Recursive inscriptions: Bitcoin ‘supercomputer’ and BTC DeFi coming soon
Earlier this year, Ordinals — a unique inscription on the smallest unit of a Bitcoin, called a Satoshi — emerged as a controversial new development. Dismissed by some as spam and embraced by others as a way to bring BRC-20 tokens and NFTs to Bitcoin, the technology stimulated a flurry of developments.
Now there is excitement around “recursive inscriptions,” which is a very confusing yet potentially much more powerful development. Recursive Inscriptions essentially promise to allow more complex functionality to be built on Bitcoin’s blockchain, akin to smart contracts on Ethereum.
Some believe recursive inscriptions could see Ordinals develop from NFTs and “digital artifacts” to underpin a full-blown DeFi ecosystem on Bitcoin very soon. Others are confident it will enable Bitcoin to take on decentralized storage provider IFPS. One person Magazine spoke to believes it will eventually lead to an interconnected supercomputer being built on-chain.
Danny Yang, a Stanford PhD, creator of OCM Dimensions and Bitcoiner since 2013, says recursive inscriptions unlock the next evolution of Bitcoin:
“People won’t believe it when it’s presented to them now. It’s not going to operate exactly like Uniswap, but other high-value digital assets will emerge on Bitcoin. That’s what Ordinals and recursive inscriptions will evolve into. They will become a new form of programmable assets and code.”
These tech developments — while at a very early and speculative stage — are making Bitcoin interesting again. A Bitcoin maxi friend complained to me that I never write about Bitcoin. In truth, there’s been very little new to write about until recently.
“That’s pretty true,” Yang agrees.
Recursive support switched on in June
Yang has worked on recursive inscriptions since February in the form of Bitcoin generative NFT collections OCM Dimensions and OCM Genesis. He inscribed both of those innovative collections on Bitcoin in February (along with compression and 3D programming libraries) before anyone understood the significance of what he had done.
Yet OCM Dimensions was only publicly launched on June 15, the day that recursive inscription support was turned on for Ordinals.com. Yang explains to Magazine:
“You have to show something before people start listening, and finally, after months of beating the drums about the significance of recursive inscriptions on Bitcoin, people are starting to get it after we showed what was possible with OCM Dimensions — the first 3D, high resolution, animated and interactive work on Bitcoin.”
For now, the smart contract-enabled Ethereum blockchain is the home of more developer activity than anywhere else, and it dominates the DeFi sector. Until this year, the idea of building a genuine smart contract — the self-executing code used as building blocks for programmable money ecosystems — was not possible on Bitcoin.
But some now say Ordinals and recursive inscriptions could see a DeFi ecosystem emerge on Bitcoin fairly soon. It’s not going to be easy, though.
What are Ordinals and recursive inscriptions?
Ordinals allow you to uniquely identify a satoshi or a sat. A satoshi is 100 millionth of a Bitcoin. Identifying a fractionalized part of a Bitcoin means creating NFTs on Bitcoin or creating a provenance certificate on-chain is now possible. The idea of NFTs on Bitcoin, the most decentralized OG chain, is tantalizing for some.
In January 2023, developer Casey Rodarmor released the Ordinals protocol, creating Bitcoin NFTs on the Bitcoin blockchain. Rodarmor found an unintended loophole in the taproot scripts that command lines of Bitcoin code.
The Ordinals’ protocol creator argues that such NFTs are now “complete,” as the token and related images are stored on the Bitcoin blockchain rather than side chains or using off-chain storage systems like most Ethereum NFTs. Digital artifacts on Bitcoin are truly immutable.
“Now you can own the actual art, not just a contract that points at a piece of art stored on centralized databases,” says Carlo Fox, an “Ordinals OG” since February who created the Nakamoto Whales series. NFTs, as we know them on Ethereum and on other chains, are more like digital ownership certificates than actual on-chain art, and Ordinals change that.
