Ordinals: the new NFTs on the block(chain) - a beginner's guide

Ordinals represent a revolutionary development in the world of digital collectibles, introducing a novel protocol that has captured significant attention in the cryptocurrency space. This technology enables unique identification and inscription of individual satoshis—the smallest units of Bitcoin—creating digital artifacts that function similarly to NFTs but are entirely native to the Bitcoin blockchain. The innovation combines the security and decentralization of Bitcoin with the creative possibilities of digital asset ownership, establishing ordinals NFT as a groundbreaking advancement in blockchain-based collectibles.

TL;DR

The ordinals protocol introduces several key innovations to the Bitcoin ecosystem. Ordinal theory establishes a unique numbering system for satoshis based on their mining and transfer order, enabling precise tracking and identification. The inscription process allows users to embed immutable data directly onto individual satoshis, creating permanent digital artifacts without requiring separate tokens or sidechains. Recursive inscriptions, launched in June 2023, expanded the protocol's capabilities by enabling users to overcome data constraints through interconnected data sources and complex on-chain applications. The market has responded enthusiastically, with Bitcoin ordinals NFT gaining substantial traction and competing with established NFT marketplaces in terms of sales volume and buyer participation. However, this innovation has also sparked debate within the Bitcoin community regarding its alignment with Bitcoin's original vision and its impact on network resources and transaction costs.

What is ordinal theory?

Ordinal theory provides a systematic framework for numbering and tracking individual satoshis using ordinal numbers assigned according to their mining and transfer sequence. This numbering system can be expressed in various notations, including integer, decimal, degree, and percentile formats, offering flexibility in representation and analysis.

A fundamental feature of ordinal theory is its establishment of rarity hierarchies based on significant events within the Bitcoin network. These rarity levels create a tiered classification system:

Common satoshis represent the vast majority of Bitcoin's smallest units—any satoshi that isn't the first in its block. These are found in nearly every transaction on the network. Uncommon satoshis are the first in each block, making them relatively scarce with only approximately 144 created daily. Rare satoshis mark the beginning of difficulty adjustment periods, occurring every 2016 blocks or roughly every two weeks. Epic satoshis inaugurate each halving epoch, appearing every 210,000 blocks or approximately every four years. Legendary satoshis signify the start of complete market cycles spanning from one halving to the next. Mythic satoshis are the rarest classification, with only one existing—the first satoshi of the Genesis block. In December 2022, Casey Rodarmor, the creator of the Bitcoin ordinals protocol, inscribed pixel art of a skull as the genesis ordinal, marking this historic moment.

The degree notation system provides an efficient method for representing ordinal numbers, incorporating block height, difficulty adjustment period, halving epoch, and cycle information in a format that immediately communicates a satoshi's rarity level.

How do ordinal inscriptions work?

Ordinal inscriptions enable users to permanently embed digital content onto the Bitcoin blockchain, creating unique digital artifacts similar to NFTs but built entirely within the Bitcoin ecosystem. For example, a creator could inscribe a video, artwork, or any digital content directly onto individual satoshis without requiring separate tokens or sidechains, making ordinals NFT a truly native Bitcoin solution.

The inscription process creates an immutable record that cannot be altered or deleted, establishing verifiable authenticity and provenance for digital content. These inscribed satoshis can be transferred between Bitcoin addresses like regular Bitcoin transactions, maintaining their inscribed data throughout their journey across the network.

The technical foundation relies on ordinal theory's sequential ordering system, where each satoshi possesses a specific order and value. Transactions involving inscribed satoshis must be carefully constructed to comply with ordinal theory rules, ensuring proper tracking and transfer.

Inscribed content is stored using "taproot script-path spend scripts," an efficient and economical storage method that keeps all data entirely on-chain. This approach enables content retrieval similar to regular web pages and allows for remixing with other inscriptions to create new composite artifacts.

The inscription creation process follows a two-phase commit/reveal procedure. First, users create a taproot output that commits to a script containing the inscription content. Then, they spend that output to reveal the content on the blockchain, making it permanently visible and accessible. Content is serialized using "envelopes," which package the content and metadata in a format easily readable by other users and applications.

How do I create an ordinal inscription?

Creating ordinal inscriptions accommodates various skill levels, from beginners to advanced programmers.

For beginners with minimal coding experience, platforms like OrdinalBots provide user-friendly interfaces that handle all programming aspects. Users need only supply their creativity and content, making ordinals NFT inscription accessible to non-technical creators.

Intermediate users comfortable with coding can explore the Ordinals API available on GitHub. Hiro's developer-friendly APIs for Bitcoin offer comprehensive documentation and an active developer community for support and collaboration.

Advanced users proficient in coding and familiar with ordinal theory rules can follow a detailed technical process. This involves selecting content for inscription, creating an envelope using editors or coding tools to wrap content and metadata, generating a taproot output using compatible Bitcoin wallets or software while carefully following ordinal theory rules, broadcasting the taproot output to the Bitcoin network to establish the inscription, and finally spending the taproot output to reveal the inscription content on-chain. The completed inscription is stored permanently using taproot script-path spend scripts, ensuring immutability and permanence.

The launch of recursive inscriptions

June 2023 marked a significant milestone with the introduction of recursive inscriptions, addressing persistent challenges related to transaction fees and block space limitations. This innovation enables sophisticated on-chain software development within the Bitcoin ecosystem through a technique called daisy-chaining, where data elements are interconnected through sequential calls.

