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

Ordinals represent a groundbreaking innovation in the world of digital collectibles, introducing a novel way to create and manage NFT ordinals directly on the Bitcoin blockchain. This technology leverages ordinal theory to assign unique identities to individual satoshis, the smallest units of Bitcoin, enabling them to be inscribed with immutable data and transformed into digital artifacts. Unlike traditional NFT ordinals that rely on separate tokens or sidechains, ordinals are entirely native to Bitcoin, utilizing its security, decentralization, and time-tested infrastructure.

TL;DR

The ordinals protocol introduces several key innovations to the Bitcoin ecosystem. Ordinal theory provides a systematic approach to numbering and tracking satoshis based on their mining and transfer order, creating a foundation for digital scarcity. The inscription process allows users to embed unique, permanent data directly onto individual satoshis, generating digital artifacts comparable to NFT ordinals but entirely on-chain. Recursive inscriptions, launched in mid-2023, expanded capabilities by enabling users to overcome data constraints through interconnected data sources and complex on-chain applications. The market impact has been significant, with Bitcoin NFT ordinals gaining substantial traction and competing with Ethereum-based NFTs in terms of sales and market share. However, this innovation has created a divide within the Bitcoin community regarding its alignment with Bitcoin's original purpose and concerns about network capacity.

What is ordinal theory?

Ordinal theory establishes a comprehensive system for numbering and tracking individual satoshis using ordinal numbers assigned based on mining and transfer sequence. This numbering system can be represented through various notations including integer, decimal, degree, and percentile formats. The theory introduces a unique rarity classification system based on the timing of significant events within the Bitcoin network.

The rarity hierarchy consists of six distinct levels. Common satoshis represent any sat that isn't the first in its block, making them the most abundant type found in nearly every transaction. Uncommon satoshis are the first sat of each block, occurring approximately 144 times daily as new blocks are added. Rare satoshis mark the beginning of difficulty adjustment periods, which occur every 2016 blocks or roughly every two weeks. Epic satoshis herald each halving epoch, taking place every 210,000 blocks or approximately every four years. Legendary satoshis represent the first sat of each complete market cycle spanning from one halving to the next. Finally, mythic satoshis are the rarest, consisting solely of the first satoshi from the Genesis block—the inaugural Bitcoin transaction. Notably, Casey Rodarmor, the protocol's creator, inscribed pixel art of a skull as the genesis ordinal, marking a historic moment in Bitcoin's evolution.

How do ordinal inscriptions work?

Ordinal inscriptions enable users to permanently embed digital content onto the Bitcoin blockchain, creating NFT ordinals similar to traditional NFTs but entirely within the Bitcoin network without requiring separate tokens or sidechains. The process transforms regular satoshis into unique, verifiable digital assets by inscribing them with immutable data that becomes a permanent, unalterable blockchain record.

The technical implementation relies on taproot script-path spend scripts, which provide an efficient and economical method for storing digital content entirely on-chain. Once inscribed, the content can be retrieved from web servers like regular web pages and even remixed with other inscriptions to create new artifacts. The inscription process follows a two-phase commit/reveal procedure: first, users create a taproot output committing to a script containing the inscription content, then spend that output to reveal the content on the blockchain. Content and metadata are serialized using "envelopes," special wrappers that make the information easily readable for other users. Transactions must be carefully constructed to follow ordinal theory rules, ensuring proper tracking and transfer of inscribed satoshis while maintaining the integrity of the ordering system.

How do I create an ordinal inscription?

Creating NFT ordinals inscriptions accommodates users across all technical skill levels through various approaches. Beginners without coding experience can utilize platforms like OrdinalBots, which handle all programming requirements and allow users to focus solely on their creative content. Intermediate users comfortable with coding can explore developer-friendly resources such as the Ordinals API on GitHub, created by Hiro, which provides comprehensive tools and access to an active developer community.

Advanced users who are proficient in coding and understand ordinal theory rules can follow a detailed technical process. This begins with selecting content for inscription, whether video, artwork, or text. Users then create an "envelope" using an editor or coding tool to wrap the content and metadata appropriately. Next, they create a taproot output using Bitcoin wallet software supporting the ordinal protocol, ensuring the transaction adheres to ordinal theory rules. The taproot output is broadcast to the Bitcoin network, making the inscription live on the blockchain. Finally, users spend the taproot output to reveal the inscription content on-chain, making it visible to all network participants. The completed inscription is permanently stored using taproot script-path spend scripts, ensuring it cannot be altered or deleted.

The launch of recursive inscriptions

Mid-2023 marked a significant milestone with the introduction of recursive inscriptions, addressing critical 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 is interconnected through sequential calls.

Previous inscriptions were limited to storing 4MB of data, but recursive inscriptions transcend this constraint by establishing networks of interconnected data sources. Developers can extract and integrate data from existing inscriptions into new ones, breaking free from rigid size limitations. This capability enables fully on-chain software execution by linking data through call sequences, opening new possibilities for complex applications operating entirely within Bitcoin's infrastructure. The technology significantly enhances interoperability within the Bitcoin network, though its relative novelty requires users to develop comprehensive understanding before engaging with recursive inscriptions. This advancement represents a crucial step toward expanding Bitcoin's utility beyond simple value transfer to supporting sophisticated decentralized applications.

Could Bitcoin surpass Ethereum NFTs in market dominance?

Market statistics from various analytics platforms reveal an evolving competitive landscape between Bitcoin NFT ordinals and Ethereum-based NFTs. While Ethereum has maintained a leadership position in the NFT space over the years, Bitcoin has demonstrated strong performance in NFT ordinals sales during various periods, indicating shifting market dynamics.

