For Bitcoin believers, Bitcoin is the most revolutionary idea of the 21st century. But since its creation by the pseudonymous Satoshi Nakamoto in 2009, not much has changed on the Bitcoin network.
That is until January 2023, when Bitcoin developer Casey Rodarmor launched the Ordinals Protocol on the Bitcoin mainnet and birthed a whole new phenomenon in the crypto space — Bitcoin NFTs.
By April, more than 1.3 million Ordinals inscriptions had been created on Bitcoin, and the numbers are rising. The increased activity on Bitcoin has led to some congestion and a bump in gas fees. But Ordinals NFTs have also sold for tens of thousands of dollars and big-time NFT studios like Yuga Labs and Dust Labs have collections.
Are Bitcoin NFTs a frivolous use of block space, or do they add a novel utility to Bitcoin that could be good for the network in the long run?
The question rages on in debates on Crypto Twitter and crypto and NFT-themed podcasts the world over.
What’s not debatable is that Ordinals Inscriptions are continuing to surge and bring excitement to a space that — after a frigid 2022 — could use a little warming up.
So, what exactly are Bitcoin Ordinals and how did we get here?
Let’s take a closer look.
How do Bitcoin Ordinals Inscriptions work?
To understand the Ordinals protocol, it’s helpful to review some Bitcoin basics.
Most importantly, the smallest unit of a bitcoin is called a satoshi or sat, and every bitcoin is made up of 100,000,000 satoshis. That means one satoshi is one hundred millionth of a bitcoin.
The Ordinals protocol is a way of ordering satoshis to give each one a unique identifying number based off when it was mined. This number is called an “ordinal,” and it’s what gives the satoshi its identity and enables it to become an NFT.
Once individual satoshis are numbered, they become distinct from each other and can be inscribed with a variety of data — media, photos, mini-games, and more. The process of inscribing data onto a bitcoin satoshi is called an “inscription.” While NFTs on Ethereum and other blockchains are “minted,” Bitcoin NFTs are inscribed.
When data is inscribed on Bitcoin, it is linked to a particular satoshi. The inscribed satoshi allows the assignment of ownership and transfer of on-chain data.
Once data is inscribed on the blockchain and confirmed by Bitcoin miners, it becomes immutable and possesses all the virtues of Bitcoin: transparency, immutability, security.
Like most NFTs, Ordinals can be bought, sold, and traded on NFT marketplaces.
In the past, 1 satoshi = 1 satoshi.
With Ordinals Inscriptions, this is no longer the case.
How did Bitcoin Ordinals happen?
The Ordinals protocol was made possible by two upgrades to the Bitcoin protocol — the Segregated Witness (SegWit) and Taproot updates, which occurred in 2017 and late 2021, respectively.
SegWit segregated a Bitcoin transaction into two sections, and added a section that could support arbitrary data. This was done to enable optional data transmission, bypass the limitations of the blocksize limit, and prevent unintentional transaction malleability.
Taproot (2021) was an upgrade to Bitcoin’s security, scalability, and privacy that also relaxed limitations on how much arbitrary data could be stored inside a Bitcoin transaction.
Essentially, both updates enlarged the amount of arbitrary data that could be stored on-chain within a block, allowing space for images, videos, or even games. The updates weren’t intended to jumpstart a Bitcoin NFT frenzy, but it’s exactly what they did.
What are the haters (and lovers) saying?
In a space dominated by purists and people passionate about upholding the vision and ethos of Bitcoin, it should come as no surprise that not everyone is fond of “JPEGs on Bitcoin.”
Some believe Bitcoin should only be used for secure financial transactions, and that arbitrary inscriptions only slow down the network and drive-up transaction costs.
Others admit they’ve enjoyed the bump and attention from Bitcoin Ordinals, but worry NFTs could be a long-term threat to the integrity of the network. They believe Bitcoin is not meant to be non-fungible, and if too many satoshis are inscribed, it could create confusion about the value and purpose of Bitcoin.
Proponents of Bitcoin Ordinals argue that Bitcoin’s expansion beyond financial transactions is a good thing, and that increased fees from inscriptions could be critical to pay miners to secure the network in the years to come, especially after the rewards for mining are drastically reduced in accordance with Bitcoin’s protocol.
Interestingly, Michael Saylor, the CEO of MicroStrategy and perhaps the biggest proponent of Bitcoin in the world, appears to be a fan of Ordinals. He recently said in an interview when asked about Ordinals, “If I was a miner, I’d be ecstatic.”
But according to Saylor, applications on Bitcoin could go far beyond Ordinals Inscriptions. He believes as people understand Bitcoin can’t be stopped, they could use the Bitcoin blockchain to inscribe more important documents, like their wills, land deeds, titles, diplomas, and more. He said that these extra utilities will only make Bitcoin more used and thus more valuable.
Are Bitcoin Ordinals the same as NFTs?
Yes and no.
Ordinals can be fungible or non-fungible, depending on who owns it and what they want to do with it. The Ordinals data will always stay attached to the satoshi. But it can either be preserved as an NFT, or used in a regular bitcoin transaction.
Ethereum NFTs, on the other hand, are distinctly different from Ethereum coins. The Ethereum cryptocurrency is fungible, and an Ethereum-based NFT created using a smart contract is non-fungible.
Ordinals are also inscribed directly into sats included in blocks on the bitcoin blockchain. They don’t require any sidechain, and they inherit the security and immutability of the bitcoin network.
Final Thoughts
Unless Bitcoin developers vote to wipe Ordinals or Bitcoin NFTs from Bitcoin’s protocol, it looks like Ordinals NFTs will continue to flourish, and the concept of data being inscribed on Bitcoin is here to stay. If the idea expands like Michael Saylor thinks it will, then Bitcoin NFTs could be revolutionary.
However, like with most things in the NFT and crypto space, it’s going to take some time before we find out. For the the latest updates on Ordinals and all things NFT-related, check out Rarity Sniper’s News.
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