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

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