What are Bitcoin Ordinals?
What are Bitcoin NFTs?
Bitcoin NFTs – also known as Bitcoin ordinals, aka digital artifacts – are a way of entering digital content onto the Bitcoin blockchain.
The Bitcoin ordinals protocol was launched in January 2023 by Casey Rodarmor. The protocol allows the inscribing of digital content such as art on the Bitcoin blockchain. Unlike non-fungible tokens (NFTs) on Ethereum and other blockchains, Rodarmor wanted to create an immutable presence on the chain of a work of art, text or video. The Genesis Ordinal was a pixel art of a skull that Rodarmor entered on December 14, 2022.
When the NFT space based on Ethereum’s ERC-721 standard took off in 2021, Rodarmor, who was a programmer and artist, saw the opportunity to create a similar but unique experience on the Bitcoin blockchain. His solution was Bitcoin ordinals, based on ordinal theory, which he continued to implement through 2022.
Ordinal theory deals with satoshis, giving them individual identities and allowing them to be tracked, transmitted, and imbued with meaning. The ordinal hype really started in February 2023, six weeks after the genesis ordinal was created.
The number of inscriptions doubled every week for a few weeks. However, the number could have been much higher if the infrastructure for entering and trading ordinals had been better planned and executed.
The rise of Bitcoin word of mouth has seen the Bitcoin network explode in terms of usage, fees and storage space as shown in the chart above. This could also be the first major breakthrough for the Bitcoin application layer and could help shift the narrative from a pure “store of value” to something more utilitarian.
How do Bitcoin ordinals work?
Bitcoin ordinals are based on ordinal theory which has essentially brought satoshis (rates) to life and allows them to be treated as atomic units on the Bitcoin blockchain. Ordinals, in their simplest state, are a rate numbering scheme.
Ordinal theory drives the mechanics behind how Bitcoin ordinals work. Ordinal theory defines satoshis (rate) as the atomic unit that can be identified and traded individually on the Bitcoin network. There are 100 million stakes that make up 1 Bitcoin (BTC). Sats are numbered based on the order of mining, and this number, which uniquely identifies a sat, is an ordinal number.
Related: Bitcoin vs. Satoshi: Key Differences Explained
Being a transaction unit, rate can also be entered with digital content that constitutes Bitcoin ordinals. They become immutable digital collectibles that can be executed on the Bitcoin network using Bitcoin wallets. According to ordinal theory, rate can be attached to security tokens, accounts or stablecoins using ordinal numbers as stable identifiers.
Due to the wide set of use cases that ordinals can support, Rodarmor prefers not to equate Bitcoin ordinals with NFTs. The use case of ordinals to number a sat attached to or superscribed to a JPEG can be called a non-functional token on the Bitcoin blockchain. Although the ordinal’s use that found market adaptation is NFTs on the Bitcoin blockchain, ordinals are much more than just non-fungible tokens.
How to mine Bitcoin oracles?
Mining, coining, or writing Bitcoin ordinals are the terms that have been used to refer to this process. Unlike minting NFTs on the Ethereum blockchain, which is a relatively mature process, mining Bitcoin ordinals is a technically complex process and lacks intuitive tools.
Bitcoin ordinals, in the early days, could only be mined by those running a Bitcoin node. For tech-savvy users, a Bitcoin node by word app, a command-line wallet, will be the gateway to mining. Node operators would load their wallet with some stakes to pay for the gas fees and perform an enrollment process on their ordinal.
However, no-code ordinal mining applications such as Gamma or Ordinals Bot aim to allow users to upload the content they want to enter to create Bitcoin ordinals. The user journey takes them through a payment process using a QR code and is intuitive enough for the less technically gifted.
The tools around Bitcoin ordinals are still at a very early stage. It has only been a few months since the genesis ordinal was entered. As demand from regular users and followers increases, the ecosystem and tool should begin to mature with more user-friendly journeys.
How to buy, sell and trade ordinals
Similar to the process of minting Bitcoin ordinals, the trading process has not had the mature tool. Still, there are a few tools for trading these digital artifacts.
