Bitcoin Ordinals, the NFT-like digital assets native to Bitcoin, have exploded in popularity and value since their introduction, reshaping the Bitcoin ecosystem in just one year.
Last year saw the rapid rise of Bitcoin Ordinals, which enables the creation of unique, NFT-like digital assets native to the Bitcoin blockchain.
To the alarm of Bitcoin maximalists, who hold a binary view of the freedoms and responsibilities associated with the world's oldest cryptocurrency, these silly Bitcoin NFTs quickly began clogging up the network and driving up transaction fees. In their eyes, a bunch of brash young digital graffiti artists had made the coin their new home, bringing down the real estate value. Ergo, there goes the neighborhood!
Others like Michael Saylor took a more inclusive view, seeing Ordinals as building value for the entire Bitcoin ecosystem through network effect and more transaction revenue for miners.
In 2024, the Ordinals market continues to flourish, with more projects coming in and price tags going up. Last week NodeMonkes, the top-ranking Bitcoin NFT project on Magic Eden with $45 million in secondary market sales, achieved a $1 million sale for its “Alien Hoodie” NFT that went for 17 Bitcoin, giving 2021 Crypto Punks vibes.
Ordinal projects like Taproot Wizards and Oyle have also benefited from an influx of millions of dollars in funding.
NFT marketplace Magic Eden can certainly lay claim to a big part of Ordinals’ success, making it easy for normies since they launched support in early 2023 to buy rare sats and inscriptions.
But what else is driving this crazy Ordinals gold rush? Is it simply a flash in the pan on the way to a $100k Bitcoin? If not, just how do you differentiate between Ordinal fool’s gold and rare sat treasure?
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Recent Ordinals Fundings
As with any crypto trend, enough early investment from the right backers provides momentum. In August last year, the Bitcoin Frontier Fund announced funding of $100k for Ordinals projects as part of its accelerator program. Since then, investment into the Ordinals space has exploded.
Several notable funding rounds have taken place, showcasing the growing interest in Ordinals-related projects:
- Taproot Wizards, a Bitcoin-focused Ordinals project that comprises an NFT collection of Microsoft Paint images of wizards referencing the obscure 2013 "magic internet money” Bitcoin meme, successfully raised $7.5 million in a seed funding round in November 2023. The investment was led by Standard Crypto and included other VCs like StarkWare, Masterkey, and Newman Capital.
- Sora Ventures last month announced a new $2 million liquid fund (led by UTXO Management) to boost TTP ecosystem projects such as $TRAC, Tap Protocol, and $PIPE. The TTP ecosystem is the first decentralized indexer ecosystem powered by the Bitcoin Ordinals Protocol.
- Tap Protocol, which advances Ordinal Finance (OrdFi), received a $4.2 million raise in December 2023 for accelerating tokenization and Dapps on the Bitcoin network.
- A Bitcoin DeFi wallet and trading app called Oyl received $3m in backing from high-profile investors like Arca, Arthur Hayes and BRC-20 token standard creator Domo.
But What Exactly Are Bitcoin Ordinals?
Casey Rodarmor, a Bitcoin developer, first introduced the concept of Bitcoin Ordinals in his Ordinal Theory paper on July 21, 2022. Ordinals assign a unique identifier to each satoshi (sat), the smallest unit of Bitcoin, based on the order in which it was mined.
This allows for the creation of unique, distinguishable assets on the Bitcoin blockchain, enabling individual sats to be tracked and associated with specific data such as images, videos, or other digital artifacts.
In his paper, Rodarmor traces the genesis of Ordinals back to Satoshi Nakamoto's creation of the Bitcoin blockchain in 2009, emphasizing the historical significance of early Ordinals within the blockchain's timeline.
He also notes that the concept of Ordinals was independently discovered multiple times before the recent NFT boom, with Charlie Lee's 2012 proposal on the Bitcoin Talk forum and jl2012's introduction of a decimal notation scheme being notable examples, although they were never realized.
Rodarmor sees Ordinals as an inevitability of Bitcoin's mathematics, with a golden thread that runs from the mining of the first block to the present.
Ordinals: The Rare Sat Stats
Dune Analytics users who track the growth of the Ordinals space have shared some interesting charts and facts that show just how rapidly the BTC collectibles market has scaled.
- Nearly 63 million Ordinals have been inscribed to date (mid-March 2024)
- 6300 BTC have been collected in fees to date (worth $453 million)
- 93% of inscriptions are text-based
- Total ordinals issued has doubled in the last 6 months
With the growing interest in Ordinals and the potential for creating unique digital assets on the Bitcoin blockchain, many users are curious about how they can get involved and create their own Ordinals.
How To Create an Ordinal?
To create an ordinal you can use many inscription services. Simply upload a file/text/piece of code, pay fees and it’s part of Bitcoin, forever.
How Do Ordinals Work?
To create a Bitcoin Ordinal, data is "inscribed" onto a specific satoshi (sat) on a Bitcoin transaction, using the sat's ordinal number as a reference point.
- Ordinal numbers are assigned to each sat based on its position in the blockchain, starting with 0 for the first sat in the genesis block and continuing sequentially throughout the entire Bitcoin blockchain.
- Inscriptions involve embedding data (e.g., an image or video) into a Bitcoin transaction using a specific sat's ordinal number. This data is included in the witness data of a taproot script-path spend.
- Bitcoin Ordinals utilize recent upgrades to the Bitcoin protocol, namely Taproot and Segregated Witness (SegWit), which allow for more flexibility in the types of transactions that can be recorded on the blockchain, enabling the embedding of larger amounts of data.
- Once an inscription is made, the associated sat can be transferred or sold just like any other Bitcoin, with the ordinal number and associated data remaining linked to the sat throughout its lifetime on the blockchain.
