NFTs, or non-fungible tokens, are unique digital assets that can represent anything from art and music to games and collectibles. They have become a popular way to create, own and trade digital content on various blockchains, such as Ethereum, Solana and BNB Smart Chain. However, until recently, Bitcoin, the oldest and most secure blockchain, did not have a native way to create NFTs.

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That changed in January 2023, when a group of developers introduced Bitcoin Ordinals, a method of generating Bitcoin NFTs by attaching information to individual satoshis. A satoshi, or sat for short, is the smallest unit of Bitcoin with a value of 0.00000001 BTC, i.e., 1 BTC = 1 million Sats. By inscribing data on sats, such as text or an image, they become unique and non-fungible, similar to NFTs on other blockchains.

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How do Bitcoin Ordinals work?

Bitcoin Ordinals work by using a process called "inscribing", which writes or embeds the data of the content into the witness of the Bitcoin transaction. The witness was introduced in the SegWit upgrade to the Bitcoin network in 2017, which fixed some bugs and enabled more transactions per block. The witness is a part of the transaction that contains additional information that is not essential for verifying its validity, such as signatures.

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By using the witness space to store data, Bitcoin Ordinals can avoid increasing the size of the transaction and thus the fees. They can also take advantage of the Taproot upgrade, which was launched on the Bitcoin network on November 14, 2021. Taproot is a major improvement that enhances privacy and scalability by making complex transactions look like standard ones. It does this by using Schnorr signatures, which allow multiple parties to combine their public keys and signatures into one.

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With Taproot, Bitcoin Ordinals can also hide the fact that they are inscribed sats and make them look like regular sats. This preserves the fungibility of Bitcoin, which means that every sat is equal and interchangeable. Fungibility is an important property of money that ensures that it can be used without discrimination or censorship.

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How are Bitcoin Ordinals different from other NFTs?

Bitcoin Ordinals are different from other NFTs in several ways:

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Inscription over tokenization‍

Unlike other NFTs, which are usually represented by tokens that follow certain standards (such as ERC-721 or ERC-1155 on Ethereum), Bitcoin Ordinals do not create new tokens or assets on top of Bitcoin. Instead, they use existing sats and inscribe them with data. This means that they do not require smart contracts or additional layers to function.

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On-chain nature

Bitcoin Ordinals store all the data of the content on the blockchain itself, rather than using external links or metadata. This ensures that the content is immutable and verifiable by anyone who runs a full node. However, this also means that the data has to be compressed and optimized to fit within the limited space of the witness.

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Block size limit

Because Bitcoin Ordinals use the witness space to store data, they are constrained by the block size limit of Bitcoin, which is currently 4 megabytes (MB) for SegWit transactions. This limits the amount and complexity of content that can be inscribed on sats per block. However, some developers are working on ways to increase the block size limit or use other techniques to optimize data storage.

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Concurrency

Because Bitcoin Ordinals rely on transactions to inscribe sats, they are subject to the same limitations as regular transactions on Bitcoin. This means that they have to compete for block space and pay fees according to market demand. It also means that they have to wait for confirmations before being finalized. This can affect the speed and cost of creating and transferring Bitcoin Ordinals compared to other NFTs.

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Lack of smart contract functionality and infrastructure

Because Bitcoin Ordinals do not use smart contracts or additional layers, they cannot benefit from the features and services that are available for other NFTs. For example, they cannot implement royalties, auctions, marketplaces, or interoperability with other platforms. However, some developers are working on solutions to enable these functionalities for Bitcoin Ordinals in the future.

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Lost inscriptions

Because Bitcoin Ordinals look like regular sats, they can be easily mixed up or spent by mistake. This can result in the loss of the inscribed content and its value. To prevent this, users have to keep track of their inscribed sats and use special wallets or tools that can recognize and display them.

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Content moderation

Because Bitcoin Ordinals store all the data on the blockchain, they cannot be censored or removed by anyone. This can pose a challenge for content moderation and compliance with laws and regulations. For example, some users may inscribe illegal or offensive content on sats, which could expose them and others to legal risks or social backlash.

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Popular Bitcoin NFT Collections

Since the introduction of Bitcoin Ordinals, many users have created various types of content and collections using them. Some of the most popular ones are:

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Ordinal Punks

A collection of 10,000 pixel art characters inspired by CryptoPunks, one of the first and most famous NFT projects on Ethereum. Each Ordinal Punk is inscribed on a single sat and has unique attributes and rarity.

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Taproot Wizards

A collection of 1,000 wizard-themed characters that celebrate the Taproot upgrade on Bitcoin. Each Taproot Wizard is inscribed on a single sat and has unique traits and powers.

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Bitcoin Rocks

A collection of 100 rock-shaped images that parody EtherRocks, one of the most expensive NFT collections on Ethereum. Each Bitcoin Rock is inscribed on a single sat and has a different color and number.

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Timechain Collectibles

A collection of 21 historical moments from Bitcoin's history, such as the genesis block, the pizza transaction and the halving events. Each Timechain Collectible is inscribed on a single sat and has a description and a timestamp.

