Bitcoin Ordinals seem to be on the rise and taking over the heyday of Web3. The market has been buzzing since software engineer Casey Rodarmor launched the protocol on January 21. However, the community’s reaction is quite mixed, some are excited about the new upgrade while others completely reject Ordinals.
Now, let’s dig deep into Bitcoin Ordinals and their impacts on the market.
What are Bitcoin Ordinals aka Bitcoin NFTs?
Bitcoin NFTs — aka Bitcoin ordinals, aka digital artifacts — are a way to inscribe digital content on the Bitcoin blockchain.
The Bitcoin ordinals protocol was launched in January 2023 by Casey Rodarmor, allowing inscribing of digital content like art onto the Bitcoin blockchain. Unlike nonfungible tokens (NFTs) on Ethereum and other blockchains, Rodarmor wanted to create an immutable on-chain presence of a piece of art, text or video. The genesis ordinal was a pixel art of a skull that Rodarmor inscribed on Dec. 14, 2022.
Ordinal theory concerns itself with satoshis, giving them individual identities and allowing them to be tracked, transferred and imbued with meaning. The ordinals hype really kicked off 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 bumped higher if the infrastructure to inscribe and trade ordinals had been better planned and executed.
Common terms used in Bitcoin NFTs
- Ordinals: the name of the protocol that allows the creation of NFTs on the Bitcoin network. The official Ordinals document also mentions the “ordinal number” indicating the order of the sats. Sats are the smallest unit of Bitcoin, 1 BTC = 100,000,000 sats, and each of these sats has its own sequence number each time it is generated.
- Inscription: the content inscribed on sats to create Bitcoin NFTs. You can also understand Inscription as NFT on the Bitcoin network.
- Inscribe: the operation to inscribe Inscription on sats, similar to the “mint” operation for traditional NFTs.
- Digital Artifact: the term the founders give to NFTs that are hosted with a higher standard than traditional NFTs. Accordingly, in order for an NFT to be a Digital Artifact, it must have the following properties: decentralized, immutable, full on-chain, and unrestricted.
In short, you can understand that Inscription is an NFT on the Bitcoin network, and Inscription is a type of Digital Artifact. Digital Artifact is a subclass of NFT that has more advanced properties. Digital Artifact is not necessarily part of the Bitcoin network.
How do Bitcoin NFTs work?
Bitcoin ordinals are based on ordinals theory that essentially has brought life to satoshis (sats) and allows them to be treated as atomic units on the Bitcoin blockchain. Ordinals, in their simplest state, are a numbering scheme for sats.
Ordinals theory drives the mechanics behind how Bitcoin ordinals work. Ordinals theory defines satoshis (sats) as the atomic unit that can be identified and traded individually on the Bitcoin network. There are 100 million sats that make up 1 Bitcoin (BTC).
By being a unit of transaction, sats can also be inscribed with digital content that make up Bitcoin ordinals. They become immutable digital collectibles that can be transacted on the Bitcoin network using Bitcoin wallets. As per ordinal theory, sats can be attached to security tokens, accounts, or stablecoins using ordinal numbers as stable identifiers.
Due to the broad 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 that’s been attached to or inscribed with a JPEG can be called a nonfungible token on the Bitcoin blockchain. Although the ordinal’s use that found the market fit is that of NFTs on the Bitcoin blockchain, ordinals are much more than just nonfungible tokens.
Differences between Bitcoin NFTs and Traditional NFTs
Normally each traditional NFT consists of 2 parts:
- Token information: deployed from smart contract and stored completely on-chain.
- Metadata: NFT’s content, usually stored on decentralized storage systems such as IPFS, can also be a centralized storage system. Metadata is linked to the Token through an on-chain information field of the token, called tokenURI.
Bitcoin NFTs are different, all information about NFTs is stored completely on-chain, thereby creating differences compared to traditional NFTs.
- Firstly, Bitcoin NFTs fully inherit Bitcoin’s characteristics of complete decentralization, transparency, security and immutability once they are stored on the network.
- Secondly is the ability to moderate content, anyone running a full Bitcoin node can generate Bitcoin NFTs, so there is no control over the content that users post, even if it is sensitive content.
- Thirdly is the way to determine rarity, for traditional NFTs, their preciousness is determined by artistic value, use value, etc., but with Bitcoin NFTs are the number of sats that the NFT is inscribed on.
The Ordinals theory divides the rarity of sats into six categories:
- common: any satoshi that is not the first satoshi in its block;
- uncommon: sat at the beginning of each block;
- rare: first sat of each difficulty adjustment;
- epic: first sat of each Bitcoin Halving season;
- legendary: first sat of each cycle;
- mythic: the first sat of the genesis block.
