Ordinals is a protocol on Bitcoin network that enables uniqueness of each satoshi by adding data to it. As you know, satoshi is the smallest unit in Bitcoin system and it is equal to one hundred millionth of one Bitcoin. The process of adding data, in the form of text, or audio, or video, or even a game, to each satoshi is called inscription, where users can practically inscribe additional information to sats.
Numbers are assigned to satoshis based on the order cycle of their mining and transfer. This unique system assigns numbers to satoshis based on the sequence of their creation, while the transfer scheme is based on the order of transaction inputs and outputs. This is why they are referred to as “Ordinals”.
The History of Ordinal NFTs
Looking back in history, even the first genesis block contained data in it, when Satoshi Nakamoto inscribed headline from a newspaper in it: “Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
In 2011, the first image came out in block, and it was a tribute to Bitcoin dev Len Sassaman, who passed away. Funny thing, the second person on the image was Ben Bernanke, the Chairman of the United States Federal Reserve at the time.
However, these inscriptions weren’t available for owning.
The person who enabled this was Casey Rodarmor, in 2023, with his Ordinal theory, where he describes sats rarity, names, exotics, and even argues that this idea was there from the very beginning. I highly recommend you check it out, it is not long.
Ordinals vs. NFTs
The main difference between Ordinals and NFTs as we know them is in storage location. Ordinals are directly inscribed in specific satoshis, and added in the ledger on Bitcoin blockchain. Its creator Casey Rodarmor, who launched them on Bitcoin mainnet on January 20, 2023 considers them as digital artifacts, since they are complete in that way and immutable. On the other hand, NFTs on Ethereum, or any other blockchain except Bitcoin’s, exist sometimes off chain, representing asset not inscribed on the blockchain, which gives them the option to be modified by using dynamic metadata.
The second important distinction is in security, Ordinals rely on the security of Bitcoin network and we know very well that this is the most secure and decentralized network in the entire world. NFTs on any other chain rely on the security of its smart contracts.
Going further into differences, one important feature that distinguishes them are smart contracts. Since this option is still not available on Bitcoin network, swapping Ordinals is not possible through DEX, and so far it is mostly done via OTC deals where users need to be extra careful.
Rarity is another important contrast. In his theory, Rodarmor discusses different events such as block creations, difficulty adjustments, halvings… The first sats in some of these events would be very special with attributes like:
- common: Any sat that is not the first sat of its block.
- uncommon: The first sat of each block.
- rare: The first sat of each difficulty adjustment period.
- epic: The first sat of each halving epoch.
- legendary: The first sat of each cycle.
- mythic: The first sat of the genesis block.
Needless to say, supply of some Ordinals would be directly set following these events, with the rarest one for legendary – 5, and mythic – 1 Ordinal.
How do Bitcoin ordinals work?
Ordinals were enabled by the latest upgrades on Bitcoin network – SegWit and Taproot. It is, however, important to note that these two updates didn’t directly caused beginning of NFTs on Bitcoin network, nor token fungibility was the idea behind them. How did it come to this?
Recent Bitcoin network upgrades
SegWith upgrade was introduced as a change in the format of Bitcoin transactions. It enabled bigger block size and storing more data into it. Before this update, block size was limited to 1 MB, clogging the network as it grew in popularity. SegWit or Segregated Witness was introduced by Pieter Wuille in 2017, and enabled 4 MB block size, by divind the structure of a transaction in two segments. Signature or witness data was removed from the original structure and added in the separate structure at the end of a transaction block. This enabled storing more data in the original section by segregating it.
Taproot upgrade occured in 2021, which enabled even faster transactions on Bitcoin network, by aggregating signatures that can further by validated. This upgrade made it possible for transactions containing many inputs, like the ones from multiple addresses, to be seen and verified as a one transaction. Naturally, it also increased the number of transactions that can be processed.
