For quite a while (ever since its creation, to be precise), Bitcoin’s (BTC) use was restricted to storing and transferring value. This implies that BTC was mainly employed for fast peer-to-peer transactions across the globe, so as to avoid conventional slow pricey bank transactions.
Due to this, developer activity on the first and most prominent blockchain network used to be minimal. However, the emergence of decentralized finance (DeFi) protocols like Wrapped Bitcoin (wBTC), Rootstock (RBTC), and Stacks (STX) has started changing this. In addition to bringing crypto borrowing and landing to the Bitcoin protocol, these platforms have created new use cases for the oldest crypto network.
On January 21, 2023, with the emergence of the Ordinals Protocol, the use of the big daddy of cryptocurrencies has been extended. The innovation enables artists and developers to create and store NFTs, specifically named digital artifacts or inscriptions. The project has gained massive popularity, having nearly 130,000 inscriptions so far.
What is Ordinals Protocol?
Created by developer and artist Casey Rodarmor, who used to be a Bitcoin Core contributor, Ordinals Protocol stands for a convention for numbering and transferring satoshi on the Bitcoin blockchain. Satoshi or sat is the smallest denomination of Bitcoin. One BTC corresponds to 100,000,000 sats. The protocol enables users to send or receive sats carrying additional data – text, audio, video, or jpegs.
Adding data to a satoshi is called an inscription. As a final result of the inscription process, a Bitcoin NFT or ordinal is obtained. Since the protocol defines the order of arrangement of sats in a mining block, it can be said that an ordinal is a unique number or an ID tracking a sat. Close to 130,000 ordinals have been minted, i.e., inscribed since the protocol was launched, involving collections of Ordinal Punks and Ordinal Penguins. For those who aren’t familiar, those are BTC offshoots of famous NFT collections.
It’s worth noting that it was the so-called witness section that made ordinals possible. The witness section of the BTC transaction was introduced in 2021, following the Taproot soft fork. This is precisely where jpegs, audio, or video files are inscribed into specific sats. Yet another feature that enabled the creation of digital artifacts is the Segwit update. It’s a soft fork from 2017 that increased the sizes of blocks from 1 MB to 4 MB.
What are ordinal NFTs?
To appoint aesthetically appealing identities to ordinals so that people find them attractive, artists can inscribe arbitrary content on them. This way, during the process of inscription that Rodarmor described in the mainnet, digital artifacts, that is ordinal NFTs, are created. So, simply put, ordinal NFTs stand for on-chain Bitcoin digital collectibles obtained by implementing the Ordinal Protocol.
Source: Moonly Blog
Among many things, those collectibles can include videos and music, digital artwork, or images. Every satoshi accepts a mime type (jpeg, png…) and a cryptographic hash key titled byte string as an inscription. Each unique sat is transferrable to a Bitcoin wallet. It should be mentioned that satoshis and blocks are immutable, while ordinals are unmodifiable.
How are ordinals different from traditional NFTs?
Though Bitcoin ordinals are considered NFTs, they differ from their traditional counterpart in several profound ways. Firstly, NFTs are developed and tracts via smart contracts. But the assets represented by these smart contracts are frequently hosted elsewhere.
To illustrate, there are NFT platforms that employ a decentralized storage system (Interplanetary File System – IPFS) to store the NFT artwork. However, this is slightly different in the case of ordinals. As Bitcoin NFTs are inscribed into satoshis, they are automatically stored on-chain. Ordinals are validated in blocks together with other transactions and stored in Bitcoin’s distributed ledger.
Secondly, conventional NFTs contain metadata which let creators change the features and appearance of their NFTs. For example, there are NFT projects that will require refreshing metadata in order to update assets with higher-resolution images.
On the other hand, as ordinals are kept on-chain, their data is immutable and thus unchangeable. No one can change it, not even the artist. Additionally, as opposed to traditional NFTs, ordinals don’t allow creators to get royalties on sales.
Are ordinals the right fit for the Bitcoin space?
The Ordinals Protocol has sparked an intense debate on NFTs in the Bitcoin ecosystem. Namely, not all members of the BTC community believe that digital artifacts belong to the Bitcoin space, doubting it will be good for the ecosystem.
One of the arguments is that such NFT-like structures have occupied too much block space on the blockchain. As a consequence, it could increase transaction fees. However, this theory has been challenged on the account of the built-in Bitcoin block size limit that can hinder the growth in transaction fees.
Another fierce opponent of Bitcoin NFT suggests that the meme culture doesn’t belong to the Bitcoin ecosystem and should be taken elsewhere:
Bitcoin experts who are pro-NFT on the network believe that digital artifacts would increase demand for block space and, consequently, fees. Ultimately, it would bring additional use cases for BTC.
No matter if you believe or doubt that ordinal NFTs should be part of the Bitcoin Blockchain, the hype is real. This is confirmed by the fact that, so far, BTC miners have earned close to $600k only from Ordinals’ transactions, according to Coin Telegraph. Currently, the NFT inscriptions have “confiscated” more than 50% of BTC block space.
Environmental issues
Bitcoin (BTC), the greatest cryptocurrency according to market cap, implements a Proof of Work (PoW) consensus mechanism to validate transactions and add them to the network. The PoW protocol is notorious to be extremely energy intensive, requiring massive amounts of energy to carry out a transaction validation process.
Considering Bitcoins size and the protocol it employs, it’s not surprising it’s deemed as environmentally unfriendly. Taking this into account, people are fearing that Ordinals transactions will add to the already colossal energy consumption. One thing is certain, they won’t be helping in any way.
