NFTs Attacking Bitcoin? with Eric Wall & Casey Rodarmor

In today’s show, we’re talking about NFTs on Bitcoin. Yes, you read that right. NFTs are now part of Bitcoin. Ever since the launch of the Ordinals protocol, NFTs on Bitcoin are all anyone can talk about. We brought on the man behind Ordinals and open source Bitcoin developer, Casey Rodarmor, and also Eric Wall, our Bitcoin expert to chat about all things NFTs on Bitcoin and what it might mean for Bitcoin’s future. ------ 📣 MetaMask Learn https://bankless.cc/metamaskshow ------ 🚀 JOIN BANKLESS PREMIUM: https://newsletter.banklesshq.com/subscribe ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken 🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🚁 EARNIFI | CLAIM YOUR UNCLAIMED AIRDROPS https://bankless.cc/earnifi 👻 PHANTOM | CROSS-CHAIN WALLET https://bankless.cc/phantom ------ Timestamps: 0:00 Intro 9:30 Ordinals 12:29 Ethereum vs. Bitcoin NFTs 14:28 Bitcoin Feature Timeline 17:55 Hard vs. Soft Forks 19:16 Bitcoin’s Segregated Witnesses 22:45 Ordinals Origin 32:11 Violating Bitcoin’s Core Philosophy 38:40 Illegitimate Bitcoin Transactions 41:13 Legitimate Bitcoin Transactions 53:55 Eric Prediction & Miner Game Theory 58:31 Bitcoin Fee Market 1:01:31 Fixed Bitcoin Fee Structure? 1:03:58 No Bloat Problem 1:10:38 Summary 1:16:21 Inscription 466 1:19:33 Bitcoin is Fun Again 1:23:50 Closing & Disclaimers ----- Resources: Eric Wall https://twitter.com/ercwl Casey Rodarmor https://twitter.com/rodarmor ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. I'm David Hoffman, here without my co-host Ryan Sean Adams, but nonetheless, we are here to help you become more Bankless. And on today's show, this is a very special episode, we are talking about NFTs on Bitcoin, and this has been the absolute talk of the Bitcoiner world ever since Ordinals. This new protocol has started to fill up all the Bitcoin block space with JPEGs. Yes, you heard that right, with NFTs. NFTs are now part of Bitcoin, and it's through this protocol, this brand-new protocol called Ordinals, which is doing some interesting stuff with Bitcoin block space, and it has caused a

• 0:46David Hoffman?

  bunch of controversy as to whether or not this is a legitimate use case of Bitcoin. Is that even a fair thing to charge an app with, being illegitimate? Some people think that this is spamming the Bitcoin blockchain. Other people think that this is just what you're allowed to do with Bitcoin. If you pay the Bitcoin fee, then you're able to get into the Bitcoin blockchain. There's been some other conversations as well, as what can you do with NFTs on Bitcoin? Is this really anything useful, or is this just a place to put monkey pictures on Bitcoin? Did you know, Bankless listener, that you can actually run Doom on Bitcoin? And I actually do play a little bit of Doom live here on

• 1:29David Hoffman?

  the show. My two guests are Casey Rodarmor, who is the creator of Ordinals, this protocol that is filling up Bitcoin block space with JPEGs, and also my good friend Eric Wall, who is somebody that I frequently tap into in order to get help navigating the Bitcoin world, because, of course, I don't pay nearly as much attention to Bitcoin as I do Ethereum, and just the way that Bitcoin works is fundamentally different than how Ethereum works. So I'm bringing in Eric Wall as a technical co-host, co-moderator, to help me guide through this conversation with Casey. In this conversation, we talk about how Ordinals work, how NFTs even come to be on Bitcoin. We talk about some of the reactions from the Bitcoin community. While some leaders are offended... Most people are actually more okay with it than what might light let on.

• 2:13David Hoffman?

  And actually, Eric walks us through about how this new use case for Bitcoin is perhaps bringing a sustainable fee market to buying Bitcoin block space. While it actually doesn't blow Bitcoin, actually makes it even more streamlined. So we actually perhaps get a win-win where Bitcoin can actually become more sustainable due to block space demand because of ordinals, because of NFTs on Bitcoin, while also making the Bitcoin blockchain easier to process. How do we get this win-win? Eric walks us through that and more. And of course, we poke fun at some Bitcoin fundamentalists, a hobby as old as time on the Bankless program. But first, before we get to all of these conversations, we have to talk to our friends at MetaMask.

• 2:56David Hoffman?

  And MetaMask has built out this brand new educational platform, which they're calling MetaMask Learn. You can go there and check it out at learn.metamask.io. But it is an interactive course for you to learn about Web3. Through MetaMask Learn, you can do things like be guided through how to set up your MetaMask wallet, but also learn about core, basic crypto principles like what is Web3? What does self custody even mean? What are NFTs? What is DeFi? What's digital identity? MetaMask has this very elaborate, highly engaging and interactive course that, again, you can find at learn.meta masks.io. And it can be a place if you don't want to teach your mom or dad about crypto, but they asked you, you can send them here.

• 3:41David Hoffman?

  So you can offload them onto, again, learn.meta masks.io. So check that out. There is a link in the show notes. If you want to get you or your family members or your loved ones or whoever asks, what is that crypto thing? You can get them leveled up at MetaMask Learn. It's not often that we do Bitcoin content here on Bankless, but when something comes to my attention via crypto Twitter or whatnot about new utilities on Bitcoin that is external to the actual base Bitcoin protocol, yet it is still a valid purchasing of Bitcoin block space, I get really, really excited. I hope you're excited as well. Definitely pay attention and I definitely take some time at the very beginning of the show to really parse out these details. That Bitcoin is constructed, the philosophy behind Bitcoin is very different from Ethereum.

• 4:24David Hoffman?

  Bitcoin and its soft forks, which we go through in this episode, Segwit, Taproot, they're actually about taking features away from Bitcoin, allowing for the second layer around Bitcoin, something like ordinals, to be built upon Bitcoin. And so rather than hard forking features in, which is the Ethereum philosophy, Bitcoin hard forks take features out, but that still does enable some expressivity on higher order layers around Bitcoin. So definitely pay attention to the different philosophy behind these two systems. It is a topic of conversation that's always super interesting to me, and you can unpack some of the ways that Bitcoin is built differently. But of course, we are ultimately going to be talking about NFTs on Bitcoin and all the other second order consequences to that as well.

• 5:08David Hoffman?

  So stay tuned for this great conversation with Eric and Casey. But first, a moment to talk about some of these fantastic sponsors that make this show possible, especially Kraken, who is our strategic sponsor for 2023, because Kraken has been around for 11 years in the crypto space, and we expect them to be around for all the rest of the while as well. And so if you are using a centralized exchange to get your boomer money into the crypto world, make sure you are using a centralized exchange that is going to be around for the long term. And that is why Bankless has partnered with Kraken in 2023 for our strategic sponsor. You're going to hear from them right now. Kraken has been a leader in the crypto industry for the last 12 years, dedicated to accelerating the global adoption of crypto. Kraken puts an emphasis on security, transparency, and client support,

• 5:51David Hoffman?

  which is why over 9 million clients have come to love Kraken's products. Whether you're a beginner or a pro, the Kraken UX is simple, intuitive, and frictionless, making the Kraken app a great place for all to get involved and learn about crypto. For those with experience, the redesigned Kraken Pro app and web experience is completely customizable to your trading needs, integrating key trading features into one seamless interface. Kraken has a 24/7 365 client support team that is globally recognized. Kraken support is available wherever, whenever you need them, by phone, chat, or email. And for all of you NFTers out there, the brand new Kraken NFT beta platform gives you the best NFT trading experience possible. Rarity rankings, no gas fees, and the ability to buy an NFT straight with cash.

• 6:34David Hoffman?

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• 7:17David Hoffman?

  With Arbitrum's recent migration to Arbitrum Nitro, it's also now 10 times faster than before. Visit arbitrum.io, where you can join the community, dive into the developer docs, bridge your assets, and start building your first app. With Arbitrum, experience Web3 development the way it was meant to be: secure, fast, cheap, and friction-free. The Phantom Wallet is coming to Ethereum. The number-one wallet on Solana is bringing its millions of users and beloved UX to Ethereum and Polygon. If you haven't used Phantom before, you've been missing out. Phantom was one of the first wallets to pioneer Solana staking inside the wallet and will be offering similar staking features for Ethereum and Polygon. But that's just staking. Phantom is also the best home for your NFTs. Phantom has a complete set of features to optimize your NFT experience: pin your favorites,

• 8:01David Hoffman?

  hide your uglies, burn the spam, and also manage your NFT sale listings from inside the wallet. Phantom is, of course, a multi-chain wallet, but it makes chain management easy, displaying your transactions in a human-readable format with automatic warnings for malicious transactions or phishing websites. Phantom has already saved over 20,000 users from getting scammed or hacked. So get on the Phantom waitlist and be one of the first to access the multi-chain beta. There's a link in the show notes, or you can go to phantom.app/waitlist to get access in late February. Bankless Nation, I want to introduce you to Casey Rotamer. Casey is an open-source Bitcoin developer who is building Ordinals, which has caused...