“I got super excited for Ordinals for a few reasons: for one, we now can create and own on-chain art that is truly immutable. When you understand the ramifications of this, it’s huge. Half the time, NFTs as we know them are stored on AWS, centralized, and controlled by creators who can turn your art into pictures of turds at any time.”
Ordinals allow you to store any type of data on the most decentralized blockchain, and no one can modify it. “Ordinal artifacts may be most likely of any on-chain data to exist 2,000 years from now. That’s meaningful, and I think it is particularly relevant when in the context of important works of art, literature and science. I believe that Ordinals will become the premiere destination for the most coveted and important on-chain art. It’s akin to carving a statue out of gold,” says Fox.
So the business case for high-value NFTs minted on Bitcoin makes sense. Using the new tech to create cool 3D art for OCM Dimensions helped Yang’s company Metagood sell the idea of launching tokens on Bitcoin Ordinals to Asprey Studios and the Italian car company Bugatti recently.
But OG Ordinals could only hold 4MB of data, and that is one reason why recursive inscriptions have emerged.
Recursive inscriptions = Bitcoin cloud computing
At its most basic recursive inscriptions let you record stuff associated with a particular Bitcoin and enable smart contract-type functionality — Yang says they could have been called programmable inscriptions. By interlinking data through a series of calls (a contract for a sell order, for example), it’s possible to extract that data to run more complex processes anchored on Bitcoin blocks.
This enables recursive inscriptions to function like a distributed data repository, like putting AWS cloud on Bitcoin.
Composability — getting disparate projects and protocols to work together seamlessly — is an important part of crypto and one of the main reasons behind the exponential growth of the Ethereum DApp ecosystem.
Recursive inscriptions mean that even the most complex data sets, like video files and audio files, could now technically be hosted on Bitcoin. With a one-time cost to inscribe, data could be hosted forever on the most immutable and decentralized network in the world.
Inscriptions are like data legos, enabling data to be taken from somewhere else and built upon. In computer science, that’s where the phrase recursive comes from, as recursive inscriptions are a mechanism that extracts data from existing inscriptions and utilizes that data within new inscriptions.
Recursion is a fully on-chain process that uses scripts to combine various other on-chain data sources. These can include image layers, audio, code or other data sources. Individual scripts of code merge these layers together through recursion.
Recursive inscriptions use data inscribed elsewhere on new inscriptions, cutting down on storage requirements.
Fox uses the example of PFP art. Instead of uploading thousands of unique images (which can be prohibitively expensive), you can upload 200 and use scripts to combine them via the fully on-chain recursion process. The possibilities this offers are only just being explored.
This is powerful because recursive inscriptions enable new types of applications that were not possible before it. Applications like on-chain AI couldn’t be done on the base layer of Ethereum, but NewBitcoinCity builder Punk 3700 believes they could now be done on Bitcoin. He’s been playing around with “Perceptrons,” an early on-chain AI experiment on Bitcoin.
He explains that “it wasn’t possible to store the AI neural net models on-chain together with the artworks. So we split the AI models into different inscriptions and compose them at runtime.”
Inscriptions an important development for human freedom?
One of the most fascinating elements of recursive inscriptions is that once the data is on the blockchain once, you can simply refer to it again and again, vastly cutting down storage costs and block space utilization.
“Inscriptions are now reusable,” explains Punk 3700, “You can inscribe a very large code library like p5.js once, and other developers can reference that p5.js library at run time without inscribing it again.”
“This is super exciting because we start seeing a community-driven public infrastructure being built out.” This means more complex inscriptions are being created at a fraction of the cost.
“Essentially, any type of data can be an inscription. The most rudimentary use case combines multiple data sources together, and every piece of it can live on-chain. On-chain data might be able to communicate with each other, and data could be realized over time.”
Fox explains further: “The best way to think of it is anything you can do locally on a computer and have all little pieces live together in different files and work together.”
