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What are Bitcoin Ordinals (Bitcoin NFTs)?
Bitcoin Ordinals is a protocol that makes it possible to store unique digital assets on the Bitcoin blockchain and treat them like non-fungible tokens (NFTs). Bitcoin NFTs may also be referred to as Ordinals or Ordinal NFTs.
Key Takeaways
- Bitcoin Ordinals is a protocol that essentially allows NFTs to be created on the Bitcoin blockchain.
- The protocol makes it possible to assign each satochi a unique identifier based on the order it is mined.
- The protocol also allows comprehensive metadata to be attached to each satoshi.
- Every satochi has the potential to become an Ordinal NFT.
- Satochis that are not being used as Ordinal NFTs can be used as currency.
How Do Bitcoin Ordinals Work?
Bitcoin Ordinals allow individual satoshis (sats), the smallest unit of Bitcoin, to be assigned unique identifiers based on the order in which they are mined. The protocol also allows metadata to be attached to individual satoshis. The flexibility regarding what can be included in metadata is what allows Ordinals to store the entire digital asset directly on the Bitcoin blockchain.
The Ordinals protocol, which is credited to Casey Rodarmor, takes advantage of two updates to the original Bitcoin protocol: Segregated Witness (SegWit) and Taproot.
Taproot introduced new scripting capabilities and a signature aggregation scheme that made it possible to attach metadata to individual satoshis. The process of attaching the metadata is called inscription.
The Segregated Witness update allowed witness information (also known as witness script) to be decoupled from transaction data and stored in a separate data structure on the blockchain. This effectively increases Bitcoin’s block size and makes it possible for users to inscribe images, video, audio, or code in the witness script along with digital signatures and other validation information.
What is an Example of a Bitcoin Ordinal?
One of the earliest and most well-known examples of a Bitcoin Ordinal is the Ordinal Punk collection, which was inspired by CryptoPunks on the Ethereum blockchain,
Ordinal Punks are unique pixel art images inscribed onto individual satoshis. Each Ordinal Punk has distinct attributes and a limited supply.
Bitcoin Ordinals vs. NFTs
There are several important differences between Bitcoin Ordinals and NFTs.
First of all, an Ordinal can either be fungible or non-fungible. If the user values the inscription on a satochi, the Ordinal can be treated like a non-fungible token. If the user doesn’t value the inscription, the Ordinal can be used as a native cryptocurrency.
Another big difference is that NFTs store a token that represents an NFT on-chain but store the actual digital asset off-chain. In contrast, Bitcoin Ordinals store the entire digital asset directly on the Bitcoin blockchain.
How to Create Bitcoin Ordinals
To create Bitcoin Ordinals, you will need to know how to use a command line interface (CLI), or you’ll need to use a special online platform like Gamma.io.
The original and most technically involved way to create Bitcoin Ordinals is by using a CLI. This requires running a full Bitcoin node, understanding Bitcoin commands, and having some technical proficiency. It offers the most control but has a steep learning curve.
To make Ordinal NFTs more accessible, platforms have emerged that simplify the process by providing user-friendly interfaces and handling the technical complexities of creating this type of digital asset.
How to Mine Bitcoin Ordinals
Miners for Bitcoin Ordinals and standard fungible satochis use the same mining process. The first miner to solve a complex problem gets to validate a block of transactions and add a new block to the blockchain. As a reward for their work, the miner receives a financial reward. The reward consists of newly minted bitcoins (BTCs) as well as fees from all the transactions included in the block.
It’s worth noting that larger transactions, like those containing Ordinal inscriptions, typically offer higher fees to incentivize miners to include them in a block.
How to Buy, Sell, and Trade Bitcoin Ordinals
To inscribe, buy, sell, and trade Bitcoin ordinals, you’ll need a wallet that supports Ordinals – and you’ll need some Bitcoin.
- Find a marketplace that specializes in Bitcoin Ordinals.
- Set up a wallet that supports Ordinals.
- Explore the marketplace to find an Ordinal you’d like to buy.
- Follow the marketplace’s instructions for how to pay for the Ordinal.
