Bitcoin NFTs: Ordinals Inscriptions Explained
Bitcoin consists of smaller units called satoshis (sats), each comprising 100,000,000 satoshis. The Ordinals protocol enables the identification and transaction of individual satoshis by incorporating additional data through a process known as an inscription. This innovation has expanded the utility of Bitcoin, paving the way for the creation of Bitcoin NFTs (Non-Fungible Tokens).
Basics
Bitcoin Ordinals were introduced as a method to generate Bitcoin NFTs by attaching information to individual satoshis through a process known as "inscribing." While NFTs have primarily been associated with blockchains like Ethereum, Solana, and BNB Chain, the Ordinals project recognized the potential for NFTs on the Bitcoin blockchain.
However, due to the difficulty in changing Bitcoin's code and concerns over network security, Bitcoin NFTs have not gained widespread adoption. Nevertheless, the growing crypto ecosystem has sparked interest in the future of Bitcoin NFTs as part of Web3. Ordinals have seen gradual growth as more users contribute various types of content, such as images, audio, and videos.
How Do Ordinals Work?
The Ordinals protocol allows users to number and track the smallest units of Bitcoin, known as satoshis. It provides a method of attaching unique data to each satoshi, which is called "inscription" and assigns a serial number to each satoshi.
Satoshi is the smallest denomination of Bitcoin, named after Satoshi Nakamoto. Bitcoin can be divided into 100,000,000 satoshis, and each satoshi is valued at 0.00000001 BTC. The numbering of satoshis is based on their mining and transfer order, using the concept of ordinals. Ordinal numbers serve as stable identifiers for the data attached to the satoshis.
Ordinals have distinct characteristics compared to traditional NFTs. NFTs are usually created using smart contracts on different blockchains like Ethereum, Solana, or BNB Chain, and they often represent assets hosted elsewhere.
In contrast, ordinals inscribe data directly onto individual satoshis, which are included in blocks on the Bitcoin blockchain. Ordinals exist entirely on the blockchain without sidechains or separate tokens. This approach leverages the simplicity, immutability, security, and durability inherent in the Bitcoin network.
Inscriptions and Ordinal Theory
Ordinal Theory is a proposed methodology within Bitcoin that assigns serial numbers to individual satoshis, allowing for their tracking throughout the entire lifespan of transactions. These ordinal inscriptions serve as digital assets similar to NFTs, inscribed directly on satoshis within the Bitcoin network. The implementation of the Taproot upgrade has made this process possible without the need for sidechains or separate tokens.
Ordinal Theory enables the concept of satoshi collection, with different ranks denoting the rarity of satoshis based on the total supply of bitcoins. These ranks include Common, Uncommon, Rare, Epic, Legendary, and Mythic, each representing different categories of satoshis based on their position within the Bitcoin network.
- Common: Any satoshi except the first satoshi of its block (total supply: 2.1 quadrillions).
- Uncommon: The first satoshi of each block (total supply: 6,929,999).
- Rare: The first satoshi of each difficulty adjustment period (total supply: 3,437).
- Epic: The first satoshi after each halving (total supply: 32).
- Legendary: The first satoshi of each cycle* (total supply: 5).
- Mythic: The first satoshi of the genesis block (total supply: 1).
*Conjunctions in Bitcoin happen when a halving event coincides with a difficulty adjustment, marking the beginning of a cycle. Although these conjunctions are theoretically expected to occur every 6 halvings, the first one is yet to happen and is anticipated to take place in 2032.
Advantages and Disadvantages of Ordinals
The Ordinals protocol has expanded the use of the Bitcoin network beyond simple value transfers. However, it has generated controversy within the Bitcoin community, revealing a fundamental divide. Some argue for preserving Bitcoin's simplicity in storing and transferring value, while others advocate for its evolution to include new features and use cases.
The inclusion of inscribed satoshis in the blockchain has led to competition for block space and increased network fees. This has sparked debate among Bitcoin community members. Supporters of Ordinals argue that higher fees incentivize miners to maintain blockchain security.
In the future, as block rewards decrease, network fees will become the primary motivation for miners to contribute hash power to Bitcoin. Opinions on this topic vary within the crypto community, but the Ordinals project has undoubtedly introduced innovation to the Bitcoin ecosystem.
How to Create Ordinals NFT
Creating ordinal NFTs within the Ordinals ecosystem can be a technically involved process, requiring specific knowledge and steps to follow. Currently, there is a lack of user-friendly NFT marketplaces for easy creation.
To mint a Bitcoin NFT, various technical steps may be involved, such as setting up a full Bitcoin node, installing a Taproot-compatible wallet, and inscribing satoshis into the wallet. However, alternative methods may exist that offer simpler approaches, including the use of no-code tools.
When engaging in ordinal NFT creation, it is important to choose a wallet with "coin control" functionality to prevent unintended spending of Ordinal satoshis or accidental inclusion in other transactions. Additionally, individuals must have sufficient bitcoins to cover the associated transaction fees.
Conclusion
Ordinals have introduced a fresh method of information storage on the Bitcoin network, offering increased utility. As a result, the number of non-zero Bitcoin addresses has reached an all-time high. This marks a significant moment in Bitcoin's evolution, where innovation is driving network activity beyond traditional investment and monetary transfers. The future growth of Ordinals remains to be determined and will only become apparent with time.