If you haven’t even heard of cryptocurrency, there is little chance that you haven’t heard the name Bitcoin. Even the harshest cryptocurrency critics acknowledge that Bitcoin has been the pioneer cryptocurrency, and its popularity has grown exponentially with time.
Bitcoin has long been renowned for its secure and decentralized financial network. The cryptocurrency has a limited number of tokens (21 million) and has been hailed for remaining true to its original design idea.
However, in recent times, we have seen an innovation that has been built on top of the Bitcoin blockchain called Ordinals. The consensus of crypto experts who understand Bitcoin Ordinals is that it disrupts the established narrative built around Bitcoin.
For those unaware of the said narrative, here is a simple explanation of what we mean by this statement: “Ordinals are disrupting the narrative that Bitcoin is only good for buying and selling things. The new technology allows people to store and own other digital assets directly on the Bitcoin blockchain, not just BTC tokens. They can now create artwork, collectables, and even digital identities on Bitcoin, which wasn’t possible before.”
What are Bitcoin Ordinals, and How do they work?
Bitcoin Ordinals refer to non-fungible tokens (NFTs) on the blockchain, utilizing satoshis, the smallest denomination on the Bitcoin network, as the underlying unit.
Of course, you would have guessed by now that satoshis are named after the founder of Bitcoin, who is well known in the crypto world by his pseudo-name, Satoshi Nakamoto.
Each satoshi is given a serial number based on the order in which it was mined. These assigned numbers are what we call Ordinals. These serial numbers play a crucial role in the blockchain’s ability to monitor the location and ownership of each satoshi.
Furthermore, these Ordinals can be filled with additional information (data) through a procedure known as inscribing.
Adding additional data to a satoshi, an image or text, provides the Ordinary protocol required power to create a unique digital asset, such as an NFT.
The additional benefit of this process is that this digital asset is built on the Bitcoin blockchain, known for its secure and decentralized characteristics.
One Bitcoin is equivalent to one hundred million satoshis. In mathematical terms, this makes it one satoshi = 0.00000001 BTC.
The Bitcoin mainnet Ordinals software was launched in January of 2023.
What is the significance of Bitcoin Ordinals?
Now that we have a basic understanding of Bitcoin Ordinals, let’s discuss why they matter.
Firstly, Bitcoin Ordinals expand the scope of Bitcoin beyond its established focus as a digital currency. By enabling data inscription on individual satoshis, they unlock a wide range of possibilities, allowing the creators to mint unique NFTs, collectors to own verifiable digital assets, and individuals to manage their digital identities directly on the secure and decentralized Bitcoin blockchain.
Secondly, the Ordinals are harnessing the power of the Taproot upgrade, a recent enhancement to Bitcoin. The upgrade allows for additional data storage capacity within each transaction, which enables more complex data types to be inscribed directly onto the Bitcoin blockchain.
Adding inscriptions to the upgraded storage in each transaction eliminates the need for external metadata storage, which can compromise the decentralization aspect of the Bitcoin blockchain.
As a result, ownership rights associated with Ordinals are permanently documented and transparently verifiable on the Bitcoin blockchain.
Unpacking the Ordinals Protocol
So far, we have touched just the surface regarding the essential components that define what Ordinals are. We will take a broader look at the Ordinals’ underlying mechanics to grasp their functionality fully.
The SegWit and Taproot Upgrade
Two upgrades were made to the Bitcoin protocol that enabled the development of Bitcoin Ordinals. First was the Segregated Witness (SegWit) upgrade introduced in 2017. Second was the Taproot upgrade, which was introduced in 2021.
These upgrades enhanced the roles of each transaction on the Bitcoin blockchain. Instead of just transferring financial data into each transaction, the upgrade allowed adding more data types like images and videos.
While these modifications were not designed initially for non-fungible tokens (NFTs), they inadvertently established the essential framework for the existence of Ordinals and inscriptions.
The SegWit upgrade introduced a newer distinct section in each Bitcoin transaction known as witness data. The witness data facilitated the transmission of arbitrary data. The innovation allowed for more extensive data storage within Bitcoin’s block size constraints. The SegWit introduction was the first step towards the development of ordinal NFTs.
The Taproot upgrade further improved the privacy, scalability, and security features of the Bitcoin blockchain. It simplified the process of storing arbitrary witness data and relaxed the restrictions on the amount of random data that can be sent in a Bitcoin transaction.
How to Create Bitcoin Ordinals?
To create a Bitcoin ordinal, you must first craft a transaction that embeds the desired data onto one or more satoshis. The data type can vary from a simple text message to a complex multimedia file.
The process utilizes the scripting capabilities within the Bitcoin protocol, specifying how the data should be encoded and linked to a specific satoshi. The next step is to attach a unique timestamp and identifiers to connect each inscription to its corresponding satoshi.
Adding a unique timestamp ensures the verifiable ownership of the inscribed data on the blockchain.
Initially, only those with a full Bitcoin node and a specialized wallet capable of handling satoshis could generate inscriptions.
However, today, tools like Gamma and the Ordinals Bot have made it more accessible for users with limited technical expertise and minimized associated risks.
To create an inscription, users must initiate a transaction involving a specific satoshi using a Taproot-compatible wallet.
As part of this transaction, users include the desired metadata. Users must ensure that the chosen satoshi is not utilized as a network fee during the process.
A crucial aspect of Ordinals is the ability to track and verify ownership claims. Each inscription creates unique identifiers, functioning as digital certificates of ownership.
These identifiers are readily discoverable on the Bitcoin blockchain, enabling transparent ownership verification and eliminating the need for centralized trusted parties.
How to Mine Bitcoin Ordinals?
