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 protocol that transforms how we think about Bitcoin and non-fungible tokens. This technology allows each satoshi, the smallest unit of Bitcoin, to be uniquely identified, tracked, and inscribed with immutable data, creating digital artifacts stored entirely on the Bitcoin blockchain. Understanding what are ordinals is essential for anyone interested in the evolving landscape of Bitcoin-based digital assets.

TL;DR

Ordinal theory introduces a revolutionary numbering system for satoshis based on mining and transfer order, enabling unique tracking of individual units. The inscription process allows users to embed immutable data onto satoshis, creating digital artifacts similar to NFTs but built entirely on Bitcoin's infrastructure. Recursive inscriptions, launched in mid-2023, broke through previous data constraints by enabling users to connect multiple data sources and utilize complex on-chain applications. The market impact has been significant, with Bitcoin tokens gaining popularity and competing with Ethereum's NFT dominance in certain metrics. However, this innovation has created a divide within the Bitcoin community regarding its alignment with Satoshi Nakamoto's original vision and concerns about network capacity and transaction fees.

What are ordinals?

Ordinals establish a comprehensive numbering system for tracking individual satoshis using ordinal numbers assigned based on their mining and transfer sequence. This system employs various notation formats including integer, decimal, degree, and percentile representations to identify each satoshi uniquely.

The theory creates a rarity hierarchy based on significant events within the Bitcoin network. Common satoshis represent the vast majority of units, excluding the first satoshi of each block. Uncommon satoshis are the first unit of each block, appearing approximately 144 times daily. Rare satoshis mark the beginning of difficulty adjustment periods occurring every 2016 blocks. Epic satoshis initiate halving epochs every 210,000 blocks, while legendary satoshis commence new market cycles. The mythic satoshi, the rarest of all, is the very first satoshi from the Genesis block, inscribed with pixel art of a skull by Casey Rodarmor in late 2022.

Degree notation serves as a standardized format for representing ordinal numbers, incorporating block height, difficulty adjustment period, halving epoch, and cycle information to instantly communicate 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 comparable to NFTs but operating entirely within Bitcoin's native infrastructure. The process utilizes taproot script-path spend scripts to store content efficiently and economically, ensuring that inscribed data becomes an immutable, verifiable record.

The inscription mechanism follows ordinal theory principles, where each satoshi maintains a specific order and value. This allows inscribed satoshis to be transferred like regular Bitcoin transactions while preserving their unique content. The inscribed data can be retrieved from web servers similar to standard web pages and can be remixed with other inscriptions to create new artifacts.

Creating an inscription requires a two-phase commit/reveal procedure. Users first create a taproot output that commits to a script containing the inscription content, then spend that output to reveal the content on-chain. Content is serialized using envelopes, which wrap the content and metadata in a format easily readable by other users. This process ensures that digital content remains genuine, original, and permanently recorded on the blockchain.

How do I create an ordinal inscription?

The process of creating ordinal inscriptions varies based on technical expertise. For beginners with minimal coding experience, various user-friendly platforms provide interfaces that handle all programming requirements, allowing users to focus solely on creativity and content creation.

Intermediate users comfortable with coding can explore developer resources such as the Ordinals API on GitHub, maintained by Hiro, which offers developer-friendly APIs for Bitcoin along with supportive community resources.

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 an editor or coding tool to wrap content and metadata, creating a taproot output using compatible Bitcoin wallet software while carefully following ordinal theory rules, broadcasting the taproot output to make the inscription live, and finally spending the taproot output to reveal the content on-chain. The completed inscription becomes permanently stored using taproot script-path spend scripts, ensuring it cannot be altered or deleted.

The launch of recursive inscriptions

Mid-2023 marked a pivotal advancement with the introduction of recursive inscriptions, addressing critical challenges related to transaction fees and block space limitations. This innovation empowers sophisticated on-chain software development within the Bitcoin ecosystem through a technique called daisy-chaining, where data is interconnected through sequential calls.

Previous inscription limitations capped data storage at 4MB per inscription. Recursive inscriptions transcend this constraint by enabling developers to establish networks of interconnected data sources. By extracting and integrating data from existing inscriptions into new ones, this technology breaks free from the rigid 4MB limitation, allowing developers to execute software fully on-chain through linked data sequences.

The advent of recursive inscriptions significantly enhances interoperability within the Bitcoin network. As this technology continues to evolve, understanding its mechanisms and implications remains crucial for users considering engagement with this emerging capability.

Could Bitcoin surpass Ethereum NFTs in market dominance?

