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

The ordinals protocol represents a groundbreaking innovation in the digital collectibles space, introducing a novel system that enables unique data inscriptions directly on the Bitcoin blockchain. This technology assigns individual satoshis—the smallest unit of Bitcoin—unique identifiers based on ordinal theory, creating digital artifacts that function similarly to NFTs but operate entirely within Bitcoin's secure and decentralized ecosystem. Since its emergence, the ordinals protocol has generated significant interest and debate within the cryptocurrency community, offering new possibilities for digital ownership and creative expression.

What is ordinal theory?

Ordinal theory establishes a systematic framework for numbering and tracking individual satoshis using ordinal numbers. This numbering system assigns unique identifiers to each satoshi based on the chronological order of their mining and subsequent transfers within transactions. The theory introduces multiple representation formats, including integer, decimal, degree, and percentile notations, providing flexible ways to express these ordinal numbers.

A particularly intriguing aspect of ordinal theory is its rarity classification system, which assigns scarcity levels to satoshis based on significant events in the Bitcoin network's timeline. The rarity hierarchy includes six distinct categories: Common satoshis represent the vast majority and occur in nearly every transaction. Uncommon satoshis mark the first unit of each block, appearing approximately 144 times daily. Rare satoshis designate the beginning of difficulty adjustment periods occurring every 2016 blocks. Epic satoshis commemorate halving epochs that happen every 210,000 blocks or roughly four years. Legendary satoshis signify the start of complete market cycles spanning from one halving to the next. Finally, Mythic satoshis represent the ultimate rarity—the very first satoshi from the Genesis block, with only one existing in Bitcoin's entire history. Notably, Casey Rodarmor inscribed pixel art of a skull as the genesis ordinal, creating a historic artifact that marked the beginning of the ordinals protocol implementation.

How do ordinal inscriptions work?

Ordinal inscriptions enable users to embed digital content directly onto the Bitcoin blockchain, creating permanent, immutable records similar to NFTs but without requiring separate tokens or sidechains. The ordinals protocol allows various content types—including videos, artwork, and text documents—to be permanently etched onto individual satoshis, establishing verifiable digital artifacts that can be transferred like regular Bitcoin transactions.

The technical implementation relies on taproot script-path spend scripts, which efficiently store inscribed content entirely on-chain. This approach ensures authenticity and permanence, as inscribed data cannot be altered or deleted once recorded on the blockchain. The content can be served from web servers like standard web pages and even remixed with other inscriptions to create composite artifacts.

Creating an inscription requires a two-phase commit/reveal procedure. First, users create a taproot output that commits to a script containing the inscription content. Subsequently, they spend that output to reveal the content on the blockchain. The content undergoes serialization using "envelopes"—data structures that package content and metadata for easy accessibility by other users. Each transaction must carefully adhere to ordinal theory rules to ensure proper tracking and transfer of inscribed satoshis through the ordinals protocol.

How do I create an ordinal inscription?

The process of creating ordinal inscriptions varies depending on technical expertise. For beginners without coding experience, various platforms provide user-friendly interfaces that handle all technical aspects, allowing creators to focus solely on their artistic vision and content creation while working within the ordinals protocol framework.

Intermediate users comfortable with programming can explore developer tools such as the Ordinals API available on GitHub. Various platforms offer developer-friendly APIs specifically designed for Bitcoin, supported by active development communities that provide guidance and resources for implementing the ordinals protocol.

Advanced users with deep coding knowledge can implement inscriptions manually by following a structured process. This involves selecting content for inscription, creating data envelopes using coding tools, generating taproot outputs through compatible Bitcoin wallets, broadcasting transactions to the network, and finally revealing the inscription content on-chain. Each step requires careful attention to ordinal theory rules to ensure successful inscription and proper functionality within the ordinals protocol.

The launch of recursive inscriptions

A significant milestone arrived with the introduction of recursive inscriptions, addressing critical challenges related to transaction fees and block space limitations. This innovation enables sophisticated on-chain software to operate entirely within the Bitcoin ecosystem through a technique called daisy-chaining, where data interconnects through sequential calls, further expanding the ordinals protocol capabilities.

Traditional inscriptions faced a 4MB data storage limit, 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, effectively breaking free from rigid size limitations. This breakthrough empowers the creation of complex applications that execute entirely on-chain by linking data through call sequences.

The implementation of recursive inscriptions significantly enhances interoperability within the Bitcoin network, opening new possibilities for application development through the ordinals protocol. However, as this technology continues to evolve, users and developers must acquire comprehensive understanding before engaging with recursive inscriptions to maximize their potential while avoiding pitfalls.

Could Bitcoin surpass Ethereum NFTs in market dominance?