• 8:39Speaker 01

  Turn my headphones off. Let's fucking go.

• 8:42David Hoffman?

  He's so excited to come onto Bankless, who has caused a little bit of a stir in the Bitcoin community, but overall, a bunch of conversations as to what's going on in this small corner of Bitcoin. Bitcoin, which has now been the host of many cool NFTs. At least I think they're cool. Other people don't. And also joined with me is Eric Wall, who is my substitute teacher for Ryan Sean Adams. When we need to talk about Bitcoin and all things technical Bitcoin. So Eric is going to help me guide us through this conversation as probably one of the most knowledgeable people about Bitcoin and other related technologies. Casey and Eric, welcome to Bankless, guys.

• 9:19Speaker 01

  Thanks so much for having me. It's awesome, awesome to be here, awesome to be able to talk to your viewers. So yeah, thanks so much.

• 9:27Speaker 02

  Always a pleasure, David.

• 9:29David Hoffman?

  All right, so let's get this thing kicked off. This has created a bunch of hubbub in the Bitcoin world, but I want to start first and foremost with just diving into ordinals specifically. So Casey, can you just walk us through ordinals? What's ordinals?

• 9:42Speaker 01

  Yeah, absolutely. So there's kind of two layers to the whole thing. There's the base layer, which is this thing called ordinals. And then on top of that, there are inscriptions, which are the NFTs. So ordinals are a convention essentially for numbering individual Bitcoin Satoshis. And so they have a unique individual identity, every single Satoshi, and tracking them across transactions as they are spent. It doesn't require any changes to Bitcoin. It doesn't actually take up any data on the base layer. And it is purely an opt-in convention.

• 10:25Speaker 01

  It doesn't really affect Bitcoin fungibility, which is often a question that I get asked. It's just a convention for people who want to participate in it. Like a lens that you can choose to see the same data that everybody else is seeing, but with this additional, these additional Satoshi identifiers and tracking. So this was created, I created it, although there was actually some Bitcoin forum talk post in 2012 that I found after I came up with it with exactly the same scheme. So I think it's actually kind of like a very natural extension of Bitcoin that when you Think about it, everything kind of falls into place. So but then those ordinal numbers or trackable satoshis or whatever,

• 11:10Speaker 01

  those can be used to sort of contain content or be assigned on NFT. And this is called inscriptions, which is sort of a top layer. So an inscription is just a piece of content that is included in a Bitcoin transaction, in a part of the transaction called the witness. And that content is arbitrary. The content model is very similar to the web containing a content type, which is a string that identifies what kind of content it is, and a body, which are just content bytes. That's included in the witness in a Bitcoin transaction. And then the inscription is made on the first sat

• 11:54Speaker 01

  of the first output of that transaction, sort of creating this digital artifact, which is then transferred using the ordinal protocol or ordinal theory when I'm being cute. So yeah, it creates these things. I like to call them digital artifacts because the term NFT is very overloaded and refers to a lot of different things. And I think these have very unique properties that people who collect NFTs will like. But yeah, that's the that's the basic idea.

• 12:29David Hoffman?

  And just to make it crystal clear, in from the Ethereum perspective, when you create an NFT, you're actually creating a digital object on Ethereum, an actual token. That's not what's being created on Bitcoin. Is it the actual individual Satoshi that is the transferable unit? That is what we are kind of colloquially calling NFT? Is that the you said you are assigning a lifespan to an individual Satoshi? And then the Satoshi has data appended to it. And these two properties together start to appear to look and feel like the NFTs that we know on Ethereum. Is that fair?

• 13:04Speaker 01

  Yeah, that's right. I mean, I think, you know, things are NFTs which have the properties that users, certain properties that users are looking for. They want them to be unique. They want them to be transferable. They want them to have a piece of content associated with them. So I think whether or not these are NFTs is sort of up for everybody to decide according to their own definition of what an NFT is. But yeah, that's correct. Essentially, the SATs are already the tokens and they're sort of, on the Bitcoin base layer, they are very fungible. If you view them through the lens of the Ordinals protocol, they become non-fungible.

• 13:49Speaker 01

  And then if you then additionally use inscriptions and have like an inscription wallet or an inscription explorer. So the open source tool, which is the wallet and the explorer that I wrote is called, with additional contributors, is called Ord. And the Block Explorer is on ordinals.com. And so if you're using that tool, then you can see the individual SATs. You can see where they are and you can see the content that is associated with them. So yeah, and then that behaves like an NFT. You can create content that is then in your wallet and then you can send it on to others.

• 14:29David Hoffman?

  The way that you're articulating this, I think, is diving into a particular philosophy that Bitcoin has, where from the Bitcoin blockchain perspective, it doesn't know what is going on with the Ordinals. But then you use this word from the ordinal lens, as in you actually have to opt into looking at Bitcoin through this particular protocol, we'll call it Ordinals. And then all of a sudden, this NFT expression is able to become out of that through NFTs. But like a normal Bitcoin node doesn't actually know what the hell is going on here. And Erica, this is where I want to turn to you and maybe you can help us tell this story. When did this feature, some Bitcoiners might call it a bug, but I'll call it a feature. When did this feature become like a possible in the Bitcoin blockchain?

• 15:13David Hoffman?

  And can you kind of help just articulate this difference in vision of how the Bitcoin protocol works, which is what more bankless audience might be used to with the Ethereum world?

• 15:25Speaker 02

  Yeah, so creating different clients that interpret what is going on inside the Bitcoin blockchain, or sort of building meta-protocols on top of the Bitcoin blockchain, has existed for a long time. Omni is such an example, which is the first place where USDT, Tether, made their stablecoins. Mastercoin and Counterparty are also such protocols. The thing with ordinals, and especially in how the inscription part is made leverages Taproot. So we've always been able to embed arbitrary data inside the Bitcoin blockchain using opreturn,

• 16:10Speaker 02

  but it was limited to, I think, 80 bytes. So to the extent that it's been possible to create a protocol that embeds arbitrary data on Bitcoin, that's always been possible. It just became with Taproot. It became significantly simpler to do that in single transactions, to embed sizable sums of data in a single transaction. So it's always been possible to create like an NFT layer on Bitcoin. It already exists, like Rare Pepe exists on Counterparty on Bitcoin already today. It just, now you can make much larger content types due to certain limits that were removed in Taproot script

• 16:54Speaker 02

  versus regular segregated witness scripts. I don't know if I'm explaining that in the most simple way, but the way that you can think about it is that in 2000, it was always possible to embed arbitrary data into Bitcoin. And then in 2017, segregated witness came, and we got this extra chunk, three, up to four megabytes of witness data that could now be assigned to Bitcoin blocks. However, in individual transactions, there were still limits to how much data you could put into individual transactions. After Taproot happened, you could basically make a single transaction that takes up the entirety of an entire block. So the...

• 17:38Speaker 02

  Ordinals sort of just leverages Taproot to create a more user-friendly experience of and more easily, more easily buildable and toolable NFT system for Bitcoin.

• 17:56David Hoffman?

  And the language you're using, like Bitcoin got SegWit, then it got Taproot. If you come from this from an Ethereum perspective, you probably think these are hard forks, but they're not. They're soft forks. Eric, can you kind of walk us through how, when you're, it feels like we're adding something to Bitcoin when we add SegWit? Is that really the right perspective to take? And how, when we already have like this capability to put NFTs on Bitcoin, but then Taproot happened and now we have more of this ability? Can you kind of just walk us through how to think about this?

• 18:27Speaker 02

  Yeah, so a hard fork is an expansion of the consensus rules. A soft fork is a contraction of the consensus rules. But even though that we're contracting the consensus rules, when you're contracting, it does actually mean that you can, you can attach extra rules that need to be validated. So all the previous rules, you need to validate them, but now you need to validate extra rules. So actually, the validity space is shrinking when you're soft fork-ing. And because you're adding extra rules to validate, that also means that you can add extra functionality. So you can actually increase the block size through a soft fork

• 19:09Speaker 02

  and add new types of scripting features inside of Bitcoin using soft forks.

• 19:16David Hoffman?

  And so now there's like the, I mean, maybe there always was, but there's like this two parts of Bitcoin block space. And this part is kind of fuzzy for me, where there's like the normal, I make a Bitcoin transaction and that data goes into one part of Bitcoin. And then there's this other part of Bitcoin, which I think Taproot really unlocked, which is where this NFT data is going into. Can you also walk us through that?

• 19:40Speaker 02

  Actually, this other part of the the other part of the Bitcoin data was unlocked in 2017 with segregated witness.

• 19:51David Hoffman?

  Segregated.