New use case of the network
As you can see, latest updates enabled bigger block size, therefore users got an option to store more data inside one transaction. Another thing to keep in mind is that block size is now 4 MB and it needs to be full in order to get to the validation point and be added to the blockchain. With more space, without any intentions, users got new options to use the network, by inscribing data into transactions, and tying them to sats. The most important innovation in Ordinals is that they enable unique ID for each satoshi on the Bitcoin blockchain.
It was mentioned earlier that users can inscribe different kind of data into satoshi, and so far the biggest chunk goes to textual data.
The most notable Ordinals inscriptions
The number of satoshi inscriptions is on the rise with every day, currently there are over 910 000 Ordinals on the Bitcoin network, with the current market cap of 700 million USD. Some even argue that Bitcoin NFTs can one day overthrow Ethereum NFTs in the market cap size, which remains to be seen…
Some of the most popular collections on Bitcoin blockchain are:
- Yuga Labs’ TwelweFold, with their 288 creations of generative art. They received 3 246 bids for them, with the highest bid of 7.1159 BTC, and the lowest of 2.2501 BTC
- Magic Eden’s DeadJira, with 107 digital artifacts.
- Ordinal Punks, 100 collectibles created withing the first 650 inscriptions on the Bitcoin network, with the highest bid of amazing 50 BTC, and the lowest of 3.7 BTC.
- Taproot Wizards, with a small number of creations, not out for a sale yet. However, scammers are already trying to sell fake Wizards, so extra caution is needed.
- OnChainMonkey, with 10 000 Ordinals in just one inscription, making it one of the first 10k collectibles on Bitcoin.
Impact of the Bitcoin NFTs on the ecosystem
Ever since they appeared, Ordinals sparked discussions across social media. And as always, there are confronted opinions.
Bitcoin maximalists argue that block size shouldn’t contain meaningless pics, nor any other type of data other than financial transactions, that fees are on the rise due to filling blocks with different type of data, and that now Bitcoin network can be used for malware, scams and copyrighting, among other things.
On the other hand, there are users who see Ordinals protocol as a great addition, that gave Bitcoin network use cases beyond being a network only for financial transactions. And they seem to have a valid point here, since this upgrade is technological advancement, and so far nobody stopped technology progress. Even great BTC maxi Michael Saylor supports the idea of data transferring across Bitcoin network. Time will tell who was right.
How to buy, trade, and store Ordinals
When it comes to buying, storing, and trading Ordinals, things get a bit complicated and rather technical. There aren’t as many wallets for them, as there are for NFTs from other chains like Ethereum, Binance Smart Chain, or Solana. At the moment, Bitcoin Ordinals can be stored on: Ordinals Wallet, Xverse, Hiro Wallet, and Sparrow.
As for exchanges or marketplaces for them, the best option would be to check Discord servers of respected creators, since fake Ordinals are already circulating the space. Needless to say, always do a proper research, or else you might end up with an empty hands, or in this case wallet.
One popular marketplace is Gamma, just recently launched but with already over 50 collections. Platform is work in progress, since they announced their goal is to provide one of the best Web3 experiences, offering open marketplace and tools for all creators, as well as different wallet integrations.
It is worth noting Magic Eden as well, with all kinds of Ordinals, and support for creators, on Discord especially.
Do your research and carefully verify the authenticity of any Bitcoin Ordinal before making a purchase.
Consider the long-term value and potential use cases of a Bitcoin Ordinal before investing in one. Be wary of scams and fraud in the Bitcoin Ordinal market and only purchase from reputable sources.
Fungibility of Ordinals
Bitcoin Ordinals can be seen both as fungible and non fungible items. How is this possible?
It comes down to the user and their preference. Bitcoin protocol at its core doesn’t recognize ordinal theory, so if a user doesn’t care about an ordinal inscribed into specific satoshi and data attached to it, he can simply continue to use sats as a mean of payment while transacting. In this case one satoshi with data in it would be seen just as some other sat without anything attached. Both sats are fungible and seen the same on Bitcoin network.
This is not the case with Ethereum network, or some other chain out there. Those protocols distinguish tokens so 1 ETH token is completely different compared to NFT on the Ethereum network and those two can never be seen as one item on the blockchain.