Until recently, traditional NFTs used to hit headlines for enormous environmental impact. Until mid-September 2022, Ethereum, just like Bitcoin, relied on the PoW mechanism, consuming astronomical amounts of energy. Following the Merge which occurred on September 16, 2022, when Ethereum shifted to the Proof of Stake (PoS) consensus mechanism, energy waste was reduced by a minimum of 99.84%.
Only a few months have passed since the new trend of on-chain Bitcoin NFTs emerged. Shortly after its appearance, on February 1, 2023, the greatest block ever was mined by a BTC mining company Luxor. The block had almost 4MB of data, which is the maximum amount a Bitcoin block can contain. The reason for such a huge amount was the inclusion of an on-chain NFT taking almost the entire space. This implies that the energy needed to mine the ordinal, and therefore the footprint, equaled a newly created BTC block. In terms of figures, the energy necessary for creating a single block falls into the 1.59 to 2.10 GWh range.
Most notable ordinals
It can’t be denied that launching ordinal NFTs sparked movements on the Bitcoin blockchain. So far, more than 100k ordinals have been inscribed. The web community is scrutinizing the most captivating collections and mind-boggling sales that have popped out. Here are some of them.
- Ordinal Punks, created as an homage to Crypto Punks, represents a set of 100 NFTs minted within the initial 650 Inscriptions on the Bitcoin network.
- Taproot Wizards stands for a collection of hand-drawn NFTs created by Udi Wertheimer, an independent Web 3.0 developer.
- Timechain Collectibles is a collection of a limited set of only 21 ordinals describing timepieces as cyberpunk and pocket watches, ancient calendars, etc.
- Bitcoin Shrooms are among the earliest ordinals on the Bitcoin blockchain.
- Inscription 0, the very first ordinal inscribed on the network, is a black skull ornamented with white marks.
- Two collections of Bitcoin Punks, the first being a different version of the CryptoPunk theme compared with Ordinal Punks. The second one stands out as a 10K PFP collection.
Please note that these aren’t the only collections of ordinals on the Bitcoin blockchain. If you’re interested in purchasing ordinal NFTs, don’t forget to do your due diligence so as not to waste your precious money on something worthless.
Scarcity problems
Despite being welcomed warmly in the Web 3.0 realm, Ordinal NTFs are rather scarce and thus nearly impossible to acquire. The reasons for their scarcity lie in several factors.
Namely, Ordinal NFTs are pretty pricey, given the fact they are on the Bitcoin blockchain. Due to being part of the blockchain, their inscription demands high computing power and is thus energy-exhaustive. The competition while inscribing is rather tough since the network gets congested regularly.
Despite being part of the Bitcoin blockchain, the technology behind the protocol is not known fully well. Lastly, as this is a brand-new technology, there is a reasonably high risk of investing in ordinals.
How to trade ordinals
If these novel and unique NFTs got you interested and you’d like to become a proud owner of some, there are a few steps you need to follow to do so. Please be aware of the fact that ordinal NFTs are a rather risky investment and don’t take this article as investment advice.
Step 1 – Obtain an adequate wallet
A traditional crypto wallet won’t do when it comes to purchasing ordinals. You need to get and set up a wallet that allows for customizations necessary to receive ordinal inscriptions. One such wallet is Sparrow Wallet. When you download and install it, you’re done with Step 1.
Step 2 – Set up the wallet
Setting up Sparrow wallet and making it ordinals compatible requires following a bunch of steps given in the GitHub tutorial. Be extremely cautious here to avoid sending BTC to or from the ordinals wallet. Having finished the setup process, you can choose among three alternatives for obtaining ordinals:
- Running a node and inscribing it by yourself (requires high knowledge of technology);
- Employing a service to inscribe ordinals without having to run a node
- Hitting an ordinal owner and purchasing directly from them;
Step 3a – Inscribing ordinals
If you’re a creator and would like to mint your NFTs on the Bitcoin blockchain but don’t want or know how to run a node, some services can do it for you. You can choose between Ordinals Bot or Gamma. You’ll be required to provide the BTC address to which you’d like to receive ordinals. Don’t forget to use the address you created in your Sparrow wallet.
Step 3b – Find ordinals to buy
Temporarily, the ordinals market is entirely peer-to-peer (P2P) and over-the-counter (OTC) trading. To find an ordinal NFT, you’ll need to join the Ordinals Discord channel. Here you’ll see the collections and links to the creators’ Discord where you can purchase ordinals.
It can’t be stressed enough that you must be all eyes and ears here. You’re buying directly from artists and may be required to transfer money before receiving an ordinal. There is a high risk that you might be scammed, so for the sake of caution and safety, only invest amounts you can afford to lose.
Ordinal NFTs – a blessing or a curse?
Though only a month old, Casey Rodarmor’s invention has undoubtedly become the most controversial topic in the Bitcoin community. Some can’t stand it, considering it stupidity and fearing it will occupy too much block space, congesting the network.
On the other hand, many both Bitcoin and general crypto enthusiasts are exhilarated about having a new way of minting NFTs. Plus, ordinal NFTs aren’t solely about jpegs and collectibles. They might be practical for publishing sensitive files which may take advantage of immutable and censorship-resistance storage and replication. Additionally, ordinal NFTs are an exquisite opportunity for miners to reap transaction fees and may open up an extra revenue stream.
Like it or not, ordinal NFTs can and are already transforming the Bitcoin network. They bring additional utility and may extend the user base of the greatest crypto on the globe. They can spur further innovations and added constructive use cases in the future. Hence, it’s no wonder why many Bitcoiners are warmly welcoming digital artifacts with their arms wide open.
