What are Bitcoin Ordinals?

Bitcoin has come a long way since its launch in 2009 as a rather obscure form of digital money. The project would remain relatively unnoticed by the general public for several years, gaining popularity in 2013 and quickly becoming the largest asset class in the world.

In fact, although Bitcoin was the first cryptocurrency, its invention led to thousands of new cryptocurrencies following suit, with their complex use cases, expanding derivatives markets, and list of added features. Bitcoin developers also continued to innovate on the project; The biggest update in recent years was Bitcoin Ordinals, which launched in 2023.

What are Bitcoin Ordinals? Bitcoin Ordinals explained

Bitcoin Ordinals are Bitcoin’s answer to NFTs and provide a way to write data to a specific satoshi (one-millionth of a bitcoin) in a way that makes the satoshi different or immutable from others.

So why is this important?

Originally, Bitcoin was launched as a fungible form of digital money. Just like the US dollar, one is almost identical to the other from the perspective of transactors. However, Bitcoin Ordinals allow users to identify satoshis from each other.

For example, a collector may be interested in owning a satoshi from a key moment in Bitcoin history, such as the Bitcoin halving, which occurs every four years, and thus may be willing to spend more than the market value of a satoshi to purchase it.

This is leading Bitcoin into the realm of digital collectibles and NFTs. The Ethereum NFT (non-fungible token) market has exploded in 2021, with over $24 billion in NFT sales. These NFTs are typically digital assets with unique identifying numbers on the Ethereum network and are used to represent ownership of assets such as art and music.

Bitcoin Ordinals can be used for exactly the same thing; There is also the added benefit of being associated with the most popular and long-standing cryptocurrency on the market.

How do Bitcoin Ordinals work?

Bitcoin Ordinals assign a unique identifying number to the satoshis in any given Bitcoin. Bitcoin developer Casey Rodarmor came up with the idea in 2023 and used a feature of Bitcoin’s 2021 Taproot upgrade; this allowed the data to be stored directly on the Bitcoin blockchain to make this happen.

Ordinal numbers work by making each unit of a single Bitcoin uniquely identifiable. When a bitcoin is mined, all one million satoshis are assigned a number in the order in which they were created. Satoshis can be tracked individually across multiple wallets, meaning you can spend BTC and still keep track of individual satoshis or Ordinals.

While Ethereum NFTs sometimes require metadata to be stored off-chain, sometimes on a traditional web2 website, Bitcoin Ordinal data is all stored on-chain, reducing the risk of data loss. SegWit and Taproot updates to the Bitcoin network allow many data to be stored this way.

Buying, selling and trading Bitcoin Ordinals

To purchase Bitcoin Ordinals you must use a wallet compatible with Taproot addresses. Many of the most popular Bitcoin wallets, such as Trust Wallet, Mycelium, and Blockchain.com wallets, do not support this feature. You can use wallets like Sparrow Wallet instead.

Bitcoin addresses compatible with Taproot usually begin with the characters ‘bc1p’.

How to buy Bitcoin Ordinals?

Once you’ve set up your wallet, you can visit marketplaces like Ordinals Market or OpenOrdex to browse the ordinals offered. As with Ethereum NFTs, these ordinals will often be associated with the sale of digital artworks or other assets.

Deposit your funds on the platform (at your own risk) or connect your BTC wallet. Bid on an Ordinal or make a direct purchase from there.

Here’s how it’s done! You can also list Ordinals for sale or trade peer-to-peer with other users on the same platform.

Real-world examples and use cases

Bitcoin Ordinals can be used to represent the sale of digital or real-world assets, to act as a collectible piece of BTC network history, or to permanently record data on an immutable blockchain as a censorship-resistant form of art, protest, or history. protection.

The main use case right now lies in artwork, just like Ethereum NFTs. The Bitcoin Ordinals market is relatively small, although not insignificant. Sales of BTC Ordinals reached over $170 million in March 2024.

Examples of Bitcoin Ordinals could include collecting ‘souvenirs’ from history, allowing users to own a piece of bitcoin from a specific moment in time, such as a major worldwide event or an interesting moment in Bitcoin mining history.

Potential Challenges and Disadvantages of Bitcoin Ordinals

Of course, we have already seen that the Ethereum NFT market has experienced a massive decline in recent years, with the value of NFT collectibles dropping by around 90% overall. While the technology isn’t going anywhere, the market has quickly become saturated with dubious or malicious trading tactics, such as low-effort artwork, aggressive marketing practices, and fake trading to artificially inflate auction prices.

It would not be wrong to say that the market has taken a step back from NFTs and this quiet sentiment may be reflected in Bitcoin Ordinals in the near future.

Another issue with ordinals is privacy and surveillance. Allowing unique identifying data to be written into one millionth of each Bitcoin suggests that Bitcoin’s fungibility and pseudonymous nature are likely under threat.

A new Bitcoin civil war over ordinals and privacy is coming! 🪖

We may even see another fork 😱

I’ll explain as succinctly as possible how we got here, why we got here, and how we can avoid this kind of thing going forward.

Fasten your seat belts! 🧑‍🚀
1/16 pic.twitter.com/5dDNLfaCNn

— Joel Valenzuela (@TheDesertLynx) December 11, 2023

Ordinal numbers allow on-chain surveillance analysts to cluster wallets and more easily identify Bitcoin users; Some people may not agree with this.

Finally, there is also the risk of creating a derivatives market that could disrupt BTC prices. If the Ordinals break out big time, there is a possibility that users spending a large amount of money on a certain millionth of a Bitcoin could have unpredictable effects on the Bitcoin price and the health of the market, but this is just speculation. writing.

Whatever happens with Bitcoin Ordinals, the technology has been warmly welcomed by a large number of cryptocurrency enthusiasts and the market looks set to evolve further in the coming months and years.