How Ordinals Help Push Bitcoin Above $25K
Despite the Securities and Exchange Commission’s recent crackdown on crypto, Bitcoin is up and running: From Tuesday to Thursday, its price rose nearly 14%, peaking just above $25,000, according to CoinMarketCap.
Pinpointing exactly why the price of the world’s first cryptocurrency rises and falls is not an exact science, but reports of a recent short squeeze — investors who had bet that the price of Bitcoin would reduce shorted holdings — are one explanation for Bitcoin’s sudden rise.
Also driving up Bitcoin’s value are ordinals, according to a report from blockchain data company Glassnode. But what are they, and how are they contributing to Bitcoin’s recent price surge?
Origin of ordinals
An ordinal is essentially a non-fungible token, a digital asset best known for proving that only one person owns, say, a $69 million piece of digital art sold in March 2021.
NFTs are best known for blockchains such as Ethereum and Solana. The computing capabilities of these digital ledgers extend far beyond Bitcoins, whose blockchain is primarily designed to record transactions between owners of the digital currency.
However, in December, Casey Rodarmor, a Bitcoin engineer, designed a method to allow NFTs to exist on Bitcoin’s blockchain, unlike previous attempts to add NFTs to Bitcoin’s ledger which was hosted “off-chain”, or not in the same database that records daily transactions. Rodarmor called these “digital artifacts” ordinals.
Accumulated fees spent minting Ordinals approaching $1M and looking exponential.
— Ben DiFrancesco (@BenDiFrancesco) 16 February 2023
How do ordinals work?
First, Rodarmor invented an algorithm to create a serial number for each and every satoshi, the name of the smallest subdivision of a Bitcoin (there are 100 million satoshis per Bitcoin), based on when the satoshi was first generated.
He then created a method to “write” data onto a satoshi, taking advantage of recent updates to Bitcoin’s code in 2017 and 2021, which expanded the blockchain’s capacity to store data beyond transaction records.
“Imagine the one cent piece you have in your pocket and I can put a chunk of data on it,” said Daniel Peter, co-founder and CEO of CapsuleNFT, a blockchain infrastructure company that recently announced its work with ordinals. Fortune. “Instead of it being a cent, I have now attached a picture of Benjamin Franklin to that cent.”
Like NFTs on other blockchains, ordinals are “non-fungible.” In other words, it’s a unique entry on Bitcoin’s ledger that says that little bit of Bitcoin with, say, Benjamin Franklin’s picture on it belongs to one owner and one owner only.
But unlike the NFTs on blockchains like Ethereum and Solana, data piggybacking on top of a satoshi is not a link to where the actual file resides (often on decentralized file storage systems). The data is stored, or “written”, on the ordinal itself.
It is worth noting that Ethereum and Solana also allow users to store large data files on an NFT; But it is more computationally intensive and therefore expensive to push this data “on-chain”, or leave it on the blockchain, said Jon Wong, technical lead in the NFT team at the Solana Foundation. Fortune.
“It’s definitely an anti-scale model,” Austin Federa, director of strategy and communications at the Solana Foundation, said of ordinals. He added: “Here’s a version of something that, if you squint, resembles art in terms of the ability to create value through scarcity.” However, he noted, its use is otherwise limited.
Endurance?
Since ordinals became hot in early February, the number of “mints” or creations of Bitcoin NFTs has risen, according to data from Dune Analytics. Over 100,000 have been minted so far, per Decrypt.
As mainstream mints have increased, minters have been willing to pay the miners, the computers that run and secure Bitcoin’s blockchain, more and more in transaction fees. The increased frenzy is one of the reasons behind Bitcoin’s recent price increase, says Wong of the Solana Foundation.
It remains to be seen whether ordinals, which are only about two months old, have staying power. But in the meantime, Bitcoiners are cheering the rally.
#Bitcoin broke through $25,000 🚀
The tour TO THE MOON is just getting started 🔥
— Keyur Rohit (@CryptoKingKeyur) 16 February 2023
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