The Hunt for Rare Sats
The difference between Ordinals and NFTs on other chains like Ethereum and Solana is that with Bitcoin NFTs, it’s all about the fun search for satoshis which are deemed rare based on traits that the community finds valuable.
If Bitcoin is digital gold, then its derived Ordinals, embraced by a much younger and atypical Bitcoin demographic, are akin to a digital gold rush.
Just like gold panning, Ordinals hunters scour their wallets for rare sats, which can be viewed as rare coins, already in circulation and very likely in a Bitcoin holder’s wallet without them even knowing about it. Picture rare physical coins stuffed down that expensive sofa you bought 5 years ago, that you didn't know were there and are simply waiting to be retrieved.
Hunting rare sats is a straightforward process:
A satoshi's rarity determines its worth, with rarer sats being more valuable. As a result, many are hunting for rare sats, anticipating their value to increase over time.
First, you must have a Bitcoin wallet. The hunt begins by examining the Unspent Transaction Output (UTXO), which represents the total satoshis you currently hold. Most hunters rely on exchanges, sending back their BTC after an unsuccessful hunt in hopes of getting rarer sats. Ordinal theory has made it easy for users to inscribe data onto satoshis, leading to BRC-20 tokens and rare sats.
Understanding the Rarity of Sats
Ordinals are steeped in their own cult-like lore with gamified ranking systems in place to judge and value the rarity of your sats.
Rodarmor Rarity Index
According to the Rodarmor Rarity Index, created by Casey Rodarmor, the developer of the Ordinal Theory, satoshis can be classified into different categories based on their rarity:
- Common Sats: The vast majority of satoshis (around 99%) are not considered rare.
- Uncommon Sats: The first sat of each newly mined block (roughly every 10 minutes) is classified as an uncommon sat.
- Rare Sats: When the Bitcoin network undergoes a difficulty adjustment (every 2016 blocks, or about two weeks), the first sat of the block mined after the adjustment is considered a rare sat.
- Epic Sats: The first satoshi mined in the block immediately following a Bitcoin halving event (every 210,000 blocks, or roughly four years) is an epic sat.
- Legendary Sats: When a difficulty adjustment and a halving event coincide, the first satoshi mined in the block following this event is classified as a legendary sat.
- Mythic Sat: The first-ever satoshi mined in the genesis block by Satoshi Nakamoto in 2009 is the sole mythic sat.
In addition to these categories, the Ordinals community has also identified "exotic sats" which are satoshis with unique historical or social significance. Examples include Nakamoto sats (mined by Satoshi Nakamoto), Pizza sats (from the first commercial Bitcoin transaction), Palindromes (e.g., 12321 or 45654) and Vintage sats (from the first 1,000 blocks).
Implications and Potential Use Cases
While Bitcoin purists might scoff at the young upstarts causing a ruckus at events like Bitcoin Miami 2023, the introduction of Bitcoin Ordinals certainly opens up a whole new realm of possibilities for the Bitcoin ecosystems, such as:
- Digital art and collectibles: Artists have piled into the space, creating unique digital artworks and associating them with specific sats, essentially creating Bitcoin-native NFTs.
- Decentralized identity (DID) and reputation systems: Ordinals could be used to create DID systems where an individual's reputation is tied to their Bitcoin holdings and leveraged for anything from DeFi lending and credit scoring to verifiable online trust systems.
- Gaming and metaverses: Ordinals could potentially be used to create unique in-game items, characters, or virtual real estate that can be owned and traded on the Bitcoin blockchain.
- Supply chain tracking: By associating Ordinals with physical items, it becomes possible to track and verify the authenticity of goods as they move through the supply chain.
Essentially much of the touted use case narratives that have pushed Ethereum and other layer-1s forward in recent years can also be applied to Ordinals and the layer-2 networks that build on Bitcoin, with the latter being the most decentralized and valuable network out there, we’re only getting started.
The Case Against Ordinals
While Bitcoin Ordinals present exciting new possibilities, there are also some challenges and considerations to keep in mind. These include the amount of block space and storage that Ordinals are increasingly demanding, which could make Bitcoin less scalable, slower and more energy-intensive.
Bitcoin maximalists also argue that Ordinals contradict the original ethos of Bitcoin and Nakamoto’s original vision of it as a simple, scalable P2P payment system (Bitcoin Cash enters the chat) and shouldn’t be included in the base layer of the Bitcoin protocol, but rather move to layer-2 networks.
Others say that the increased transaction fees benefit miners, who are now less reliant on pure mining, and new use cases attract new users to the world’s oldest chain.
Staying Safe with Ordinals
Hackers and scammers want your Bitcoin, and sadly, Ordinals represent another attack vector to steal it.
In order not to get scammed, here are a few rules to live by:
- Never click on suspicious links
- Connect your wallet only to verified websites
- Research the community and the platform before investing
- Spread your funds across multiple wallets to minimize your risk
- Connect with and learn more from ordinals OGs
Conclusion
As the Ordinals concept continues to evolve and mature, it will be fascinating to see how developers, artists, and entrepreneurs build on top of it as it continues to evolve at a breakneck pace.
Possibly the biggest buzz in the space right now is the Runestone airdrop and the imminent arrival of Runes, Rodarmor’s latest project which will minimize the UTXO footprint and make the Bitcoin network more efficient.
Whether the sector ultimately becomes a niche use case or a mainstream feature of the Bitcoin network remains to be seen, but they have certainly shown that Bitcoin represents much more than just boring old digital gold to be hoarded and sold as ETFs.
Special thanks to Ordinal OGs Shira.btc and Jan888 for sharing their insights with me during the writing of this article.
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