A new protocol called Ordinals has appeared on the first cryptocurrency network, allowing the creation of NFT analogues. It is now possible to place images and other types of data on the Bitcoin blockchain without using a special token or sidechain.
The technology, which appeared in January 2023, immediately attracted the attention of both crypto experts and ordinary users, causing excitement and mixed reactions from the community.
Bitcoin Ordinals: what it is and how it works
Ordinals is a new Bitcoin blockchain protocol created by former Bitcoin Core developer Casey Rodarmor. It is a numbering system that assigns each satoshi an ordinal (sequential number) that can be used to track bits of bitcoin during transactions.
Satoshi (SAT) is the smallest unit of Bitcoin. One BTC is equal to 100 million satoshi.
In addition, the innovation makes individual satoshi unique by adding additional data with “inscriptions” to them. Serial numbers can be linked to, for example, an image, video, text, etc. In essence, the Ordinals protocol allows the creation of non-fungible tokens in the Bitcoin blockchain, which are called digital artifacts.
Bitcoin Ordinals are based on three technical solutions.
- OP_return. This is a function that adds another output to transactions that cannot be spent. This allows arbitrary data that does not contain cryptocurrency to be stored on the Bitcoin network, as it is not included in the UTXO. This data can be metadata pointing to an object such as an image or video.
- Taproot. A soft fork update to the Bitcoin network from 2021. Thanks to Taproot, the blockchain has become more confidential and scalable, and has gained the ability to use more complex smart contracts. This update also removed the data size limit in OP_return, which increased from the original 80 bytes to 400 kilobytes.
- Ordinals. The protocol itself that allows satoshis to be numbered.
Bitcoin Ordinals and NFTs: what’s the difference
At first glance, the similarity between non-fungible tokens and digital artifacts in Bitcoin is obvious, but there are significant differences between these technologies.
- Non-fungible tokens use specific standards for interacting with the network (ERC-721, ERC-1155, and others), while information about NFTs is stored in smart contracts. Bitcoin “inscriptions” are stored directly in the blockchain, which makes them completely immutable, unlike NFTs, which can be supplemented with new data or characteristics.
- A digital artifact is not a separate token like an NFT; it is inextricably linked to a specific satoshi.
- Non-fungible tokens are added directly to Bitcoin network blocks, while NFTs mainly contain links to information stored outside the blockchain.
Prospects for Bitcoin Ordinals
Ordinals have generated a lot of excitement and quickly become popular, so many experts believe that the technology will continue to develop in the near future and that we can expect improvements in functionality, expansion of application areas, and development of infrastructure projects.
There is already increased interest in ordinals due to the emergence of a new token standard, BRC-20.
The BRC-20 standard and uses for the new type of tokens
In March 2023, an anonymous developer under the pseudonym domo proposed an experimental BRC-20 standard that allows new tokens to be deployed on the Bitcoin blockchain.
Unlike ERC-20 on the Ethereum network, BRC-20 does not use smart contracts but is based on the Ordinals protocol. Tokens are created by adding JSON text files to the network that define the characteristics of the new cryptocurrency: supply, issuance limit, etc. The BRC-20 standard is much more primitive than ERC-20 due to the intentionally limited programmability of the Bitcoin network.
The first BRC-20 standard token is ORDI. As of June 12, it is trading at $4.81, with a market capitalization of just over $100 million. It is listed on well-known CEXs such as OKX, Gate.io, and Huobi.
BRC-20 tokens can be freely transferred from wallet to wallet, with fees charged in satoshis.
Shortly after the standard was introduced, the ordinalswallet.com platform was launched for trading BRC-20 tokens and “inscriptions.”
The hunt for rare satoshis
After developing the Ordinals protocol, Casey Rodarmor proposed a way to identify “special” satoshis. This is done using pre-programmed events in the evolution of Bitcoin, and the first satoshi in these events is assigned a specific rarity criterion.
This is how the “Rodarmore rarity index” came about, which includes five categories of “rarity.” So, the first satoshi…
- of each new block in the network — “Unusual”;
- after a change in the network’s difficulty level (one per 2016 blocks, appearing once every 4 years, one per 1.26 trillion ordinary satoshis) — “Rare”;
- after halving — “Epic”;
- in each “cycle,” every 6 halvings — “Legendary.”
And the unspent satoshi from the very first Bitcoin block (genesis block) created by Nakamoto is assigned the category “Mythical.”
There are other unique satoshis. For example, those that were part of the 10 BTC sent by Nakamoto to Hal Finney in January 2009 (the first Bitcoin transaction). Or the satoshis from Laszlo Hanyecz’s transaction, who made the first purchase with crypto, paying 10,000 BTC for two pizzas in May 2010.
The hunt for these coins is gaining momentum, and some crypto enthusiasts are willing to pay more for one such satoshi than for an entire bitcoin.
