Ordinals are a system for numbering satoshis, the smallest unit of a Bitcoin, allowing individuals to track and trade them.
The concept was created by software engineer Casey Rodarmor, and leverages the Bitcoin Taproot functionality to allow users to attach arbitrary data to satoshis, creating Bitcoin-native digital artifacts known as inscriptions. Ordinal theory does not require a separate token, another blockchain, or changes to Bitcoin, and functions by assigning serial numbers to satoshis in the order they are mined. The first satoshi in the first block has the ordinal number 0, the second has ordinal number 1, and so on. These numbers are preserved across transactions, enabling the tracking of specific satoshis.
Although ordinals operate on the Bitcoin blockchain, they aren’t exactly like NFTs on other blockchains. NFTs on chains like Ethereum often reference off-chain data, which can be modified, but ordinals inscribe data directly onto a satoshi, making them immutable and permanently stored on the blockchain. Ordinal inscriptions can include a variety of data, such as text, images, videos, and even memes. The data is stored as data pushes in fields with tag 5, and is limited to 520 bytes per field, though longer metadata can be split across multiple fields. The Ordinals protocol assigns a sequential number to each satoshi in the order they are mined. This numbering system, in conjunction with the first-in-first-out transfer scheme, allows specific satoshis to be tracked throughout their transaction history.
Several ordinal explorers exist, such as the one included in the ord binary, which is also an index and command-line wallet for interacting with ordinals. Ordinals can be transferred using Bitcoin transactions, held in Bitcoin UTXOs, and sent to Bitcoin addresses. However, to send individual sats, transactions must adhere to the rules of ordinal theory regarding the order and value of inputs and outputs. The ord wallet enables users to create inscriptions, send and receive them, and even perform batch inscription using a batchfile. However, as ord doesn’t have its own wallet, it interacts with Bitcoin Core wallets for these operations.
There are other wallets that support Ordinals, such as Xverse and Sparrow Wallet. However, it is crucial to utilize a wallet with the “coin control” feature for sending and receiving ordinals, as this feature allows users to differentiate between a standard satoshi and an inscribed one. If a wallet without coin control is used, the unique inscribed satoshi could be mixed with regular satoshis.
The emergence of ordinals has led to the rise of rare and uncommon sats, categorized based on their association with specific Bitcoin events, such as halvings or difficulty adjustments. Ordinal theory has also facilitated the creation of BRC-20 tokens, an experimental standard similar to Ethereum’s ERC-20 tokens. These tokens utilize Ordinal inscriptions to embed JSON data, allowing users to launch, trade, and create new tokens on the Bitcoin blockchain. The sources provide multiple examples of Ordinals being used. The Oscillations collection uses delegation, provenance, recursion, sat endpoint, and detects the kind of sat each piece is inscribed on. The FUN collection utilizes metadata that describes each member’s attributes.
Despite the potential benefits and growing adoption of ordinals, there are concerns regarding their impact on Bitcoin’s fungibility and scalability. The unique nature of inscribed satoshis raises questions about fungibility, as they might be treated differently by users or exchanges. Additionally, the increased demand for block space due to ordinals could result in higher transaction fees and network congestion. Another concern is “blockchain bloat”, which refers to the increasing size of the Bitcoin blockchain due to the inscription of large amounts of data.
However, as the Ordinals protocol continues to evolve, technical advancements and improved infrastructure could address some of these challenges. The future of Bitcoin Ordinals remains uncertain, but they have introduced a novel way to create and manage unique digital assets on the Bitcoin blockchain, opening up new possibilities for innovation and expanding the functionality of Bitcoin beyond its original purpose as a digital currency.
Non of the information contained within this post constitutes any form of legal or investment advice. Always consult a professional legal and or financial adviser.