• 19:51Speaker 02

  Segregated witness. Witness stands for like segregating the witness data. And witness data is a strange word, but the easiest way to think about it is maybe like signatures on transactions are witnesses. So when we so in 2017, we wanted to increase the block size of Bitcoin. It was a big political push to increase the block size limit of Bitcoin. But we only really increased it for this witness data, these signatures. And the reason for that is that it's it's okay to have much more witness data in Bitcoin, because after you validated a signature, you know that a transaction is valid.

• 20:36Speaker 02

  And now you don't actually need to keep it on your full node anymore. You because you have validated, you could just say, OK, I know that this transaction was valid, I validated the signature. But after you you validated a signature, it doesn't really serve a purpose on your node anymore. So you can throw it away. Therefore, the witness part of the witness part of the data on the blockchain got segregated out from the regular data. And the the the big change here was that because this data can be pruned more, it can be pruned on full nodes without it stopping being a full node. We changed how much it costs to embed such data into the blockchain. So now there's a 4X discount for this type of witness data.

• 21:20Speaker 02

  So it's four times cheaper. We have something called a virtual byte. So even if you put if you put a 50 or let's say, put a 100 kilobyte file in the in the witness data of Bitcoin, it's going to get counted as if it's 25 kilobytes, because we discount. That's that's why it's called a witness discount. Segregated discount. We discount how much that data actually counts for, because it's not necessarily going to be on all full nodes forever. So we can allow that portion of the data to grow faster. So it's kind of like for Ethereum, I would say like it's kind of like blob space.

• 21:59Speaker 02

  You know, it's this part of the data, you know, in Ethereum with EIP 48, 44, we allow the block size of Ethereum to grow rapidly because that block space that we're increasing doesn't, it has nothing to do with execution. We're not validating that to any extent. It's just raw data and also it's getting thrown away. It's auto-pruned every two weeks. The, this witness data in Bitcoin is not auto-pruned necessarily, but you can manually prune it. So in that way, it is sort of similar to blob space in Ethereum.

• 22:36David Hoffman?

  Right. And it's really that the economic cost that's lowered that really unlocks the ability to more viably embed data into the chain. And I think Casey, that's where Ordinals really has found its, carved out its spot in the Bitcoin world, which is like, oh, there's this data that we can take advantage of that's cheaper than the rest of the data and that lets us do things. Casey, when, so this seems to have been, always been possible as soon as we had SegWit. When did the idea for Ordinals come to, come into your brain?

• 23:07Speaker 01

  Yeah, there are actually some other important advantages of Ordinals that we can get into. But just to say them really quick, it's that because Ordinals, because the Ordinals protocol can, these like made up stats can be stored in normal Bitcoin addresses and transacted with normal Bitcoin transactions and kind of sit in normal Bitcoin UTXOs. It means that there doesn't need to be a parallel infrastructure entirely for wallets and services. The Ord utility, it uses the Rust Bitcoin library, which is a great, just sort of standard Bitcoin library for its transaction construction and signing. And it also uses Bitcoin Core as the backend

• 23:50Speaker 01

  for its wallet for a lot of transaction, also some transaction construction and signing. And so I think that's the, that's another one of the big advantages. It's that it integrates a little bit more cleanly into Bitcoin. But yeah, that was an awesome summary by Eric. Everything totally, completely accurate. And yeah, like, so I started thinking about this in early, early 2022. I've done some generative art and I, I, I sort of saw that, you know, when NFTs got popular in 2017, I wasn't super interested. I just didn't see anything that really spoke to me or anything that like I could, you know,

• 24:33Speaker 01

  contribute to as a, as a creator. But then when I saw really, really cool algorithmic and generative NFTs start to get really popular, I thought like, man, like it would be awesome to be able to like make these myself. And I think I actually, I wrote a test ERC 721 contract. But for a variety of reasons, I didn't really feel like, like the tooling didn't strike me as very good. There are some sort of technical issues. So like every NFT on Ethereum is a separate smart contract. And so technically they can kind of have different properties. You need to audit them for security, for immutability.

• 25:15Speaker 01

  You need to audit them for where the content is stored. Some of them are, you know, totally secure, totally immutable, no backdoor keys, and content is stored on the Ethereum blockchain. Sort of going down in the tiers of like desirability for most collectors. You know, then there's things that are on IPFS, which are stored by hash. But IPFS is basically like BitTorrent and people can stop seeding content at any time. Systems like Arweave, you know, I don't want to get too mean or controversial or anything, but I, I'm not convinced by the economic incentives of those systems. And so as a result, I just sort of felt like I couldn't really be comfortable. Like I could make NFTs on Ethereum, but I couldn't necessarily be comfortable like encouraging people to buy them.

• 26:00Speaker 01

  And so I looked for a way to do it.

• 26:02David Hoffman?

  And that's just because the assurances that the data of the NFT could not be completely fulfilled because Ethereum couldn't host enough of that data?

• 26:12Speaker 01

  Um, so you, I could have put the data on chain. Sure, but that's really expensive, right? I could have made a contract without any upgrade keys. I would, would, would have been a little bit unhappy having people like have to audit the code. The way that, the way that NFTs are commonly sold on Ethereum and like, I'm, I'm fuzzy on this. So correct me if I'm wrong, is that, you know, when you sell an NFT on, on OpenSea, you give OpenSea permission to transfer your NFTs. So that being the standard by which NFTs are traded, also not very enthusiastic. It really wasn't any one thing. It was just sort of a, you know, loose collection of concerns.

• 26:57Speaker 01

  So then I, you know, I'm a Bitcoin developer. I used to be a Bitcoin Core contributor, although I'm honestly not exactly comfortable calling myself like a Bitcoin Core Dev, because I'm, I was a very minor one and that was a long time ago. And so I, I started to look for a way to do this on Bitcoin. So in early 2022, I just started noodling. And one technical difference, difference between Bitcoin and Ethereum is that Bitcoin uses the UTXO model. So a wallet is just kind of these collection of coins. And these coins, you know, they don't have any like permanent identity. They just kind of get created and then destroyed. And so for something like an NFT protocol where NFTs are like, are like permanent

• 27:42Speaker 01

  and they don't, they don't just go away when you like spend them, you know? They have to be transferable. That, that's when I started noodling on this like ordinals thing, this low level, this like trackable SATS. And I didn't know how exactly I was going to write the NFT part of the, part of the protocol. But yeah, so noodled on that for a long time. And when I, when I came up with the idea of making SATS trackable by this pretty simple algorithm, it's basically just you have these SATS on the input and you have the SATS on the outputs. And then you imagine that they just move in a straight line across. The first SAT of the first output is going to, input is going to the first SAT of the first input. Anything extra goes to fees and appears out of the Coinbase reward.

• 28:27Speaker 01

  And once I had that, like, all the pieces kind of came together very quickly. And so started writing an index initially, which could just track these sat locations and see if this algorithm was essentially tractable to use at all. And then started working on inscriptions, which is the sort of assigning content. I, like Eric said, it's always been possible to store arbitrary content on Bitcoin. It's just been inconvenient, you know? Op return has the size limit. You could do it in paid script hash, but there are these standardness limits. You could do it in SegWit scripts in the Witness, but there are these weird standardness limits there, too. And then Taproot, which I think was, went live at the end of 2021.

• 29:13Speaker 01

  That basically just removed all the, those standardness restrictions, which actually had not been there to specifically prevent arbitrary data from being published on the chain. There were actually things like, you know, if you're constructing a transaction, you don't want to run into one of these weird restrictions that all of a sudden makes your transaction like non-standard and can't be relayed. So, yeah, and then so the, came up with the construction for putting the content in the Witness, which is just a sort of like an op false, op if, and then a bunch of data pushes and an op end if. And that makes all the data pushes between the op if and the op end if just get ignored. So from Bitcoin's point of view, it's a no op.

• 29:57Speaker 01

  Yeah, and then, you know, come up with the assignment algorithm and the wallet and the block explorer where you can actually view these things. So, yeah, that is the rough timeline. And then I think we did a Signet release in like November of last year, and we got a lot of good testers and a lot of use. And then we did a mainnet release, I think it was January 20th of this year, 2023. And then like things just went absolutely insane. Like, it's been absolute madness, absolute chaos. And I think part of the reason, like, lots of memes, lots of pepe's. And one of the reasons that there's been so much chaos is additionally because of

• 30:37Speaker 01

  this, of this controversy, you know, is Bitcoin, should Bitcoin be used this way? Is the discount unfair? Is this an attack vector on Bitcoin? Is this an exploit? Like, all this. Drama has certainly propelled the project into the public eye.

• 30:56David Hoffman?

  Yeah, certainly. And I think that's where I kind of want to turn to this, turn the conversation to next. But one last question, when you, just to really clarify this, when you made ordinals, the intent was to be utility for art, right? Like it was an art-based project?

