Bitcoin Ordinals is a protocol based on the Bitcoin blockchain. It assigns a unique ordinal number to satoshis (sats), the smallest unit of Bitcoin, and inscribes digital content on sats, giving it a non-fungible feature.

The digital content can be in any form, such as text, images, audio, video, and more. Even sats with the same content will be slightly different due to their unique ordinal numbers, so Bitcoin Ordinals are essentially NFTs on the Bitcoin blockchain.

You can think of Bitcoin Ordinals as dollar bills, with the ordinal number assigned to each sat being similar to the serial number on each dollar bill. The digital content inscribed on each sat represents the holder’s signature on the bill. If the signature comes from a celebrity or has a special meaning, it will be a valuable collectible.

Therefore, sats inscribed with digital content can be viewed as commemorative Bitcoin, which can be used like ordinary sats for transfer and payment, and holders may obtain additional value due to the inscribed digital content.

With the advent of Bitcoin Ordinals, the Bitcoin network has seen significant growth in usage, fees, and storage space, representing a significant breakthrough in its application scenarios. It helps to expand Bitcoin from a simple value store to a more diverse range of use cases.

The History of Bitcoin NFTs

The history of Bitcoin NFTs can be traced back to “colored coins” created by eToro CEO Yoni Assia in early 2012. It consists of small denominations of Bitcoin with additional information through different algorithms, can represent various assets such as coupons and stocks, and is considered a precursor to today’s NFTs.

Since 2016, the Bitcoin development community cooperated with Counterparty to create Rare Pepe NFTs, which feature 1,774 frog-themed, digital collectible cards created by different artists. Users traded with PepeCash, and stored and indexed them using the Rare Pepe Wallet and Rare Pepe Directory.

In 2019, the Stacks blockchain was launched based on the Bitcoin network. It implemented Bitcoin’s smart contract applications, such as DeFi and NFTs, through a cross-chain consensus mechanism called “proof-of-transfer.”

Segregated Witness (SegWit), introduced in 2017, increased the Bitcoin block size from 1 MB to 4 MB, laying the foundation for the Lightning Network, a Layer 2 payment channel. The Taproot upgrade at the end of 2021 made data storage costs even lower, making it possible for applications such as Bitcoin Ordinals that require more block space to be implemented.

In January 2023, programmer Casey Rodarmor introduced the Bitcoin Ordinals protocol based on ordinal theory, inspired by the “atom” concept referenced by Satoshi Nakamoto in the early Bitcoin codebase, allowing digital content to be written directly into the Bitcoin blockchain.

The genesis Bitcoin Ordinals is a pixelated skull image inscribed by Casey Rodarmor on December 14, 2022, which sparked a craze for inscribing Bitcoin NFTs just a few weeks after its launch. So far, more than 400,000 Bitcoin Ordinals have been inscribed, and the average Bitcoin block size reached a historic high of 2.5 MB.

Source: Blockchain.com

How are Bitcoin Ordinals Generated

Although Bitcoin Ordinals are often referred to as NFTs on the Bitcoin blockchain, their generation is quite different from other NFTs such as ERC-721 and ERC-1155.

Bitcoin Ordinals must be inscribed on the smallest unit of Bitcoin, called “satoshi,” and the process requires payment of network fees. In contrast, for normal NFTs, only gas fees are required to issue tokens, and it is not limited to being minted on native tokens of the blockchain.

According to Ordinals developer Casey Rodarmor, the “position” of a sat on the Bitcoin blockchain can be defined based on four parameters:

1. The index of sat in the block

2. The index X/2016 of the block during the difficulty adjustment period

3. The index X/210,000 of the block during the halving epoch

4. The halving cycle number

According to this rule, we can use (1, 1, 1, 1) to represent the first satoshi generated in the genesis block of the Bitcoin network, and (1, 1, 1, 2) to represent the first satoshi in the first block during the next halving epoch. It is exactly 210,000 blocks apart, which was determined by Bitcoin’s source code.

Since each satoshi only has one unique position coordinate, and there is a relationship of increment between the coordinates of different satoshis, the numbers can be called the ordinal numbers of satoshis.

