Bitcoin and NFTs. While these two types of digital assets were previously seen to be oxymorons and as different as chalk and cheese, both the NFT and Bitcoin communities have been humming with mixed emotions since mid-January 2023 about Bitcoin Ordinal Theory, the disruptive new protocol that has been used to create unique NFTs on the Bitcoin blockchain since its launch last month.
While standard Bitcoin transactions until now only involved monetary units, Bitcoin Ordinals unlock the ability to inscribe satoshis with unique images, music, videos, text, and other data, thereby turning them into Bitcoin NFTs. On the downside, they’re hard to create and even harder to store or trade, forcing collectors to make OTC deals through Reddit forums.
With over 150,000 Ordinals created within a month of its January inception, many insiders feel that it provides an important new use case for the world’s oldest blockchain and has given it a timely facelift and leg up to reclaim a price of $25,000. Others are saying that it’s fracturing the community and unnecessarily clogging up the network and driving up fees.
No one can deny it’s certainly making things interesting, with recent news stories about a flatulence-related Ordinal allegedly fetching $280k, Litecoin Ordinals and an NFT collector “burning” his Bored Ape Yacht Club for a BAYC Ordinal helping to dial up the mania. Jason Williams tweeted he had burned Bored Ape #1626 for a Bitcoin Ordinal equivalent and doubled down with a big prediction:
“The NFT community is moving to BTC, where Ordinals have brought true scarcity to collectibles. It’s done. Over. Not coming back to ETH.”
Let’s explore in this guide what Bitcoin Ordinals are, how they work, their possible impact on the crypto sector, where to store them, and what can make certain ones rare or “exotic” and thus valuable.
What are Bitcoin Ordinals?
Bitcoin Ordinals are a type of non-fungible token (NFTs), invented by software engineer Casey Rodarmor in his Ordinal Theory, that can be created and stored on the Bitcoin blockchain, along with additional content such as images and videos.
Ordinal numbers or ordinals by definition are written using numerals as prefixes and adjectives as suffixes and identifies positioning, for example 1st, 5th, tenth etc…
This unique method of producing NFTs on the Bitcoin network is facilitated by the Ordinals protocol, which utilizes the enhancements introduced in the Bitcoin Taproot upgrade.
Rodarmor figured out a loophole to store almost 4MB of data in a Bitcoin block. Every ordinal is assigned a name containing the letters A through Z, and the larger the Ordinal, the shorter the name becomes, which makes it easier to recognize and transfer.
How do Bitcoin Ordinals work?
The Ordinals protocol, which went live on 21 January 2023, uses Bitcoin’s groundbreaking 2021 Taproot upgrade, which updated the Bitcoin protocol to make it more private, scalable and secure, and allow for the storage of more data within a transaction. The Ordinals program inscribes a serial number to each satoshi on the Bitcoin network in the order in which it is mined.
This makes the satoshi a tracked and transferable NFT that is permanently stored on Bitcoin’s blockchain once processed,making it just as secure, decentralized, and nearly impossible to destroy as the Bitcoin blockchain itself.
By inscribing a serial number to each satoshi on the Bitcoin network in the order in which it is mined, the satoshi becomes a tracked and transferable NFT.
Possible Impact of Bitcoin Ordinals on Crypto Sector
Just as 2021’s explosion of NFT adoption boosted the collective value and network effect of Ethereum, the already booming popularity of Bitcoin NFTs or Ordinals will in all likelihood continue to positively impact the Bitcoin network and attract more developers to its ecosystem, thereby helping to make it more secure and future-proof.
There is certainly some precedent here, with 2016’s first-ever NFTs on Bitcoin, the very exclusive and limited Rare Pepes, changing hands for as much as $3.6 million.
While Bitcoin is still seen as digital gold, a cryptocurrency that should be HODLed into infinity as a safe haven against government control and the inflationary excess caused by money-printing central banks around the world, its price volatility and ostracization by the global financial system has hampered its ability to ascend to its true mainstream final form.
The Ordinals protocol may just give Bitcoin an additional weapon in its arsenal to move beyond just facilitating peer-to-peer (P2P) transactions and compete with younger, more advanced blockchains who build whole ecosystems around DeFi and NFT technology.
Ordinals’ dramatic growth (at present there are nearly 150,000 already in existence) despite the difficulty to create, trade and transfer them, demonstrates a brand-new, high-value use case for Bitcoin, and should drive its price up as the total value of transactions continue to increase , according to research firm FSInsight.
Why are some Bitcoin Ordinals more valuable and rare?
Beauty is supposed to be in the eye of the beholder but anyone who has traded NFTs on marketplaces like OpenSea and Blur can attest that an NFT doesn’t have to be a work of art to be valued at some astronomical number. As usual, context and some intangibles come into play.
While Ordinals experts are popping up everywhere to share their specific theories on certain attributes which can make a Bitcoin NFT sought-after, it’s now commonly accepted that an Ordinal’s rarity is often determined by periodic events in Bitcoin’s network, such as blocks, difficulty adjustments, and halvings.
Blocks are mined approximately every 10 minutes, difficulty adjustments occur every 2016 blocks, or roughly every two weeks, in response to changes in hashrate, and halvings occur every 210,000 blocks, or roughly every four years, which cuts the amount of new sats created in every block by 50%.
The collectability of an Ordinal can not only be determined by its name length or rare attributes, but also the quality of the number itself, for example if it has an integer square or cube root, according to creator Casey Rodarmor in “Ordinals Theory”.
An Ordinal can also be considered “exotic” depending on how you look at it. For example, an Ordinal that is tied to a historical event such as Segwit’s activation block 477,120 or ordinal 2099999997689999°, the last ordinal that will ever be mined, will appeal strongly to certain collectors. In this case, beauty lies again in the eye of the beholder
Whether you’re a collector or a developer, the arrival of the Ordinals protocol is an exciting game-changer for all BTC supporters, enabling the creation of unique NFTs on the world’s most popular crypto network and providing the perfect showcase for the innovation that Taproot’s upgrade can unlock for BTC.
The Ordinals protocol provides a new, high-value use case for Bitcoin beyond just facilitating peer-to-peer transactions. The increasing popularity of Ordinals is expected to positively impact the Bitcoin network’s security and attract developers to the ecosystem.
If you’re interested in collecting Ordinals, you can decide which satoshis are rare and desirable based on periodic events in Bitcoin’s network or other criteria of your own choosing.
The fact that Ordinals are directly inscribed onto the Bitcoin blockchain, making them unique and immutable, has significant implications for the broader NFT market.
While Ordinals have generated significant interest and value, skepticism still abounds and it remains to be seen whether they will continue to be in demand over the long term, with elements such as Bitcoin purists, maximalists and of course their environmental impact with Bitcoin’s besieged Proof-of-Work consensus mechanism already drawing massive criticism during the last bull cycle.
Despite these uncertainties, the rise of Bitcoin Ordinals is a significant development for the Bitcoin ecosystem and the broader NFT market. As the adoption of Ordinals and other Bitcoin-based NFTs continues to grow, it will be interesting to see how they impact the broader cryptocurrency sector and the way that NFTs are created and traded.
Without a doubt though, the advent of Ordinals lays waste to the general perception that Bitcoin is dead in terms of innovation, and provides a bold new foundation on which future Bitcoin innovations can be built. It’s a timely reminder that Bitcoin is after all, anything but ordinary.