Understand The idea of Non-fungible tokens (NFTs) came from Colored coins—small units of Bitcoin attached with additional metadata on the Bitcoin blockchain. Due to the limited programmability of the Bitcoin blockchain, the colored coin concept faded away. The birth of Ethereum as a programmable blockchain led to the rebirth of NFTs, resulting in widespread adoption and trading of Ethereum NFTs. Developers continued to explore the possibility of Bitcoin NFTs blockchain and found a way to create them using the Ordinal protocol in 2023.
Bitcoin NFTs are NFTs created with Ordinal protocol by inscribing data to the smallest unit of Bitcoin called satoshi. Inscription can be done for assets such as images, video, or artwork to give a unique property. Ethereum NFTs rely on ERC-721 standards and smart contracts to create and manage tokens using assets that have exceptional value.
Bitcoin NFTs and Ethereum NFTs comparison is valuable because both blockchain approaches NFTs differently with their unique benefits and drawbacks. Let us take a look into the comprehensive analysis of Bitcoin and Ethereum NFTs through this article.
Bitcoin NFTs and Ethereum NFTs: Overview
Bitcoin NFTs are Non-fungible tokens created on the Bitcoin blockchain. Like traditional NFTs, Bitcoin NFTs represent digital assets such as artwork, images, and videos. Ordinals was the first protocol introduced and simplified the process of NFT creation on the Bitcoin blockchain. NFTs are created by attaching data from an asset to a satoshi (the smallest Bitcoin unit), benefiting the security and decentralization of the Bitcoin blockchain.
Ethereum NFTs were the first non-fungible tokens to gain popularity and widespread adoption. Smart contracts and the ERC-721 standard allowed NFT to be utilized for various use cases.
The ability to program NFTs for creating, managing, and trading with features like royalties enhanced the utility of NFTs to the next level.
Comparing Bitcoin NFTs and Ethereum NFTs
NFT creation is different for BItcoin NFT and Ethereum NFT. In the Ethereum blockchain, anyone can create, and manage NFT using smart contracts. Bitcoin NFTs are created by inscription to satoshi. Here is a comprehensive comparison of both NFTs.
Storage of Assets
The programmability of smart contracts allows the storage of NFT metadata as off-chain. Ethereum NFTs are often stored in decentralized storage spaces such as IPFS. While Bitcoin NFTs are stored in corresponding satoshi (the smallest unit of bitcoin) as on-chain only increasing transaction size leads to high transaction costs.
Immutability
Ethereum NFT owners can modify the appearance of their NFT to an extent as off-chain storage of NFT data. But this is not the case with Bitcoin NFTs, users are not able to change on-chain data due to the immutable property of Bitcoin blockchain and using the same validation as any Bitcoin transaction.
Flexibility
Ethereum NFTs increase the utility of NFT using smart contracts. For example royalties for NFT creators in NFT marketplaces. Bitcoin has no established marketplaces or royalties for NFT creators limiting its functionality and flexibility.
Scalability
Bitcoin focuses on decentralization and security over scalability. But in Ethereum, usage of ERC 721 and ERC-1155 standards for NFT, interoperability across NFT marketplaces, and Layer2 solutions enhance the efficiency and scalability of the system.
Advantages and Limitations of NFTs
Bitcoin NFTs
Strength
- It possesses the decentralization and security inherited from the underlying Bitcoin blockchain.
- Open to opportunities for new use cases and innovations.
Limitations
- Metadata storage capacity is limited to storing on-chain resulting in high transaction costs.
- A less established ecosystem with very few NFT marketplaces and other platforms.
- Limited functionality due to lack of programmability.
Ethereum NFTs
Strength
- Contain a well-established ecosystem with NFT platforms and marketplaces.
- The programmable capability of the Ethereum blockchain helps in the creation of complex applications using NFTs.
- Dedicated ERC standards ensure interoperability across different platforms.
Limitations
- Vulnerability in smart contracts may lead to loss of NFTs.
- The complexity of using wallets, marketplaces, and interacting with smart contracts limits its usage to newbies
Conclusion
Bitcoin NFTs are minted on BItcoin while Ethereum NFTs are created using smart contracts on Ethereum. Both blockchain offer decentralization, transparency, and security but are different in their approach to creating and managing NFTs. Each has its benefits and drawbacks, and understanding them is crucial to thrive in the blockchain world. As the blockchain grows with innovative solutions and applications like real-world asset tokenization (RWA), NFT comes forefront making web3 a better place.
