Inscriptions represent a novel method of embedding data directly into blockchain transactions. This technique allows for the incorporation of metadata, such as an image linked to a Non-Fungible Token (NFT), into a blockchain transaction. Once embedded, this data becomes a permanent part of the blockchain record.
This innovation is particularly groundbreaking for Bitcoin, which traditionally does not support smart contracts. It opens the possibility of creating NFT-like tokens on the Bitcoin blockchain without relying on smart contracts.
Recently, Bitcoin Ordinals, utilizing this concept, gained significant traction, with over 50 million inscriptions recorded on the Bitcoin network. The use of inscriptions is not limited to Bitcoin; they are now being integrated into Ethereum Virtual Machine (EVM) compatible blockchains, including Ethereum, Arbitrum, Avalanche, Polygon, and BNB Chain.
Despite these chains already supporting smart contracts for NFT and token creation, the use of inscriptions presents a new dynamic.
Contrasting Inscriptions with NFTs âš–
Inscriptions mimic the functionality of NFTs and fungible tokens like ERC-721 and ERC-20, but they come with a lower cost. By bypassing the high gas fees associated with smart contracts, inscriptions offer a more economical alternative.
The inscription process involves creating a blockchain transaction, often sent to oneself, that carries no actual currency. This transaction contains 'calldata', which specifies actions such as minting tokens. An example of this process was demonstrated by Jarrod Watts in a social media thread.
Is this just another crypto FAD? Or are inscriptions actually genius, and here to stay long-term?
To find out, I spent the past few days exploring them.
Here's everything I learned:
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In this scenario, attaching a personal image to a transaction means it is indelibly recorded on the blockchain within that transaction. This method of data storage is far less expensive than storing it within a smart contract.
Key differences between inscriptions and traditional NFTs include:
Inscriptions embed actions like token minting or transfer within the transaction metadata.
NFTs execute these actions through smart contract codes on the blockchain.
The Complication 👀
Inscriptions record activities and data on the blockchain as 'calldata' notes. However, deciphering this data in real-time is challenging due to its distribution across various transactions. Essentially, if you inscribe an image on the blockchain, it remains permanently, but its presence is not easily noticeable.
The twist here is the need for a centralized API to index and make sense of the inscribed data. This reliance on a third-party indexer to understand the status of an inscription token or collection means:
Smart contracts cannot directly retrieve this data.
Applications cannot directly read this data from the blockchain.
As a result, inscriptions lack some key benefits of smart contract-based NFTs, like interoperability and composability. For instance, if our CREATOR Passes were inscriptions, owning one wouldn't grant access to our Discord unless a centralized service was involved. However, as ERC-721 tokens, they enable access through smart contract parameters.
Inscriptions serve primarily as immutable on-chain art, while NFTs, operating through smart contracts, have a wider range of applications.
Final Thoughts — The Role of Inscriptions 🤷
Inscriptions are a significant addition for Bitcoin, which lacks smart contract functionality. However, their introduction to EVM chains doesn't bring much novelty. In some ways, this could be seen as a regression in blockchain technology, as it encourages reliance on off-chain indexers, diverging from the decentralized ethos of web3.
The current surge in inscription creation and trading seems driven by the desire to emulate the success of Bitcoin's BRC-20 tokens (Ordinals). This rush to EVM chains aims to establish early collections, but much of the activity is repetitive, dominated by the same users or bots exploiting the lower transaction costs compared to smart contracts.
In summary, the inscription trend is largely propelled by speculation and repetitive transactions, marking a distinct hype cycle within the blockchain community.
