What are Bitcoin Ordinals?

Ordinals is a new use case for the Bitcoin network. It is a type of NFT that is "inscribed" within each satoshi.

One of the most recent projects within the Bitcoin ecosystem is known as Bitcoin Ordinals. It is a protocol that allows Bitcoin to have the ability to generate NFTs within its network. These assets are stored directly in the Bitcoin blockchain, thus leaving an unalterable record of these elements.

This is possible thanks to the use of tap root, a Bitcoin enhancement that was enabled in June 2021. This new feature allows generating specialized Bitcoin Scripts that can be used to create small smart contracts that take full advantage of the capacity of Bitcoin.

Bitcoin Ordinals, NFTs arrive on the Bitcoin network

Bitcoin Ordinals has been developed by Casey Rodarmor, a well-known Bitcoin Core developer and a prolific developer of cypherpunk technology.

Rodarmor began development of Bitcoin Ordinals on December 12, 2021, at which time it made the first c of what would be the Ord node software. This software is actually a fork (a derivation) of the official Bitcoin Core software, so Rodarmor's development would be compatible with this network.

From that point, Rodarmor worked for more than a year to make a theory that had already been around for some time in the cypherpunk world come true: the Ordinal Theory of Bitcoin. Rodarmor's idea is to unite the Ordinal Theory of Bitcoin to make each satoshi uniquely identifiable. And, at the same time, that each satoshi can be linked to the data that a user wants, thus generating non-fungible digital assets, NFTs within Bitcoin.

Rodarmor's work bore its first fruits on June 5, 2022. It was then that Rodarmor released version 0.0.2 of Ord, thus beginning the official development of Bitcoin Ordinals.

How does Bitcoin Ordinals work?

Now, as we have already mentioned, Bitcoin Ordinals works thanks to the appearance of Taproot within Bitcoin, together with the generation of specialized node software To make such a protocol possible, the Ord.

However, in the midst of all this there are a series of intermediate elements that it is good to know to understand how this technology works, and among those elements we highlight:

Ordinal Theory within Bitcoin

The Ordinal Theory of Bitcoin or Bitcoin Ordinal Theory, is a theory that can be explained as follows:

The Ordinal Theory in Bitcoin pursues that each satoshi is expressed in such a way that we can track them individually. To achieve this, satoshis are numbered in the order they are mined (when generated and integrated into Bitcoin tokenomics) and transferred from input to output transactions on a first-come, first-served basis.

Thus, this numbering scheme has as main markers:

1. The numbering of those satoshis
2. The order in which said satoshis are drawn or generated
3. The order of entry and exit of the transactions in which said satoshis have participated.

Notation of satoshis following the Ordinal Theory

With all this, we can get to the point on how the notation of these satoshis is done within the system. For example, we can see a satoshi within Bitcoin identified in one of the following ways:

1. integer notation: 2099994106992659. The ordinal number, assigned according to the order in which the satoshi was mined.
2. decimal notation: 3891094.16797. The first number is the height of the block in which the satoshi was mined, the second the offset of the satoshi within the block.
3. notation in degrees: 3°111094′214″16797‴. It is the representation in degrees of the decimal notation of said satoshi.
4. percentage notation: 99,99971949060254%. Position of the satoshi in the supply (total issuance of satoshis) within Bitcoin, an amount that is expressed as a percentage.
5. Name: satoshi. Coding of the ordinal number using the characters from a to z.

Surprising, isn't it? It may seem unnecessarily complicated, but there is one huge positive to this system: allow each satoshi to be personalized. Let's remember that Bitcoin has a limited issue, there can only be 21 million Bitcoins, no more, no less.

But what about satoshis, the smallest part of a Bitcoin? Well, there the numbers rise to 2,1 quadrillion satoshis. Of course, that is, in short notation, in long notation it would be about 2,1 thousand trillion satoshis. And it is here where the numbers reach new scales, scales of global scope, which could allow Bitcoin to overcome its "limited emission", since in the end, each satoshi counts and, even more if We can associate enormous value with them.

