Bitcoin Ordinals Odyssey: Navigating Controversy, Embracing Prominence | KBW2023

thank you everybody um you know uh by the way Eric is it like Mr wall or is it like whizard whiz whiz wall what is your like your preferred you can call me uh tap Roo wizard number two Tapo wizard number two yes and Trevor you know you're the founder of a ninja nft project but you're not wearing anything ninja related yeah that was a big Miss I apologize on that guys and I I let all of our future holders down you let the ninja Community down well this panel is a I think really exciting to delve into a topic that has been underexplored at Korea blockchain week which is Bitcoin uh this is one of the first Bitcoin panels that there has ever been at Korea blockchain week and today we're going to be discussing ordinals ordinals and building on top of Bitcoin which a lot of folks think that Bitcoin is this old Boomer chain that can't do a lot and it's this sort of uh golden brick where you just can't do much with it but store value in it and that's not true and that uh I think became very apparent with the excitement and energy around ordinals earlier this year so Eric I want to start off with a question to you A lot of people here probably know about nfts on top of ethereum and salana are ordinals nfts on top of Bitcoin or or what are they exactly and can you explain it kind of in a not super technical way but a a simple way well uh ordinals are technically very similar to nfts they are a digital asset that you can own own there's a uniqueness to them you transfer them around on a blockchain you can send them to someone else's address and they send them with a private key so in that sense uh yes there are nfts uh but the primary distinction between Bitcoin ordinals and and other nfts is that when you put when when you take uh a JPEG like a digital photo and you put it as a image on top of Bitcoin you actually serialize all the bytes in that JPEG file and you put it onto the Bitcoin blockchain all right so nfts so ordinals on bitcoin the actual asset is on the Chain no ipfs file exactly so maybe you've seen like you're you bought some nft in a in a ethereum project and one day on openc all the pictures change they're like oh we updated the art now because all the art the actual art the actual asset is hosted offchain and the ethereum nfts linked to them with like an ipfs link or a regular web 2 Link but in the ordinal case what made it popular is that we actually put the byes the uh bite information representing each jpeg inside the chain itself so those jpegs those nfts will live as long as Bitcoin lives which you can't say for like other um other nft projects so they're more valuable in the sense that they remain on the world's most distributed uh Data Bank in a sense that's harder hardest to tamper with I appreciate that explanation and Trevor is it just jpegs that you can put on the Bitcoin blockchain using ordinals or is it other types of assets graph like other types of files as well yeah so I think one of the mistakes that people make when they look at ordinals is just to think that this is only jpegs or nfts on bitcoin um I think people make the same mistake on ethereum as well I think that the pfps are a toy use case of a fundamental type of asset which is nfts but on bitcoin it's actually even more profound because it's not just about a new type of asset on bitcoin it's also a new paradigm of building applications and so what Casey rodmar discovered is that you can introduce node software that anyone can choose to run that can add new functionality to bitcoin and that an ecosystem can be built around it like wallets like infrastructure apis marketplaces and the unique thing about ordinals is that it is sufficiently secure with just indexers and so it's this new paradigm of introducing smart contract like functionality you can't get all the way as you can on ethereum at least it doesn't appear so people are trying um but you can get at least new kinds of assets using indexers and you don't have to have the indexers to talk to each other and have a consensus among each other because it's relatively low low risk especially with ordinals and so the key Point here is that this is a whole new paradigm of using Bitcoin block space to store arbitrary data and then build applications by indexing the data afterwards and I think that we're finding all new types of things that people can build on bitcoin using this Paradigm and and what it's doing is it's making Bitcoin uh it's raising the fee rate on bitcoin by making block space more in demand which ultimately solves the security budget issue for Bitcoin when we have the security budget of the coinbase reward going to disappear eventually we have the having coming up in April of next year which means that the amount of the Bitcoin reward is going to go down by half meaning that miners are going to be less profitable and they won't be able to afford the same l in infrastructure because people are not using Bitcoin enough and ordinal provides a new way to give people something to do with Bitcoin and also increase the fees making Bitcoin uh more secure and sustainable in the long term yeah I think the uh the the meme is that we uh oops we accidentally solved our security budget problem you know so um I think what is it uh 50 or 70% of all Bitcoin transactions are now ordinals transactions is it is that an accurate number sounds sounds pretty accurate yeah yeah so in terms of utility on top of Bitcoin or at least interest in use ordinals have become immensely popular um you know Eric I want to kick it back to you outside of jpegs like can you come up with some real life example something tangible of how else we would you know use data on top of Bitcoin well I think we have to pay respects to the ethereum community because if you look at arbitrum starnet optimism ZK sync all all