Ordinals allow Bitcoin node operators to encode arbitrary data into the blockchain through inscriptions, which create unique digital artifacts. This technology has many parallels to Ethereum-based Non-Fungible Tokens (NFTs). But, while some critics argue that on-chain data storage puts unnecessary strain on the Bitcoin network, proponents see a wide range of applications for this innovation.
What are Bitcoin ordinals? The protocol leverages the smallest unit of Bitcoin – known as a satoshi or sat – as a carrier of arbitrary data. When users inscribe a sat with content, it creates an ordinal broadcast to the Bitcoin blockchain. Ordinals are a Layer 1 protocol, meaning they use existing infrastructure available on the Bitcoin blockchain and do not require a separate token or sidechain. Bitcoin Ordinals offers a new way of storing information on the blockchain. The inscriptions add functionality to the blockchain and allow users to attach non-financial data to individual satoshis. They also help increase the number of unique Bitcoin addresses by adding value to satoshis mined during a halving epoch. Inscriptions can contain various data types, including transaction comments and messages, asset metadata, and digital signatures. They are designed to be highly versatile and scalable. Inscriptions are an excellent solution for NFTs, but they also have applications in other areas, such as verifying academic credentials and professional certifications or maintaining the integrity of scientific data. While the inscriptions may pose some risks to the Bitcoin network, they are unlikely to change the overall structure of the cryptocurrency shortly. Moreover, they can be used to make transactions more secure and efficient, which will help reduce transaction fees and improve the network’s overall performance. This makes them a promising addition to the Bitcoin ecosystem.
Since Bitcoin’s inception, it’s primarily been used for financial transactions. But, with the development of ordinal inscriptions, users can attach content to satoshis, the smallest unit of the crypto king, turning them into non-fungible tokens (NFTs) that are viewable, collectible, and tradeable. Unlike NFTs on Ethereum, which are typically pointers to data that lives off-chain, Ordinals store the digital asset and its accompanying witness information together on-chain, making them more reliable and secure. This significant development for the Bitcoin blockchain could open up several new use cases for its popular platform. This capability was made possible by two upgrades to the Bitcoin blockchain, known as SegWit and Taproot. The former, implemented in August 2017 via Bitcoin Improvement Proposal 141 (BIP141), decoupled witness information from transaction data, allowing for more inscriptions per block and improving the network’s scalability, privacy, and security. The latter, implemented in November 2021 via Bitcoin Improvement Proposal 152 (BIP152), allowed for Ordinals by enabling associated data to be stored within Taproot script-path spend scripts. When sending Ordinals, it’s essential to use specialized addresses set up expressly to receive them.
BTC Ordinals capitalize on the Bitcoin blockchain’s underlying infrastructure to create unique, non-fungible digital assets. Using a process known as “inscriptions,” they assign data to individual satoshis, making them immutable and identifiable. The inscriptions are then stored in the witness part of a transaction on the Bitcoin network. This process was introduced in 2017 with the Segregated Witness (SegWit) upgrade, which increased Bitcoin’s capacity and lowered transaction fees. As a result, they can be used to store information that is otherwise impossible or impractical to encode in a blockchain. For example, they can be used to verify data or create digital art. The ability to inscribe information on Ordinals allows them to be traded as a currency. While BTC Ordinals are similar to NFTs, they differ in several ways. For one, they still need to be more user-friendly to issue or transfer than NFTs. This could change as blockchain scalability and data storage improvements make them more accessible to users. This could pave the way for new applications, such as cross-chain Ordinals lending and decentralized exchanges.
When the software engineer Casey Rodarmor launched BTC Ordinals in January 2023, it signaled a significant shift in Bitcoin’s narrative. Unlike traditional NFTs (Non-fungible Tokens), which have been based on Ethereum’s blockchain, BTC Ordinals use the smallest divisible unit of Bitcoin, the satoshi, as carriers for data. This process, known as inscription, gives BTC Ordinals unique, non-fungible, and permanent attributes. It also enables users to inscribe their data on the blockchain, such as text, images, or GIFs. Ordinals can be used in several ways, from digital art and collectibles to tagging physical goods and events. They can also have more practical applications like identity verification and supply chain tracking. Ordinals allow for the creation of unique non-fungible tokens on the Bitcoin blockchain. The feature is a significant evolution for the crypto-asset as it allows for transferring additional data on top of traditional financial transactions. This has enabled several unique use cases, including improved provenance tracking, fractional ownership, and augmented reality. However, there are also concerns that this could add to the complexity of the Bitcoin network.