What Are Bitcoin Ordinals? Your Ultimate Guide to Bitcoin NFTs

With the advent of the Ordinals Protocol, Bitcoin's blockchain has seen a breakthrough in the form of Bitcoin NFTs and even tokens. By integrating digital art references into small transactions, this innovative protocol has created a valuable new use case for the oldest cryptocurrency chain in the world.

 

According to research firm FSInsight, this trend could spark a resurgence in development, increasing the total value transacted and secured over Bitcoin's blockchain.

 

And that's not all - as the users' and creators' adoption of this breakthrough protocol grows, it's predicted to positively impact Bitcoin's price, with projections soaring as high as $4.5 billion market capitalization. Are you ready to witness the power of Bitcoin's blockchain in action? 

 

Recent data from Dune Analytics reveals a notable increase in the minting of Bitcoin Ordinals Inscriptions, with the count soaring to 505,000 - a record high. This uptick is largely fueled by BRC-20 tokens, propelling the total Bitcoin Inscriptions beyond the 40 million mark as of November 12, 2023.

 

Number of BRC-20 inscriptions minted | Source: Dune Analytics

 

A standout event occurred on November 14 when Atomical saw over 28,000 mintings and a significant fee of 2.63 BTC. This fee is second only to the fee recorded during the protocol’s initial launch on September 23. The heightened minting activity is primarily linked to the introduction of the meme token DMINT, a BRC-20 token. But more on that later; let’s start with a look at Bitcoin Ordinals first, which makes all this happen. 

 

If you're familiar with Bitcoin, you'll know that the smallest denomination of BTC is a Satoshi or Sat. The Ordinals Protocol has opened up a new world of possibilities by allowing users to send and receive satoshis (sats) with optional extra data, such as text, JPEGs, audio, or videos.

 

Inscribing such data into a satoshi creates Bitcoin NFTs, also known as Bitcoin Ordinals. Since launching the Ordinals Protocol in January 2023, more than 40 million sats have been created as of mid-November 2023, including collections of Ordinal Punks and Ordinal Penguins, which are Bitcoin offshoots of popular NFT crypto collections.

 

Number of Bitcoin inscriptions over time | Source: Dune Analytics

 

It's worth noting that ordinals are only possible thanks to the "witness section" of Bitcoin transactions introduced after the Taproot soft fork in 2021. The Bitcoin Taproot upgrade brings greater transaction efficiency and enables the batching of multiple signatures and transactions, making verification faster and reducing transaction fees. Additionally, Taproot makes it more difficult to distinguish between single-signature and multi-signature transactions, enhancing privacy on the Bitcoin blockchain.

 

In the witness section, JPEGs, audio and video files, or videos are inscribed into individual sats. At the same time, the 2017 SegWit update, a soft fork that increased block sizes from 1MB to 4MB, made it possible to create these digital artifacts.

 

Are Bitcoin Ordinals NFTs? 

Are ordinals NFTs? While they can be considered NFTs, there are some differences. Unlike most NFTs created and tracked through a smart contract, ordinals are inscribed into the satoshi and stored on-chain.

 

Additionally, their data is immutable, unlike traditional NFTs that allow creators to change the appearance and characteristics of a Bitcoin NFT.

 

Also, like other NFTs, these have their crypto marketplace - Stacks. The Stacks blockchain is tightly linked to Bitcoin through a unique consensus mechanism known as Proof of Transfer.

 

This innovative approach allows Stacks to capitalize on Bitcoin's rock-solid security while giving Stacks applications access to Bitcoin's state.

 

By creating this bridge between the two chains, Stacks has opened up new possibilities for developers and users alike, allowing them to harness the power of both blockchains seamlessly and efficiently.

 

The creator of the Ordinals Protocol, Casey Rodarmor, believes that these digital artifacts represent what NFTs should be, as they are immutable and complete digital artifacts that cannot be tampered with and live completely on-chain.

 

While they do not allow creators to receive royalties on later sales, ordinals offer investors a new and exciting use case for Bitcoin's blockchain.

 

Why Does Bitcoin Not Support Smart Contracts Yet?

In contrast to other blockchain networks, such as Ethereum, which have been built to support smart contracts and other advanced functionalities, the Bitcoin community has primarily been focused on enhancing support for the Bitcoin protocol itself.

 

It has resulted in a more gradual and slower rate of development, with no attempts to build applications on top of the network.

 

Despite this, there has been a surge of interest in integrating Bitcoin NFTs into the network. Yet, the technical and philosophical disparities between Bitcoin and other blockchains mean that the process will likely be slower and more challenging than on other networks, which are more NFT-focused and feature-driven.

 

Bitcoin BRC20 Tokens

Bitcoin enthusiasts are buzzing with excitement over the latest developments in the world of Bitcoin tokens. A new approach utilizing the Ordinals protocol has emerged, enabling the creation of fungible tokens, and users are capitalizing on this innovation by producing meme-inspired tokens using the BRC-20 token standard.