Market statistics reveal an evolving competitive landscape in the digital collectibles space. While Ethereum has maintained overall leadership in total NFT sales over time, Bitcoin ordinals have demonstrated strong performance across various trading periods, indicating shifting market dynamics and growing adoption.

Bitcoin ordinals have gained substantial traction within the collector community. The Bitcoin ordinals protocol has achieved significant milestones with tens of millions of inscriptions logged since its inception. This success led to the establishment of the Open Ordinals Institute, a California-based non-profit organization funding core developers of the ordinals protocol, including lead maintainer Raph.

The growing adoption and technological advancement of Bitcoin ordinals suggest potential for continued market competition, though long-term market positioning remains dynamic given the established presence of Ethereum NFTs and evolving trader preferences.

Bitcoin DeFi Projects

Bitcoin's ongoing development has brought inscriptions and ordinals into sharper focus, raising questions about their potential integration with Bitcoin DeFi projects. The Bitcoin DeFi ecosystem has expanded over the years through innovations like the Lightning Network and wrapped Bitcoin implementations.

Community sentiment regarding the potential application of inscriptions within Bitcoin DeFi remains cautiously optimistic. Some members believe ordinals could enable new financial use cases and expand Bitcoin's utility beyond its traditional role as a peer-to-peer cash system. However, practical implementation and widespread adoption of inscriptions in DeFi applications continue to develop as the technology matures.

A divided bitcoin community

The Bitcoin community exhibits significant division regarding ordinals and their implications. Supporters view the protocol as an opportunity to expand Bitcoin's financial use cases and unlock new possibilities for the network. They argue that innovation should be embraced to maintain Bitcoin's relevance and competitiveness in the evolving cryptocurrency landscape.

Conversely, skeptics contend that ordinals contradict Satoshi Nakamoto's original vision of Bitcoin as a peer-to-peer electronic cash system. Critics express concerns that the rarity structure and inscription activity consume valuable block space, driving up transaction fees and potentially compromising network efficiency. These opposing viewpoints reflect fundamental disagreements about Bitcoin's purpose and future direction.

Given the protocol's ongoing development and community debate, potential participants are strongly advised to conduct thorough research before engaging with ordinals or seeking valuable satoshis.

What's new?

Recent developments have enhanced accessibility and functionality for ordinals users. Modern wallet solutions now support ordinals with full compatibility for recursive inscriptions, including those from various NFT platforms. Integration with hardware wallet devices through both mobile app and browser extension enables users to manage Bitcoin, ordinals, and BRC-20 tokens within a unified account. These wallets simplify address management by supporting Native Segwit, Taproot, or both simultaneously, while providing detailed ordinals metadata including sat numbers and inscription IDs.

Meanwhile, major Bitcoin holders have announced plans to develop decentralized identity services utilizing ordinals inscriptions. These services aim to provide trustless and tamper-proof decentralized identities leveraging the Bitcoin network's security and immutability.

Conclusion

Bitcoin ordinals represent a revolutionary advancement in digital collectibles, introducing ordinal theory to uniquely identify and inscribe individual satoshis with immutable data. Understanding what are ordinals is fundamental to grasping this innovation that enables creation of digital artifacts ranging from common satoshis to the legendary mythic satoshi from the Genesis block, each carrying distinct value and rarity.

The introduction of recursive inscriptions expanded capabilities for complex on-chain applications, breaking through previous data constraints and enhancing network interoperability. Market performance demonstrates growing interest, with Bitcoin ordinals achieving significant milestones and competing with Ethereum NFTs in various metrics.

However, the Bitcoin community remains divided on these developments. While innovation advocates celebrate expanded use cases and technological advancement, skeptics raise concerns about alignment with Bitcoin's original vision and potential impacts on network capacity and transaction fees. Recent developments, including advanced wallet integration and decentralized identity plans, suggest continued evolution and adoption.

As the technology matures, the challenge lies in balancing innovation with preservation of Bitcoin's core principles. Whether ordinals ultimately enhance or detract from Bitcoin's value proposition remains an open question, requiring ongoing observation, community dialogue, and careful consideration of both opportunities and risks. Users interested in participating should conduct comprehensive research and remain aware of the evolving landscape and community perspectives surrounding this transformative technology. Understanding what are ordinals and their implications is essential for making informed decisions in this emerging space.

FAQ

What are ordinals in crypto?

Ordinals are unique identifiers inscribed on individual satoshis of Bitcoin, creating a permanent and immutable order. They enable digital asset ownership on the Bitcoin blockchain.

What is the point of ordinals?

Ordinals enable unique digital assets on Bitcoin, adding value and scarcity to satoshis through inscriptions, fostering creativity and new use cases.