Representing real-world assets on the Bitcoin blockchain is nothing new.
More than a decade ago, projects such as the Colored Coin protocol and counterparty exchange proved Bitcoin could track items, not just monetary units, in a decentralized way.
However, consensus issues prevented either project from being widely adopted in the marketplace. Ethereum quickly took over as the go-to platform for creating and deploying unique digital artifacts. This preference has led to the rise of non-fungible tokens, or NFTs as they are more commonly called today.
But, things appear to have come full circle as a Bitcoin developer seeks to reinvent tokenized assets on the Bitcoin blockchain. Even the Ethereum community seems to be encouraging this new venture. The move suggests potential unity between what many consider to be two of the oldest rivals in the cryptocurrency industry.
What are Bitcoin Ordinals?
Bitcoin ordinals use an open-source protocol that assigns unique identities to individuals satoshis (sitting). Named after the creator(s) of Bitcoin, Satoshi Nakamoto, satoshis are the smallest units of bitcoin. Using Ord software, the protocol adds data to these satellites and allows software users to track them based on a system called ordinal numbers.
At a high level, this involves assigning a numerical value to each satoshi based on several factors. These factors include when this satoshi came into circulation through mining as well as the specifics block height where the satoshi appears.
Users can use software called Ord to track each satoshi. The system also inscribes them with content to create bitcoin-native digital artifacts.
Users can trade and transfer these uniquely identified satoshis like any normal bitcoin unit. But unlike colored coins or most Ethereum NFTs, the digital item itself is stored entirely on-chain – not anywhere else on the internet.
This functionality would not be possible on Bitcoin without implementing SegWit and Taproot – two soft fork upgrades that helped increase Bitcoin’s block capacity.
Who Created Bitcoin Ordinals?
Bitcoin developer Casey Rodarmor launched the Ordinal protocol on January 21, 2023. Rodarmor set out to create a satoshi numbering system that would give each a unique serial number. This unique ID would then allow users to track each satoshi through the blockchain. He wanted to be able to accomplish this in a completely native way for Bitcoin, without using sidechains or separate tokens.
Rodarmor earned a degree in computer science from the University of California at Berkeley. More recently, he worked as a software engineer for Agora, an open source application that improves Bitcoin Lightning Network.
Rodarmor’s idea is not the first time a numbering system has been proposed to assign unique identifiers to individual satoshis. In fact, a BitcoinTalk user by the name of jl2012 published an almost identical proposal for Ordinals in October 2012. At the time, another Bitcoin developer discredited the post as an “old idea”.
Rodarmor has since recognized the work of jl2012 in the last section of a mailing list post announcing ordinals.
How do ordinals work?
The ordinal protocol consists of two main parts:
- Ordinal theory: The method of numbering satoshis for the purposes of tracking, transferring and assigning value.
- Inscription: The process of using Ord software to associate content with a satoshi based on the number assigned by the software. Ord software associates content with real satoshis, but does so according to a numbering scheme unique to Ord software.
Ordinal theory
Ordinals provide a method of assigning a unique identifier value to each of the 2.1 quadrillion satoshis that will ever be created.
The numerical value assigned to each satoshi acts as a serial number. The system creates this serial number based on the relationship between this satoshi and different periodic events that occur on the Bitcoin blockchain, including:
- Blocks: Lots of transactions that are committed in the Bitcoin blockchain approximately every 10 minutes. Blocks are the most common event ordinals use to derive their numeric value.
- Periods of adaptation to the difficulty: Every 2,016 blocks (approximately every two weeks), the Bitcoin protocol adjusts its mining difficulty target based on the amount of computing power used to maintain the network. We call this the hashrate.
- Epochs of halves: Every 210,000 blocks (about every four years), the system halves the amount of new bitcoins entering circulation. There have been three halvings since the launch of Bitcoin.
- Cycles: Every six halves, a difficulty adjustment and halving occur simultaneously, resulting in an event known as a conjunction. Since halves only occur every four years, conjunctions only occur every 24 years. Conjunctions are the least common event followed by ordinals, and the amount of time between conjunctions is called a cycle.
Ordinals use these events to create a process to track the relative scarcity of satoshis. The Ordinal Theory Handbook breaks down the relationship between satoshis and each of these events using the following rarity levels:
| Rarity level | Condition | Amount (in total BTC supply) |
| Commmon | Any sat that is not the first sat in its block | 2,099,999,990,756,525 |
| Rare | The first sat of each block | 6,929,999 |
| Rare | The first session of each difficulty adjustment period | 3,437 |
| Epic | The first sat of each halving era | 32 |
| Legendary | The first sat of each cycle | 5 |
| Mythical | The very first sat of the genesis block | 1 |
By assigning a unique identifier to each satoshi, ordinals open up a way to turn inherently fungible satoshis into non-fungible objects. This identifier makes them completely unique, just like NFTs.
Ordinal inscription
We refer to the commitment of a piece of content to a satoshi as “registration”. This process is accomplished using Orderand you can see inscriptions with the ordinal explorer.
The system identifies the content by its MIME type (whether it is a JPEG, an MP3 file, an HTML code, etc.) and a byte string (the content itself ). Entries do not have to represent a non-fungible token. Users can also create security tokens based on Bitcoin and other assets.
Ordinal enlistments are entirely on-chain and stored in the script of a taproot transaction. This process is different from most popular NFT collections on the Ethereum blockchain. Usually, the Ethereum blockchain stores NFT media content off-chain, while only maintaining a record of the NFT on the blockchain.
Only a few selected NFT collections, the most important of which are CryptoPunksstore both media And the NFT directly on the chain.
Through this registration process, the blockchain stores content alongside a specific satoshi. The process turns satoshi into a unique digital artifact that users can track, transfer, keep, buy and sell.
How Bitcoin Ordinals (Can) Impact Ethereum NFTs
The Ordinals protocol has resurrected the vast potential for tokenization of assets on Bitcoin’s highly secure and decentralized blockchain. Not only that, it also serves as a way to permanently store digital content directly on-chain – something rarely seen in the NFT space.
This innovation has already sparked the interest of Ethereum-based NFT creators, including Tom W, co-founder of cool cats. On the ordinals official discord server, they commented, “Hi everyone, I’m Tom, one of the co-founders of Cool Cats NFT. Here to experience some cool shit. https://twitter.com/coolcats.”
With renewed capabilities to launch existing popular collections on the Bitcoin blockchain, Ordinals can help combat the long-standing problem of lost NFTs. These avoid external file storage issues and could open up new potential revenue streams for NFT creators.
Interestingly, ordinals are growing in popularity. For example, Bitcoin Rocks from the original Ethereum-based collection has already sold for 0.2 BTCwhile a blue verified Twitter user with the handle “businessman.eth” job“WOW!!! Selling 0.42 BTC for one @OrdinalPunks #Bitcoins Ordinals are starting to gain momentum.
While the true impact of ordinals is still emerging, one thing is clear: maximalists in the Bitcoin and Ethereum camps are excited about the new opportunities these digital artifacts present.
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These materials are for general informational purposes only and do not constitute investment advice or a recommendation or solicitation to buy, sell or hold any digital asset or to engage in any specific trading strategy. Some crypto products and markets are unregulated and you may not be protected by government indemnities and/or regulatory protection schemes. The unpredictable nature of crypto-asset markets can lead to loss of funds. Tax may be due on any return and/or increase in value of your Crypto Assets and you should seek independent advice on your tax position.