Casey Rodarmor’s Ordinals theory uses a more concise way of defining ordinal numbers by identifying sats with ascending natural numbers. You may refer to the relevant docs for details.

The ordinal number can be attached to satoshis without any modification to the Bitcoin source code, so the Ordinals protocol is essentially a soft fork of the Bitcoin network, which treats fungible satoshis as unique satoshis with ID numbers and can add data to, thereby giving satoshis non-fungible properties.

How do Bitcoin Ordinals Differ from NFTs

Although the generation of Bitcoin Ordinals is different from that of common NFTs on other blockchains, there are similarities between the two. Here is a breakdown of the details:

From this, we can see that Bitcoin Ordinals and NFTs have their own unique features. In most cases, they can be viewed as similar tools.

Casey Rodarmor, the founder of the Ordinals protocol, prefers to refer to Bitcoin Ordinals as “digital artifacts” rather than NFTs.

He believes that the current NFTs in the crypto market have some shortcomings, as off-chain data storage poses a risk of third-party tampering. Bitcoin Ordinals do not generate royalty income to creators, which contradicts the commonly recognized feature of NFTs that allows for setting royalties by creators.

Overall, Bitcoin Ordinals are unparalleled innovations and should not be labeled as NFTs.

BRC-20 Token Standard

BRC-20 is a fungible token standard implemented on the Bitcoin blockchain, created by Twitter user @domodata on March 8, 2023. BRC-20 is based on the Ordinals protocol, and is similar to Ethereum’s ERC-20 standard.

Under the framework of the Ordinals protocol, BRC-20 offers the functions of deploying token contracts and minting and transferring tokens by writing the JSON data into sats, the smallest unit of Bitcoin. Developers can create and issue BRC-20 tokens by following this standard.

BRC-20 endows non-fungible ordinals with fungible features. For example, if you mint 10,000 sats inscribed with “GATE” based on the BRC-20 standard, these 10,000 sats are fungible tokens named “GATE.”

There are currently many popular meme coins based on BRC-20, such as ORDI, PEPE, MEME, and VMPX, which are also one of the main reasons for the recent network congestion and increase in transaction fees on the Bitcoin mainnet. Users can buy and trade these BRC-20 tokens directly on Gate.io.

Anyone can deploy BRC-20 tokens. However, the name of BRC-20 token only supports 4 not case-sensitive letters consisting of English characters, punctuation, and other characters (e.g. GATE = gate). The first-come, first-served principle applies to its naming. For example, if a token named ORDI already exists, no one else can deploy a token with the same name. Currently, users can use third-party tools (such as Unisat wallet) to deploy, trade, and perform other operations with BRC-20 tokens.

JSON format for BRC-20 tokens

Below is a list of popular BRC-20 tokens with higher market capitalization:

1. ORDI: The first BRC-20 token issued by @domodata with a total supply of 21 million. At present, the number of addresses holding ORDI has exceeded 7,000, with 62,936 transactions and a market cap of $500 million.

2. NALS: With a total supply of 21 million and a market cap of around $18 million, the number of addresses holding NALS is close to 2,000, and the number of transactions has exceeded 40,000, enjoying a high turnover rate. NALS is a part of the English word “ordinals,” which consists of “ordi” and “nals.”

3. PIZA: PIZA has a total supply of 21 million, with a market cap of about $13 million and addresses holding PIZA of about 1,045. The name comes from the story of buying 2 pizzas for 10,000 bitcoins in 2010.

4. MEME: The fourth BRC-20 token deployed, with a supply of 99,999 and a current market cap of about $18 million. The number of addresses holding MEME is about 3,500. The name comes from internet memes.

5. PEPE: The total supply is 42.096 million. It emerged along with the meme trend of ERC20 tokens.

6. INSC: INSC has a market cap of $4 million. Its name is the first 4 letters of the word “inscription.” Addresses holding INSC are close to 1,000.