A technology with a long time between us

The interesting thing about all this is that this scheme is nothing new. In fact, it has been proposed by the community for over 10 years. More specifically, user @jl2012 on BitcoinTalk, suggested this system. However, prior to this, Charlie Lee himself, creator of Litecoin, I had also suggested it in the same forum.

The intent of the proposal at the time was to provide Bitcoin with advanced capabilities to generate new features without the need to advocate for Layer2 solutions or more complex protocols, such as the case of colored coins. In this way, Bitcoin could, through small changes, allow the generation of tokens, non-fungible tokens and more within the network, enjoying the security and potential that Bitcoin could awaken then.

Ord, the Bitcoin Core node to make this technology a reality

Ord is the name of the modified Bitcoin Core software that makes this protocol possible. This is an open source project, developed on GitHub by Rodarmor and that it is currently going through an explosive stage of development.

The proyect consists in a BIP that describes the ordinary schemal, an index that communicates with a Bitcoin Core node to track the location of all satoshis, a wallet that allows transactions with ordinals, a block explorer for interactive exploration of the blockchain, functionality to register satoshis with digital artifacts, and a manual.

An interesting point about Ord is that it is not really a complete new Bitcoin wallet, but simply a plugin for it. This means that the user who wants to run Ord must first have a full Bitcoin Core installation, with its synchronization running, and then you can use Ord to connect to a Bitcoin Core wallet via RPC locally.

Taproot and its role within the protocol

The following technology that makes Bitcoin Ordinals work possible is tap root. This Bitcoin improvement has as its main objective to offer privacy and capacity enhancements of Bitcoin to create complex Bitcoin Scripts, as a step forward to offer better programming capabilities to this network.

Taproot is a development promoted by the well-known Bitcoin developer, Greg Maxwell, who presented the idea in 2018, and which, after 3 years of work, was finally activated on the network through a soft fork, on June 12, 2021. .

Taproot's major improvements to Bitcoin include the integration of schnorr cryptographic signatures, that decrease the on-chain size of these firms, optimizing the use of on-chain space. Likewise, the arrival of MAST (Merkelized Abstract Syntax Trees) technology is included, designed to optimize the presentation of merkle trees associated with Bitcoin operations. It also highlights the arrival of a series of new capabilities to Bitcoin Script and the activation of a new address format for Bitcoin, the Taproot Address, which begins with bc1p.

For example, this is an already known Taproot address within the network:

bc1p0000g2qp03nsf4hyjymvahgjvz8jwufs2pc2v9p3yd9rsshrrjjqe8j40p

This point about Taproot addresses is important, since Ordinals are only guaranteed to function and maintain while using this new address format.

Taproot's role in Bitcoin Ordinals

Taproot is the key piece so that Bitcoin Ordinals can work as it does. Since its arrival, a Bitcoin operating code known as OP_RETURN has recovered a functionality lost several years ago: that of enter large amount of data on-chain.

Before Taproot was enabled, OP_RETURN was limited to only inserting a few bytes of data, due to the risk of misuse Bitcoin developers saw in this functionality. In fact, in the Bitcoin Core v0.9.0 version, this function was rigidly limited, as can be seen in this link.

However, this limitation was eliminated with Taproot and with this the door was opened to introduce data to the network with a single limit: the maximum block size enabled by followed, 4MB of data.

Rodarmor took advantage of this feature gain to generate valid transactions within the Bitcoin consensus rules. This overturns the ideas of many personalities in the Bitcoin community, who point out that operations with Bitcoin Ordinals are illegal and, therefore, should be seen as a threat and censored from the network.

Enrollments, generating NFT in Bitcoin

Now that we know what Ordinals uses to enroll NFTs in Bitcoin, it's time to talk about Inscriptions. These are nothing more than the Ordinals registered within the Bitcoin network and that can be traced using the Bitcoin Ordinal Theory.

For example, if we generate a Bitcoin Ordinal, we will be generating an Inscription and we can track it in the "Ordinals Explorers" or "Inscription Explorers". Thus, if we use, for example, the browser Ordinals.com, we can see the next Registration:

Here, we can clearly see our NFT in Bitcoin, with the data of its generation, the satoshis involved in it, the generation address and that of the registration owner, along with other relevant data of this NFT.