Token standards comparison: ERC-20 vs. ERC-721 vs. BRC-20
ERC is an acronym for Ethereum Request for Comment.
ERC-20 is a token standard on Ethereum network and it represents foundation on which all other fungible tokens on this platform are built.
ERC-721 represents Non Fungible Token standard (NFT), also developed on Ethereum network.
BRC-20 tokens are fungible tokens created using Ordinals protocol, enabling the inscription of JSON data onto satoshis.
Table below shows main differences between these standards, but not all of them.
|Purpose||Fungible tokens.||Non fungible tokens.||Fungible tokens.|
|Properties||Name, symbol, decimals, total supply.||Name, symbol, token ID, metadata.||Name, symbol, total supply.|
|Use cases||ICOs, governance tokens, dApps.||Collectibles, digital art, gaming assets, virtual real estate.||To be determined, exploration phase.|
|Compatibility||Highly interoperable with wallets, exchanges, and smart contracts.||Interoperable, may require specialized platforms or marketplaces.||Limited, only on Bitcoin blockchain.|
|Security||Relies on Proof of Stake consensus.||Relies on Proof of Stake consensus.||Relies on Proof of Work consensus.|
|Scalability||Higher, Ethereum network is faster.||Higher, Ethereum network is faster.||Lower, Bitcoin transactions are limited sometimes.|
Side note: Don’t confuse BRC-20 standard on Bitcoin network with BRC20 standard of the Bitgert blockchain. Those are two completely different token standards, built on different systems, although both allow creation of fungible tokens.
Ordinals Pros and Cons
In all honesty and ambiguity, here are some of the Pros and Cons when it comes to Bitcoin Ordinals. Since this technology is still new, the list is far from final…
- New use case, aside financial nature, by storing data on the Bitcoin blockchain.
- Higher fees are not always bad, in this case they act as incentive for miners to continue to mine BTC and support the network.
- 1 sat ≠ 1sat, anymore. With an option to inscribe data in satoshi, some of them can be more valued than other.
- Clogging blocks with (sometimes) meaningless data, which brings to network congestion and high fees.
- 1 sat = 1 sat, for Bitcoin maxis this is a must, without any further discussions.
- Anyone can create Ordinals, which raises questions around copyrights and scams, especially in art industry.
How to inscribe Bitcoin Ordinals?
To clear things first, Ordinals can’t be mined. You can only inscribe data to a certain satoshi.
With that being said, below is the tutorial how to create Ordinals using Hiro wallet.
And here is another one, made by Xverse Wallet.
Regulatory and Legal Considerations
There are some downsides to Ordinals, and at the moment, th biggest problem is around copyright and trademarking.
Bitcoin’s protocol is open source. Sure, there are limitation when it comes to network upgrade, since majority of nodes need to agree on changes. But anyone can build applications on top of it. Which is how Ordinal protocol came to life after all.
Above said means that literally anyone can create inscriptions into sats, add any type of data they want, and these Ordinals will remain forever inscribed on the blockchain. There are for sure honest artists, but crypto space at this stage is full of scammers and impersonators as well, whose main goal is to get rich quick. To give you a closer perspective, some impersonator can inscribe specific art picture/song/video etc. into blocks, from a genuine author, and claim it as his. Seems like Pandora’s box was opened.
What’s next for Ordinals?
As always, nobody knows what the future holds.
Ordinals are here to stay, that is fore sure. Protocol is live and for it go down, as said earlier, majority of active nodes must agree on this action. With the market cap of hundred millions of dollars already, highly unlikely to happen.
Nevertheless, there should be some sort of regulation for Bitcoin NFTs since they have their use cases. Otherwise, memes and all kind of meaningless inscriptions will overflow the market, and this great technology won’t be taken seriously by real artists. Another question that remains open is the future of altcoins built on all other chains? Is there a need for them now that Bitcoin network enables creation of fungible tokens as well through BRC-20 standard, with the guarantee of a security and decentralization coming from this network? Smart contracts made difference for Ethereum, but it seems they are coming very soon to Bitcoin. Interesting times ahead.