layer 2 Solutions on ethereum today stem from the realization that you can observe the base layer as a place for arbitrary data storage and what this gives you it because inserting arbitrary data that doesn't needs to get executed there's no signatures to verify it's just here's a data blob I want to put it on the main chain that's what ethereum layer 2 Solutions do with when they're dumping their transactional data from from from an ethereum layer to they put it in into something called call data that's the cheapest way to store bytes on ethereum is to put it in the call data that means bytes that don't get executed there's no verification that is done on it it's just arbitrary data then so the so the so the Bas layer is basically just this data bank right and then all the exciting stuff all the execution all the state everything that giving it context giving it meaning creating state different accounts different balances all of that can be abstracted by using a layer two protocol on top that is essentially actually what ordinals are doing they're from from the bitcoin's point of view this is just garbage data right but when you when you run the ordinals client suddenly all of that data becomes has context has meaning shows who owns Which asset that some bytes over there is actually a JPEG and it's been sent from that person to that person uh so we're borrowing sort of the same uh Philosophy from ethereum where the base layer is where you dump your data and then in the second layer is where you do do the execution so as as a practical example like what can you do when you start looking at Bitcoin this way is you can essentially invent new layer 2 systems and one of the most um one of the one of the current uh examples of that that I know there are multiple people working on in Bitcoin right now is are sovereign rollups so Sovereign rollups is a way to create essentially a new blockchain but it gets its data availability its consensus and its ordering from the main net uh so it essentially works like any other rollup the only difference is that it's not bound by a bridge uh between the layer one and the layer two so there's no anchoring contract there's no way to trustless bridge the eth asset or the Bitcoin asset up to the second layer and back but you can still do a bunch of other things with it you can create new assets on there you can create ordinals you can inscribe stuff create new nfts on there yeah like BRC BRC 20s were like new assets on top of Bitcoin right exactly so you could create BRC 20s in uh Layer Two on top of Bitcoin using a sovereign rollup and then you can introduce all types of new touring completeness and smart contract functionality that you want there so you could have automated market makers lending marketplaces anything running on bitcoin if you just observe Bitcoin as the arbitrary data storage and then you do the execu on top so that's a way you can build an expressive second layer on top of Bitcoin pretty much that's very cool and I know that tapate Wizards they're working on ZK rollups yeah what other companies have been doing this on top of Bitcoin as well there was another one roll rollup kit or something roll kit built uh sort of a a component that that allows you to serialize data into the Bitcoin blockchain they didn't they didn't build a rollup themselves they they sort of built the middleware there's one company called chain way there's one called alpen Labs there's one called Bison Labs so I'm aware of at least three more I hope I'm not forgetting anyone significant but so so we are four in total that I know that are building these types systems now what are the general differences between the different techniques like uh are they all somewhat similarly doing the same thing or is there like a nice is there a nicely distilled Narrative of the tradeoffs that and I don't want to get into each one of them unless you want to use one as an example but just kind of like in general what's sort of the design space here yeah so the main the main choice that each of these Sovereign rups has to has to choose is what what type of execution environment do you want to run so there are some that are that are doing evm based things so there basically they they're running the ethereum virtual machine inside of Bitcoin so that's one approach of doing it uh the way that we're doing it at tap Wizards is right now our our main focus is on pyro and the Stark net VM the reason that we're doing that is because the um Engineers uh at starkware that buil Stark net designed the language that was specifically designed to be zero knowledge proven so there inside the Bitcoin space we've always said that um the ethereum guys are stupid because they're running all the computation in parallel so you have every node needs to do every single transaction in parallel obviously that doesn't scale and the ethereum community is realizing that now that's why they're having that's why they're doing uh Layer Two Solutions and that's why they're doing ZK rollups so that at the main from the main chain P perspective all you do is verify a proof that the computation at the second layer uh was correct so the in the Bitcoin space that's what they we've said all along that you know we're happy to introduce new functionality on top of Bitcoin we're happy to experiment with more expressiveness and int smarter contracts but we don't want every single note to run that owner's computation in parallel but what we would like to do is to just have the main net verify these proof these succinct proof Starks and snarks that uh say well there was some computation that happened over here that is correct and you can do that in a very lightweight Manner and because starnet and Ciro was built with this idea that the starkware company has the founders the inventors of starks this this uh proving system that that allows