• 31:11Speaker 01

  That's, yeah, that's 100% correct. And actually, the ordinals protocol could be used for fungible tokens, you know, for ERC 20 style tokens, but it's actually not very good for that. It's pretty weird. It has a lot of weird details of how it works. I think you could do that. And if it gets really popular, it's actually can be a convenient way to do that. One nice thing is actually you can do these protocols semi-privately. So you can just, you and your friends can elect to give special meaning to some of these SATs and then track how they move. But then that special meaning doesn't need to be published to the chain. And you can all sort of agree the SAT ranges that you care about and where they are without having to reveal anything to the world.

• 31:56Speaker 01

  But to answer your question, yeah, like I'm, I don't really consider myself an artist. I make like programmer art. But yeah, I was really focused on how to do art and how to do, how to do this like NFT use case. Yeah.

• 32:12David Hoffman?

  So this is where I want to zoom out and get into the mindset of a Bitcoiner or very, the various flavors of Bitcoiners that you see out there. And so this is where I want to turn back to Eric and, and to unpack this story a little bit. We'll talk about to what degree this is offensive to all Bitcoiners or like how many Bitcoiners are offended by this. But Eric, putting, putting your offended Bitcoiner hat on, why, why is this, how does this violate Bitcoiner philosophy? Or, and can you just like tell the story?

• 32:46Speaker 02

  Yeah, I think it's it's pretty easy to to um for me to to express that because when I originally discovered the ordinal system, I myself thought that this doesn't sound like such a great idea. I had to think about it for two days until I came to the conclusion why it's not a bad idea. But the um the way to think about it is that like we've had issues with people trying to build non-financial use cases on top of Bitcoin since forever. And one thing that you can sort of think about, like, why would that be undesirable? Well, if you think about if you think about, um, what's it called?

• 33:27Speaker 02

  Um, bored ape drops on Ethereum and it just causes these fee surges. Like, that's one of the kind of problems that you have when there's demand for your block space that isn't tied to this financial use case. Um, but Satoshi himself was thinking-

• 33:44David Hoffman?

  So instead of us transferring Ether, paying each other with money, doing finance stuff, we're doing monkey pictures and that is uh crowding out the finance stuff? That's what you're trying to say?

• 33:53Speaker 02

  Yeah, it's causing volatility in the system that is not, uh, you know, as predictable as the the financial aspects of it. Um, but even Satoshi was initially thinking about creating creating E N S type systems on top of Bitcoin and it was called Bit D N S. And then I think it was Satoshi who decided that actually, let's create so uh let's let's create um another coin for it instead. Let's create Namecoin. And then we've been trying to create all these drive chains and side chains to Bitcoin so that we wouldn't have all this type of activity on top of Bitcoin just to keep the the Bitcoin protocol as uh uncomplex and as unencumbered by other incentives going on

• 34:37Speaker 02

  in the system because we sort of think that Bitcoin is uh too complex as as it already is. Um, so the the but the thing that did that that I the reason that I didn't like uh ordinals or inscriptions especially, actually, I think ordinals are kind of cool um in the sense that I I think one one thing that you describe very well on your blog, Casey, and that Dennis describes on his blog also very well is that, uh, you know, if you have a bunch of stocks in your in your in your brokerage account, now, uh, depending on like they look completely fungible in your brokerage account, but depending on- You know, you have this first in, first out principle. And that's how the taxman decides how much tax you pay.

• 35:22Speaker 02

  Based on like, are you selling the ones that you bought first? Or are you, so there's, there's queuing systems and there's just ways to think about like, all your stocks stacked together and are you taking it from the top of the stack with the bottom of the stack? That's sort of a great way to, to sort of understand the ordinal system that, that I think you described on your blog pretty well. But the, uh, the reason that I didn't like inscriptions and inscriptions to just repeat what Casey said. Inscriptions are the part when you embed these data blobs that are attached to specific satoshis that are getting tracked in the system.

• 35:58Speaker 01

  So called because you're inscribing, quote unquote, the sat.

• 36:02Speaker 02

  Yeah. And I suppose the thing that I didn't like is that, so I'm, um, I've grown over the years to actually appreciate NFTs a lot on Ethereum. And, uh, one of the things that I really do appreciate with an NFTs on Ethereum is that you can create these types of arbitrary, complex auction logics, uh, minting rules. And right now, for example, I'm doing, uh, one NFT project where I'm implementing a harbinger tax, which is like, uh, pretty amazing, uh, and undiscovered way of controlling ownership and incentivizing churn.

• 36:38Speaker 01

  Harbinger taxes are sick. Harbinger, the economists love them, man.

• 36:42Speaker 02

  Yeah. And you can do that on Ethereum, but I don't think that you can do that with, uh, ordinal inscription NFTs. So I kind of thought that Bitcoin, even though you can make NFTs on Bitcoin, you, you, the things that I like about NFTs are these programmable parts to it that make them, you know, more potentially more interesting. So I thought, you know, even though you can do it on Bitcoin, I mean, we should probably still be doing NFTs on Ethereum. And therefore I don't like that NFTs are now taking up space on, uh, Bitcoin. But I came to, um, I came to a different conclusion. Maybe I don't want to take up too much time going through how my own thought process went.

• 37:22Speaker 02

  Like, maybe we can go back to that, but I've since then come to the conclusion that, that actually ordinals are not bad for Bitcoin. If you want me to dig into it, I'm, I'm just gonna sort of stop here and give you a chance to, to interrupt.

• 37:38David Hoffman?

  Yeah, Casey, if you have any thoughts, go for it. I have a few more other topics I want to get to first before we get to that part of...

• 37:45Speaker 01

  No, totally, totally fair. And yeah, it's true. Like, the programmability of inscriptions and ordinals is very limited. I'm, you know, like, you can't just write arbitrary code and deploy it. And I'm, you know, I'm working on, for example, like, a trustless swap, which would let you do sort of these, like, trustless trades. And I have to, like, figure out how I can, like, line up the inputs and the outputs and use the different SIG hash flags to, like, get this very simple functionality working. So I'd say, you know, inscriptions probably occupy, like, a distinct market segment, you know, where they're not programmable, and so there are lots of things you can't do. I'm really stoked to see how the harbinger tax goes. That's something I've been thinking about for NFTs.

• 38:29Speaker 01

  And like, I just think it's awesome for people to start experimenting with things that are, you know, more incentive compatible, you know?

• 38:40David Hoffman?

  The philosophy that I've gathered is that there's this, there's this word that's gone around there, illegitimate Bitcoin transactions, as in, this is not legitimate. And I can't remember who it was. It was another Bitcoin leader, it's like...

• 38:53Speaker 02

  Yeah, Dennis, how do you pronounce his last name? Porto?

• 38:57Speaker 01

  Porto?

• 38:57Speaker 02

  Porto.

• 38:58Speaker 01

  Porto. Paul Fonsé?

• 39:01Speaker 02

  It's Dennis, anyway. He wrote, he wrote the blog post on ordinals that got me, you know, up to speed and interested in it. So that's sort of why, you know, I jumped in and started to transfer my Trump NFT cards onto the ordinal inscription systems instead.

• 39:21Speaker 01

  That was a big early inscription. That was a big boy. I noticed it.

• 39:25Speaker 02

  Yeah, it was the same guy, you know, correct me if I'm wrong, Casey, but I, what I heard is that the guy who made inscription number one, which is a dickbutt, is someone who looked at the ordinal system when it was sort of in... Beta, maybe on Signet and just hard forked it and deployed it on mainnet without you being ready for it. And then he made a dickbutt on mainnet using the ordinal system. So that was the same guy, yeah, that was the same guy that made the Trump NFT card for me using the ordinal system. Correct me if I'm wrong.

• 39:56Speaker 01

  Yeah, that's, no, yeah, that's roughly true. We had, it kind of didn't need any changes to be on Signet versus mainnet. It kind of worked with both. But we had this artificial limitation in the client that if you tried to run out on mainnet, it would complain. Because we didn't want people creating inscriptions that might get invalidated if we changed the protocol. Luckily, we never needed to change anything that would invalidate an old inscription. So all inscriptions that have been made on mainnet are valid and will continue to be valid. But yeah, so I made a test inscription to see how it works. And I was like, okay. And then like immediately like dickbutt. Like game developers have this term, it's a TTP, which stands for time to penis. And basically, it's the time between

• 40:39Speaker 01

  when a user like downloads or installs your game for the first time to the point that they are, can make another user look at a penis or penis like object, you know. And ordinals, the inscriptions, TTP catastrophically low. Instruction number one, second one is a dickbutt.

• 41:01Speaker 02

  We have to give a shout out to the guy who did it. His Twitter handle is rot13maxi.

• 41:07Speaker 01

  He's a G. He's awesome. Yeah, super great guy. Yeah.

• 41:11Speaker 02

  Agreed.

• 41:13David Hoffman?

  So the Bitcoin or philosophy, a Bitcoin or philosophy is that we want Bitcoin to only be about money. Monetary premium, monetary premium, monetary premium. And so that's what Bitcoin block space is preserved for. And if you put anything else in the Bitcoin block blockchain, that's not about transferring Bitcoins or using BTC as money, that's like quote unquote illegitimate. And I want to like pause and camp on this legitimate word. To you, Eric, what makes a legitimate Bitcoin transaction? And is this even a fair question to ask?