7. PUSY: The market cap is $900,000, with 605 addresses holding PUSY. It is said to be promoted by @XEN_Crypto.

Among the BRC-20 tokens that have been minted, only 22 have more than 1,000 holders. It is estimated that, as the BRC-20 trading market is still in its early stages, there are only about 10,000 participants currently. Insufficient liquidity makes their prices more susceptible to being driven up by market sentiment. For example, the price of $ORDI had already surged several times a week before being listed on exchanges.

The Ecosystem of Bitcoin Ordinals

The development of Bitcoin Ordinals is still in its early stages, compared to NFTs which already have many mature tools and trading markets. The process of inscribing Bitcoin ordinals requires high technical expertise. Initially, only users running Bitcoin nodes are able to complete it by executing specific command lines. Fortunately, many protocol projects and development teams have provided some toolkits to help more users navigate the fantastic world of Bitcoin Ordinals.

Ordinals Wallet

Ordinals Wallet is the first wallet to support the Bitcoin Ordinals protocol. Users can browse and search uploaded Bitcoin Ordinals collections and can also submit applications on GitHub to display their own ones.

Earlier, Ordinals Wallet held a “Pixel Pepes” airdrop, with a total of 1,563 Pixel Pepes distributed to users who had made one transaction on the wallet.

Source: Ordinals Wallet

Hiro Wallet

Hiro Wallet is a wallet application built based on the Bitcoin network. It is integrated with the Stacks blockchain and supports some decentralized applications that require smart contracts. Users can purchase STX through credit cards, debit cards or even bank transfers in the Hiro Wallet, and can also stake them.

Users can install web wallets by downloading plugins for Chrome, Firefox, and Brave browsers, or download a client on your desktop for MacOS, Windows, and Linux systems. Hiro Wallet has been supporting Bitcoin Ordinals protocol but has not yet supported the Lightning Network.

Source: Hiro Wallet

Xverse

Xverse is a non-custodial Bitcoin wallet based on the Stack blockchain. It recently added the function of displaying and transferring Bitcoin Ordinals.

Xverse supports most of the decentralized applications on Stacks, including DeFi liquidity protocols such as ALEX or Arkadyko, NFT markets such as Gamma and Tradeport, etc.

Source: Xverse

Gamma

Gamma is the largest NFT market by transaction volume on the Stacks blockchain. Immediately after the launch of the Ordinals protocol, it introduced the no-code tool Ordinals Launchpad, allowing users to easily inscribe Bitcoin Ordinals. It also supports batch inscriptions of Ordinals collections.

The Ordinals trading market on Gamma uses the Bitcoin Layer 1 architecture, allowing users to trade Bitcoin Ordinals directly on the Bitcoin blockchain.

Source: Gamma

Ordinals Bot

Ordinals Bot is a Bitcoin Ordinals inscription tool developed by the @satoshibles team, which allows users to easily inscribe Bitcoin Ordinals without the need for writing codes or running nodes.

Recently, the project team has launched a new tool for batch naming of .sats, where users can add one name per line and Ordinals Bot will add the necessary attributes to them. This is a bit similar to domain name services such as ENS.

The cost for inscribing Ordinals using Ordinals Bot is 0.00025 BTC + 10% service fees. Users may choose to pay the fee via either the Lightning Network or the Bitcoin network.

If users do not provide a recipient address for the inscribed Bitcoin Ordinals, Ordinals Bot will keep the inscribed Bitcoin Ordinals on their behalf.

Source: Ordinals Bot

Ordinals Market

Ordinals Market is a trading platform specifically designed for Bitcoin Ordinals. It uses technology developed by Emblem Vault to facilitate the trading of Bitcoin Ordinals on the Ethereum blockchain.

Users store the Bitcoin Ordinals they want to trade in a vault, an ERC-721 token stored on the Ethereum blockchain. The vault itself holds the private key to the Bitcoin address that owns the inscription. It can be cracked open by the owner at any time.

Source: Ordinals Market

OrdSwap

OrdSwap is an Ordinals trading market based on the Bitcoin network that uses Partially Signed Bitcoin Transactions (PSBT) to achieve a trustless exchange between parties.