 

The mastermind behind this breakthrough is a data enthusiast who goes by the name of Domo. Domo shared his invention through Twitter, which employs JSON data inscriptions to deploy and transfer tokens, similar to Ethereum's ERC-20 token standard. The BRC-20 token standard is an experiment in Bitcoin technology that Domo brought to light on March 8, 2023.

 

Domo's first token contract, ORDI, was quickly deployed, and other wallets, including Unisat, were quick to follow suit and adapt to the BRC-20 standard. The response from the crypto community has been overwhelmingly positive, with users now able to create their own unique meme-inspired tokens, such as Pepe, Meme, and Doge, using BRC-20 and Ordinals.

 

What Is the Relationship Between Bitcoin Ordinals and BRC-20 Tokens? 

Bitcoin ordinals and BRC-20 tokens are elements that have been proposed as part of initiatives within the Bitcoin ecosystem to enhance the functionality of the Bitcoin blockchain and enable the creation of tokens on the Bitcoin network.

 

Bitcoin ordinals refer to the concept of attaching additional data to Bitcoin UTXOs (Unspent Transaction Outputs). It allows for the association of metadata to Bitcoin transactions, effectively expanding the potential use cases and functionalities of Bitcoin beyond its traditional role as a digital currency.

 

On the other hand, BRC-20 tokens are designed to be a token standard for the Bitcoin blockchain, similar to the ERC-20 token standard on the Ethereum blockchain. BRC-20 tokens enable the creation and transfer of fungible tokens on the Bitcoin network. This means that developers can utilize Bitcoin ordinals and BRC-20 tokens to issue and manage their own tokenized assets directly on the Bitcoin blockchain.

 

The Atomicals protocol is a novel initiative that involves showcasing how to operate assets natively on the Bitcoin network utilizing meta transactions, which are transactions that can be initiated by the asset owner without needing to hold BTC. 

 

This is achieved through the use of Bitcoin ordinals, a concept that allows for the association of additional data with Bitcoin UTXOs. The Atomicals protocol aims to demonstrate how Bitcoin can be utilized as a platform for creating and transferring tokens despite the absence of a native token standard.

 

Furthermore, Atomicals is exploring the concept of ARC20 tokens, which adhere to the Atomicals token standard. Like the ERC-20 standard on the Ethereum blockchain, ARC20 tokens enable the creation of fungible tokens on the Bitcoin blockchain. These tokens are designed to be interchangeable and can be created using Bitcoin ordinals, thereby fostering Bitcoin's capacity to host tokenized assets and expanding its utility beyond its native currency, BTC.

 

Integrating the concept of Bitcoin ordinals with the creation and transfer of ARC20 tokens signifies a step towards enriching the functionality of the Bitcoin network. This initiative showcases the potential for innovative tokenization methods on Bitcoin, opening up new opportunities in the realm of decentralized finance and asset representation on the Bitcoin blockchain.

 

Taproot is set to revolutionize complex transactions on the Bitcoin blockchain. By utilizing Schnorr signatures, all parties involved in a transaction can combine their public keys to create a new public key and their signatures to create a new signature, making it look like a standard, person-to-person transaction.

 

Enhanced Privacy and Efficiency

This upgrade enhances privacy and reduces the data needed to make transactions, lowering transaction costs.

 

However, some argue that Ordinals, which add non-financial data to the blockchain, challenge the fungibility of Bitcoin's satoshis, the individual increments of Bitcoin.

 

Despite the potential benefits of Ordinals, they could alter the value of these units of money and challenge Bitcoin's use case as money. As Bitcoin is money and impacts most people globally, any protocol changes should be slow and methodological.

 

Bitcoin NFTs: New Use Cases for Bitcoin 

Thus, while Ordinals and other use cases are exciting, they may remain niche, and Bitcoin's primary use case as money should not be compromised.

 

A Galaxy researchers' report delved into the potential growth of Bitcoin NFTs, beginning with conservative estimates based on Ethereum's NFT market size and growth rate over the last few years. According to the report, Bitcoin's on-chain ecosystem for NFTs has created unprecedented opportunities, resulting in exploding usage.

 

Drive Mainstream Adoption of Bitcoin

Galaxy's analysis has resulted in three market cap predictions, ranging from bear to base to bull case scenarios. The baseline analysis suggests that if Bitcoin NFTs can meet mainstream adoption in areas like Profile Pictures (PFPs), memes, and utility projects, market capitalization could soar to $4.5 billion.

 

The researchers also noted that a top market share, a rapid increase in inscription awareness, and existing marketplace/wallet infrastructure support the projected $4.5 billion market cap.