Before recursive inscriptions, standard inscriptions were limited to 4MB of data storage. Recursive inscriptions transcend this constraint by establishing networks of interconnected data sources. Developers can extract and integrate data from existing inscriptions into new ones, effectively breaking through the 4MB limitation. This breakthrough enables fully on-chain software execution by linking data through sequential calls, opening new possibilities for complex applications and expanding the utility of ordinals NFT technology.

The technology holds immense potential for enhancing interoperability within the Bitcoin network. However, as a relatively new innovation, comprehensive understanding and careful evaluation remain essential before engaging with recursive inscriptions in production environments.

Could Bitcoin surpass other blockchains in NFT market dominance?

Market data reveals an evolving competitive landscape in the digital collectibles space. While established blockchain platforms have maintained leadership in total NFT sales historically, Bitcoin ordinals NFT has demonstrated remarkable performance during various periods, suggesting a shifting dynamic in the digital collectibles market.

Bitcoin ordinals have gained substantial traction within buyer and seller communities, prompting attention from stakeholders across the cryptocurrency ecosystem. The milestone of over 21 million Bitcoin ordinals inscriptions logged by mid-2023 demonstrated significant adoption and community engagement. The establishment of the Open Ordinals Institute, a California-based non-profit funding core developers including lead maintainer Raph, provides institutional support for continued development and innovation.

These developments indicate that Bitcoin ordinals NFT represent a serious competitor in the NFT space, potentially challenging established platforms' dominance through unique advantages offered by Bitcoin's security model and the ordinals protocol's innovative approach.

Bitcoin DeFi Projects

Bitcoin's continued development trajectory has brought inscriptions and ordinals into focus as potential components of Bitcoin DeFi projects. The ecosystem has witnessed various DeFi innovations over the years, including the Lightning Network and wrapped Bitcoin solutions. Community sentiment suggests optimism about leveraging ordinals NFT within the Bitcoin DeFi space, potentially expanding financial use cases and applications beyond traditional Bitcoin functionality. This represents an emerging area of development with significant potential for ecosystem growth and innovation.

A divided bitcoin community

The Bitcoin community exhibits significant division regarding ordinals' role and impact. Supporters believe the protocol expands Bitcoin's utility by introducing new financial use cases and creative possibilities through ordinals NFT, potentially strengthening the ecosystem and increasing adoption. They view ordinals as a natural evolution of Bitcoin's capabilities that maintains the network's core principles while expanding its functionality.

Opponents argue that ordinals contradict Satoshi Nakamoto's original vision of Bitcoin as a peer-to-peer cash system focused on financial transactions rather than data storage. Skeptics express concerns about the rarity structure consuming valuable block space and driving up transaction fees, potentially impacting Bitcoin's accessibility and efficiency for traditional monetary transactions. These critics worry about long-term implications for network scalability and sustainability.

Given the protocol's ongoing evolution and the continued debate, potential participants should conduct thorough research and carefully evaluate the technology's merits and risks before engaging with ordinals or seeking valuable satoshis.

What's new?

Recent developments continue expanding ordinals NFT accessibility and utility. Major wallet providers now support ordinals, including recursive inscriptions from various platforms. Integration with hardware wallet devices through mobile and browser applications enables users to manage Bitcoin, ordinals, and BRC-20 tokens within a single account, simplifying address management through support for Native Segwit and Taproot addresses with detailed metadata display including sat numbers and inscription IDs.

MicroStrategy, a major Bitcoin holder, has announced plans for MicroStrategy Orange, a decentralized identity service utilizing ordinals inscriptions. This service will provide trustless and tamper-proof decentralized identities leveraging the Bitcoin network's security and permanence, representing a significant expansion of ordinals NFT practical applications beyond digital collectibles.

Conclusion

BTC digital artifacts utilizing ordinal theory represent a transformative development in digital collectibles, uniquely identifying each satoshi and enabling creative inscriptions that create distinctive digital treasures. The rarity hierarchy spanning from common to mythic satoshis establishes varied value propositions for collectors and creators. The introduction of recursive inscriptions in 2023 significantly expanded capabilities for complex on-chain applications, while growing market interest demonstrates substantial adoption potential for ordinals NFT technology. Despite community division regarding alignment with Bitcoin's original vision and concerns about network capacity, the innovation warrants serious attention. The ongoing integration of recursive inscriptions into major wallet platforms demonstrates growing accessibility across different communities. As the technology matures, balancing innovation with practical concerns about network resources and foundational principles remains crucial for sustainable development and widespread adoption of ordinals NFT within the Bitcoin ecosystem.

FAQ

What are Ordinals NFT?

Ordinals are unique NFTs on the Bitcoin blockchain, created by attaching data to individual satoshis. They leverage Bitcoin protocol updates from 2017 and 2021, offering a distinct approach to NFTs by directly linking to Bitcoin's smallest units.

Are Ordinals a type of NFT?

No, Ordinals are not NFTs. They are digital artifacts inscribed onto Bitcoin, while NFTs are unique tokens on other blockchains.

How to buy an ordinal NFT?

Connect your wallet, purchase BTC, and use a marketplace. Find your desired ordinal NFT and initiate the purchase with your connected wallet.

What do Ordinals mean in crypto?

Ordinals are a method for creating unique Bitcoin NFTs by inscribing data onto individual satoshis, allowing ownership of specific pieces of Bitcoin's blockchain.