Recursive Inscriptions: DeFi On Bitcoin

A new update opens far-reaching new possibilities for Ordinals, and for the Bitcoin network.

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The launch of the Ordinals Protocol brought radical new functionality to Bitcoin, and kickstarted a thriving new ecosystem of NFT-like digital artifacts hosted on the largest and most secure crypto network.

Incredibly, 85% of all transactions on the Bitcoin network are now Ordinals-related. Ordinals are seeing huge interest as a means of creating and trading digital art. However, the protocol offers the ability to do much, much more than that, opening some incredible new use cases for the Ordinals Protocol and for Bitcoin itself.

Inscriptions chart, Dune Analytics
Over 26 million Ordinals have been inscribed so far.

Greater Efficiency

At its heart, the Ordinals Protocol simply allows anyone to "inscribe" files onto the Bitcoin blockchain. The first use case for this has been a form of NFTs on Bitcoin (simply called Ordinals). Because these are fully on-chain, unlike most Ethereum NFTs, they are billed as more decentralized and open. (They are also somewhat controversial for Bitcoin maximalists, who consider Ordinals as spam and blockchain bloat.)

A new update now introduces the possibility of so-called recursive inscriptions. While regular inscriptions are standalone, additional syntax allows them to request and refer to data from other inscriptions. This has many potential use cases, and introduces greater flexibility and efficiency to the protocol.

For example, a collection of 10,000 NFTs can now be created from a base image and a set of a few dozen traits, rather than 10,000 separate files. A short script then puts together the final images, saving a vast amount of space and transaction fees.

On-Chain Code Storage

Recursive inscriptions have far greater potential than optimizing NFTs, though. Inscriptions are just files. They can be images, but they can be anything else, too, including software. Referring to other inscriptions means there is no limit to the size of the code or application being stored (Ordinals have an individual limit of around 4 MB).

One use case is for developers to drop apps and code libraries onto the Bitcoin blockchain, where they can be used by other software. The blockchain then becomes a permanent, immutable repository of code that can be composed in new ways. Any file on the blockchain can request data from any other file. One of the obvious applications for this is to store the code for Bitcoin on Bitcoin itself.

There is no real limit to the range of applications that could be created in this way, opening the way for complex dApps, and DeFi and GameFi ecosystems on the Bitcoin blockchain.

This would, of course, take Bitcoin further away from its original purpose as P2P cash. And it's unclear the extent to which such a "workaround" on Bitcoin would find adoption, where there are already purpose-made solutions such as Ethereum that already have active dApp ecosystems.

Still, Bitcoin is an open and decentralized protocol, and so anything can be done. It's up to the market to decide whether it should be.

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