us to to essentially compress the uh computational verification so be so if you ask vitalic right now for example uh if he would rather put like a ZK Pro provable evm on bitcoin or if he would do something like Cairo I actually had this discussion with metallic uh then he says Cairo actually uh he also said that if he this was an in a conversation with me by the way so I don't want to necessarily put words in his mouth but what I heard is that he is interested in making Cairo where another ZK provable natively ZK provable language a native a first class language in inside ethereum itself so when we're thinking about okay which parts of ethereum is interesting for the Bitcoin industry to sort of inherit and take in of course we would want to take the parts that you know sort of the the stateof the art they there the're they're finally getting it right in ethereum now when they're Ser knowledge Pro proving everything why should we why should we go through all the hassle of taking the evm this the evm by the way is like hostile to be Ser knowledge proven it's it's it really doesn't want you to prove its computation with the Ser knowledge Pro it's not designed for that it becomes very difficult to maintain it over time there are some precomposed in ethereum virtual machine that are almost impossible to build Ser knowledge proofs for so this was not a system that was designed to be Ser knowledge progam but Cairo was so when when we're at tap wizard we're not necessarily saying that Stark Network Ciro is the best uh ZK virtual machine but what we see is that that is currently the virtual machine that has the broadest ecosystem of builders on top of it and it's also a natively designed ZK provable domain specific language so for us that's the reason why uh we're going with stman gotcha I appreciate the uh very nuanced digging into the different you know the different ZK rollups and the concepts behind it you know Trevor I want to go back to you and ask um you know you have a fund and you're looking at a bunch of different new Bitcoin startups that are popping up what are you seeing exactly what type of are they building on top of uh you know ordinals are they building on top of dlc's Stacks ZK ZK rollups like what what sort of startup landscape are you seeing emerge yeah so I think with this paradigm shift that has been shown by ordinals I think it opened kind of the the Overton window for Builders on bitcoin and also for Venture capitalists taking a renewed interest in investing in startups on bitcoin um you know the the thesis of our fund uh I describe it as being like L1 up and so we want to invest companies that start on L1 and build as much as they can that people will actually use on L1 that makes sense in terms of the level of complexity and the viability of the technology because you know as we've seen with ordinals like we saw brc2 for example which is you know named after erc20 but it's kind of like a protocol on top of ordinals and so it's a protocol on top of a protocol and you sort of like the key for ordinal is that a lot of people are running the ordinals client which means that there's a lot of people looking at what's happening and kind of verifying the truth there's no consensus among them but at least there's people looking at it but then when you add a protocol top of a protocol then there's fewer people running those nodes if you try to add a protocol on top of a prot protocol you can see how this kind of like you end up needing a blockchain for another layer and so like our thesis is like we want to invest in as many companies that are going to bring as many users to L1 because I also think of like L1 L2 in terms of like uh two floors of a restaurant right and so you need enough people eating on the first floor of the restaurant before the waiter is going to bring people up to the second floor and so the the big challenge with Bitcoin is that we need to up the fees eventually most activity on bitcoin is going to become priced out only like the the most high value projects and art and things like that are going to be on the base layer and it's going to become a settlement layer for the other layers and most the activity and users will move to other ways but in order to get there we can't just start there we have to actually start things on L1 the app applications that I think win on L1 will also choose which l2s they want to build on and so the applications will also you know bring lot of to L1 then they'll segue up to a second layer we're starting to see companies do that on uh on ethereum already choosing arbitrum or optimism for example and so we want to invest in the companies which are going to start on L1 and then they're going to build as much as they can and then they're going to look into uh different l2s we're also interested in in the infrastructure as well I think overall that majority of the actual the the the blockchain market is in in the infrastructure phase whether it's ethereum or Bitcoin but even so more Bitcoin right where we still hav't proven a lot of the use cases like you know nfts as Deeds for property uh real world property or nfts for music and Licensing and IP like these are next wve things I think are going to be figured out in ethereum on bitcoin we're building the infrastructure to catch up to the level of user experience that ethereum has had for for 2 years a year and a half and so it's a lot of boring stuff but the benefit of boring stuff is that it's lower risk because we've already had the ethereum community do the hard work of validating product Market fit of figuring out the form factor of the use cases and now we're just building that on a in a Bitcoin native way in a way that works best with Bitcoin and so the risk of finding product Market fit which is actually the biggest risk in any startup Venture is pretty much solved for us and it's just