 

Also, every technology will inevitably develop and follow current trends, and NFTs are the way to go.

 

The use of Ordinal Inscriptions has sparked a heated debate in the Bitcoin community about its impact on Bitcoin blocks' space usage. 

 

Steep Hike in Bitcoin Gas Fees 

The surge in popularity of Bitcoin ordinal inscriptions has led to a notable increase in Bitcoin transaction fees as users compete to mint these unique digital assets. For instance, high demand for ordinal inscriptions caused average transaction fees to surge to almost $7 in early November, up nearly 1,000% from a low of $0.64 in August 2023. 

 

This escalation in fees not only reflects the growing interest in Bitcoin NFTs but also highlights a scalability challenge as the network grapples with increased demand for block space driven by these new use cases.

 

Bitcoin's total transaction fees | Source: Glassnode

 

Impact on Bitcoin Network's Throughput 

While some see the potential benefits of creating Bitcoin NFTs through Ordinals, others argue that it could hinder Bitcoin's ability to scale and achieve widespread adoption, which is against Bitcoin's blockchain philosophy.

 

As more Ordinals are inscribed on the Bitcoin blockchain, the users adding non-financial data, such as images, audio clips, and games, could slow down on-chain confirmation times and increase transaction costs.

 

Ordinals Challenge Bitcoin's Primary Use Case as a Decentralized Digital Currency 

Additionally, some critics believe that inscribing non-fungible characteristics to satoshis challenges Bitcoin's primary use case as a decentralized digital currency.

 

This debate raises important questions about the fungibility of satoshis in the Bitcoin network, a crucial aspect of their value as a form of money.

 

Regulatory Challenges 

Also, as we will mention in the latter parts of the article, introducing Bored Apes into the Bitcoin landscape adds a new layer of complexity from a regulatory standpoint.

 

Before, Bitcoin had remained unregulated, with regulators recognizing it solely as digital assets. However, with the advent of Bitcoin-based NFTs, the argument for Bitcoin's classification as solely a currency becomes more challenging.

 

It's worth noting that the SEC is already investigating Yuga Labs' Bored Ape Yacht Club NFT collection, with allegations that the Bored Apes may represent an unregistered securities offering.

 

Ordinal Punks

Ordinal Punks are Bitcoin NFT collections that pay tribute to CryptoPunks and consist of only 100 units. These Bitcoin NFTs were minted during the first 650 inscriptions on the Bitcoin chain, with the highest inscription in the collection being #642.

 

The PFP collection features 192x192 pixel images generated using an open-source algorithm developed by FlowStay, a pseudonymous content creator in the Web3 space. The appeal of this collection is undeniable.

 

Taproot Wizards

Taproot Wizards is an Ordinal collection of Bitcoin NFT wizards created by independent Web3 developer Udi Wertheimer, with the first wizard inscribed in the collection being Inscription 652.

 

This collection features hand-drawn wizards and is notable for making history on the Bitcoin chain by being the largest block and transaction in Bitcoin's history at 4MB. For example, only a few Taproot Wizards are inscribed on Bitcoin, with the project's Wizard ID verification page on Discord confirming only six: Inscription 1,107, 1,383, 2,637, and 2,625.

 

BAYC

Yuga Labs, the esteemed creator of the Bored Ape Yacht Club NFT collection valued at $4 billion, has just announced the launch of its very first Bitcoin-based NFT project, TwelveFold.

 

The collection comprises only 300 limited-edition generative art pieces, each permanently inscribed to the Bitcoin blockchain via Ordinals, a new medium that permanently attaches media and artwork to individual Satoshi. This much-anticipated release is one of the most high-profile launches and events in the world of NFTs to date.

 

TwelveFold is a striking series of 12x12 grids that pays tribute to how the Bitcoin blockchain stores data. The art pieces are a fusion of 3D graphics and hand-drawn features, reflecting the impressive design skills of Yuga's in-house art team.

 

According to the company, there are no connections between TwelveFold and its Ethereum-based IP, and it won't have any future interactions or utility.

 

Although some users may find Ordinals intimidating, they may not cause significant friction or division within Bitcoin. Even if they do, one could adopt a passive approach and let market forces dictate the outcome.

 

The open, permissionless nature of the protocol allows for such moments to occur, which is beneficial in the long run.

 

Regardless of whether people view Ordinals as right or wrong, the ongoing conversations and debates surrounding them are positive. They test Bitcoin's resilience and strength, which is necessary as it continues its path toward global adoption.

 

Regarding valuation, NFTs will probably not have a significant impact. While some suggest that Bitcoin NFTs could increase Bitcoin's value, you're doing it incorrectly if you invest in Bitcoin solely because of NFTs hype.

 

Bitcoin is an excellent long-term investment not because of NFTs' success but because of its increasing acceptance in worldwide financial markets.

 

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