Like traditional Bitcoin transactions, Bitcoin Ordinals are also mined because they are essentially a type of transaction with particular characteristics that follow a specific protocol.
The difference between mining Bitcoin Ordinals and mining traditional NFTs is that in Bitcoin Ordinals, the data to which they point is inscribed directly on the Bitcoin blockchain. In contrast, in the case of NFTs, the information they point to is generally stored at an off-chain location.
The other contrasting difference, which is very evident, is that Bitcoin uses the proof-of-work (PoW) consensus mechanism for its mining process. In contrast, the NFTs built on other chains rely primarily on the proof-of-stake (PoS) consensus mechanism.
How to Buy, Sell, and Trade Bitcoin Ordinals?
There are dedicated places where you can buy, sell, or trade Bitcoin Ordinals, just like with NFTs. Some known marketplaces for Bitcoin Ordinals include Ordinals Market, Ordswap, OKX NFT marketplace, Gamma, and Magic Eden.
While each platform has its own specific sets of instructions that you have to follow to initialize the process of buying, selling, or trading Bitcoin Ordinals, the general method usually includes steps like these:
- Open a web browser or use a dedicated app to access a Bitcoin Ordinals marketplace.
- Establish a Bitcoin wallet directly within the Ordinals marketplace or connect an existing one.
- Ensure sufficient Bitcoin is in the wallet designated for trading purposes.
- Explore the diverse collections of Ordinals available on the marketplace.
- Identify a Bitcoin Ordinal that interests you, and utilize the connected Bitcoin wallet to complete the purchase.
One notable piece of information is that only some Bitcoin wallets support storing Ordinals. Some known wallet services that support Bitcoin Ordinals include Xverse, Unisat, and Ordinals Wallet. Other options to trade Ordinals include peer-to-peer networks or over-the-counter methods.
Use Cases of Ordinals
While the initially deduced usage of Ordinals was focused primarily on creating and trading digital art and memes, with time, a more productive use for these Ordinals was discovered that would utilize the full potential of this innovation.
Decentralized Collectibles and NFTs
Unlike conventional NFTs built on separate blockchains, Ordinals allows users to create and store their NFTs directly on the Bitcoin blockchain. This means users don’t have to rely on external platforms or sidechains, giving them more decentralization and security power.
Provenance Tracking and Authenticity Verification
Ordinals have another use case in which they can be used as digital labels to tag valuable items like artworks or luxury goods.
We can benefit from assigning Ordinals to these goods by creating an immutable record of ownership for these items. The record includes information like who owned these items and bought them later.
The information is stored permanently on the Bitcoin blockchain, which makes it very difficult for anyone to tamper with the stored record.
Bitcoin Collectables
Apart from using Ordinals as a market for digital art or peer-to-peer collection places, they can be utilized as a marketplace for Bitcoin collectables.
The Bitcoin collectables can come in rare satoshis uniquely valued in the Bitcoin community. The value of the collectables can be factored by information like when these satoshis were mined or their involvement in a specific transaction.
On-Chain Token Issuance
The On-Chain Token Issuance capability using Bitcoin Ordinals allows projects to create fungible tokens directly on the blockchain. The functionality is facilitated by the BRC-20 token standard, requiring the minting of an inscription before generating a BRC-20 token.
Online Games
Gaming projects built on Ordinals have introduced them for use in online games. The introduction enables gamers to possess fully decentralized and immutable in-game items.
Additionally, various games have been inscribed onto the Bitcoin blockchain, offering an accessible and unalterable version of these games online.
Concerns Surrounding Ordinals
There is no doubt that Ordinals have introduced a new layer of innovation into the world of blockchain, and it has significantly increased the use cases of the Bitcoin blockchain beyond the conventional purpose of using it as a medium for conducting transactions.
However, they have also instigated debates in the Bitcoin community due to some concerns that may not portray them positively.
Network Congestion and Transaction Fees
The primary concern surrounding the Bitcoin Ordinals is the additional congestion it may cause on the Bitcoin network. The extensive data inscriptions in transactions can increase the overall transaction size, which may lead to longer confirmation times.
The longer confirmation times will, as a result, cause higher fees, which ultimately could harm regular Bitcoin blockchain users, especially those who are seeking fast and affordable transactions.
Spam and Abuse
Another concern lies in malicious actors’ potential to use Ordinals for spamming or embedding harmful content on the blockchain.
The decentralized nature of Bitcoin makes it challenging to regulate content inscribed on satoshis, raising concerns about potential abuse and the long-term impact on the network’s stability.
Deviations from Bitcoin’s Core Principles
Some purists within the Bitcoin community argue that Ordinals deviate from the original vision of Bitcoin as a purely peer-to-peer electronic cash system.
They believe focusing on data inscription and NFT applications dilutes the network’s primary purpose and functionality.
Ultimately, the advocates and the retaliators of Bitcoin Ordinals would need to find common ground to address these issues while minimizing the potential damage it can have on the Bitcoin network.
Final Thoughts
Bitcoin Ordinals are rewriting the rules of NFTs, offering ownership and security directly on the Bitcoin blockchain. From digital art to rare satoshis, there are several avenues you can explore to find their use.
While concerns over network congestion and purpose remain, the technology’s potential is undeniable.
Note: Bitcoin Ordinals is still an evolving concept, and research and debate have been ongoing on what type of impact it can have on the Bitcoin Blockchain. However, like any other investment tool, we urge the readers to conduct thorough research before jumping the Oridnals ship. Learn more about Bitcoin Oridnals, how you can benefit from it, and the risks associated with this innovation. You should use caution with new blockchain software, offerings, and protocols.