about the technical implementation and getting the users to come over and try Bitcoin and so that's what our fund is focused on yeah so I I I think we're trying to do this thing that if you've been in Bitcoin culture for a long time then you know that we always used to say that if there are interesting things and useful things that happen on altcoins we're going to take the best parts out of that and bring it home into Bitcoin that was a the predominant narrative that is why people were Bitcoin maximalist that is the origin of Bitcoin maximalism yeah it was it was more Bitcoin maximalism around proof of work monetary policy and network effects where it's like the N even Brian Armstrong has a tweet from 2016 remember that tweet where he's like we should stop worrying about all these other alts Bitcoin has enough Network effect you guys remember that one yep and so yeah that's what Maxim maximalism was back then it was more of look Bitcoin has the largest Network effect it's the strongest most secure best monetary policy rather than a I would say a more religious fanaticism nowaday I want to riff off a thing that you said Trevor that I think deserves more appreciation and attention you I think you just mentioned it briefly but I um I met with I I I accidentally ran into a minor here a Bitcoin minor and um he said that they were uh at his company they were building side chains to bitcoin and I was like why are you why are you guys doing that I was like it's it's merge mind side chain so that that we can earn more few Revenue because miners we're not stupid like we can do the math we can do the math on our um on our C like how the calculus for the profitability of our company looks like when the block rewards are dwindling and they recognize that it's not that far like people think that the last Bitcoin is going to get mined in 2,100 so on but the the the block rewards in Bitcoin uh get pretty small like even in 20 30 years there's going to be almost nothing there we need fee revenue on bitcoin quickly in order to for the chain to be secure and in order to do that there has to be more demand for the Bitcoin block space there has to be a blockchain cannot be secure uh if there's no inflation which is the goal of Bitcoin to have no inflation if there are no if there isn't uh a big uh transactional demand that causes fee Revenue to exist on the Chain Bitcoin fundamentally becomes insecure cure if we don't find fun things to do with Bitcoin I think Satoshi put it pretty pretty succinctly when asked this question what happens when the blocks the subsidy in the block reward runs out the subsidy equals the newly minted Bitcoin and sooshi said well there will either be no transactions or there will be a lot and so he I think more philosophically was waxing on I don't he goes and basically I think interpreting that as like I don't doubt that we will find more ways to utilize Bitcoin and for more more and there and for there to be more and more transactional Demand on L1 and so you know things like lightning ordinals these represent early uh kind of like early developments of additional fee Mark so they represent like additional way additional transactional demand for Bitcoin L1 which increases transaction fees over time basically what they're both what they're both saying here both Trevor and Eric you know as the subsidy is uh declining over time transaction fees need to compensate um one small Nuance that I'll add because I've had this debate extensively with various folks we don't actually know what an appropriate level of security is so when people talk about security spend being instable unstable or insecure we don't actually know how much money is required for the subsidy yeah but I think we're we're probably in agreement though that one Satoshi per VB it's probably not probably not well depends on what the Bitcoin price is uh if Bitcoin goes to a trillion per coin then that might be enough but uh where things are right now um and where even if the 100x in in price then one Satoshi per V it's it's not going to be sufficient it's better to see transactional demand increase now than not to have any later and for this to become a major major issue it's it's going to potentially be an issue and it's good that that we're seeing early Solutions and early demand more additional demand for Block space yeah I mean there's nothing negative with the fees on bitcoin going up because the the bulk of transactions that everyday users are going to be inter interfacing with are going to be on second layers where the fees are lower than they are on mainnet so this the fees being low on mainnet being a viable way to transact with Bitcoin is a mirage and the longer you delude yourself to thinking that oh you know I need the fees to be low on on bitcoin so I can transact cheaply that is just telling yourself a story of Bitcoin that is never going to exist this is the same for ethereum though too like ethereum absolutely ethereum L1 fees will never go back down I mean they'll they'll EB and flow but over the long-term Trend they should increase dramatically uh in the last six minutes we have here I want to give it back to you guys and starting with Trevor you know can you kind of paint us a picture of the world 5 to 10 years from now in Bitcoin utilizing ordinals or kind of Bitcoin defi like is there any really cool applications or other things that you've kind of thought of that would be fun to see um you know anything that you might kind of consider to be kind of like not a pipe dream but just something like really out there that might take a while yeah I'm gonna I'm gonna take one from uh Eric's co-founder udy wer where he says if we're going to convince nation states in order to adopt Bitcoin as legal tender like first we should convince like the lwh hanging fruit like open SE like if we can't convince openc to use Bitcoin