The recent appearance of Bitcoin Ordinals has caused a sudden increase in the number of users switching to Bitcoin. So, what is Bitcoin Ordinals? How do they work? Let’s learn everything about this mechanism with Coinminutes through the article below!
What Are Bitcoin Ordinals?
Bitcoin Ordinals also known as Bitcoin NFT, is a system that allows people to order, identify, and engrave digital content such as images, videos, etc. into satoshis (SAT) on the Bitcoin blockchain to create digital artifacts (1 BTC = 100.000.000 satoshis). That means that users can mint 100 million NFTs per 1 Bitcoin.
Bitcoin Ordinals consists of two main components: Ordinals and Inscriptions.
- Ordinals: assigns a specific number to each satoshi, making it distinguishable from other satoshis. Ordinals ensure that each satoshi has a unique identifier.
- Inscription: the actual content (images, text, videos, or any other data the user associates with the NFT) tied to satoshis. Inscriptions are often referred to as metadata compared to other NFTs.
The inscription is immutable across digital content chains on the Bitcoin blockchain. They are integrated directly into the blockchain and do not require any separate layers to the Bitcoin protocol. They can be accessed and traded using BTC itself.
Bitcoin Ordinals have become very popular, leading to increased usage, fees, and storage space on the Bitcoin network. Since January, a total of 11.8 million inscriptions have been created at a cost of $44.5 million. With Bitcoin’s ability to expand its utility, BTC Ordinals serves as a “store of value” and contributes to its applications.
What Is an Example of a Bitcoin Ordinal?
An example of a Bitcoin Ordinal is the inaugural NFT from the Taproot Wizard collection. This specific Taproot Wizard holds significance as it was part of the largest Bitcoin transaction ever recorded and was included in the largest Bitcoin block to date. The NFT was minted through a collaborative effort between independent developer Udi Wertheimer and the Bitcoin mining pool Luxor. Notably, Luxor included the transaction in the block without imposing any on-chain fee.
How Do Bitcoin Ordinals Work?
The arrival of the Segregated Witness (SegWit) upgrade in 2017 and Taproot in 2021 were the perfect stepping stones for the birth of Bitcoin NFTs. They provide the necessary infrastructure for Ordinals and Inscriptions to exist. They expand the amount of arbitrary data that can be stored on the blockchain, allowing the inclusion of images, videos, etc.
SegWit has “Witness Data” that supports the transfer of arbitrary data in Bitcoin transactions. A larger amount of data is stored within Bitcoin’s block size limit. It’s the first step towards being like a regular NFT, as it expands the limits on how much arbitrary data can be included in a transaction.
Taproot makes Bitcoin further enhance privacy, scalability, and security. It relaxes the limits on the amount of arbitrary data that can be placed in a Bitcoin transaction. This upgrade underpins Ordinals’ work using the Taproot dataset spend.
Bitcoin Ordinals is a tool that allows users to create, view, and track additional information connected to each satoshi on the Bitcoin blockchain. What’s special about Ordinals is that they don’t create new tokens but instead work with existing satoshis. Engraved satoshis can be deposited and used just like any other.
Ordinals vs. Traditional NFTs
The similarity between Ordinals and Traditional NFTs is that they are both irreplaceable and associated with digital art. However, with Bitcoin Ordinals only exist on the chain and are completely immutable. Ordinals NFT can also be minted directly onto the chain in the same way as regular BTC.
Traditional NFTs are not always immutable and can exist off-chain. Additionally, Ordinals NFTs do not have separate metadata files. For example, an NFT on Ethereum will have a unique metadata file that references the asset (be it an image, video, or audio file) represented by the NFT and shows proof of ownership. In contrast, Ordinals stores this file in the witness signature field of the Bitcoin Satoshi transaction. This is also a strong point of BTC Ordinals because traditional NFTs have the risk of data loss in case of a crash.
Some different points that you can refer to below:
Bitcoin Ordinals Pros and Cons
- Bitcoin Ordinals attracts many investors, helping to increase the flow of money to Bitcoin and its network coins. Typically, the STX (Stacks) coin has increased x3 since Ordinals was born.
