Bitcoin Ordinals

Ordinals, Inscriptions and a short history of NFTs on Bitcoin.

TLDR:

• Bitcoin NFT attempts date back as early as 2012 with Colored Coins and saw some success with Counterparty in 2014, but eventually these mostly died out.

• Casey Rodarmor, a Bitcoin dev, created Ordinals in 2022 allowing a single satoshi to have data “inscribed” onto it creating on-chain Bitcoin NFTs.

• Inscriptions are divisive as some see it as spam on the network while others see it as breathing new life into Bitcoin and broadening its design space.

Bitcoin’s Ordinals has been all the talk recently since some Bitcoin devs see it as spam on the network and want to find ways to filter out, while others in the space like Bitcoin miners think it’s great since they’ve been profiting greatly from it.

If you’re a Web3 native with a passion for NFTs then you probably think Bitcoin NFTs are a big deal but you may not understand much about them or know how they differ to Ethereum NFTs or from NFTs on other well-known networks like Solana and Tezos.

So let’s dive deeper into Ordinals to try and answer some of these questions.

Bitcoin’s History with NFTs

Many of the newer Web3 crowd who are focused primarily on NFTs may not even have had much exposure to Bitcoin or understand its importance in the space.

I will dive deeper into Bitcoin in other posts but for now its enough to note that Bitcoin is the original cryptocurrency and has the largest market capitalisation. As the very first cryptocurrency it carries an important place in the space as the sort of “godfather” of crypto and acts as the single biggest store-of-value in Web3, so anything that happens on it is worth paying attention to.

Bitcoin is intentionally built without complex smart contracts since it’s intended to be used primarily as money and not as a smart contract platform like Ethereum. Yet, there have been past attempts to create NFTs on Bitcoin.

The Coloured Coins concept created in 2012 detailed how devs could use additional layers alongside the Bitcoin blockchain to individually “colour” the smallest unit of a Bitcoin known as a “satoshi”. This colouring of a satoshi essentially allows it be ascribed a new unique meaning and hence be treated like an NFT.

Protocols like Counterparty created in 2014 took this concept further by using the OP_RETURN operator added to Bitcoin that same year, which allowed arbitrary data to be included in a Bitcoin transaction for the first time. Although this data was only a maximum of 80 bytes long it was enough for Counterparty to use it to ascribe new meaning to satoshis and spawned NFT projects like the famous Rare Pepes cards.

These early coin colouring methods created NFTs and fungible tokens on Bitcoin, however crucially they required an additional layer on top of Bitcoin to be interpreted as what was stored on-chain itself was limited to a mere 80 bytes of data. Eventually all these methods of creating NFTs on Bitcoin mostly fell out of fashion, especially with the emergence of versatile smart-contract networks like Ethereum.

Ordinals

Bitcoin is a living protocol with developers still actively building on it and, with the combination of the SegWit upgrade in August 2017 and Taproot upgrade in November 2021, Bitcoin became able to store significantly more arbitrary data within a single transaction. Plus by sneakily making use of the 75% blockspace discount from SegWit originally intended for witness data (ie. signing data) the stage for Ordinals was set!

A Bitcoin developer called Casey Rodarmor created Ordinals allowing individual satoshis to be “tracked, transferred and imbued with meaning” - remind you of coloured coins? However, by making use of the SegWit & Taproot loophole, Ordinals also created a way to “inscribe” arbitrarily sized data to an individual satoshi by running a few commands from Casey’s ord library alongside a Bitcoin node.

Ordinal’s Inscription works by first generating a “commit” transaction that creates a taproot UTXO waiting to be spent, then a “reveal” transaction that immediately spends this UTXO while stuffing a blob of data into the taproot script used to spend it - where the taproot script benefits from the 75% witness data discount. The first satoshi of the first UTXO created from the reveal transaction then becomes forever associated with this data on-chain! An example taproot script inscribing “Hello World” onto a satoshi with ordinals would look like this:

Regardless of the technical detail, we once again end up in a scenario where an individual satoshi gets a unique piece of data associated with it. And importantly, unlike with OP_RETURN where it could only store up to 80 bytes, Ordinal inscriptions are limited only by Bitcoin’s max block size of 4MB! This inscribed satoshi essentially creates an on-chain Bitcoin NFT that can be easily interpreted by something like an Ordinals explorer without needing to store any additional data in a separate off-chain layer like Counterparty does.

Inscriptions as NFTs

The first Bitcoin Inscription happened in 2022 but it was in 2023 when they really took off and have grown massively since with over 6M inscriptions and counting.

Some highly respected (and more conservative) Bitcoin developers like Luke DashJr and Adam Back see Ordinals as an attack on the network because it causes congestion and increases the size of the chain for non-monetary uses, which they say is not what Bitcoin was originally intended for. However, other players in the Bitcoin ecosystem like miners are happy as this increased congestion has increased miner fees since people need to pay more money to push their transactions through, and over $36m in miner fees have already been spent with Ordinals.

It’s worth noting that Bitcoin NFTs created with Ordinals, unlike Ethereum NFTs, are not created through smart contracts so they are just data without any programability. However, it also makes them less complex which is potentially an advantage for certain use-cases where the lack of programability is useful. Plus they are expensive to mint since Bitcoin transactions are expensive, so for example they are more likely to cater for high-value 1/1 art rather than large 10,000 PFP collections.

Either way Ordinals has created an entirely new way for people to interact with Bitcoin that seems to be growing and accelerating with more tools and software being built around it including the recent BRC-20 token that’s an ode to Ethereum’s ERC-20 and tries to emulate fungible tokens. Plus slowly more Bitcoiners seem to have started to adopt these Bitcoin NFTs with both Cobie and Nic Carter having sported Taproot wizards as profile pictures on their Twitter profiles at some point.

Whether you like it or not, there’s no doubt Bitcoin Ordinals is bringing new life into the godfather of crypto and new possibilities will emerge from this wider design space that Bitcoin now has.