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Ordinal Loops

A collection of 256 animated GIFs that loop endlessly. Each Ordinal Loop is inscribed on a single sat and has a different theme and style.

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What are the effects on the Bitcoin network?

Bitcoin Ordinals have sparked a lot of debate and controversy among the Bitcoin community. Some see them as a positive development that showcases the versatility and innovation of Bitcoin. They argue that Bitcoin Ordinals increase the usage and demand for block space, which in turn increases the fees and security of the network. They also claim that Bitcoin Ordinals enhance the culture and creativity of Bitcoiners by allowing them to express themselves and create value on the blockchain.

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Others see them as a negative development that threatens the integrity and efficiency of Bitcoin. They argue that Bitcoin Ordinals waste precious block space by storing unnecessary data, which in turn increases congestion and costs for regular transactions. They also claim that Bitcoin Ordinals compromise the fungibility and privacy of Bitcoin by creating distinguishable sats that can be tracked or discriminated against.

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The effects of Bitcoin Ordinals on the network are still unclear and depend on many factors, such as their adoption rate, their impact on fees, their interaction with other upgrades (such as Lightning Network), their legal implications, their social acceptance, etc.

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What do Bitcoiners think about Ordinals?

Bitcoiners have different opinions about Ordinals, depending on their perspective and vision for Bitcoin. Some see them as a positive development that showcases the versatility and innovation of Bitcoin. They argue that Ordinals increase the usage and demand for block space, which in turn increases the fees and security of the network. They also claim that Ordinals enhance the culture and creativity of Bitcoiners by allowing them to express themselves and create value on the blockchain.

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Others see them as a negative development that threatens the integrity and efficiency of Bitcoin. They argue that Ordinals waste precious block space by storing unnecessary data, which in turn increases congestion and costs for regular transactions. They also claim that Ordinals compromise the fungibility and privacy of Bitcoin by creating distinguishable sats that can be tracked or discriminated against.

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The debate over Ordinals reflects the ongoing tension between the two visions of Bitcoin: one that sees it as a pure store of value and medium of exchange, and one that sees it as a platform for innovation and experimentation. The future of Ordinals will depend on how well they can balance these two visions and address the challenges they face.

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The latest developments and what to look forward

One of the latest developments in the Ordinals space is the BRC-721E token standard, which was introduced in June 2023 by Ordinals Market and Bitcoin Miladys NFT Collection. This new token standard creates a "bridge" that lets users transfer their Ethereum NFTs to Bitcoin. It does this by burning the ERC-721 token on Ethereum and inscribing its data on a sat on Bitcoin. The migration is immutable and verifiable, and the inscribed sat can be displayed on the Ordinals marketplace.

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The BRC-721E token standard is a significant innovation that could boost the adoption and popularity of Ordinals, as it allows users to bring their existing NFTs from Ethereum to Bitcoin. It could also create more competition and diversity in the NFT market, as users can choose between different blockchains and platforms. However, the BRC-721E token standard also has some limitations, such as the one-way nature of the bridge, the off-chain storage of metadata, and the potential legal risks of transferring NFTs across jurisdictions.

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Another development to look forward to is the improvement of the Ordinals protocol and infrastructure, which could enable more features and functionalities for Ordinals, such as royalties, auctions, marketplaces, or interoperability with other platforms. Some developers are working on solutions to enable these functionalities for Ordinals in the future, such as using Lightning Network or sidechains to increase scalability and speed, or using smart contracts or oracles to enable logic and verification.

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How does Bitcoin NFT trading volume compare with other NFTs?

Bitcoin NFT trading volume has increased significantly since the introduction of Ordinals in January 2023, which enabled users to create and trade NFTs on the Bitcoin network by inscribing data on sats. In February 2023, Bitcoin NFT trading volume reached $1.9 billion, surpassing Ethereum’s $1.5 billion for the first time. However, Ethereum regained its dominance in March 2023, as Bitcoin NFT trading volume dropped to $1.2 billion.

Bitcoin NFT trading volume is still far behind Ethereum’s in terms of diversity and liquidity, as Ethereum hosts thousands of NFT projects and platforms across various categories, such as art, gaming, sports, music and metaverse. Bitcoin NFTs are mostly concentrated on a few popular collections, such as Ordinal Punks, Taproot Wizards and Bitcoin Rocks. 

The launch of the BRC-721E token standard in June 2023 could boost Bitcoin NFT trading volume further, as it allows users to transfer their Ethereum NFTs to Bitcoin. This could create more demand and supply for Bitcoin NFTs, as well as more competition and diversity in the market. 

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Conclusion

Ordinals are still a young and experimental phenomenon that has a lot of potential and challenges ahead. They represent a new way to create NFTs on Bitcoin by inscribing data on sats. They have attracted a lot of attention and controversy in the Bitcoin community, as they showcase both the potential and the challenges of using Bitcoin as a platform for innovation and experimentation. The future of Ordinals will depend on how well they can balance these two visions and address the challenges they face.