As it were, wasn't their enemy. Yeah,
Speaker 1: So as collections got more popular, more people would be
Speaker 1: coming onto the space wanting to buy more. And the
Speaker 1: way NFT collections work is typically there's a bunch that
Speaker 1: get dropped at once into the market, either either known
Speaker 1: as something through an air drop or minting, and so
Speaker 1: when these big name collections would do fresh mints, there
Speaker 1: would be a whole bunch of people clamoring to get
Speaker 1: into the space, eager to get their token, their NFT
Speaker 1: into their wallet and then mint the corresponding token that
Speaker 1: would prove that it was THEIRS on the Ethereum blockchain,
Speaker 1: and that rush of demand would push up the transaction
Speaker 1: fees on Ethereum because so many people were trying to
Speaker 1: do everything at once, it would slow down transactions for
Speaker 1: everybody else because there was too many people on the network,
Speaker 1: and that led to very very big spikes way, if
Speaker 1: a piece of digital land in the suburb of twenty
Speaker 1: twenty two would cost I don't know, three thousand dollars,
Speaker 1: you're probably paying more than that in just the transaction
Speaker 1: fees to mint the token for your NFT And all
Speaker 1: this was happening on Ethereum, and it wasn't happening on
Speaker 1: the biggest blockchain. It wasn't happening on Bitcoin. Why was
Speaker 1: Bitcoin left out about this? So? I think it all
Speaker 1: goes back to the ethos of these too large as
Speaker 1: the blockchains. For Bitcoin is mainly designed as a cryptocurrency
Speaker 1: way of pay, is designed initially as the pure to
Speaker 1: pure payment network. For ethereum, you know, it came into
Speaker 1: being later than Bitcoin. One of the main points for
Speaker 1: Ethereum is that, you know, it is way more scalable
Speaker 1: at a certain expense of security. You know, you'll be
Speaker 1: able to scale up the projects and you know, decentralized
Speaker 1: the applications on ethereum, so that you know what, the
Speaker 1: training of anovitis and the minting and the naughts are
Speaker 1: much easier to achieve on Ethereum than Bitcoin, just because
Speaker 1: Bitcoin is not as scalable as the etherorem and so
Speaker 1: it remained up until fairly recently when this protocol called
Speaker 1: Ordinals decided to launched on bitcoin, and basically there was
Speaker 1: this decision that NFTs could also live on bitcoin. What
Speaker 1: was behind that, David? The idea of having a sort
Speaker 1: of like an FT like project on bitcoin actually isn't new.
Speaker 1: There were previous projects like colored coins, and some of
Speaker 1: these ant like projects happened a long time ago. They
Speaker 1: just didn't get any momentum. Part of the reason is
Speaker 1: just because of all its technical upgrades didn't take place
Speaker 1: at a time. Nowadays, when we talk about Ordernos protocols,
Speaker 1: they are mostly enabled by two major upgrades are tap
Speaker 1: root and Seguid. The creator of the protocol Ordinals protocol, Casey,
Speaker 1: he started thinking about the protocol in January twenty twenty two,
Speaker 1: which is roughly like a year ago, and then he
Speaker 1: officially launched the project on the Midnight, which is the
Speaker 1: real blockchain, a real Bitcoin blockchain, in January twenty twenty three.
Speaker 1: So that's basically the history of the protocol and why
Speaker 1: it didn't actually happen, you know earlier than this. One
Speaker 1: word I see in stories about NFTs on bitcoin is
Speaker 1: the word inscriptions. Is there a difference conveyed by the
Speaker 1: word inscriptions and how how does that work? David? So,
Speaker 1: so for ordinals it is shorthand for ordinal numbers, which
Speaker 1: expressed the position of an object in a nutshell. The
Speaker 1: protocol allows users to stand and receive the setosis, which
Speaker 1: are you know, the smallest measuring unit of bitcoin recorded
Speaker 1: on the blockchain. You know, they can carry option extra data,
Speaker 1: non financial data like digital representation in ordinal progression. This
Speaker 1: is like what I get, you know, from the interview
Speaker 1: with the creator. And so that's you know, essentially how
Speaker 1: it works for the protocol. And Emily, was there a
Speaker 1: reason why, like why wasn't in theorium enough? There issues
Speaker 1: beyond obviously we talked about the gas fees, but Ei,
Speaker 1: there are other considerations behind why somebody would want to
Speaker 1: launch nft SA. Bitcoin. Ethereum in itself does present several
Speaker 1: inefficiencies in terms of entities. So yes, we spoke about
Speaker 1: the gas piece already, but also it's a very popular network.