- With its attraction, Bitcoin Ordinals has significantly increased the number of users and transactions for Bitcoin, thereby helping miners gain new profits.
- Bitcoin Ordinals make Bitcoin’s applicability has increased significantly.
- The sudden increase in transaction volume leads to transaction fees on Bitcoin also increasing and transaction speed may be affected.
- The size of each block on BTC will increase dramatically because it must contain a large amount of data encoding images and videos.
- Another limitation is that BTC Ordinals create a value asymmetry for Satoshi. Previously satoshis had equal value. Now with Bitcoin Ordinals, satoshis tied to rare NFTs may have a higher price than regular satoshis. However, this is still just a concern and has not yet seen any significant impact.
How Will Ordinal NFTs Change Bitcoin?
Based on Coinminute’s research ordinal NFTs have the potential to change Bitcoin in the following ways:
- New use cases: Ordinals allow each individual satoshi (the smallest unit of Bitcoin) to be tokenized as a unique, non-fungible asset. This creates new possibilities for using Bitcoin for purposes beyond just monetary transactions, such as trading digital collectibles, art, etc.
- Increased miner revenue: By enabling things like Bitcoin-based art/collectibles markets, ordinals are generating more transactions on the Bitcoin blockchain. This means higher transaction fees paid to miners. This increased revenue could help sustain Bitcoin’s security over the long run as the block reward subsidies decrease.
- Utility debate: Supporters argue ordinals give Bitcoin more utility. Critics argue it clogs the blockchain and increases fees, going against Bitcoin’s original purpose as electronic cash. This has divided the community.
- Sustainability question: If ordinals can substantially and consistently boost miner revenue through transaction fees, it could help Bitcoin avoid a potential future “security crisis” when block rewards run out. However, fees would need to remain reasonably low for Bitcoin to also function as a global payment system.
- Technical challenges: Bitcoin’s small block size and fungible currency design were not created with ordinals/NFTs in mind. This may pose technical challenges to scaling ordinal apps on Bitcoin that the community will need to address.
How to Mine Bitcoin Ordinals?
The process of mining Bitcoin Ordinals closely resembles that of conventional Bitcoin transactions, as they essentially constitute a distinct category of Bitcoin transactions adhering to a specific protocol. However, there are two notable distinctions in the mining procedure for Bitcoin Ordinals compared to the conventional mining of NFTs:
- Bitcoin Ordinals reference data that is directly embedded within the Bitcoin blockchain. In contrast, various other blockchains, such as Ethereum and Solana, often store NFT information in locations external to the blockchain itself.
- Bitcoin employs a proof-of-work (PoW) mechanism for its mining operations, distinguishing it from other blockchain networks that have historically been more closely affiliated with NFTs and utilize a proof-of-stake (PoS) approach.
How to Buy, Sell, and Trade Bitcoin Ordinals?
Bitcoin Ordinals function much like traditional NFTs, allowing for buying, selling, and trading activities. Various marketplaces, such as Ordinals Wallet and OKX, facilitate the trading of Bitcoin Ordinals.
To engage in trading Bitcoin Ordinals, follow these general steps:
- Access a Bitcoin Ordinals marketplace through a web browser or app.
- Establish a Bitcoin wallet within the chosen Ordinals marketplace or connect to an existing one.
- Ensure there is a sufficient amount of bitcoin in the wallet for trading purposes.
- Explore the marketplace’s diverse collections of Ordinals.
- Identify a desired Bitcoin Ordinal for purchase and execute the transaction using the linked Bitcoin wallet.
Noteworthy wallets supporting Bitcoin Ordinals include Ordinals Wallet, Xverse, and UniSat. Additionally, trading in a more personalized manner can be achieved through over-the-counter (OTC) or peer-to-peer (P2P) methods.
Bitcoin ordinals blend the security of Bitcoin with the uniqueness of NFTs, creating a novel space for digital ownership. This guide unveils the synergy, showcasing the fusion of traditional finance with digital innovation. In a rapidly evolving crypto landscape, Bitcoin ordinals symbolize the limitless potential of decentralized creativity.