He gives examples like “open-source libraries, all on-chain,” meaning important research papers on Bitcoin, with citations on recursions on-chain, meaning major discoveries can be published on Bitcoin blocks for time immemorial. Javascript packages can be inscribed on Bitcoin. Essentially, a tiny internet that’s developed to live on Bitcoin can’t be taken down, building and building until one day it has created “an interconnected supercomputer living on Bitcoin.”
The public hasn’t grasped the significance of these developments, says Fox.
Let’s start with DeFi and AWS first
Long before the supercomputer cranks up, we’re likely to see Bitcoin DeFi and the chain emerge as a data storage competitor.
Toby Lewis co-founded OrdinalsBot, which automates inscriptions to help expedite development on Ordinals. He thinks that, for now, competing with the Web3 data storage provider IPFS is the best use case for recursive inscriptions. In the short term, both high-end and low-end NFTs can now be more affordably held on-chain.
“The end point of storing data onto Bitcoin will get people excited. That’s because Bitcoin has better name recognition than IPFS […] Bitcoin becomes the ultimate store of truth.”
Decentralized data storage on Bitcoin could disrupt NFT culture by allowing images, text files and audio files to be stored directly with tokens.
Lewis also thinks DeFi on Bitcoin is just becoming a realistic prospect now and that Bitcoin-native DeFi products are inevitable, even if they will be rudimentary for a while.
There is likely a large segment of users who will want to build and do something on Bitcoin, especially if the end state is a multichain ecosystem, posits Lewis. That is, use Bitcoin’s blockchain as the layer-1 base, and use Ordinals and recursive inscriptions to connect to other applications.
DEXs and automated market makers are starting to emerge. Lewis notes that Bitcoin can link up to other layer-2 applications as another way for smart contracts to emerge on Bitcoin.
This is the kind of DeFi that Punk 3700 has been building on Bitcoin. He launched a new protocol called Trustless Computer that enables writing smart contracts and building DApps on Bitcoin.
“If Ethereum and Bitcoin have a baby, that’s Trustless Computer.”
One of the first DeFi protocols it deployed was a Uniswap fork.
“Now that you could write smart contracts on Bitcoin, it turned out that building an AMM DEX was very simple. It took us just a couple of days.” A month after deploying Uniswap on Bitcoin, Punk 3700 connected it to Ethereum layer-2 network Optimism and says it can trade with two-second latency and low transaction fees.
“We now have a scalable infrastructure for DeFi to thrive on Bitcoin.”
Read also
Bitcoin maximalists aren’t going to like the use of Ethereum protocols in conjunction with Bitcoin, but Punk 3700 says it’s the future.
“This is the power of having a general-purpose programming language (Solidity) and a general-purpose virtual machine on Bitcoin. Developers can build any kinds of applications they want for Bitcoin.”
“Bitcoin is now no longer just a currency. It is becoming a DApp store.”
New generation of Bitcoin maxis?
At present, these use cases for recursive inscriptions and smart contracts on Bitcoin are highly speculative, and many Bitcoiners would no doubt argue abstracting it away on layer 2s means it’s no longer really Bitcoin at all.
But Leonidas, the founder of Ordinals marketplace Ord.io, is very excited about the new Web3 experiments on the Bitcoin layer 1 as well. He believes that “the release of the Ordinals protocol earlier this year ended a long period of stagnation” for the chain. He’s seeing a whole new wave of developers flood into the Bitcoin ecosystem, who are “eager to build everything from NFT marketplaces to DeFi protocols.”
“I think people will be pleasantly surprised with how much you can actually do on Bitcoin layer 1,” he says.
“The issue was never that Bitcoin as a technology wasn’t capable of handling Web3 use cases; it’s that a culture of toxic maximalism had driven the most talented developers to other ecosystems where they would be celebrated for their innovations rather than harassed.”
Leonidas firmly believes that through Ordinals, Bitcoin has “entered a new era where developers rather than idealists will dictate its future,” and he is optimistic that Bitcoin’s brightest days lay ahead.