• 41:48Speaker 02

  Yeah, I think that you have the question slightly misframed because the thing that Bitcoin maximalists have been saying is that actually financial transactions are the most economically dense type of activity that will just bully everything else out, which isn't actually necessarily true. I mean, we have one Satoshi per byte fees, like the minimum possible, and it's all financial transactions. And now the fees are actually going up, and it's because of these

• 42:19Speaker 02

  dickbutt pictures are actually finally, you know, it might be possible that the dickbutts are saving the security budget problem for Bitcoin. Like the dickbutts may actually make it so that we don't need to increase the the number of coins in Bitcoins. So they may save the the problem, like dickbutts could be the solution, but the some part, some Bitcoiners are currently like very, you know, really don't want that kind of stuff because they believe that it's going to weigh down the chain and fill it with nonsensical data, which is which is also actually also an incorrect interpretation of what the long term consequences of ordinal inscriptions actually will be, in my opinion. But I would just wanna, and I think Casey also echoes this, that

• 43:04Speaker 02

  when we're talking about Bitcoiners and their, you know, distaste for ordinals and inscriptions, I actually did go to one of my, you know, most, you know, one of the Maxies that hates me, basically. And I said, you know, why don't you go to your community and just do a poll and see what do you think, like, what do you think about the ordinals inscriptions? And it wasn't like 90% hated ordinals or anything. Actually, 50% of people said if they pay the fee, it's fine. You know, a lot of Bitcoiners are libertarians. You know, there's maybe you could argue that Taproot made it very easy to embed arbitrary data onto Bitcoin.

• 43:45Speaker 02

  Sort of like a mistake. You have Luke Junior, for example, saying that people are lying and tricking the code. Because if you look at how Casey is inscribing data into these blocks, he's using this Tap script, which is basically like you have op codes and he has one op code that says OP false. And that that means that when Bitcoin, when that transaction is executing, the Bitcoin node doesn't actually even look at, it doesn't even actually execute the op codes that comes after OP false. So you can put tons of chunks in there. And also, Casey, you said that there are no restrictions or limitation whatsoever in Taproot.

• 44:27Speaker 02

  That is not necessarily true. There are still like a thousand stack. There are a thousand elements on the stack that that's a limit. And then there's also a 52 byte limit of each element. So, but you can circumvent that because you, because of the OP false op code, I'm going into the things that people are not going to understand.

• 44:49Speaker 01

  Let's go.

• 44:50Speaker 02

  Because of the OP false op code, Bitcoin doesn't even look at all the other stuff that's going on inside of that Tap script. So none of the other limits are actually triggered. So in my opinion, it is kind of an exploit in some way, in my opinion.

• 45:08Speaker 01

  Sure. Yeah. So very, very like, yeah, almost, almost totally correct. Like it's actually a 520 byte limit to each push and it applies even to unexecuted pushes. So that's why the body of a inscription, like the inscription content is chunked into 520 chunk pieces and then concatenated. And the 10,000 stack limit, that's also like just for the depth of the stack at any one time, like after an op code. So yeah, yeah, it is, it is a hack that it, yeah. And then there is the standardness limit, which is why, you know, the main block, that, that massive,

• 45:49Speaker 01

  single inscription block, which I was very surprised to see so soon. I was like, maybe that will happen eventually. But not now.

• 45:57Speaker 02

  You're talking about the four megabyte block that happened that had to be in collaboration with the miner, right? Because you can't broadcast those transactions on Bitcoin directly.

• 46:06Speaker 01

  That's right. Yeah, exactly right. Yeah, yeah. One interesting thing is actually the it looks like the op false, op if construction was actually anticipated by some of the authors of SegWit. Because what was it? They didn't want you using op push op drop, I think, which would be another way of pushing data and then, you know, removing it from the script so that it doesn't do anything. So one dev actually commented that when they were thinking about it, that like op false, op if would have been that would be the preferred way to stick data in. Now, that's not an endorsement. And yeah, whether it's I don't it's I wouldn't. Well, I think it's a hack in the sense of like a

• 46:50Speaker 01

  weird, technical thing that is a little inelegant, not really in the sense of hacking it and exploit. I don't know. That's up to it's up to the Bitcoin community to decide.

• 46:59Speaker 02

  Luke Junior says that you lie, then you trick the code. So I mean.

• 47:03Speaker 01

  That's right. Yeah, that's okay. I'll just go to a priest and say some Hail Marys or something and then hopefully it'll be okay.

• 47:10Speaker 02

  Peer charge said that every time you make an inscription, you have to apologize to your node. So there are those kinds of people. But to get back to the point is that 50% of even, you know, the people that follow hardcore Maxis are libertarian and think that, you know, if these are the consensus rules that we all agree to, then let people use that block space. So I don't actually think that there is a majority consensus for soft forking away the this tab script functionality or tab script exploit, or however you want to call it. The thing that made NFTs, big NFTs possible on Bitcoin. I don't think that there's consensus for that.

• 47:51Speaker 02

  I actually think that the most of the Bitcoiners in this case are actually. They have a fairly reasonable take. The only problem is that the sort of the high priests that we all have come to the trust and respect in Bitcoin, they've been very loud in saying like, we should, we should work with the miners and come up with ways to censor this. So they're giving, they're giving all Bitcoiners a very bad look. But the Bitcoiners underneath that, they don't, they're starting to see now actually that some of these people that we've respected for a long time in Bitcoin can have pretty, you know, not completely thought out ideas.

• 48:28Speaker 01

  Yeah.

• 48:29Speaker 02

  I need to, I need to back that statement up a little bit by also explaining why I don't think that NFTs on Bitcoin are such a bloated problem in order to make people understand why I say that. But that's going to take me like five minutes to explain. So I'll, I'll pause again and, and leave the, leave the word to you guys.

• 48:45Speaker 01

  Yeah, that's, that's totally right. And it's like, um, I, I run a, uh, help run a Bitcoin meetup in SF that meets once a month, tons of Bitcoiners show up. I go to a bunch of local Bay Area Bitcoin meetup events and like, most Bitcoiners think it's super fun. I mean, when I say most Bitcoiners, I'm just saying like the slice of Bitcoiners that I interact with in real life, they think it's fun, uh, or they don't really care. They're like, okay, whatever, you know, people are going to do things with Bitcoin that I like, don't really care about. Um, and so, yeah, it's been just a few, you know, um, I, well, I don't know a few, many people have been upset, but it's been, you know, one sort of weird maxi contingent, the toxic maxi contingent. And a lot of like, like you said, a lot of very weird takes from people who I feel like

• 49:30Speaker 01

  should kind of know better. Like, I mean, the, like the miners should censor it is like kind of weird because one would think that miners would be incentivized to include such transactions and collect the fees. And then miners sort of attempting to set a higher fee rate for certain transactions implies a level of, if you just try to do it naively, it implies a certain level of collusion between miners to agree to enforce this policy and essentially not undercut each other by, by doing this. So, uh, yeah, it just goes to show that like the Bitcoin community is, uh, hopefully diverse, hopefully fractured, a lot of people have a lot of different, different opinions.

• 50:11Speaker 02

  Yeah, and I'll offer like, I'll offer a prediction on top of that, which is that if you can make a full block, like a four megabyte NFT, which we've seen, the one we saw was 3.94 megabytes that we that we saw.

• 50:25Speaker 01

  Yeah, I noticed it had two extra transactions in it. I was like, guys, come on, you gotta make it the whole block.

• 50:30Speaker 02

  I think in this case, you know, they were, they were probably trying to get there first. And also, if you look in a Block Explorer, you can sort of see how this giant ordinal inscription just squeezes these tiny, tiny others. So maybe they did it to just show the scale, just show like, this is how big.

• 50:47Speaker 01

  Banana for scale kind of thing.

• 50:49Speaker 02

  Yeah, yeah, maybe that's why they did it.

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• 52:16David Hoffman?

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• 53:53Speaker 02

  This is what you were talking about, right, Eric? Where we have this just... Oh, yeah, yeah, yeah, sorry. Yeah, yeah, I was gonna make, yeah, I was gonna make a prediction about this. So if you look at that block, if you look at the fee, it says that it's zero, um, zero Satoshi. Like it doesn't, didn't pay any fee, that transaction. So why did a miner include it? Well... If you think about it, well, the miner had to receive some, and this is actually good, that the miner must have been paid out of band. So they got paid, you know, from the, from the, they got paid in a different channel. Just, they said, probably said, you know, "Send some bitcoins to this wallet and we'll mine this huge ass NFT for you."

