Deep Dive into Ordinals: Should NFTs Exist on the Bitcoin Blockchain?
The time for Bitcoin holders to watch NFTs from the sidelines is over. Since January, there have been nearly 130,000 Bitcoin Ordinals entered into the world’s most powerful computer network. But what challenges do these inscriptions face, and what opportunities, if any, do they offer?
Bitcoin Inscriptions (Ordinals) Explained
To understand the emergence of Bitcoin inscriptions as NFTs is to understand ordinal theory. In computer science, ordinal theory has been used for decades to sort objects based on specific criteria. This is where the ordinal theory got its name – from the Latin word “ordo”, translated into order or sequence.
For example, if one orders the size of clothing items based on the waist measurement, this type of data will be called an “ordinary”. This is in contrast to “nominal” data, such as the color of the item of clothing, because these items cannot inherently be ordered (ordered).
Applied to the blockchain space, ordinal theory is an innovative way in which ordinal data can be “written” in rates or satoshis, such as the smallest unit of Bitcoin (0.00000001 BTC). These ordinals are no different than typical Bitcoin transactions, except that ordinal theory drives the sequence and value of inputs/outputs.
But to understand what that means, we must first understand what UTXO is, stands for Unused transaction output. Every time a new Bitcoin transaction is generated, it consists of inputs and outputs. This can be seen in a blockchain explorer, where each output specifies the amount of BTC that can be used in a subsequent transaction.
Therefore, when an output transaction is created, it becomes a UTXO, an unused transaction output that has previously been received in a transaction and can then be used as input for a new one. The whole purpose of the UTXO model is to ensure that Bitcoin input can only be used once. This is a critical component in preventing the double spending that elevated Bitcoin to “sound money” status.
Bitcoin Ordinal, corresponding to general NFT content data, is held in these UTXOs. However, for such data to be translated into a visual or audio stream, the sats inscription must have a MIME type. In web development, Multipurpose Internet Mail Extension (MIME) is used for clients to identify the type of content sent from a server, which is added to the file’s header.
In addition to MIME, the Bitcoin Ordinal consists of the content itself as a byte string, in total held in a UTXO. Specifically stored in Bitcoin’s on-chain taproot script.
By cleverly combining these elements, software engineer Casey Rodarmor first launched the Bitcoin Ordinals protocol in January. It has already collected more than a hundred thousand inscriptions of various qualities and themes.
When you click on each inscription, you can see the transaction details just like with regular Bitcoin transactions, rendering them as unique value propositions. In addition to the jpeg format, they can also hold sound. For example, Inscription 2042 is a one second ‘wet fart’ sound. It reportedly sold for 12.3 BTC on Wednesday, which is ~$280,000.
Casey Rodarmor provided helpful tips on how to determine the rarity level of Ordinals, given their on-chain nature and block space scarcity:
- common: Any sat that is not the first sat in the block
- unusual: The first set of each block
- rare: The first set of each difficulty adjustment period
- epic: The first set in each halving epoch
- legendary: The first set in each cycle
- mythical: The first set of the genesis block
However, because there is no official Ordinals marketplace, either centralized or decentralized, sales are difficult to verify. Most Ordinals sales have occurred on private discord channels between Bitcoin node operators.
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Are Bitcoin Ordinals Good for the Bitcoin Network?
It is no secret that the NFT market is driven by speculation. Naysayers, including Bitcoin maxis, paint NFTs as having no intrinsic value, making them subject to the whims of the market. One only has to look at YouTube personality Logan Paul to see that. He bought an Azuki Bumblebee NFT for $623,000, only to become worthless.
In addition to the issue of intrinsic value, Bitcoin Ordinals differ from typical Ethereum-based NFTs. While their contents are kept off-chain, such as the Interplanetary File System (IPFS), Ordinals are stored entirely on-chain. Rodarmor prefers to call them ‘digital artifacts’ rather than Bitcoin NFTs.
The problem is that Bitcoin blockchain space is in short supply. As the world’s largest proof-of-work, its annual energy consumption is on par with Sweden. In this light, one could argue that Bitcoin transaction throughput should be reserved for sound money, not digital artifacts.
Still, it cannot be denied that Ordinals achieved explosive growth in the last two weeks, with 129,232 inscriptions generated in total.
Cumulatively, people have spent nearly $1 million on enrollment fees. The strain on the Bitcoin network has already manifested itself as an increase in the average block size. Glassnode reports that it went from 1.5 MB – 2 MB to almost double that, at 3 MB – 3.5 MB.
On the upside, Taproot adoption saw a parabolic adoption increase of 9.4% and utilization of 4.2% since Ordinals took root. This is perhaps the most significant Ordinals effect. Because the Taproot upgrade increases Bitcoin’s smart contract flexibility, in addition to reducing resources needed to process transactions, the Taproot adoption boom could make Bitcoin more scalable.
In turn, if Ordinals have the effect of generating new interest in Bitcoin, the price may also benefit. When it comes to scaling in general, the Lightning Network can also be pushed to new heights of capacity. In terms of Ordinal’s branding, Rodarmor’s framing of Bitcoin NFTs as complete on-chain digital artifacts had the intended adoption effect.
This is likely to be a recurring theme, with Ordinal’s technically superior Ethereum NFTs using hybrid off-chain storage solutions.
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What’s next for Ordinals?
The latest Ordinal development is the Ordinals Wallet. It went live on Thursday as the first Bitcoin wallet to explicitly support Ordinals Inscriptions. Currently, users can save, receive and view Ordinals, while the new features to send and trade Ordinals are on the way.
Ahead of the game is the Xverse Wallet, launched the next day, with a full enrollment feature.
Xverse Wallet makes it possible to generate an Ordinal by simply uploading the image and paying the BTC fee. The new Bitcoin marketplace Gamma.io is responsible for the inscription process itself, and has already entered over 5,000 Ordinals. Combined with Xverse Wallet, there is no need to run a full Bitcoin node to start Ordinals staking.
In addition to Xverse Wallet, Gamma.io also supports Hiro Wallet. Looking at the pace of rapid Web3 development, in a few months it is very likely that all Bitcoin wallets will integrate Ordinals functionality.
Currently, no MetaMask equivalent as a Bitcoin browser wallet can hold Ordinals. But to get ahead of the Ordinals game on your desktop, the Sparrow Wallet fits the bill.
Will Ordinals finally push you to own NFTs? Let us know in the comments below.