to transact in Bitcoin how we're going to convince nation states so what I would like to see is a sustainable digital economy on bitcoin that involves defi ordinals nfts web through gaming Etc and I think that is a necessary step before we enter the physical world of you know Deeds for property or government documents you know using ordinals as a space to Archive uh very important uh documents I think there's so many things that we can do with ordinals that we just don't even know uh what all the use cases are going to be I think that in addition while there's a lot of lwh hanging fruit in terms of developing what we've already seen proven on ethereum there's also serious differences in the architecture of how ordinals works that allows it to be used for maybe things that wouldn't be possible on ethereum such as uh what I call like decentralized front end applications because a lot of the ordinals are using HTML and they use all different data types one of the first three I think first 300 inscriptions was uh the the game Doom was uploaded directly as in ordinal and so there's a lot of opportunity for kind of new and different things but ultimately in the next uh few years here we need to see progress on l2s we like stuff that like Eric is talking about with Stark and many other attempts we need to have as many attempts as possible we need to welcome developers into Bitcoin make Bitcoin the best culture for Builders and developers and have many trials at different l2s different Technologies different applications that use orinal in different ways and once we develop that sustainable digital economy where people can have all different kinds of stores of value um that they actually use and spend Bitcoin to acquire or invest in now we have greater fees we have more sustainability on bitcoin and we have people thinking in terms of Bitcoin which is going to be the segue into not only using this technology and these uh digital assets represent physical real world real world things but also for actual adoption in the real world and eventual adoption by nation states yeah I really appreciate that and I just want to add one uh just a plus one here I do think that digital economy on top of ethereum really proved out that you know that's the true circular economy that these bitcoiners are looking for these bitcoiners think that the circular economy will come through people pay for coffee that's not true very few people want to do that but what they do want to do is they want to buy and sell nfts and other digital assets so I completely agree the the circular economy we're looking for is going to be on the in the digital side and then eventually when that is successful we moved to the physical so I really appreciate those thoughts and uh Eric to close us out in last two minutes yes um I'll I'll say something that may not resonate with everyone but I do think that you you I think one of the underestimated things in in crypto and in Bitcoin in particular is that you can't really have security uh without privacy If someone knows exactly who you are how much Bitcoin you have how you're spending that you know wrench attacks exist you know people can find out who you are and they can force you to give your Bitcoin away to them and you may think that having stored your keys across a eight out of 12 multisig and your family members are are going to help you but uh most of you won't do eight out of 12 multisig and you when they hit you enough with a hammer you're going to say okay well Adam has the first chart and Ben has the other one and let's just go to they're gonna they're going to take your Bitcoin and if if they can't take your Bitcoin then they that might even be worse for you then you may get hit with the wrench on top of the head until until until you die you know so privacy is important and uh the reason that I'm talking about that is because I don't know how Tech technically like Bitcoin technically people are here but coin joins aren't going to cut it pay joins aren't going to cut it lightning isn't going to cut it the current privacy tools that we're working on on top of Bitcoin aren't private enough uh to hide you from a dedicated surveiller uh something like chainalysis working in collaboration with government or Merchants that you trade with they're going to find out who you are and they're going to be able to track you down if if Bitcoin is truly meant to be a rebellion currency that isn't supposed to be seized by the government we need privacy I think everyone sort of agrees that we need better privacy for our transactions and because the current bitcoin protocol has sort of failed Us in providing us with with we used to think that lightning it was going to be enough there but it it's been shown that by an anal analyzing routes and and how payments propagate through routes you can uh triangulate where payments are coming from especially if people are connected to the same liquidity service providers um so we need other Layer Two Solutions on bitcoin uh Ser knowledge proofs is the one like technology that would actually allow us to have privacy Monero does something with ring signatures that's sort of closely related so we need an all a more encompassing privacy technology on top of bit Bitcoin in order for for Bitcoin to be safe for users in authoritarian regimes where it might be illegal to hold Bitcoin because ultimately what is the point of Bitcoin if the state can just say oh that's illegal and then we can't use it anymore it has to be resilient to that and ironically ordinals by having this arbitrary data space where you can embed uh arbitrary complex protocols that's that might be where you will find new protocols for privacy also Eric really appreciate those final thoughts Trevor thank you and uh thanks for the crowd thanks for listening and uh hope you guys enjoy this [Applause] [Music] panel