What Are Ordinals? An Overview of Bitcoin NFTs
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What Are Ordinals? An Overview of Bitcoin NFTs

What Are Ordinals? An Overview of Bitcoin NFTs

Intermediate
公開済 Mar 21, 2023更新済 Aug 15, 2023
7m

TL;DR

  • Every bitcoin is made up of 100,000,000 satoshis (sats). The Ordinals protocol allows for each individual satoshi to be identified and transacted with additional data attached through a process known as an inscription.

  • Ordinals have created another use case for Bitcoin beyond the simple transfer of value, making Bitcoin NFTs a reality.

What Are Bitcoin Ordinals?

Bitcoin Ordinals were introduced in January 2023 as a method of generating Bitcoin NFTs by attaching information to individual satoshis. This is achieved through a process called “inscribing.”

Until recently, NFTs have primarily been minted and used on blockchains like Ethereum, Solana, and BNB Chain. This changed when the team behind Ordinals recognized that non-fungible tokens could also have a place on the Bitcoin blockchain. Consequently, this has led to the emergence of the Ordinals project.

History has proven that changing a piece of Bitcoin’s code is extremely difficult. This issue is mainly due to the decentralized network of nodes and developers who don’t want to risk network security. As such, Bitcoin NFTs have not gained as much traction. Nevertheless, the growth of the crypto ecosystem has opened the gates to innovative minds for whom the creation of Bitcoin NFTs is part of the future of Web3.

Since its inception, Ordinals have grown steadily as a growing number of users contribute by uploading different types of content, such as images, audio, and videos. Let’s take a closer look at how it works.

How Do Bitcoin Ordinals Work?

The Ordinals protocol is a system for numbering satoshis, giving each satoshi a serial number and tracking them across transactions. Simply put, ordinals allow users to make individual satoshis unique by attaching extra data to them. This process is known as “inscription.”

A satoshi – named after Bitcoin's pseudonymous creator Satoshi Nakamoto – is the smallest denomination of bitcoin (BTC). A single BTC can be divided into 100,000,000 satoshis, meaning each satoshi is worth 0.00000001 BTC. 

Satoshis are numbered based on the order in which they were mined and transferred. The numbering scheme relies on the order satoshis are mined, while the transfer scheme relies on the order of transaction inputs and outputs. Hence the name “ordinals.” The first satoshi in the first block has the ordinal number 0, and the second has the ordinal number 1, and so on. According to ordinal theory, these ordinal numbers act as stable identifiers for the data attached to sats.

While traditional NFTs are similar to ordinals in some ways, there are a few key differences. NFTs have typically been made using smart contracts on blockchains such as Ethereum, Solana, and the BNB Chain, and sometimes, the assets they represent are hosted elsewhere.

Conversely, ordinals are inscribed directly onto individual satoshis, which are then included in blocks on the Bitcoin blockchain. Ordinals reside fully on the blockchain and do not require a sidechain or separate token. In this sense, ordinal inscriptions inherit the simplicity, immutability, security, and durability of Bitcoin itself. 

Ordinal Theory and Inscriptions

In the context of Bitcoin, Ordinal Theory is a proposed methodology for identifying each satoshi via a serial number and tracking them in the Bitcoin coin supply, from first minting through their entire lifespan of transactions. Thus, ordinal inscriptions are digital assets, similar to NFTs, inscribed on a satoshi in the Bitcoin network. This process has been made possible thanks to the Taproot upgrade, launched on November 14, 2021. Because of this, ordinal inscriptions do not require a sidechain or separate token.

As Ordinal Theory allows the tracking and transfer of individual satoshis, it has opened the possibility of collecting them. Based on the total supply of bitcoins, the following ranks have been prescribed to denote the rarity of different satoshis:

  • Common: any sat other than the first sat of its block (2.1 quadrillion total supply).

  • Uncommon: the first sat of each block (6,929,999 total supply).

  • Rare: the first sat of each difficulty adjustment period (3437 total supply).

  • Epic: the first sat after each halving (32 total supply).

  • Legendary: the first sat of each cycle* (5 total supply).

  • Mythic: the first sat of the genesis block (1 total supply).

*A cycle represents the period between conjunctions, which occur when a halving and a difficulty adjustment coincide. In theory, this happens every 6 halvings, but the first conjunction is yet to occur (expected to occur in 2032).

Ordinals Pros and Cons

Ordinals have created another use case for the Bitcoin network beyond simple transfers of value. However, the Ordinals protocol has been met with controversy as it precipitates a fundamental issue within the Bitcoin community. On the one hand, we have those who believe that the relative simplicity of Bitcoin in its limitations to storing and transferring value should be preserved. On the other hand, some believe that Bitcoin should evolve to include new features and use cases.

Inscribed satoshis are now competing for block space with regular BTC transactions, increasing network fees. This has caused some controversy in the Bitcoin community, but some Ordinals supporters argue that this could be positive as fees are a crucial incentive for miners to secure the blockchain.

In the future, as block rewards dwindle over time, network fees will become the primary incentive for committing hash power to Bitcoin. While the crypto community seems divided on the topic, the Ordinals project has certainly brought innovation to the Bitcoin space.

How to Create a Bitcoin NFT

The Ordinals ecosystem is in its infancy, and minting an ordinal NFT is still tricky and may require technical knowledge. For example, there are no NFT marketplaces that allow users to create them easily.

One way to make Bitcoin NFTs requires multiple technical steps, such as creating and running a full Bitcoin node and installing a Taproot-compatible wallet on that node before inscribing satoshis into the wallet. Another method may be simpler as it involves using a no-code tool to inscribe the ordinal NFT.

Be sure to choose a wallet that has a "coin control" feature to avoid spending Ordinal satoshis on network fees or accidentally sending them in another transaction. Those looking to inscribe an Ordinal should also have enough bitcoins to cover the transaction fee.

Closing Thoughts

Ordinals are changing the world of blockchain art by providing an entirely new way to store information on Bitcoin. They are adding extra utility and have increased the number of non-zero Bitcoin addresses to an all-time high. We are witnessing a unique moment in Bitcoin history where innovation is generating network activity beyond the typical use cases of investment and monetary transfer. Does this mean that Ordinals will continue to grow? Only time will tell.

Further Reading

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