Bitcoin Ordinals creators can add additional fees to PSBT, enabling them to collect royalties from each sale indirectly.

OrdSwap charges a fee of 2% or 1,000 sats (whichever is higher) on each transaction. The transaction fee is fixed at 25 sats currently.

Users who wish to list their own collections can contact the team via Discord for verifying collections.

Source: OrdSwap

ORDX

ORDX is an Ordinals marketplace built on the Bitcoin blockchain. Like Casey Rodarmor, ORDX refers to Ordinals as digital artifacts. It aims to provide the most convenient, secure, and smooth user experience.

ORDX is still in development and is expected to support permissionless trading as well as many more Bitcoin wallets, including Sparrow Wallet.

Source: ORDX

Unisat

Unisat Wallet is an open-source project that can be installed as a browser extension on Chrome, or downloaded from GitHub and installed locally. Unisat Wallet supports various types of Bitcoin Ordinals and BRC-20 tokens, allowing users to store and transfer their own Ordinals NFTs.

With the core technology of PSBT, Unisat users can immediately view unconfirmed NFTs, alleviating the problem of slow transaction confirmation on Bitcoin blockchain.

Unisat allows for inscription without the need to run a full node, and users can store, mint and transfer BRC-20 tokens. Further, Unisat also provides decentralized exchange services for Bitcoin inscriptions. Users only need to have a Unisat wallet and meet the inscription requirements to participate, without the need for registration or undergoing KYC.

Source: Unisat

Potential Uses of Bitcoin Ordinals

Bitcoin Ordinals is undoubtedly a huge innovation. It provides additional uses for the Bitcoin blockchain that was originally used only as a payment network and value store. Ordinals has not only aroused the interest of many users but also driven the development community to explore various types of applications and auxiliary tools.

Bitcoin NFTs

Currently, Ordinals are most commonly used as Bitcoin NFTs. According to on-chain data, over 400,000 Ordinals have been minted in the three months since the launch of the Ordinals protocol, with the majority of inscriptions being images and texts, accounting for over 90%.

Some well-known teams such as Yuga Labs have also recognized the potential of the Bitcoin NFT market. It announced on Twitter the release of generative image NFTs called TwelveFold, which was sold out in an auction a week later.

Many well-known NFT collections, such as CryptoPunks, Ether Rock, Pudgy Penguins, and BAYC, are also seen in the Bitcoin NFT market. We may even see various imitations of Ordinals, which is an obvious demonstration of people’s enthusiasm for Bitcoin NFTs.

It is important to note that Bitcoin Ordinals can be inscribed more than once. Research reports stated that Bitcoin Ordinals inscribed multiple times are still welcome.

Bitcoin email box

Thanks to the inscription functionality of the Ordinals protocol, satoshi is no longer just the smallest unit of Bitcoin used for transactions, but also serves as an “envelope” in the Bitcoin network that can be used to inscribe data on sats and pass it to different users.

As Bitcoin block size is limited to 4 MB, you can think of your Bitcoin wallet as a personal email box where you can send and receive public messages with attachments up to 4 MB in size.

In daily life, people are accustomed to using free email services, as well as communication and social networking software like Facebook, WhatsApp, Skype, WeChat, and Telegram.

Due to the slow speed and high fees on the Bitcoin network, Bitcoin Ordinals cannot offer high-throughput applications. However, in certain fields such as advertising, marketing, and information, Bitcoin Ordinals can be used as a small data storage solution with high security.

The Guardian of Network Security

If there are no sufficient rewards for the newly generated block, what incentives can be used to motivate miners to continue maintaining the security of the network? Perhaps the transaction volume and fees brought by Bitcoin Ordinals are a solution.

Data shows that since the launch of the Ordinals protocol, users have contributed more than $2 million in fees for minting and trading Bitcoin inscriptions. This not only helps improve the storage space and utilization rate of the Bitcoin network but also increases miners’ income.

If the Bitcoin Ordinals craze continues and the Ordinals become widely adopted, they have the potential to solve the security budget problem of the Bitcoin blockchain, and may also promote the imitation and adoption by other blockchain protocols.

