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What Are Bitcoin Ordinals?
Ordinals are NFTs hosted on the Bitcoin protocol - but there are some big differences to Ethereum-based NFTs.
Ordinals are a new way of creating non-fungible tokens on top of the Bitcoin blockchain. The Ordinals Protocol allows users to "inscribe" NFTs by recording images and other metadata on-chain.
The protocol was launched by developer Casey Rodarmor in January 2020, and has proven controversial, with critics arguing it uses up space on the blockchain frivolously and takes Bitcoin away from its primary use case as a form of peer-to-peer money or digital gold. Despite this, it has become incredibly successful, with more than 10 million Ordinals inscribed to date.
How Do Ordinals Work?
Ordinals are a way of creating NFTs on the Bitcoin blockchain by attaching data to an individual Satoshi (a 100 millionth of a bitcoin, the smallest, indivisible unit of BTC). This is made possible by using Ordinal Theory, which allows each Satoshi to be uniquely numbered and tracked, as well as by the Segregated Witness (SegWit) update to the Bitcoin Protocol in 2017 and the Taproot update in 2021.
Together, these updates allowed for up to 4MB of arbitrary data to be stored in the "witness data" section of each Bitcoin block—allowing relatively large images, chunks of text, games, and even videos to be recorded on the blockchain.
This makes for some interesting differences between Ordinals and other attempts to create tokens on Bitcoin, as well as differences with NFTs on Ethereum and most other networks.
- Ordinals are inscribed on the base layer of the Bitcoin blockchain, not a separate protocol on top of it. No sidechain or Layer 2 is required.
- All Ordinals data is recorded on the blockchain itself. This is different to Ethereum NFTs, where metadata is typically stored on IPFS or some form of centralized hosting, due to the high gas costs entailed in putting it on-chain.
- Because Ordinals are inscribed fully on the blockchain (unlike most NFTs), they cannot be changed once created.
- Due to the numbering system used for Satoshis and the events that occur periodically for Bitcoin, Ordinals have built-in rarity, in addition to the rarity of any images attached to them.
Ordinals require the use of a special wallet to manage them, because they are just regular Satoshis, and if they are not tracked then they can be spent like any other funds.
Ordinals' Success And Controversy
As Bitcoin-native NFTs, Ordinals have proven to be a stunning success. Over 10 million Ordinals have been inscribed since the protocol was launched in January, with more than 200,000 per day typically being created.
While excitement around NFTs on Ethereum and other blockchains has waned, Bitcoin Ordinals have attracted more and more attention. Even Peter Schiff, a notable Bitcoin critic, has released a collection of art using Ordinals.
Despite this success, or perhaps because of it, Ordinals have also seen plenty of criticism. Inscribing metadata on the blockchain fills up block space, and leads to chain bloat. It means there is greater competition for transactions to be confirmed. To date, Ordinals have been responsible for over 1,600 BTC in transaction fees, or almost $44 million. The rise of Ordinals has caused network fees to increase across the board and sometimes up to $10-20, which has made bitcoin uneconomical for smaller transactions—though this has benefited miners.
Against this, Ordinals offer a wide range of use cases, which could potentially see Bitcoin being used to support many different financial assets, and bring greater attention to the sector. Either way, Bitcoin is an open protocol, and unless the majority of the network opts to block Ordinals transactions, there is no way to stop people using the blockchain however they want.
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