Bitcoin Ordinals are doing crazy volumes.
As of Feb 2023, the total number of inscriptions were 100k. A year later, as of Feb 2024, that number rose to 60M.
That means 60M files were stored on one of the most popular and secure ledgers out there. These files include images, text, audio, etc.
Now, why are these files being stored on a blockchain that was made to create money or a store of value asset aka $BTC? And how are these being stored?
Because the last time we heard from devs, they mentioned that NFTs aren’t possible on the Bitcoin blockchain, right?
Thanks to this protocol called Ordinals which made the existence of dumb-looking cartoon pictures on the Bitcoin blockchain.
In December 2022, a Bitcoin developer named Casey Rodarmor released open-source software called ORD that runs on top of a Bitcoin Core full node.
The software allows users to encode computer files into hexadecimal data inside a Bitcoin transaction (“inscription”) and “bind” that posted data to an individual satoshi, effectively creating an NFT (“ordinal”).
Sounds confusing, right?
Okay, so imagine you have a bunch of tiny Lego pieces, and each piece has its own special number.
These numbers help us know which piece is which.
Now, imagine we have a special way to write something on each Lego piece, like drawing a picture or writing a secret message.
That’s kind of like what happens with Bitcoin ordinals.
You know how we use pennies, nickels, and dimes to buy things?
Well, in Bitcoin, they have something smaller than a penny called a satoshi. It’s like the tiniest Bitcoin you can have. 1 BTC = 100m satoshis.
So, each of these satoshis gets its own special number called an ordinal. It’s like giving each one a name tag so we can tell them apart.
Now, this cool thing called inscriptions lets us write stuff on these satoshis. It’s like decorating our Lego pieces with stickers or drawings.
But instead of stickers, we use computer data to put things like pictures or messages on these tiny satoshis.
So, when we combine these special numbers (ordinals) with the things we write on them (inscriptions), we can make unique digital things, like special pictures or messages that are one-of-a-kind.
And that’s how NFTs are born on the Bitcoin Blockchain.
And this special software called Ord (Ordinals Protocol) makes it all possible.
It helps us keep track of all these special Lego pieces (satoshi ordinals) and what’s written on them (inscriptions). So, just like how we keep track of our Lego creations, the Bitcoin blockchain keeps track of these special digital creations.
Cool, right?
To summarize, the serial number that was assigned to each Satoshi based on the order in which it was mined is called Ordinal. The way additional content can be written to them is called inscribing (‘Inscribing Data onto an Ordinal).
The term “ordinal” comes from a theory by Casey Rodarmor called “Ordinals Theory.”
This theory suggests that each individual satoshi in Bitcoin can be given a label and tracked throughout its journey in the Bitcoin system.
By using this theory, users can choose to see when these satoshis were created and the order in which they were created.
They can also assign different levels of rarity to each satoshi based on factors like when it was created or if it was involved in important transactions.
In other words, each satoshi can now be differentiated and tracked easily with this protocol.
Ordinal inscriptions are embedded directly into individual satoshis and stored in Bitcoin blocks. This way, Ordinals inherit the security, immutability, and durability of the Bitcoin blockchain itself.
Ordinal NFTs were made possible by the Segregated Witness (SegWit) and Taproot updates to the Bitcoin Protocol, which took place in 2017 and 2021, respectively.
Let’s go back to history and find out what these are.
Segregated Witness (SegWit):
Think of SegWit as a special update for Bitcoin that happened in 2017. It made Bitcoin transactions a bit smarter by splitting them into two parts and creating a space for extra information called “witness data.” This update helped Bitcoin handle more data without making transactions slower or more expensive. It allowed for more transactions to be stored within a block.
Taproot:
Taproot is another important update for Bitcoin that came in 2021. It made Bitcoin transactions more private, faster, and secure. It also made it easier to include extra information in transactions. This update was like giving Bitcoin a better way to organize and store extra data.
Now, you get the connection with Ordinals?
With SegWit, they could include more data without making transactions too big, and Taproot made it even easier to include extra information.
This made it possible for people to create unique digital things, like special pictures or messages, that are tied to specific parts of the Bitcoin system, like individual satoshis.
Ok, but how are these added? Let’s understand what UTXO is, first.
Imagine you have a special wallet where you keep your bitcoins. But unlike a regular wallet where you have bills and coins, in Bitcoin, your wallet keeps track of these things called Unspent Transaction Outputs (UTXOs).