The ordinals protocol has achieved remarkable adoption, with tens of millions of inscriptions logged since its inception. This milestone has prompted the establishment of the Open Ordinals Institute, a California-based non-profit organization funding core developers, including anonymous lead maintainer Raph. The growing traction among buyers and sellers indicates that Bitcoin ordinals represent a competitive force in the digital collectibles space.

The emergence of the ordinals protocol challenges traditional NFT market dynamics, creating an evolving landscape where Bitcoin competes for market share in the digital artifacts space. This competition potentially benefits the broader digital collectibles ecosystem by driving innovation and offering users diverse platform options for creating and trading digital artifacts through the ordinals protocol.

Bitcoin DeFi Projects

Bitcoin's evolution has brought inscriptions and the ordinals protocol into increased focus within the decentralized finance sector. The cryptocurrency community is exploring potential applications of these technologies within Bitcoin DeFi projects, building upon existing innovations like the Lightning Network and wrapped Bitcoin (wBTC).

Optimism exists among community members regarding the ordinals protocol's potential utility in expanding Bitcoin's DeFi capabilities. The technology could potentially enable new financial use cases and applications that leverage Bitcoin's security and decentralization while providing enhanced functionality. However, as these applications remain largely developmental, their ultimate impact on the Bitcoin DeFi ecosystem continues to unfold.

A divided bitcoin community

The Bitcoin community exhibits significant division regarding the ordinals protocol and its alignment with Bitcoin's fundamental principles. Supporters advocate for the protocol's potential to expand Bitcoin's utility beyond simple transactions, creating additional financial use cases and revenue streams for network participants. They view the ordinals protocol as natural evolution that leverages Bitcoin's robust infrastructure for innovative applications.

Conversely, critics argue that the ordinals protocol contradicts Satoshi Nakamoto's original vision of Bitcoin as a peer-to-peer electronic cash system. Skeptics express concerns about the rarity structure consuming valuable network resources and driving up transaction fees, potentially impacting Bitcoin's accessibility and primary function. These concerns center on network capacity constraints and whether the ordinals protocol represents beneficial innovation or problematic deviation from Bitcoin's core purpose.

Given the protocol's ongoing evolution and community debate, potential participants should conduct thorough research before engaging with the ordinals protocol or seeking valuable satoshis. Understanding both perspectives and associated risks enables informed decision-making in this evolving landscape.

What's new?

Recent developments have enhanced accessibility and functionality within the ordinals ecosystem. Several wallet solutions now support the ordinals protocol, including recursive inscriptions from various platforms. These integrations allow ledger device connectivity through both mobile apps and browser extensions, enabling users to manage Bitcoin, ordinals, and BRC-20 tokens within unified accounts. Wallet solutions simplify address management by supporting Native Segwit and Taproot protocols while displaying 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, demonstrating enterprise-level interest in the ordinals protocol and its potential applications beyond digital collectibles.

Conclusion

The ordinals protocol represents a transformative development in digital collectibles, introducing innovative approaches to creating unique digital artifacts on the Bitcoin blockchain. Through ordinal theory, each satoshi receives unique identification enabling creative inscriptions ranging from artwork to complex data structures. The rarity system, spanning from common satoshis to the singular mythic satoshi from the Genesis block, establishes diverse value propositions for collectors and investors.

The introduction of recursive inscriptions significantly expanded possibilities for complex on-chain applications through the ordinals protocol, breaking through previous data limitations and enabling sophisticated interconnected systems. Despite growing market interest and competitive dynamics in the digital collectibles space, the Bitcoin community remains divided on whether the ordinals protocol aligns with Bitcoin's original vision or represents problematic resource consumption.

The addition of ordinals protocol support to various platforms, combined with enterprise interest from major Bitcoin holders, suggests continued evolution and adoption. While concerns about network capacity and adherence to Satoshi Nakamoto's vision persist, the ordinals protocol undeniably presents significant opportunities for innovation within the Bitcoin ecosystem. As this technology matures, balanced consideration of both its potential benefits and challenges will be essential for sustainable development and community acceptance of the ordinals protocol.

FAQ

What is the Ordinals protocol?

The Ordinals protocol assigns unique identifiers to individual Bitcoin satoshis, making them distinguishable and trackable. It enhances Bitcoin's functionality by enabling digital asset inscription on the blockchain.

What is the difference between NFT and Ordinals?

NFTs are unique digital assets on various blockchains using smart contracts, while Ordinals are identifiers inscribed directly onto Bitcoin without smart contracts. Ordinals focus on permanence, while NFTs offer more programmable features.

What is the purpose of Ordinals?

Ordinals enable NFTs on Bitcoin, allowing unique digital assets to be permanently recorded on the blockchain, creating a new market for Bitcoin-based NFTs.

What are the criticisms of Ordinals?

Ordinals face criticism for consuming block space, potentially increasing transaction fees and reducing Bitcoin's efficiency. This can lead to scalability issues for the network.