Speaker 1: Most derivative tokens in crypto tend to run on ethereum.
Speaker 1: So if you think about most stable coins, for example,
Speaker 1: are typically running on ethereum. They're all called arc twenty tokens,
Speaker 1: and that makes it very, very busy. And not only that,
Speaker 1: Ethereum is also undergoing its own little life change. It's
Speaker 1: recently switched from being a proof of work network to
Speaker 1: proof of stage, which means that tokens are now mind
Speaker 1: differently on Ethereum, and as it continues to go through
Speaker 1: these upgrades, it's got several more to come in the
Speaker 1: next few years. That probably means that creators need to
Speaker 1: start thinking about where else they can do things like
Speaker 1: kind ftse if there's a future for it. And bitcoin
Speaker 1: is the world's most valuable token still at the minute,
Speaker 1: I mean, I'm sure there are always reasons for that
Speaker 1: network to be improved upon. And the hype that was
Speaker 1: generated around a Thereum in the last few years has
Speaker 1: definitely made some Bitcoin maxis very envious, so definitely, And
Speaker 1: this kind of segues into an area that David, you
Speaker 1: are really specialized in and you know everything about, and
Speaker 1: that's mining. Mining of bitcoins is something that you've covered extensively.
Speaker 1: How does this all this kinnot if you want to
Speaker 1: call it a transition towards using bitcoin for NFTs, how
Speaker 1: would that affect miners and the mining industry? So minors.
Speaker 1: The income for bitcoin miners, it essentially comes in two parts.
Speaker 1: The first part is the fixed amount of bitcoin rewards
Speaker 1: currently it is about six and a half bitcoins from
Speaker 1: a mining a block on the blockchain. And the second
Speaker 1: part is the transaction fees. So if you want to
Speaker 1: do a transaction, for example, treating bitcoin, and now you
Speaker 1: have minting the bitcoin NFTs and they have to pay
Speaker 1: a certain amount of fees, you know as the compensation
Speaker 1: for the miners to maintain the blockchain and also validate
Speaker 1: the transactions in the blocks. If there's more training volume
Speaker 1: for the new kind of NFTs, that means there will
Speaker 1: be increased in transaction fees for miners, which could be
Speaker 1: very significant. Because you know, there's this event that happens
Speaker 1: every four years within the bitcoin blockchain, which is called happening.
Speaker 1: The blockchain is pre programmed to cut the first part
Speaker 1: of the block rewards, which is the fixed amount of
Speaker 1: a bitcoin you can get as an in half. So
Speaker 1: like every four years, the protocol is automatically cutting the reward,
Speaker 1: the first part of the reward in half. So that
Speaker 1: means bitcoin miners they will receive much less rewards over
Speaker 1: the time, so they need other revenue streams to replace
Speaker 1: that to make up to that. So that's when the
Speaker 1: bitcoin NFTs come in. So it could be a very
Speaker 1: sustainable way for miners to get a compensation, especially after
Speaker 1: the next halvening, which is scheduled in twenty twenty four.
Speaker 1: There's one caveat, which is, like the inscriptions that Bacon NFTs,
Speaker 1: it is still in the early stage. If you look
Speaker 1: at the data it is treating volume for the you know,
Speaker 1: for the number of NFTs bitcoin NFTs, it's in the
Speaker 1: range of tens of thousand dollars, whereas the same number
Speaker 1: for ethereum is about one point three million NFTs minted
Speaker 1: in just last month, in just January twenty twenty three.