As Bitcoin ordinals grow in popularity, most trades have largely been over-the-counter. Collections, such as “Planetary Ordinals” and “Bitcoin Punks”, among the first 1000 inscriptions, were mainly carried out without an NFT marketplace such as OpenSea or Blur.
However, tools like Ordinals Wallet, Hiro, and Xverse allow users to buy and sell Bitcoin ordinals. Users can buy rate in the wallet, using on-ramp payment plugins, and perform the transactions to buy and sell ordinals.
The typical user journey involved in buying Bitcoin ordinals using Ordinals Wallet is as follows.
- Go to ordinalswallet.com
- Click on “Create Wallet”
- Take a backup of your wallet recovery phrase
- Set up a password for wallet access
- Use the Ordinals Wallet address to send any rate to the wallet
- Go to “Collections” at the top of the page
- Select the collection of orders and the inscription you wish to purchase
- Buy the ordinary (use the rates in your wallet).
How have ordinals been perceived by the wider Bitcoin ecosystem?
Bitcoin ordinals are a great innovation that can highlight various applications unique to the chain, thus getting developers to participate and create the tools users need.
Bitcoin ordinals have certainly seen a hype that potentially peaked sometime in February 2023, based on transaction data. However, the hype around the application level of the Bitcoin blockchain is just getting started.
For example, Stacks (STX) has seen a surge in price since the ordinals episode heated up. It’s clearly early days for the Bitcoin ecosystem, but if developers are attracted to the chain, the network effects between developers and users could arrive in time for the next crypto cycle.
Related: Bitcoin DeFi Ecosystem Explained
However, there are drawbacks to the way ordinals are designed. As the written content is in the chain with ordinals unlike most Ethereum-based NFTs, the size of the blockchain will increase. As new applications emerge and network utilization and transactions increase, the cost of transactions will also increase.
The other potential impact of Bitcoin ordinals is whether it will affect the fungability of the rate. So far, satoshis have been exchanged with one sato valued equally as another. With different uses of ordinals, this may not be true in the future. A set with a Bitcoin Punk inscribed may be priced differently. Nonetheless, it would be interesting to see how this narrative develops over the next few months and years.
Ordinals vs. traditional NFTs
Ordinals differ from traditional NFTs from a technical design perspective. There are several features that make pricing for ordinals a different exercise.
Bitcoin ordinals, as mentioned before, help identify rate uniquely and have content or art stored on the chain. Ethereum’s ERC-721 standard, which is used to create NFTs, usually contains the metadata or a pointer to the art, which is usually kept off-chain. Some Ethereum NFTs are experimenting with on-chain storage, but they are more of an exception.
The other important difference with Bitcoin ordinals is the way rarity is derived and how prices around the NFTs would work. With traditional Ethereum-based NFTs, the attributes of the art usually define the rarity of the NFT and, subsequently, the price. With NFTs like the Ethereum Name Service (ENS) for example, limited supply drives value.
But with Bitcoin ordinals, pricing will be defined by key moments that a Bitcoin block will represent. The first 1,000 or 10,000 words inscribed may still be prized by collectors. Don’t be surprised if the genesis Bitcoin ordinal sells for a few million dollars in a couple of years. Nevertheless, some rates will be considered more valuable than others.
A simple framework proposed by the founders of Bitcoin ordinals is that key events will determine the rarity of a sat and the ordinal inscribed in it. The first rate in each new block would be less frequent than the other rates in the block. The first time in an adjustment period that occurs roughly every two weeks would be even rarer. As the next halving is slated for 2024, the first time in each halving epoch will add a new level of rarity.
Finally, the first time in the adaptation period, which occurs once every six halvings (about once every 24 years), would be another level of rarity. According to the founders of this amazing innovation, this can separate Bitcoin ordinals from NFTs and make their rarity truly random and not controlled by the founders of non-fungible token collections or by their artists.
This may also help to understand why activity around Bitcoin word of mouth has already peaked in the short term. It would be interesting to see how activity increases closer to the Bitcoin halving in 2024.
