Bitcoin Ordinals is one of the newest and most interesting phenomena in the cryptocurrency market. The introduction of this solution has opened the door to creating NFTs (non-fungible tokens) directly on the Bitcoin blockchain, which was previously primarily the domain of the Ethereum network.
Thanks to the Ordinals protocol, Bitcoin users can now inscribe digital content, such as images, videos, texts, and even video games, directly onto individual satoshi (the smallest unit of bitcoin). In this article, you’ll learn what Bitcoin Ordinals are, how they work, and what benefits they can offer investors and users.
What are Bitcoin Ordinals?
Bitcoin Ordinals is a system that allows assigning unique digital content to satoshi units on the Bitcoin blockchain. Satoshi is the smallest unit of bitcoin, equal to 1/100,000,000 BTC, and each of these satoshi can be “inscribed” using the Ordinals protocol. This process creates so-called inscriptions—digital artifacts that resemble traditional NFTs but differ in terms of technology and data storage.
How do Ordinals work?
Ordinals are based on a system that assigns each satoshi a unique identifier, enabling the creation of tokens that are both fungible (like BTC) and non-fungible (like NFTs). This process does not require changes to the Bitcoin protocol or additional technological layers, as is the case with other blockchains supporting NFTs, like Ethereum. Thanks to the Segregated Witness (SegWit) and Taproot updates, the Bitcoin network has been able to expand the amount of data that can be stored in blocks, allowing digital content to be inscribed directly on the blockchain.
Ordinals vs. Traditional NFTs
At first glance, Bitcoin Ordinals resemble the NFTs we know from platforms like Ethereum. Both technologies allow unique digital content to be assigned to tokens. However, there are several key differences:
- Data storage: Traditional NFTs, such as those on Ethereum, often store their data on external servers, such as IPFS or Arweave. In the case of Bitcoin Ordinals, data is stored directly on the Bitcoin blockchain, providing greater durability and immutability.
- Technology: Ethereum NFTs rely on smart contracts, while Bitcoin Ordinals use Bitcoin protocol updates (SegWit and Taproot) to create inscriptions without the need for additional contract layers.
- Uniqueness: Since Bitcoin Ordinals require the use of satoshi units and BTC for creation and transfer, they are inherently more limited and unique than NFTs from other blockchains, which can be minted in large quantities in a single transaction.
How to create Bitcoin Ordinals
To create your own Bitcoin Ordinals, a user must have a Taproot-compatible wallet and access to a full Bitcoin node. The process of creating an inscription involves sending a transaction containing a single satoshi and attaching the digital content to be inscribed. This can be done manually or using tools like the Ordinals Bot, which automates the process and makes the technology accessible even to less advanced users.
How to trade Bitcoin Ordinals
Trading Bitcoin Ordinals primarily takes place through dedicated platforms and communities, such as project Discord servers. As the Ordinals ecosystem is still new, trading tools are limited, and many transactions happen directly between users in closed forums. Users can also sell inscriptions through platforms like OpenSea, using vaults that link NFTs with the Bitcoin blockchain.
What are inscriptions?
Inscriptions are the core element of Bitcoin Ordinals. They are the equivalent of digital content attached to traditional NFTs, but in this case, they are inscribed directly onto the Bitcoin blockchain, making them durable and immutable. Each inscription has its unique identifier and is assigned to a specific satoshi unit.
Benefits of Bitcoin Ordinals
The introduction of Ordinals brings several benefits, both for Bitcoin users and the broader blockchain ecosystem. Here are some of the main advantages:
- New opportunities for Bitcoin: Originally created as a peer-to-peer digital payment system, Bitcoin, thanks to Ordinals, expands its use case to include NFTs, increasing its potential and attracting new users.
- Security and durability: Inscribing digital content directly onto the Bitcoin blockchain makes it immutable and resistant to manipulation, providing greater durability compared to traditional NFTs stored off-chain.
- Uniqueness: Each satoshi can be assigned unique content, making Bitcoin Ordinals rare digital assets. Due to the limited supply of BTC and satoshi, the value of such inscriptions could increase significantly.
How are Ordinals changing the Bitcoin ecosystem?
Ordinals open up entirely new possibilities for Bitcoin. For the first time since Bitcoin’s creation in 2008, the Bitcoin blockchain can be used for something beyond transferring value. Thanks to Ordinals, BTC becomes a platform for storing and trading digital artifacts, expanding its applications and opening the door to innovation in the Bitcoin ecosystem.
Ordinals vs. Taproot Wizards and Ordinal Punks
One of the most well-known examples of Ordinals collections is Ordinal Punks and Taproot Wizards. These digital artifacts quickly gained popularity in the cryptocurrency community, with some fetching high prices on the secondary market. Taproot Wizards is a collection of graphics related to crypto culture that pays homage to traditional NFT collections like CryptoPunks. The creation of these inscriptions is possible thanks to Taproot, which increased Bitcoin block capacity, allowing more data to be stored.
What are the challenges associated with Bitcoin Ordinals?
While Bitcoin Ordinals bring many innovations, there are also challenges. As they are a new solution, there are many aspects that still need to be refined:
- Limited tools: Currently, there are few tools available for creating, storing, and trading Ordinals. Developers need to build more user-friendly platforms to make the system more accessible.
- Transaction costs: Each inscription involves paying transaction fees in BTC, which may be a barrier for some users. The increasing popularity of Ordinals could drive up fees on the Bitcoin network.
- Regulations: Cryptocurrencies, especially NFTs, are subject to increasing regulation. Creators and traders of Ordinals must be aware of the legal risks, which may vary across jurisdictions.
Summary
Bitcoin Ordinals represent a new era for Bitcoin, expanding its functionality and enabling the creation of digital assets that could reach values comparable to traditional NFTs on Ethereum. The introduction of Ordinals demonstrates that the Bitcoin blockchain has much broader applications than just storing value. Over time, as tools and trading platforms for Ordinals become more developed, we can expect the popularity of this solution to grow, which could have a significant impact on the entire cryptocurrency industry.