• 54:35Speaker 02

  And they had to go directly to the miner to make this happen, because otherwise the standardness rules, the policy rules, would have rejected it. So the miners are in a unique position where they can include these giant, giant inscriptions that take up entire blocks. And that's so special, that's such an exclusive, such an exclusive thing, that I think that this miner could have asked for, you know, usually, a week ago, people would pay in total in transaction fees, like $1,200. And what do you think, like, if you're an Ethereum project or an NFT project and you wanna make one block, one giant NFT, I think that you could charge, for sure, $10,000 for

• 55:19Speaker 02

  it, $20,000 for it, you could charge maybe $50,000 to put that in a single block. And if that's the case, if you put a, if you put a huge transaction like this, and you create a giant, if you put also a giant transaction fee on top of it, then you actually screw up the game theory of the Bitcoin blockchain, because these miners are gonna start to reorg each other's blocks just to include the transaction, which is why it's much better that the people who do offer this payment for the inclusion of the NFT, they go directly to the miner. They pay the miner, here's the money, and then we can't, because then, like, there's no point of reorging out that big NFT by another miner, because it has zero satoshis per byte.

• 56:01Speaker 02

  So this is actually a game theoretically safer way to include those large transactions. And all the people that are saying now that, you know, "We have a four megabyte block and it pays almost nothing in fees," they just don't understand the relationships between the NFT artist and the miner, and that it has to be out of band to preserve the game theoretical properties of Bitcoin. And I think this miner, that it looks sore. They've just invented a new business model. There are going to be people that are lining up to get full block inscriptions. And they're going to be able to charge 10,000, 20,000, 50,000, uh, uh, uh, $1,000 per, per, uh, full block NFTs.

• 56:45Speaker 02

  And they're actually going to start to outcompete other miners because they're making it, they're making so much more money. While the other miners are making like 2,000, $3,000 per, per block in transaction fees. Luxor could make 20, 30, 40,000 per block. So they could, uh, they've just, like, the whole game, the entire game of Bitcoin mining has just changed forever with this. So congratulations, Casey. You just changed the game for Bitcoin.

• 57:10Speaker 01

  Wasn't expecting it to happen. Yeah, I think if, I think if certain miners were, if this became common enough that certain miners were making more money, we'd have to think about like, what is the game theory of that reorging? And possibly consider lifting the 400,000 weight unit standardness limit. So that these could just be in the mem pool. Just because like, it would mean that, um, well, like if some pool has 1% of the hash rate, maybe you won't bother trying to get them to accept your, you won't even go to them when you want to mine your 4-meg block. Um, and so that would mean that the more, the pools with more hash rate would maybe get a disproportionate amount of the revenue. And we probably don't want that. So it, it might turn into a question of whether that 400,000 weight unit standardness rule is lifted

• 57:55Speaker 01

  so that these can just be in the, in the normal mem pool. And it's an interesting question about that, um, reorg attack. Because it is true that very, very large transactions, not only that, they also create an all or nothing kind of situation where you can include that transaction or you can include all the other transactions that are waiting. You have to select from both of them. So it reduces the cost a little bit of like, kind of incentivizing miners to mine junk, you know? But yeah, many, many interesting questions. I can't believe that things are heating up like this.

• 58:31David Hoffman?

  The really interesting thing I think about this is, of course, the fee market and Bitcoin's sustainability model. Eric, you were talking about how this fixes the fee market problem. A lot of some Bitcoin maxis, the archetype of Bitcoin maxis that I have in my head, actually deny the problem of the fee market in the first place. And so, does this, will this argument even work on them if they can't even admit that the Bitcoin might not actually have a sustainable long-term security structure? Have you had any of these conversations?

• 59:04Speaker 02

  I mean, I'll try to say this in the nicest ways possible, but if you don't think that you need a fee market in order to incentivize the security of Bitcoin, I'm not sure if you're qualified to participate in the conversation. I don't know how to say that. I don't know how to say it in a nicer way. That's like, it's not a well-reasoned argument that I even feel like it has to be addressed. I don't know how you feel, Casey. Is there any way that you can steelman that argument that we don't need fees in Bitcoin, it'll be safe? I just don't understand how you're even supposed to understand such a weird argument.

• 59:41Speaker 01

  Yeah, I think I can probably steelman, like, maybe like, the most reasonable version of that is like, well, like, there are a lot of low-fee proof-of-work chains that like, don't have much fees and like, those don't seem to really get...

• 59:58Speaker 02

  But they have issuance. This is, we're talking about post-issuance, so there's no...

• 1:00:01Speaker 01

  Yeah, but that issuance is very, I mean, no fees, the issuance is worth very little if it's, you know, some altcoin. But like, but that is, I don't really think that I can steelman this argument because like, listen, like, as the subsidy is declining, it's getting cut in half every four years, it's going to go to nothing faster than people think. People say like, oh, you know, it's 120 years before we have to work, worry about the subsidy declining. Listen, in 120 years, for the last four years, the subsidy is going to be one sat per byte. Like one sat per block, like this is not going to provide any security budget.

• 1:00:41Speaker 01

  Although ordinals give SATS names, A through Z, and the last, the names get shorter as they go on. So the last 26 SATS to be mined will be Z through A. So maybe that will help compensate. But assuming that people don't go crazy for like rare and exotic SATS. Yeah, we need a fee market. There's, there's just no way that Bitcoin long-term can survive without a fee market. And you know, like anybody who's very religious kind of about anything, not to pick on religious, but if you're like a fundamentalist about something and you just think like Bitcoin is perfect and it, it does not have any problems and sort of you just deny any hawk of problems.

• 1:01:24Speaker 01

  I mean, it's just not a constructive viewpoint that you can really engage with successfully.

• 1:01:31David Hoffman?

  So this all happened in this last month, which is crazy. This is the, one of the first, like, if you call this a Bitcoin app, Bitcoin apps I've seen adopted so quickly, so, so just fervently. And, and then it's, we've already seen like the fees actually start to show up on, on Bitcoin, the additional block space demand. And so this is why this captured mine and Ryan's attention is like, oh, like block space demand, that's, that's like block space demand is a paradigm that Ryan and I live by. And now I'm seeing this like have this use case on Bitcoin that's creating block space demand, but it's only been a month, you know, it's only been a month. Maybe this is just a flash in the pan. Maybe this is just like, hey, this is a fun meme. Let's put dick butts on Bitcoin. We can laugh about that. That's a good joke.

• 1:02:14David Hoffman?

  Eric, how like sustainable do you think this is? Like, do you think like, yo, we've perhaps fixed the Bitcoin fee structure? Or is this like, eh, this is a more of a philosophical conversation at this point? We'll see how this plays out. Like, kind of where are you on the spectrum of like how serious this is?

• 1:02:30Speaker 02

  No, I mean, it's 100% early days. We don't know how this is going to play out. I think that we've just added a new sort of natural source of demand for Bitcoin's block space. And I think that that's good, but I am, the, the one thing that still irks me a little bit is that I do think that. Andrew Poulstra had this blog, this mail on the Bitcoin mailing list where he warned about volatility, like transaction fee volatility. You know, we already have, we already, we've already seen that scarcity pricing is a real thing. And even without NFTs, fees can go up and down extremely fast.

• 1:03:14Speaker 02

  So I think, you know, what it might actually accelerate is that Bitcoiners are thinking about, actually, can we burn some of the transaction fees when the, when the fees are really high and then just have like a constant low inflation instead of, we're sort of pushing ourselves through reinventing EIP 1559. That might be the outcome and that would be, I think, a better outcome than having no solution at all to the, to the security budget problem. So more fees are definitely good if we can harmonize them over time and we know from Ethereum that we can. I think that if we just figure out how to harmonize those fees that we are amassing through NFTs, then it's going to be a net good.

• 1:03:58David Hoffman?

  So if we keep on leaning into this worst, worst maximum case scenario is every single block is four megabytes. Eric, you talked about how this actually doesn't present a bloat problem. Can you walk us through that?

• 1:04:10Speaker 02

  Yeah, so this is actually kind of, kind of funny. I'll, I'll try to explain it in the, it's a pretty complicated topic to understand, but I'll try to, I'll try to be pedagogical or like I'll try, I'll try to explain it in a simple way. So the first time that you hear about NFTs on Bitcoin, you're sort of like, haha, NFTs on Bitcoin, that's, that's dumb or that's funny. And then the next question is, the next, the next thought you have is probably. NFTs shouldn't be on Bitcoin. Bitcoin is for transactions, right? And then the third question that you have, the third thought that you have is actually,

• 1:04:53Speaker 02

  you know, it's not true that you can't really bloat the Bitcoin chain in any way because there are block size limits. Every block has a limit that we have agreed on that no matter how this block is filled, we are OK with this limit. Like, that's what the block size limit is for. We set a block size limit so that over time, the Bitcoin node wouldn't become unwieldy to sync. So it's not a matter of, you know, weighing the Bitcoin blockchain down with all these NFTs. It's just a matter of what type of content are going to be inside of those blocks. So it's a matter of what type of content is inside of Bitcoin, not how much we're weighing it down.