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Politics
Live music venues warn of ‘devastating consequences’ of budget tax changes in letter to Sir Keir Starmer
Tax changes announced in the budget could have “devastating, unintended consequences” on live music venues, including widespread closures and job losses, trade bodies have warned.
The bodies, representing nearly 1,000 live music venues, including grassroots sites as well as arenas such as the OVO Wembley Arena, The O2, and Co-op Live, are calling for an urgent rethink on the chancellor’s changes to the business rates system.
If not, they warn that hundreds of venues could close, ticket prices could increase, and thousands could lose their jobs across the country.
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Business rates, which are a tax on commercial properties in England and Wales, are calculated through a complex formula of the value of the property, assessed by a government agency every three years. That is then combined with a national “multiplier” set by the Treasury, giving a final cash amount.
The chancellor declared in her budget speech that although she is removing the business rates discount for small hospitality businesses, they would benefit from “permanently lower tax rates”. The burden, she said, would instead be shifted onto large companies with big spaces, such as Amazon.
But both small and large companies have seen the assessed values of their properties shoot up, which more than wipes out any discount on the tax rate for small businesses, and will see the bills of arena spaces increase dramatically.
In the letter, coordinated by Live, the trade bodies write that the effect of Rachel Reeves’s changes are “chilling”, saying: “Hundreds of grassroots music venues will close in the coming years as revaluations drive costs up. This will deprive communities of valuable cultural spaces and limit the UK creative sector’s potential. These venues are where artists like Ed Sheeran began their career.
“Ticket prices for consumers attending arena shows will increase as the dramatic rise in arena’s tax costs will likely trickle through to ticket prices, undermining the government’s own efforts to combat the cost of living crisis. Many of these arenas are seeing 100%+ increases in their business rates liability.
“Smaller arenas in towns and cities across the UK will teeter on the edge of closure, potentially resulting in thousands of jobs losses and hollowing out the cultural spaces that keep places thriving.”
The full letter from trade bodies to the prime minister.
They go on to warn that the government will “undermine its own Industrial Strategy and Creative Sector Plan which committed to reducing barriers to growth for live events”, and will also reduce spending in hotels, bars, restaurants and other high street businesses across the country.
To mitigate the impact of the tax changes, they are calling for an immediate 40% discount on business rates for live venues, in line with film studios, as well as “fundamental reform” to the system used to value commercial properties in the UK, and a “rapid inquiry” into how events spaces are valued.
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Sky’s Jess Sharp explains how the budget could impact your money
In response, a Treasury spokesperson told Sky News: “With Covid support ending and valuations rising, some music venues may face higher costs – so we have stepped in to cap bills with a £4.3bn support package and by keeping corporation tax at 25% – the lowest rate in the G7.
“For the music sector, we are also relaxing temporary admission rules to cut the cost of bringing in equipment for gigs, providing 40% orchestra tax relief for live concerts, and investing up to £10m to support venues and live music.”
The warning from the live music industry comes after small retail, hospitality and leisure businesses warned of the potential for widespread closures due to the changes to the business rates system.
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Sky’s political editor Beth Rigby challenged Prime Minister Sir Keir Starmer on the tax rises in the budget.
Sky News reported after the budget that the increase in business rates over the next three years following vast increases in the assessed values of commercial properties has left small retail, hospitality and leisure businesses questioning whether their businesses will be viable beyond April next year.
Analysis by UK Hospitality, the trade body that represents hospitality businesses, has found that over the next three years, the average pub will pay an extra £12,900 in business rates, even with the transitional arrangements, while an average hotel will see its bill soar by £205,200.
Read more: Hospitality pleads for ‘lifeline’
A Treasury spokesperson said their cap for small businesses will see “a typical independent pub pay around £4,800 less next year than they otherwise would have”.
“This comes on top of cutting licensing costs to help more venues offer pavement drinks and al fresco dining, maintaining our cut to alcohol duty on draught pints, and capping corporation tax,” they added.