A fundamental point to note is that the registrations are all made using a very specific format: each byte of the stored NFT is translated into hexadecimal format. So, for example, if we want an NFT of a text as it would be:

This is my first ordinal

What is actually stored in the NFT and the Bitcoin blockchain is something like this:

45737465206573206d69207072696d6572206f7264696e616c

This is so because in Bitcoin the language used is hexadecimal, and there is no problem with it. Just as we can transform the text into hexadecimal, we can also do it with any type of digital data and in both directions.

Pros and cons of Bitcoin Ordinals

Now, the Bitcoins Ordinals have been seen in the midst of a huge whirlwind of criticism and support. Which leads us to wonder about the pros and cons of the Ordinals

Pros

Improves commission conditions for miners

One of the main players who have won with the arrival of Bitcoin Ordinals have been the miners. According to data from the network, as of February 2023, miners earned $1,4 million in fees just related to Bitcoin Ordinals.

Accelerating Layer2 adoption

The arrival of Bitcoin Ordinals drives the adoption of Layer2 for the generation of new services and technologies that take advantage of the potential of Bitcoin Ordinals.

An example of this can be seen in Stacks, a well-known Bitcoin Layer2 that, thanks to Bitcoin Ordinal, has maintained a growth of more than 50% during 2023. Not only that, many Web3 Bitcoin projects use this Layer2, see the potential of Bitcoin Ordinals and have started to support this technology.

Drive adoption of Taproot.

Taproot came to Bitcoin in 2021, but its actual use until the arrival of Bitcoin Ordinals was practically nil. A technology that is not used and taken advantage of is a useless technology, and that is something that Bitcoin Ordinals has changed with the intensive use of Taproot.

Of course, Taproot's potential is not limited to Bitcoin Ordinals, and this opens up new windows of opportunity for developers interested in a technology with increasing adoption.

Attract new users and developments to the ecosystem

With the push to Taproot, Bitcoin Ordinals also attracts new users and developments to the Bitcoin ecosystem. Currently, of the 10 most active addresses on the Bitcoin network (you can see the table in this link), 4 of them are related to Bitcoin Ordinals and Taproot. Likewise, the ecosystem benefits from the boost in the development of software and new solutions related to Taproot and Bitcoin Ordinals.

Contra

Increase the size of the chain

This is the main problem with Bitcoin Ordinals, every time an NFT is generated it is completely stored on-chain. That is, if your NFT is a 2,2 MB audio, those 2,2 MB go to the block that will be included in the Bitcoin chain.

Currently, the Bitcoin blockchain is about 440 GB, something that has been achieved throughout the life of Bitcoin. But with Ordinals, this can easily double in just two years.

This is a huge problem, especially for those who decide to run a full Bitcoin node. If a similar growth rate continues, the centralization of the nodes would be inevitable. The reason? The difficulty of offering sufficient storage to maintain the chain in a decentralized way, an undoubtedly enormous risk for the network.

May negatively influence increased network commissions

Currently, Bitcoin Ordinals has not ushered in a significant increase in network fees, but that is not a scenario that can be ruled out. If the conditions of intensive use of the network occur, users of Bitcoin Ordinals and the payment network could be in stiff competition for commissions, and we would again see high network fees on Bitcoin.

Causes loss of privacy in Bitcoin

Perhaps the biggest problem with Bitcoin Ordinals is related to privacy, something that is even reflected in the BIP created by Rodarmor. Although Ordinals and their tracking is optional (at the moment only possible using Ord), this does not prevent on-chain links from being generated. Links that allow you to identify the satoshis that have gone through this process.

Thus, if each satoshi used in an ordinal, it carries a "watermark" that publicly recognizes it as such. This decrease user privacy. Even though he does not use satoshi as an Ordinal, but as an element within a merely economic operation. The privacy gain, in this case, could only be achieved again through remixes like CoinJoin or Whirlpool.