The rise of Bitcoin NFT ordinals has gained significant traction within both buyer and seller communities, compelling the Ethereum ecosystem to monitor this emerging trend carefully. A major milestone occurred when over 21 million Bitcoin ordinal inscriptions were logged, demonstrating substantial adoption. The protocol developers launched the Open Ordinals Institute, a California-based non-profit funding chief developers including the anonymous lead maintainer, Raph. This institutional support suggests long-term commitment to developing the NFT ordinals ecosystem. The growing adoption and institutional backing indicate that Bitcoin NFT ordinals represent a serious contender in the NFT market, potentially reshaping the competitive landscape between the two largest blockchain networks.

Bitcoin DeFi Projects

With Bitcoin's continued development trajectory, inscriptions and NFT ordinals have emerged as potential components for Bitcoin DeFi development. The Bitcoin ecosystem has witnessed various DeFi innovations over the years, including the Lightning Network and wrapped Bitcoin (wBTC), establishing precedent for financial innovation on the network.

Community sentiment suggests growing optimism regarding the potential integration of inscriptions within the Bitcoin DeFi space. Proponents believe inscriptions could provide new mechanisms for creating financial instruments and decentralized applications native to Bitcoin. This optimism reflects broader interest in expanding Bitcoin's utility beyond its traditional role as a store of value and payment system. However, the practical implementation of inscription-based DeFi remains largely exploratory, with developers investigating how these tools can be leveraged to create novel financial products while maintaining Bitcoin's security and decentralization principles.

A divided bitcoin community

The Bitcoin community exhibits significant division regarding NFT ordinals, reflecting fundamental disagreements about Bitcoin's purpose and future direction. Supporters welcome the protocol, believing it expands Bitcoin's utility by introducing new financial use cases and creative applications beyond simple peer-to-peer transactions. They view NFT ordinals as a natural evolution that leverages Bitcoin's security and decentralization for innovative purposes.

Conversely, skeptics argue that ordinals contradict Satoshi Nakamoto's original vision of Bitcoin as a peer-to-peer electronic cash system. Critics express concern that the rarity structure and inscription data consume valuable block space, potentially driving up transaction fees and reducing network efficiency for regular transactions. They worry about prioritizing digital collectibles over Bitcoin's primary function as a medium of exchange. Given the protocol's ongoing development, potential participants should conduct thorough research before investing time or resources in collecting valuable satoshis. This ongoing debate highlights broader tensions within the Bitcoin community about balancing innovation with preserving Bitcoin's core principles and maintaining network accessibility for all users.

What's new?

Recent developments demonstrate growing ecosystem support for NFT ordinals. The Phantom wallet now offers comprehensive ordinal compatibility, featuring support for recursive inscriptions including those from various platforms. Users can connect Ledger hardware devices to the wallet's mobile app and browser extension, enabling consolidated management of Bitcoin, NFT ordinals, and BRC-20 tokens within a single account. The wallet simplifies address management by supporting Native SegWit and Taproot addresses, both individually and simultaneously, while providing detailed ordinals metadata including sat numbers and inscription IDs.

Meanwhile, major Bitcoin holder MicroStrategy announced plans for MicroStrategy Orange, a decentralized identity service leveraging ordinal inscriptions. This service aims to provide trustless, tamper-proof decentralized identities using the Bitcoin network's security and immutability. These developments indicate institutional and infrastructure-level support for NFT ordinals, suggesting increasing mainstream adoption and integration into the broader Bitcoin ecosystem. The combination of wallet support and corporate initiatives demonstrates that ordinals are transitioning from experimental technology to practical applications with real-world utility.

Conclusion

Bitcoin NFT ordinals represent a revolutionary approach to digital collectibles, utilizing ordinal theory to create unique, permanently inscribed digital artifacts entirely on the Bitcoin blockchain. The technology uniquely identifies each satoshi and enables creative inscriptions ranging from common sats to the singular mythic satoshi from the Genesis block, each carrying distinct value based on its rarity classification. The introduction of recursive inscriptions significantly expanded capabilities for complex on-chain applications by overcoming data size limitations.

Despite growing market interest and Bitcoin's competitive performance against Ethereum-based NFTs in various periods, the Bitcoin community remains divided on NFT ordinals' merits. Supporters view them as expanding Bitcoin's utility and financial use cases, while critics argue they compromise network efficiency and deviate from Bitcoin's original peer-to-peer cash system vision. The integration of recursive inscription support in various wallets and institutional projects like MicroStrategy's planned decentralized identity service demonstrate increasing institutional adoption and practical applications.

The NFT ordinals protocol presents significant opportunities for innovation while raising important questions about balancing new capabilities with network capacity constraints and philosophical adherence to Satoshi Nakamoto's vision. As this technology continues evolving, users should conduct thorough research and carefully consider both the potential benefits and ongoing debates before engaging with Bitcoin NFT ordinals. The future trajectory of ordinals will likely depend on how the community resolves tensions between innovation and preservation of Bitcoin's core principles.

FAQ

What are Ordinals NFT?

Ordinals NFTs are unique digital assets inscribed on individual Bitcoin satoshis. They are tracked on the blockchain, held by users, and do not rely on external servers. Each ordinal is unique and immutable.

How to buy an ordinal NFT?

Use a Bitcoin wallet supporting ordinal inscriptions. Fund it with Bitcoin, then visit specialized marketplaces to purchase directly. Ensure wallet compatibility before buying.

Are Ordinals a type of NFT?

No, Ordinals are not NFTs. They are unique digital artifacts inscribed directly onto individual satoshis on the Bitcoin blockchain, while NFTs are typically on separate blockchains.

What do Ordinals mean in crypto?

Ordinals are a numbering system for Bitcoin satoshis, allowing unique identifiers and extra data to be attached to each unit, enabling digital asset creation on the Bitcoin blockchain.