Speaker 1: But is it fair to say that the miners are
Speaker 1: sort of cautiously happy with this development? I also from
Speaker 1: an economic perspective, yes, But like we have to understand that,
Speaker 1: you know, some of the miners they are bitcoin maxis themselves,
Speaker 1: and so even if it's beneficial, it's financially beneficial for them.
Speaker 1: Some of them they're just really really hotcore bitcoiners and
Speaker 1: they just don't like the idea that, you know, introducing
Speaker 1: anything other than financial transactions onto the bitcoin network coming
Speaker 1: up right after the break more with Bloomberg reporters Emily
Speaker 1: Nicole and David Pan on Bitcoin NFTs will be right back.
Speaker 1: Bitcoin maxis are ambivalent to unhappy. I guess you could
Speaker 1: call it what's being the reaction from the unhappy camp
Speaker 1: and why you've already sort of alluded to it, but
Speaker 1: please expand a little bit. So when the protocol came
Speaker 1: out about a month ago, and then there are especially
Speaker 1: like at the beginning of the project that there was
Speaker 1: so much backclash from the hardcore bitcoiners. And one of
Speaker 1: the examples is, you know, Adam Back from Blockstrain, which
Speaker 1: is the crypto infrastructure company. He publicly commented on the
Speaker 1: project on Twitter saying something like this is like not necessary,
Speaker 1: this is just the waste of resources. You already got
Speaker 1: an ftsn etherian while are introducing that to the bitcoin blockchain,
Speaker 1: and and then you know, put something put like monkey
Speaker 1: jpacks or images onto the blockchain permanently, and then you
Speaker 1: know kind of like getting the chain beloated. That's generally
Speaker 1: the reaction. But over time I feel like people there
Speaker 1: are more people from that camp started getting more inclusive
Speaker 1: and getting more accepting to the idea because it is
Speaker 1: boosting utility for the Bitcoin blockchain. You know, other than
Speaker 1: just processing Bitcoin transactions, the blockchain now can be used
Speaker 1: to mint and treat an ft s from artists and
Speaker 1: digital artifacts on the blockchain. So you are seeing increased
Speaker 1: use cases on the blockchain. So that's generally the progression
Speaker 1: of this thinking process for the community. And Emily, I
Speaker 1: kind of have to also include you here because you
Speaker 1: are our sort of resident expert at covering crypto controversies
Speaker 1: and the war of the blockchains as it were. What
Speaker 1: do you make of all this and where do you
Speaker 1: see this traveling? I think it's a very interesting debate
Speaker 1: because it's not just about bitcoin, right, it's about the
Speaker 1: future of crypto. A lot of crypto is supposed to
Speaker 1: be the payments network of the future. That's always the
Speaker 1: argument that bitcoin is the solution for global remistances. It's
Speaker 1: the way that we're all going to transact one day,
Speaker 1: even if even beyond Bitcoin you've got stable coins ether
Speaker 1: that you know, the whole bunch and what the Bitcoin
Speaker 1: Maximus community is tapping on here is that very argument
Speaker 1: whether or not Bitcoin should be open to allowing other
Speaker 1: forms of tokens to be minted on its network and
Speaker 1: potentially reduce the ability for it to be used as
Speaker 1: a payment's network or to kind of state stick with
Speaker 1: what it knows and keep with that vision. Not that
Speaker 1: it's been super successful at it so far, And that's
Speaker 1: where I think this becomes really interesting, because if they're
Speaker 1: going to be able to get past this, it's going
Speaker 1: to take a lot of banding together. I think the
Speaker 1: crypto community itself is still very split. You know, it's
Speaker 1: not going to commit to regulators any better that bitcoin
Speaker 1: is a safe place for consumers to be using as
Speaker 1: a means of payment if even its creators and people
Speaker 1: running the network aren't able to agree on exactly how
Speaker 1: it should be run. And at that note, I think
Speaker 1: we can call it a rap. Guys, thank you so much.
Speaker 1: That was great, Thank you, thanks for having us. That
Speaker 1: was Bloomberg reporters Emily Nicole and David Pan. You can
Speaker 1: find more of their reporting on the Bloomberg terminal and
Speaker 1: on Bloomberg dot com. For more, be sure to check
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