Each UTXO represents a piece of bitcoin that you own, and when you want to spend some bitcoin, you have to use these UTXOs.
Here’s how it works: When you want to pay someone, you have to use up one or more of these UTXOs.
It’s like if you have a $5 bill and you want to buy something that costs $3, you have to give the whole $5 bill, and then you get some change back.
In Bitcoin, it’s similar. If you have a UTXO worth 1 bitcoin and you want to pay someone 0.4 bitcoin, you have to use the whole 1 bitcoin UTXO and get some change back.
When you want to add extra information to a Bitcoin transaction, like a picture or a message, you can do that by putting it in a special part of the transaction called the witness data (SegWit reference). This extra information is wrapped up in something called a taproot script (of course, Taproot reference).
To make these inscriptions, you need special software called the “ord” client (Ordinals Protocol), which works with Bitcoin Core. With this software, you can add your extra data to a Bitcoin transaction.
But remember, you need to pay a fee for adding this extra data, and the fee depends on how much data you’re adding. Hence, the gas fee for Ordinal NFTs.
If you want to go deep into how Ordinals and Inscriptions work, here is a visual from a report by Galaxy.
Bitcoin ordinals, which are like special numbers given to tiny parts of Bitcoin called satoshis, are a bit different from regular NFTs. Why?
Well, it’s because Bitcoin doesn’t officially recognize the idea of ordinals like some other blockchains do. This means that an ordinal can be either fungible or non-fungible, depending on what the person who owns it wants.
Here’s what that means: If someone doesn’t really care about their ordinal or the extra stuff attached to it, they can just use it like regular Bitcoin.
It can be used to pay for things or as a network fee, just like any other Bitcoin.
In this way, ordinals are fungible, meaning they can be exchanged for other bitcoins and still keep their value, even if they have extra stuff attached to them.
But with Ethereum or Solana NFTs, it’s different.
An Ethereum NFT is completely separate from regular Ethereum coins. You can’t mix up an NFT with regular Ethereum because they’re treated differently on the Ethereum Network.
Each NFT is unique and can’t be divided or exchanged like regular Ethereum coins can. And the network recognises the difference between an NFT and a token ($ETH) clearly.
There are a couple of things you need to transact an ordinal. A wallet, a marketplace to buy or sell, and some bitcoin in the wallet that covers the fee.
Let’s start with inscribing an Ordinal.
These are probably the most popular wallets out there for Bitcoin Ordinals: Xverse, UniSat, and Leather (Formerly Hiro Wallet). Note that to inscribe an Ordinal, you will need a Taproot Bitcoin address (it begins with “bc1”).
Let’s begin!
Step #1: Set up the Xverse wallet.
Install the Chrome extension, and then set up your Xverse wallet by creating a new account. The process should be very similar to any other wallet like Metamask (for Ethereum) or Phantom (for Solana).
Keep your seed phrase safe!
Step #2: Use Gamma to create your Bitcoin Ordinal
Go to Gamma, connect your wallet, and choose “Create single inscription for myself”. Choose the type of inscription you want to create.
Now, when it comes to the transaction fee option, choose the less expensive one.
And now, you need to copy and paste your Bitcoin Ordinal address. How to find that?
Go to your Xverse wallet extension, and go to the Ordinals tab, where you’ll have an option to receive the Ordinals.
Now, all you need to do is pay the amount, and you’ll receive the Ordinal in your wallet. This process can take around 30 minutes or even longer sometimes.
As I mentioned earlier, you need some Bitcoin in your wallet to inscribe. Check this guide to get Bitcoin in your wallet.
In short, the rise of Ordinal NFTs on Bitcoin has caused a big discussion in the cryptocurrency world.
Some worry it might make Bitcoin’s main job harder or change its story. Others think it’s cool and can make Bitcoin more interesting.
Overall, it shows how Bitcoin is changing and growing with new ideas.
If you are looking to inscribe a whole Bored Apes or Crypto Punks-like collection onto the Bitcoin blockchain, the fee would be around 10 BTC, Assuming a fee rate of 1 Sat/vByte.
Nope. The lack of smart contracts on Bitcoin makes it impossible to enforce royalties.
Most likely Not. Probably never. Although Bitcoin was the first chain to create tokens
and NFTs, it ain’t built for this purpose. It’s a peer-to-peer money transfer machine, and I don’t see it competing with L1 Blockchains like Ethereum or Solana considering the amount of NFT infrastructure built already on these chains.