- Find a reputable marketplace that supports Bitcoin Ordinals and has transparent listing fees.
- List the Ordinal you want to sell on the marketplace you choose.
- Set a fixed price for the ordinal or opt for an auction-style listing if allowed.
- When a buyer purchases your ordinal, follow the marketplace’s instructions for acquiring payment.
- Set up a wallet that supports both NFT trading and Ordinals.
- Find a trading partner through online communities, forums, or marketplaces that support trading Ordinals.
- Negotiate terms for the trade.
- Exchange the Ordinals and Bitcoin as agreed.
Bitcoin Ordinal Use Cases
The ability to store diverse types of data directly on a blockchain has opened up new possibilities for how NFTs can be used. Potential use cases that take advantage of the data integrity Ordinals provide include:
- Proving ownership of physical assets like automobiles or real estate.
- Providing ownership of digital assets like digital art and in-game assets.
- Verifying creation dates for intellectual property.
- Tracking the origin and journey of goods through a supply chain with smart contracts.
Why Bitcoin Ordinals are Controversial
When the Bitcoin Ordinals protocol was first released, it created a lot of controversy within the Bitcoin community.
There was debate about whether Ordinals align with Bitcoin’s original purpose and whether non-fungible satochis posed a risk to the blockchain’s core functionality.
Some community members were concerned that if miners prioritized blocks that contained Ordinal NFTs because they offered higher fees, it would eventually inflate fees for regular transactions.
Others were concerned that the additional metadata Ordinals carry would create a network bottleneck and slow down confirmation times for blocks that did not contain Ordinals.
While the initial concerns were valid and debate continues within the community, the Bitcoin network has been robust enough to accommodate both fungible and non-fungible satochis so far.
Bitcoin Ordinals Pros and Cons
Bitcoin ordinals offer a range of on-chain benefits, but they also come with challenges. As the market evolves, these challenges will need to be addressed if Ordinals are going to reach their full potential.
- The Ordinals protocol expands use cases for satochis beyond that of just being a currency.
- The protocol allows digital assets to be inscribed directly on individual satochis and stored on-chain.
- On-chain digital assets can be purchased and traded like NFTs.
- Inscriptions have transaction fees.
- The ecosystem for buying, selling, and trading ordinals is still developing.
- There are practical limits to the amount of data that can be inscribed on a satochis cost-effectively. Extremely large files might require additional off-chain storage, which defeats the purpose of on-chain Ordinals.
Future of Bitcoin Ordinals
The future of Bitcoin NFTs is promising but uncertain. Key indicators to watch include regulatory developments for purchasing and trading digital assets and market dynamics for NFTs in general.
The Bottom Line
Bitcoin Ordinal definitions have become less conceptual and more practical since Casey Rodarmor first conceived the idea in 2022.
In 2022, the concept of tracking and transferring individual satochis was still theoretical. With the release of Rodarmor’s protocol in 2023, however, the meaning of Bitcoin Ordinals became more focused. Today, the term Bitcoin Ordinals has become a synonym for Ordinal Non-Fungible Tokens (NFTs).
Editor’s Note: The synonym is a bit ironic because the whole point of Ordinals is to store assets on-chain and avoid using tokens that point to off-chain digital assets like Ethereum NFTs do!
FAQs
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References
- Casey Rodarmor – Agora | LinkedIn (Linkedin)
- The future of Bitcoin — Schnorr Signatures, Key Aggregation & Interactive Aggregate Signatures (IAS) (Linkedin)
- Inscriptions – Bitcoin Inscription | Trust Machines (Trustmachines)
- Magic Eden – NFT Marketplace (Magiceden)
- CryptoPunks (Cryptopunks)
- Gamma | Find & Buy Bitcoin Ordinals and NFTs (Gamma)
- Running A Full Node – Bitcoin (Bitcoin)
- Guide to Listing Bitcoin Ordinal Inscriptions on Magic Eden | Magic Eden Help Center (Help.magiceden)
- Ordinals Wallet (Ordinalswallet)
- How to Trade NFTs? (Vakilsearch)
- Ordinal Theory – Casey Rodarmor’s Blog (Rodarmor)