The Chancellor Rachel Reeves has acknowledged there were “too many leaks” in the run-up to last month’s budget.
The flow of budget content to news organisations was “very damaging”, Ms Reeves told MPs on the Treasury select committee on Wednesday.
“Leaks are unacceptable. The budget had too much speculation. There were too many leaks, and much of those leaks and speculation were inaccurate, very damaging”, she said.
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The cost of UK government borrowing briefly spiked after news reports that income taxes would not rise as first expected and Labour would not break its manifesto pledge.
An inquiry into the leaks from the Treasury to members of the media is to take place. But James Bowler, the Treasury’s top official, who was also giving evidence to MPs, would not say the results of it would be published.
Committee chair Dame Meg Hillier asked if the group of MPs could see the full inquiry.
“I’d have to engage with the people in the inquiry about the views on that”, replied Mr Bowler, permanent secretary to the Treasury.
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OBR leak ‘a mistake of such gravity’
The entire contents of the budget ended up being released 40 minutes early via independent forecasters, the Office for Budget Responsibility (OBR).
A report into this error found the OBR had uploaded documents containing their calculations of budget numbers to a link on the watchdog’s website it had mistakenly believed was inaccessible to the public.
Tax rises ruled out
The chancellor ruled out future revenue-raising measures, including applying capital gains tax to primary residences and changing the state pension triple.
Committee member and former chair Dame Harriet Baldwin had noted that the chancellor’s previous statement to the MPs when she said she would not overhaul council tax and look at road pricing, turned out to be inaccurate.
During the budget, an electric vehicle charge per mile was introduced, as was an additional council tax for those with properties worth £2m or more.
Strategy, the largest Bitcoin treasury company, submitted feedback to index company MSCI on Wednesday about the proposed policy change that would exclude digital asset treasury companies holding 50% or more in crypto on their balance sheets from stock market index inclusion.
Digital asset treasury companies are operating companies that can actively adjust their businesses, according to the letter, which cited Strategy’s Bitcoin-backed credit instruments as an example.
The proposed policy change would bias the MSCI against crypto as an asset class, instead of the index company acting as a neutral arbiter, the letter said.
The MSCI does not exclude other types of businesses that invest in a single asset class, including real estate investment trusts (REITs), oil companies and media portfolios, according to Strategy. The letter said:
“Many financial institutions primarily hold certain types of assets and then package and sell derivatives backed by those assets, like residential mortgage-backed securities.”
The letter also said implementing the change “undermines” US President Donald Trump’s goal of making the United States the global leader in crypto. However, critics argue that including crypto treasury companies in global indexes poses several risks.
Related: Strive calls on MSCI to rethink its ‘unworkable’ Bitcoin blacklist
Crypto treasury companies can create systemic risks and spillover effects
Crypto treasury companies exhibit characteristics of investment funds, rather than operating companies that produce goods and services, according to MSCI.
MSCI noted that companies capitalized on cryptocurrencies lack clear and uniform valuation methods, making proper accounting a challenging task and potentially skewing index values.
Strategy held 660,624 BTC on its balance sheet at the time of this writing. The stock has lost over 50% of its value over the last year, according to Yahoo Finance.
Bitcoin (BTC) is also 15% below its value at the beginning of 2025, when it was trading over $109,000, meaning that the underlying asset has outperformed the equity wrapper.
The high volatility of cryptocurrencies may heighten the volatility of the indexes tracking these companies or create correlation risks, where the index performance would mirror crypto market performance, according to a paper from the Federal Reserve.
The “common use” of leverage by crypto traders amplifies volatility and lends to crypto’s fragility as an asset class, the Federal Reserve wrote.
MSCI’s proposed policy change, set to take effect in January, could also prompt treasury companies to divest their crypto holdings to meet the new eligibility criteria for index inclusion, creating additional selling pressure for digital asset markets.
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