Source: Dune Analytics

Denationalization of Currencies

The right to issue currency is important for a government’s sovereignty. In the 18th century, Mayer Anselm Rothschild had a famous quote, “Permit me to issue and control the money of a nation, and I care not who makes its laws.” This statement highlights the significant impact that the right to issue currency can have on society, economy, and even a nation’s development. Throughout history, this power has been almost exclusively held by governments.

However, centralized control of currency has often led to long-term devaluation and inflation of fiat currency, and the excessive printing of banknotes without credit and lack of endorsement caused economic turmoil. This has led to the birth of the cryptocurrency and blockchain industries.

While standards like ERC-20 make it easy for anyone to create and issue tokens, they do not solve the problem of lacking credibility and value. In an era when everyone can issue their own shitcoins, what is scarce is the purchasing power rather than money.

Some advocate the creation of new token standards such as BRC-20, ORC-20, and BRC-21 using Bitcoin Ordinals. Tokens created with these new standards differ from ERC-20 tokens in that they have an intrinsic value of 1 satoshi, and can be considered a cryptocurrency backed by Bitcoin reserves.

Bitcoin has a supply cap, and BRC-20 and other similar standards inherit the scarcity feature of Bitcoin. For example, the issuer of BRC-20 cannot arbitrarily issue excessive tokens. Perhaps Bitcoin Ordinals will lead us to witness the popularization of the right to issue currencies, ushering in an era when everyone can freely issue credit currencies.

Cons of Bitcoin Ordinals

The Ordinals protocol and related applications are not yet fully developed, so it inevitably comes with some shortcomings. Although some of them could be overcome as technology advances over time, there may still be some problems that may not be easily resolved.

Lack of smart contract functionality and infrastructure

Since Bitcoin does support smart contracts like Ethereum, on-chain operations in Bitcoin Ordinals face some restrictions. For example, in the early days when there were no decentralized exchanges, Bitcoin Ordinals can only be traded OTC, and some projects even used cloud-based spreadsheets to act as order books. This creates room for improvement in wallet operations and user interfaces.

The risk of losing inscriptions

Like all cryptocurrencies, once you lose your private key or your wallet is hacked, your Bitcoin Ordinals holdings cannot be retrieved.

Bitcoin Ordinals holders need to pay extra attention to the risk of losing ordinals as they might be spent. As Bitcoin Ordinals are essentially the same as Bitcoin, users may unexpectedly spend special Bitcoin Ordinals, like commemorative coins in the real world can be spent as ordinary US dollars.

In other blockchain networks, users typically cannot use NFTs as a medium of transaction for payments and purchases, so there is no risk of accidentally spending NFT and causing NFT losses.

Lack of content moderation

Due to the permissionless nature of the Bitcoin network, inscriptions on Bitcoin Ordinals cannot be censored. This means that unscrupulous actors may use the Bitcoin blockchain to spread illegal and copyrighted information, which, once inscribed, cannot be removed.

This need for content moderation is one of the main reasons why Bitcoin purists oppose the Ordinals protocol. In extreme cases, Ordinals may even be abused to occupy unnecessary block space and cause attacks like DDOS on the Bitcoin network.

Conclusion

For nearly a decade, Bitcoin developers have been working to bring NFTs to the largest blockchain by market capitalization. However, the limitations of the Bitcoin network have prevented it from making impressive performances in the NFT space, until the advent of the Ordinals protocol.

Unlike NFTs on other blockchains such as Ethereum, Bitcoin Ordinals aims to create a form of digital content that is immutable and entirely stored on the blockchain.

Bitcoin Ordinals not only serve as a substitute for NFTs, but also have potential application scenarios in other areas. However, it is also accompanied by some shortcomings, such as the inconvenience of using the service and the hidden danger of being maliciously used.

Currently, available tools and projects related to Bitcoin Ordinals are still in very early stages. With the growth of the development team and the number of users, the ecosystem of Bitcoin Ordinals would also become more mature and complete, with existing technical challenges expected to be addressed over time. We may expect that the next world-class super dApp might be built on the Bitcoin network.