What Are Ordinals

Bitcoin Ordinals serve as the counterparts to non-fungible tokens (NFTs) on the Bitcoin blockchain, utilizing satoshis, the smallest units of Bitcoin.

Each satoshi is assigned a unique serial number based on its mining sequence. These serial numbers, known as ordinals, play a crucial role in the blockchain's ability to trace the location and ownership of every satoshi. Ordinals can be enriched with additional content through a process known as inscribing.

Through the attachment of extra data, such as images or text, to a satoshi, the Ordinal protocol enables the creation of distinct and limited digital assets, resembling non-fungible tokens (NFTs). These assets leverage the security and decentralized nature of the Bitcoin blockchain. The Ordinals software for the Bitcoin mainnet was introduced in January 2023.

KEY POINTS:

• Ordinals present a novel approach to generating NFTs, meme tokens, and various assets on the Bitcoin blockchain.

• The introduction of Ordinals has sparked debates within the Bitcoin community, with concerns raised about potential similarities to spam email activities. Browse Communities section if you are willing to join the most active crypto-related communities. 

• Unlike prior NFT iterations, the content linked to an Ordinal, whether it's an image, video, audio, or other forms, is directly inscribed onto the Bitcoin blockchain.

• While NFTs have been the primary focus of Ordinals, the protocol holds potential for diverse applications beyond this scope.

How Bitcoin Ordinals Operate:

The Ordinals protocol augments the serial numbers of satoshis, the smallest units of Bitcoin, with additional information, known as an inscription. Considering that one bitcoin can be divided into 100 million satoshis, each valued at 0.00000001 BTC, the numbering of satoshis follows the order of their mining on the Bitcoin blockchain. Ordinal inscriptions become integral parts of individual satoshis, securely stored within Bitcoin blocks. This integration ensures that Ordinals inherit the robust security, immutability, and durability inherent in the Bitcoin blockchain itself.

Mining Bitcoin Ordinals: A Step-by-Step Guide

The process of mining Bitcoin Ordinals closely mirrors the traditional approach to mining regular Bitcoin transactions. Bitcoin Ordinals are essentially specialized Bitcoin transactions adhering to a specific protocol. 

However, there are two notable distinctions in how mining Bitcoin Ordinals differs from the conventional mining of NFTs:

1. Direct Blockchain Inscription: Bitcoin Ordinals uniquely point to data that is directly inscribed on the Bitcoin blockchain. In contrast, other blockchains like Ethereum and Solana often store NFT information off-chain.
2. Proof of Work (PoW): Bitcoin relies on the Proof of Work (PoW) consensus mechanism for its mining process, whereas other chains historically linked with NFTs typically employ Proof of Stake (PoS).

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Buying, Selling, and Trading Bitcoin Ordinals: A User Guide

Bitcoin Ordinals can be bought, sold, and traded in a manner similar to traditional NFTs. Various marketplaces, including Ordinals Wallet and OKX, facilitate the trading of Bitcoin Ordinals.

Here's a general guide to the process:

• Visit a Bitcoin Ordinals marketplace through a web browser or app.

• Create a Bitcoin wallet within the Ordinals marketplace or connect an existing one.

• Ensure that there is a Bitcoin balance in the wallet for trading purposes.

• Explore the marketplace's diverse collections of Ordinals.

• Identify a Bitcoin Ordinal for purchase and use the connected Bitcoin wallet to complete the transaction.

Noteworthy Bitcoin Ordinals-supporting wallets include Ordinals Wallet, Xverse, and UniSat. Additionally, Bitcoin Ordinals can be traded through over-the-counter (OTC) or peer-to-peer (P2P) methods, providing users with flexibility in their trading approaches.

Bitcoin Ordinals vs. NFTs: A Comparative Analysis

Distinguishing Bitcoin Ordinals from traditional NFTs lies primarily in how data linked to the token is stored. Unlike other crypto networks where NFTs often store metadata or a URL pointer off-chain, Ordinals uniquely store content on the blockchain through inscriptions. This approach aims to enhance decentralization and censorship resistance but comes at the cost of increased expense and limited size.

Another departure from traditional NFTs is in how rarity and value are derived. While conventional NFTs often rely on artwork attributes or supply scarcity for pricing, Bitcoin Ordinals introduce additional factors. Ordinals may derive value from key moments in Bitcoin's history associated with specific satoshis, introducing a novel dimension to rarity.

The method of incorporating these NFTs into their respective blockchains also sets Bitcoin Ordinals apart. Bitcoin Ordinals employ Proof of Work (PoW) in their mining process, contributing to Bitcoin's substantial energy requirements. In contrast, NFTs on PoS chains are more energy-efficient and faster.

Impact of Bitcoin Ordinals: A Divided Perspective

The introduction of Bitcoin Ordinals has sparked a divisive debate within the Bitcoin community, generating varied opinions on its benefits for the network.

Supporters view Ordinals as an innovative means to enhance Bitcoin's sustainability by increasing demand for block space, especially as block rewards diminish. They argue that Ordinals attract new developers and users who were previously more interested in non-Bitcoin crypto projects. Advocates also stress the enhanced security, decentralization, and censorship resistance of Ordinals compared to traditional NFTs.

However, critics contend that Ordinals misuse Bitcoin's network and deplete its scarce resources. Concerns include the substantial data associated with Ordinal inscriptions, potential higher fees, and network congestion. Questions about legality, ethics, and compatibility with Bitcoin's original vision are also raised.

Example of a Bitcoin Ordinal: The first NFT from the Taproot Wizard collection is an illustrative example of a Bitcoin Ordinal. This Taproot Wizard, part of the largest Bitcoin transaction and included in the largest Bitcoin block, was minted in collaboration with developer Udi Wertheimer and Bitcoin mining pool Luxor.

Bitcoin Ordinals Platform and Wallet: Bitcoin Ordinals are directly issued on the Bitcoin blockchain. Wrapped versions may be available on other networks, like Ethereum. The Ordinals Wallet, a noncustodial Bitcoin wallet, facilitates viewing, storing, buying, selling, and trading of Bitcoin Ordinals. It supports features like Taproot wallet addresses and "coin control."

Inscribing Bitcoin Ordinals: Initially feasible only with a Bitcoin Core full node, various services, such as Gamma or OrdinalsBot, now simplify the process of creating Bitcoin NFTs. Users can follow platform-specific directions to inscribe Bitcoin Ordinals.

Index for Bitcoin Ordinals: Several online indexes, including the Ordinals Explorer at Ordinals.com, track Bitcoin Ordinals. As of October 26, 2023, no benchmark index has been established for these assets.

In conclusion

The Ordinals protocol introduces an alternative method for issuing digital assets on the Bitcoin blockchain. Although controversial, attempts to remove this functionality face challenges. While initially focused on NFT issuance, the evolving landscape of Ordinals may uncover new applications. The impact on Bitcoin's fees will hinge on the popularity of these assets.