Abstract

• Each Bitcoin consists of 100 million satoshis. The Ordinals protocol enables each satoshi to be identified and transacted with attached data (a process known as logging).

• In addition to simple value transfer, Ordinals creates another use case for Bitcoin, making Bitcoin NFTs a reality.

Introduction

Until recently, NFTs are mainly minted and used on blockchains such as Ethereum, Solana and BNB Smart Chain. However, the team behind Ordinals believes that non-fungible tokens also deserve a place on the Bitcoin blockchain. This prompted the launch of the Ordinals project.

History has proven that changing even a piece of Bitcoin code is very difficult. This problem is mainly due to the decentralized network of nodes and the unwillingness of developers to take network security risks. Therefore, Bitcoin NFTs have not gained as much traction. Nonetheless, the growth of the cryptocurrency ecosystem has opened the door to more innovators; for them, creating Bitcoin NFTs is an integral part of the future of Web3.

As of February 2023, the use of Ordinals has been documented as users upload images, video games and other content to the network. More than 100,000. Let's understand how it works.

What are Bitcoin Ordinals?

The Ordinals protocol is a system for numbering satoshis, giving each satoshi a serial number and tracking them in transactions. In short, users can attach additional data through Ordinals to make each Satoshi unique. This process is called "recording".

"Satoshi" is named after the author of Bitcoin, Satoshi Nakamoto (Satoshi Nakamoto is a pseudonym), and is the smallest denomination of Bitcoin (BTC). 1 Bitcoin can be divided into 100 million satoshis, which means each satoshi is worth 0.00000001 Bitcoin.

Satoshi numbers are based on the order in which they are mined and transferred. The numbering scheme is based on the order in which satoshis are mined, while the transfer scheme is based on the order in which transactions are input and output, hence the name "Ordinals".

While traditional NFTs are similar to Ordinals in some aspects, there are several key differences. NFTs are typically made on blockchains such as Ethereum, Solana, and BNB Smart Chain using smart contracts, and sometimes the assets they represent are hosted elsewhere. Instead, Ordinals are recorded directly on a single satoshi, which is then included in a block of the Bitcoin blockchain. Ordinals reside entirely on the blockchain and require no sidechains or separate tokens. In this sense, Ordinals records inherit the simplicity, immutability, security, and durability of Bitcoin itself.

Sequential theory and records

In the Bitcoin field, sequential theory is A proposed method to identify each satoshi by serial number and track them within the Bitcoin supply, starting with first minting and throughout the transaction cycle. This process is called "recording". Therefore, ordinal records are digital assets similar to NFTs, recorded on a single Satoshi on the Bitcoin network. The Taproot upgrade released on November 14, 2021 enables this process. Because of this, ordinal records do not require sidechains or separate tokens.

Sequential theory can track and transfer individual satoshis, so it provides the possibility of satoshi collection. The following levels are used to represent the rarity of different Satoshis based on the total supply of Bitcoin:

• Common Level: Any Satoshi except the first Satoshi of the block (total supply is 2,100 trillion).

• Excellent level: the first Satoshi of each block (total supply is 6,929,999).

• Rarity: The first satoshi of each difficulty adjustment period (total supply is 3437).

• Epic: The first Satoshi after each halving (total supply is 32).

• Legendary level: the first Satoshi* of each cycle (total supply is 5).

• Mythical level: the first Satoshi in the genesis block (total supply is 1).

*A cycle represents a period of time connection. When halving and difficulty adjustment coincide, will happen. In theory, this happens after every 6 halvings, but the first coincidence has not happened yet (it is expected to happen in 2032).

Advantages and Disadvantages of Ordinals

In addition to simple value transfer, Ordinals Creating another use case for Bitcoin. However, the Ordinals protocol has also been controversial because it has accelerated the exposure of a fundamental problem in the Bitcoin community. One side believes that Bitcoin’s relatively simple limitations of storing and transferring value should be preserved. The other side believes that Bitcoin should continue to evolve to accommodate new features and use cases.

Now, recorded satoshis compete with regular Bitcoin transactions for block space, which increases network fees. This situation has sparked controversy in the Bitcoin community, but supporters of Ordinals believe that there is a positive side to such issues, as fees are an important incentive for miners to maintain the blockchain. As block rewards gradually decrease in the future, network fees will become the main incentive to invest hash power in Bitcoin. The cryptocurrency community seems divided on the issue, but the project has certainly brought innovation to the Bitcoin space.

Conclusion

Ordinals is gradually changing the world of blockchain art by storing Bitcoin transaction information in a new way: not only adding additional utility, but also adding non-zero Bitcoin The number of addresses increased to an all-time high. We are about to witness a special moment in Bitcoin’s history: innovation is generating network activity beyond typical use cases like investing and currency transfers. Does this mean Ordinals will continue to grow? No one knows the answer. Let's wait and see.

Further reading

• What are non-fungible tokens? (NFT)?

• What is Taproot and how does it benefit Bitcoin?

• Bitcoin halving countdown

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