Impacts of Bitcoin NFTs on the market
Since its inception, Bitcoin has been viewed as a store of value, furthermore as a type of payment when El Salvador legalized BTC. But this time, it seems that Bitcoin has gone further than its founder Satoshi Nakamoto could have imagined. Bitcoin NFTs not only affect the operation of the Blockchain network but also have impacts on the crypto economy.
For the Bitcoin Blockchain network
Since the historic 4MB block, the number of Inscriptions generated on the Bitcoin network is increasing day by day in an “only up” model. Currently, there are nearly 500,000 Inscriptions created.
Along with that, the size of each block is often heavier than before as the demand for Inscription inscribing is increasing from the community. This brings two results:
- The block size becomes heavier, making the Bitcoin network increasingly cumbersome, causing miners to constantly upgrade hardware to accommodate and also a barrier for “small miners”.
- On the other hand, the network is busier, which means that miners will earn more fees from transactions. When each halving season passes, the reward from Bitcoin mining will be halved, Bitcoin NFTs open another door for miners.
Another advantage for the Bitcoin network is that following the development of Bitcoin NFT, many Inscribe – NFT engraving services will spring up to serve the needs, but need to run a full node to be able to provide the service, thereby making the Bitcoin network more decentralized.
For the crypto economy
Like the message that the historic 4MB block wants to convey “Make Bitcoin magic again”.
- The Bitcoin NFT movement is associated with the revolution that takes Bitcoin’s value and applicability further. Bitcoin NFTs help to attract more attention from the community, thereby increasing the value of Bitcoin.
- Bitcoin holders have more utility for their Bitcoin holdings.
- Plus, engraving NFTs onto Bitcoin will incentivize owners to keep it instead of selling it.
Impacts of Bitcoin NFTs on the environment
The energy consumption of blockchains is quite large. Bitcoin is the largest blockchain in the world by market capitalization. Furthermore, Bitcoin uses a Proof-of-Work (PoW) consensus mechanism to validate transactions and add them to the chain, which is an extremely energy-intensive process. Due to its scale and PoW consensus mechanism, Bitcoin is far ahead of other blockchains when it comes to energy consumption.
How to buy, sell and trade Bitcoin NFTs
As Bitcoin ordinals grow in popularity, most of the trades have been largely over-the-counter. Collections, such as “Planetary Ordinals” and “Bitcoin Punks,” among the first 1,000 inscriptions were transacted mostly without an NFT marketplace such as OpenSea or Blur.
However, tools like the Ordinals Wallet, Hiro and Xverse allow users to buy and sell Bitcoin ordinals. Users can buy some sats within the wallet, using on-ramp payment plugins, and perform the transactions to buy and sell ordinals.
Users can buy Bitcoin ordinals using Ordinals Wallet by following the steps below:
- Go to ordinalswallet.com
- Click on “Create Wallet”
- Take a backup of the recovery phrase for your wallet
- Set up a password for wallet access
- Use the address of the Ordinals Wallet to send some sats to the wallet
- Go to “Collections” at the top of the page
- Choose the ordinals collection and the inscription that you would like to buy
- Buy the ordinal (using the sats in your wallet)
Limitations of Bitcoin NFT
There are still offsides of Bitcoin NFTs:
- In terms of costs, a busier network means users will have to pay higher fees for each of their transactions, even though it has nothing to do with NFTs.
- Currently, the infrastructure for Bitcoin NFTs is still at the new stage of development, with many limitations in terms of friendliness for “non-tech” users.
- The price of Bitcoin NFTs is being fomo too high.
- Many garbage projects spring up to follow the trend.
- Uncensorship is also a cultural point to be considered.
Notable Bitcoin NFT Collections
Ordinal Punks is one of the top-notch projects. This is a set of 100 Bitcoin NFTs minted in the first 650 Inscriptions on the Bitcoin blockchain — The highest numbered Inscription in the collection occupies position #642.
Next is Taproot Wizards. Starting with Text #652, this project is an Ordinal collection of hand-drawn NFTs created by Web3 developer Udi Wertheimer. It is said to be the largest block in the history of Bitcoin, with a staggering capacity of 4MB, which is 4 times higher than the usual 1MB limit.
Next is the Ethereum-based collection OnChainMonkey (OCM). With Inscription 20,219, the team minted 10,000 Ordinals into a single Inscription, making it one of the first 10,000 Ordinals collections on Bitcoin. The OCM team noted that the size of the Inscription is less than 20,000 bytes. This makes their method a scalable model for other collections to follow to create NFTs on Bitcoin without clogging the network.