• 1:05:37Speaker 02

  OK, so now you've become a little bit smarter. You're understanding that we're not breaking the block size limit of Bitcoin or anything. Now, you can have another thought, which is that actually, though, when you're leveraging TapScript in this way that Casey has sort of invented, you, this is pretty difficult to understand, but in most Bitcoin blocks, most Bitcoin blocks are not actually four megabytes. And it's not because there are not enough transactions. It's because only the witness data is allowed to fill out the block up to four megabytes. There's a base block in Bitcoin that has a one megabyte limit. And then there's the witness data has, in total, a four megabyte limit.

• 1:06:22Speaker 02

  So when you're doing Casey's thing, inscriptions, then you can really max out these blocks because you're using the TapScript witness data. So if people are doing inscriptions, it might become more common that we see four megabyte blocks. So now you're back to the idea that actually we are making the Bitcoin block heavier to download. But, OK, so stay with me. Try to follow me a little bit more. I'm soon done. So now the next realization that you're going to have is that But what is the reason that witness data is cheaper on Bitcoin? There's actually a reason for that. And it's because witness data is something that after you validate it, you can throw it away, you can prune it.

• 1:07:07Speaker 02

  So it doesn't have to stay on the node forever. Now, there's yet another thing in that context that you also have to think about, which is that there's something called assume valid. David, have you ever heard of assume valid? Casey, do you know what assume valid is?

• 1:07:22David Hoffman?

  I know the op code, but I don't know what it does.

• 1:07:24Speaker 01

  Yep, sure.

• 1:07:26Speaker 02

  Assume valid was a pretty controversial configuration setting that was incorporated in Bitcoin Core not that many years ago. I think it was maybe like 2018 or something like that. Which, what the assume valid option does, which is now the default in Bitcoin, is that when you're syncing a Bitcoin node for the first time, assume valid assumes that the signatures up until a certain block height are valid. So you download them, but you don't actually validate them. And then only after a specific block, let's say halfway in, then you start to validate signatures. This is a way that they sped up.

• 1:08:08David Hoffman?

  It sounds like checkpointing.

• 1:08:10Speaker 02

  It sounds like checkpointing, but it is different because it doesn't happen. It happens every time that, well, it happens in, when Bitcoin Core releases new clients, there's a new checkpoint inside that. So it doesn't come like every, you know, every 20th block it automatically checkpoints. It comes from the release cycle, which means that the developers are looking at which block are actually getting assumed valid in the config. But what we've noticed is that they...

• 1:08:39David Hoffman?

  Manual checkpointing?

• 1:08:41Speaker 02

  Yeah, so it's manual checkpointing by the developers in the release cycle. And then the people that are in stock.

• 1:08:45Speaker 01

  For technical reasons, it's not quite checkpointing. Like, I don't think that, for example, Bitcoin Core will neglect another valid chain because it does not have the checkpointed block. For example...

• 1:09:00Speaker 02

  Yeah, so it's more of a soft checkpoint. And also, it still checks that all the balances and stuff like that adds up. It just skips the signature validation. So assume valid is much safer than a checkpoint. However, they keep moving this assume valid checkpoint, or whatever you want to call it, forward. So the last time they did it was only five months ago. So now we come to the final conclusion here, that if more of the Bitcoin data is getting gobbled up by inscriptions, which is witness data, which is more easy to prune,

• 1:09:42Speaker 02

  and you don't validate it in most situations, you just download it. It's like, the blockchain will consist of more blob space than regular space, which makes the node actually easier to sync, because it has a higher concentration of blob space that you can actually prune. So the node that you actually have to store at the end of the day will be smaller in bytes, because you can prune the witness data. And it might even be faster to sync, because you don't have to do any computation on all these inscriptions. So when people are saying this is making it more difficult for people in Africa to sync a node, actually, it could be completely so that it's the opposite, that it is actually making the node leaner.

• 1:10:26Speaker 02

  And at the same time, it is increasing the security budget, which makes the system more secure. Boom. Okay.

• 1:10:33Speaker 01

  Yeah, that's the final galaxy brain take, you know?

• 1:10:37David Hoffman?

  Right. I love that. I want to try and summarize this. Okay, so we have a way to create block space demand. The additional utility plugs right into Bitcoin. No hard fork needed. It's already up and running. So we have potentially a way to consume block space that generates block space demand, which pays for miners to pay for security. In addition to that, Eric, what you're saying is that all of this extra data that's going into a Bitcoin block doesn't need to be validated, because they're not transferring Bitcoin. Bitcoins, they're not transferring Satoshis around. We're just adding in data into the chain. And so because of this mechanism of assume valid, you actually don't have to do the computational processing

• 1:11:22David Hoffman?

  to make sure that all these Bitcoin transfers are valid or not, because they're not Bitcoin transfers. And so the consumption of Bitcoin block space to do crazy NFT stuff is actually not a burden on node requirements. And so you're actually, because you don't have to do the computation to validate the NFT, the more NFT data is in the block, the less computational overhead there is per block. And so boom, we've solved, perhaps solved, Bitcoin's block space demand problem, while also making the chain more manageable by nodes globally across the world. Is that a fair summary?

• 1:12:02Speaker 02

  Yes, except for one tiny, tiny little nitpick, which is that the four megabyte blocks, you actually still have to download it. It's less computationally intense to validate, because you don't validate most of it. If it's this four megabyte block that we just saw, that's, you don't have to, there's nothing to validate at all, except like the proof of work header in the header hash. But you do have to download more data. But after you download it, you can throw it away. So you download, it does increase how much you have to download when you're doing your first full node sync. But, I mean-

• 1:12:38David Hoffman?

  Bandwidth goes up, bandwidth requirements goes up, CPU requirements goes down.

• 1:12:43Speaker 02

  Exactly, exactly. But on the whole, I would say, on the whole, I would say, because you then prune it, you can throw it away. If you combine pruning with skipping the computation and then you add a little bit more data that needs to be downloaded, but it's still within the bounds of the block size limit. I think all in all, it does create a linear node.

• 1:13:09Speaker 01

  Yeah, like people miss the fact that a full node uses many resources when it's downloading and validating the blockchain. They tend to focus on the size of the data being downloaded and bandwidth, the amount of data that you need to download, and disk space, the amount of data that you need to store to disk. But for example, signature verification is very expensive, and a huge amount of the capacity constraints of Bitcoin come from needing to keep signature verification fast during initial block download, so you can verify everything that you need. And for example, inscriptions don't contribute to that signature verification budget. And then you could imagine, and this is an upgrade that is not on the

• 1:13:54Speaker 01

  table now, nobody's proposing it, but you could imagine an upgrade that would let full nodes just not download witnesses at all at some point in the future. The witnesses are segregated in the block, so they're elsewhere in a separate Merkle tree, and you could have an upgrade which said, okay, any witnesses that are older than a year or older than this many Bitcoin Core releases, we're just not going to download them. And I wouldn't want to say whether these are full nodes or not, but these represent a reasonable security compromise.

• 1:14:26Speaker 02

  I'd say we don't have full nodes in Bitcoin anymore ever since we introduced the assume valid flag as a default.

• 1:14:33Speaker 01

  That's a philosophical thing that I can't vouch for. I mean, yeah, it's a different security trade-off, and some people run without the assume valid flag. But yeah, this would give us an additional security trade-off, and it would mean that you didn't even have to download this old witness data. And the people who cared about the rare pepe's, they would be free to continue downloading and storing and archiving all the rare pepe's on there in the witnesses. And it might even be that bandwidth and disk space no longer becomes a concern for most nodes.

• 1:15:08Speaker 02

  But the thing that I think that you need to take away from this is that you saw that, you know, me walking through the realizations and the twists and the turns and then the Galaxy Brain take at the end. What's happening currently in the Bitcoin discussion is that this thing is very new to a lot of people that haven't thought about this issue perhaps for some time, and they are therefore at different layers, they are at different stages. And you saw how much disagreement there are. Like in one realization, you're like, oh, actually, this does create more both. And then the next realization is, actually, it doesn't. And so people are going to be in different steps of the ladder, and they're going to yell at each other. And I don't know if they're ever going to, all of them,

• 1:15:50Speaker 02

  reach the Galaxy Brain take, but let's hope that we, with this podcast, contribute to some of that today.

• 1:15:58David Hoffman?

  Absolutely. And I know I have been branded, probably my fault, as a Bitcoin hater, but as soon as something like this shows up, I get really excited because it starts to check some of the boxes that I want to see in cryptoeconomic systems that I hope stand the test of time. So I definitely agree with that, Eric, that I hope that this podcast can help produce some of these outcomes. The last topic of conversation, I want to start with this particular inscription, inscription 466. This warms my heart because one of my first introductions into video games was playing Doom while sitting on my dad's lap, pressing the spacebar. And this is Doom in Bitcoin. I don't know.

• 1:16:39Speaker 02

  But how do you shoot?

• 1:16:40David Hoffman?

  I don't remember.

• 1:16:41Speaker 02

  How do you shoot?

• 1:16:41David Hoffman?

  I don't know how to.

