What is an Ordinal?

Ordinals are a revolutionary concept in the world of cryptocurrencies that have gained significant traction since their inception. Developed by Casey Rodarmor, the term "Ordinal" refers to a unique form of data inscription onto Bitcoin, effectively turning the smallest unit of Bitcoin - the satoshi - into a unique digital artifact. A recent phenomenon, this concept leverages the Bitcoin blockchain and became feasible with the launch of the Taproot upgrade in November 2021.

The Creation of Ordinals

The creation of an Ordinal entails the inscription of content data into the witness of a Bitcoin transaction, a process that has been likened to creating non-fungible tokens (NFTs). This unique data inscription system builds upon the 2017 SegWit upgrade, which fixed bugs and laid the groundwork for Layer 2 payment channels like the Bitcoin Lightning Network.

The Taproot upgrade played a crucial role in making the Ordinals system possible. It combined all parties' public keys in a transaction to create a new public key and used Schnorr signatures to do so. This method enhanced privacy by obscuring transaction inputs on the Bitcoin blockchain and reduced the amount of data needed for transactions, thereby lowering transaction costs.

Bitcoin Ordinals: The NFTs of Bitcoin

Often dubbed the NFTs of the Bitcoin blockchain, Bitcoin Ordinals are units of Bitcoin that have been inscribed with data such as text or images. Unlike conventional NFTs, the value of an Ordinal is not tied to the Satoshi it represents but the information inscribed onto it. The Ordinals Protocol, launched by Rodarmor in January 2023, enabled Bitcoin users to create Ordinals by linking data with individual units of Bitcoin. This protocol leveraged the 2021 Taproot upgrade, which enhanced privacy, security, scalability, and increased the data capacity for each Bitcoin unit to 4MB.

Each Ordinal is assigned a unique, sequential number based on the time it is mined, with a numbering system that ranges from 0 to 2,100,000,000,000,000. The timing of its mining and inscription determines the rarity of an Ordinal, with coins minted and inscribed during significant periods deemed collectible.

How Do Ordinals Differ from Traditional NFTs?

Ordinals and traditional NFTs have several differences. First, Ordinals are not tokens but inscriptions on Bitcoin. Second, unlike NFTs that use smart contracts to enable a range of future behaviors, Ordinals do not have this feature. Lastly, Ordinals store their data entirely on-chain, meaning all information is held within the blockchain itself. This contrasts with many NFTs that use off-chain storage networks like IPFS to store their metadata. Although this on-chain storage approach might be slower and potentially more costly, it is completely unchangeable.

The creation of an Ordinal involves two steps: creating a taproot output with the inscription content and then spending the output to reveal the inscription content on the blockchain. This content is wrapped in an envelope that doesn't alter the script. The data are inscribed directly into the Bitcoin blockchain, unlike many NFTs which often just contain reference points to off-chain data. The Bitcoin block size is capped at 4MB, which puts a limit on the number of Ordinals that can be created.