This post will be the final one in my series exploring the Ordinal <> Stacks connection. I looked at how Stacks works and how it will work post-Nakamoto and dived into how people use the chain. The design of Stacks, especially Nakamoto, is clever, and I like it. It extends Bitcoin functionality by giving it a usable smart contract layer and, thanks to the design, has enough security guarantees that Bitcoin users will feel comfortable moving their coins over. And we are seeing just that. A small but growing number of people are transferring their BTC to Stacks and using it to speculate on NFTs and use native Stacks DEXs. On its own, Stacks looks like it’s on its way to accomplishing its goal as a Bitcoin L2. As such, on the surface, Ordinals reigniting interest in Bitcoin in Q1 seems like a boon to the chain.
To the credit of Stack’s marketing team, they were quick to harness the attention to focus some of it on their chain. Some Twitter Threadoors were also quick to equate Ordinals with Stacks. But, from my analysis of Stacks and Ordinals thus far, I see little inherent benefit from Ordinals for Stacks, and sometimes I just see a competitor. BRC-20s are a direct competitor to Stack’s tokens, and art inscriptions on Bitcoin L1 are a direct competitor to Stacks-based NFT projects – at least when we reduce tokens and NFTs to their most basic level of speculation. In their current form, Ordinal tech and the Ordinal market have captured much of Stack’s potential market – the minting, creating and speculating on of Bitcoin tokens and NFTs.
However, to the further credit of the Stacks team, they have realized that Ordinals are more of a competitor than the Threadoors initially realized and have pivoted a little bit—the most recent stuff from Stacks talks about extending BRC-20 and Ordinal functionality with their smart contracts, which is where I also think Stacks needs to be. The allure of tokens and inscriptions on an L1 far surpasses tokens and NFTs on an L2 – this holds for Bitcoin and Ethereum. Unfortunately, for those with Stacks native tokens or NFTs, the market will probably value native BRC-20s and inscriptions on Bitcoin L1 more highly. As the market may value tokens and inscriptions on an L1 more highly, Stacks’ best move is focusing on extending their functionality – which it looks like they are now considering. Additionally, as demand for Bitcoin blockspace continues, thanks to Ordinals and BRC-20s, Stacks also benefits from offering a cheaper transactional environment for Bitcoin.
After looking at Stacks and Ordinals, I think it is apparent that although Stacks tech is exciting, Ordinals and BRC-20s have taken a large chunk out of their potential market – the minting of tokens and the creation of NFTs. Stacks native assets will probably trade lower than ones native to Bitcoin, which is a grim state of affairs for those who hold them. But, Stacks has an opportunity to be the layer that extends the functionality of inscriptions. Ordinals are very limited in their functionality – just minting and transferring. The limited functionality means Ordinals are probably already hitting the limit of their usefulness and use cases. By providing a trust-minimized smart contract L2 for Bitcoin and Ordinal assets, Stacks could capture this market by extending their usefulness – something they are starting to realize. So, although Stacks lost some of their market to Ordinals, they could stand to benefit most by scaling and adding additional functionality to them.