• 1:16:42Speaker 01

  So the thing is, is that it's in an iframe. We sandbox all the iframes to keep everything on-chain. So if you scroll down, there should be a preview or a content link. Both of those should work, and that will give you like a fullscreen preview. No, no, yeah, either of those.

• 1:17:02David Hoffman?

  Okay.

• 1:17:05David Hoffman?

  Okay, we're gonna do this again.

• 1:17:06Speaker 01

  And so yeah, now you have WASD. You might have to click a little bit to get in there. Yeah, the the inscriptions content model is is very compatible with the web. So we're adding as many content types as we can can do it. We just, yeah, this is insane. I was at the SF Bitcoin Devs meetup, like presenting on inscriptions. And I was playing a snake, like a snake game that somebody uploaded while I was answering questions about how the system works. It may have been the coolest moment of my entire life.

• 1:17:38Speaker 02

  And how many kilobytes? This is like 300 kilobytes or something like that, or even less?

• 1:17:42Speaker 01

  Oh, I don't know. Yeah, this could be very small. I mean, you know, there's a lot of, a lot of the stuff in here is like generative. It's like algorithmic, like shaders and lighting and stuff. And I don't see very many textures. So I don't think this one was non-standard, which would mean that it's below the 400 kilobyte limit.

• 1:17:58Speaker 02

  I'm sure, I'm sure that it's smaller than the 400 kilobyte limit. But it's just so cool to remember how, like when, when computers were limited, how clever you had to be and how small actually you can make these games. So they actually fit inside like a single transaction in Bitcoin.

• 1:18:15Speaker 01

  Yeah, there's a lot of fun stuff for people to explore. Like, obviously, we support like PNGs, JPGs, all the normal content types, but also HTML and SVG. And you need to, it's basically just HTML and SVG. We sandbox everything, so you can't make outgoing web requests when that content is loaded on the server, which means that everything you see is guaranteed to be on-chain. And there's, it's just so much fun to play with. And like, I'm a big fan of early computer art, you know, like the demo scene and those days when you had to really like scrounge for bytes. I can't wait to see how people, you know, like just exploit the browser standards, write crazy HTML, JS and CSS.

• 1:18:58Speaker 01

  And we haven't done it yet, but what we're gonna do is we're actually gonna relax the sandbox that this content runs in, so that you can publish resources in one inscription and then reference them in the HTML or SVG of a future inscription. So you can actually kind of create this on-chain content library that you can remix inscriptions and you can essentially publish entire, entire websites. Now, obviously, the space will be at a premium, but I think it could be a really cool sort of recursive composable.

• 1:19:32Speaker 01

  Ecosystem of of content.

• 1:19:35David Hoffman?

  Yeah. And so before I got distracted by playing Doom on Bitcoin, this is kind of leads into the question I was going to ask is, you know, putting Doom on Bitcoin. First, it was putting dick butts on Bitcoin. Great. The time to dick is all time lows.

• 1:19:50Speaker 01

  TTP, time to penis.

• 1:19:52David Hoffman?

  Time to penis, excuse me. And then we put like Luke dash juniors. Don't do this request on Bitcoin.

• 1:20:01Speaker 01

  Can I just say to the haters that if you really don't like inscriptions and you really think that people shouldn't do it, like, don't mention it. Don't tweet to your like 200,000 followers that you should not put monkeys on the blockchain like they're just going to put monkeys on the blockchain. Like, just.

• 1:20:18David Hoffman?

  But then, like, so we get past that phase. And then now, and then we're at the phase of like, yo, we can put Doom on Bitcoin. And I just got distracted playing Doom on Bitcoin. And then you, Casey, just talked about like, hey, there's like, people can do more things. And I think, hopefully, you know, once upon a time, Ethereum had ICOs, and they were bad and terrible. And then they matured into DAOs and yield farming. And so like, things in this space, like, and all development has nothing to do with crypto. All development matures and progresses as we experiment and iterate. And so maybe I can leave this as an open ended question, a question for the listener to imagine about. But we've unlocked something here on Bitcoin, and we don't know

• 1:20:59David Hoffman?

  what yet to do with it. But people are like, knowing crypto, people are going to play around, and they're going to try stuff. And maybe we bring like, unlock some vast green new field over in Bitcoin land that unlocks a new use case that both fixes blocks the fee issue on Bitcoin and makes easier Bitcoin, you know, easier blockchain to run.

• 1:21:23Speaker 01

  And hopefully, more fun. Bitcoin is starved for fun.

• 1:21:27David Hoffman?

  Hmm, 100%. Eric, do you have any comments on that?

• 1:21:30Speaker 02

  Yeah, no, I agree that Bitcoin is finally, once again, fun again. Do you guys remember that subreddit had a logo with a wizard? Like that said, you know, "Join us, Magic Internet Money." Yeah, so if you look at that block that took up four megabytes, that was actually the wizard. Actually, it was a bald wizard because the whole story is that people were... Like, you know, Udi has been... Udi Vertheimer has been trolling about Taproot not having any use case except as the butt of his jokes. So people sort of responded by putting Udi's worst Luna takes and FTX takes as inscriptions in the ordinal systems.

• 1:22:13Speaker 02

  And then Udi responded by making this four-megabyte block where he made TaprootWizards.com. And it tries to reignite the spirit of having fun with Bitcoin again. And actually, I just, like, one hour before I jumped on this podcast, I got the second, like, wizard that was made. So now my profile picture...

• 1:22:37David Hoffman?

  Do you know the inscription number?

• 1:22:39Speaker 02

  My inscription number is 1107. And Udi's is, I think, 652.

• 1:22:47Speaker 01

  And if you want to filter inscriptions from your Bitcoin corn node, you can check out inscription666, which is a patch that Luke Dash Jr. wrote to filter your inscription. So very handy to be able to reference these things.

• 1:23:02David Hoffman?

  How do I search by ordinal number?

• 1:23:04Speaker 01

  It's inscription number. Currently, we don't actually surface a URL to do that because they're unstable. We can't stabilize them. You can actually type ordinals.com/inscriptions/theinscriptionnumber, and that will give you the inscriptions list starting with that inscription. So it'll be the first one.

• 1:23:24David Hoffman?

  Ah, okay. So Eric, here is your inscription number. I'm gonna put it on screen here. I think it's, hopefully, it's this one.

• 1:23:32Speaker 01

  And there's a nascent market forming for these things? Like, the level of degeneracy is extremely high. Like, it's insane. People are selling, like, just... Yeah, so I don't know how this is gonna turn out.

• 1:23:50David Hoffman?

  Well, I think we can, we can end it there unless you guys have any other additional things to say. Here's Eric's inscription number with, "Oh, we got some tungsten cubes. We got the rainbow. We got the Bitcoin wizard."

• 1:24:00Speaker 01

  Let me do the mandatory podcast guest chilling. So like, yeah, like check out the project at ordinals.com. That's the Block Explorer. You can get the wallet at github.com/kc/ord. Great opportunity to learn how to run a full node because you need to run it. I have a much less professional podcast called The Hell Money Podcast. Oh, yeah. Yeah, you can do it. Yeah, yeah, yeah, yeah. It's on YouTube, hellpodcast.money. Me and my friend Aaron, we do it. Hopefully, like, we sort of bring the fun to Bitcoin a little bit. Shout out to Burya Bitcoiners

• 1:24:40Speaker 01

  and SF Bitcoin devs. If you want to come hear about me ramble more about inscriptions in person, you should come to the SF Bitcoin devs or the Burya Bitcoin meetup. And that's it for me. I just want to see what happens. I'm really happy to contribute a sort of an interesting medium, an interesting digital art medium for people to explore and find the, find the boundaries of.

• 1:25:06David Hoffman?

  And Bankless listeners can get all of those resources. I'm sharing them on screen along with Casey's Twitter profile here at Rodarmor, O-R-D-A-R-M-O-R. That's Casey's Twitter handle. And he looks like he's got all of his links over on his Twitter bio as well. And of course, our, thank you, Eric, once again, for tapping in to be my Bitcoiner technical co-host. Much appreciated all the way through and through. You can follow Eric at E-R-C-W-L on Twitter. Casey, Eric, thank you both for coming and helping me walk me through NFTs on Bitcoin.

• 1:25:40Speaker 01

  Thanks so much for having me. Awesome conversation.

• 1:25:42Speaker 02

  Thanks so much, David. Yeah, it was fun. Thanks a lot.

• 1:25:44David Hoffman?

  Cheers. And like always, Bankless Nation, crypto is risky, Bitcoin is risky, ETH is risky, NFTs on Bitcoin perhaps also risky, who knows, but maybe we fix the fee subsidy, so maybe less risk? I don't know. We'll find out. This is the journey west. We're on the frontier. I'm glad you are with us on the Bankless journey. Thanks a lot. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence.

• 1:26:16David Hoffman?

  We recommend joining our daily newsletter, podcast and community as a Bankless Premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks and exclusive content and even the Bankless token for airdrops, raffles and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless Premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anything's and weekly rollups where we summarize the week in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless Nation.