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All the information you require about Bitcoin Ordinal NFT


What Are Bitcoin Ordinals?

Bitcoin Ordinals are the equivalent of non-fungible tokens on the Bitcoin blockchain using satoshis, the smallest denomination on the chain.

Every satoshi is given a serial number based on the order in which it was mined. These numbers are called ordinals, and they help the blockchain keep track of where every satoshi is and who owns it. These ordinals can have additional content written to them, a process called inscribing.

By attaching extra data to a satoshi, such as an image or a text, the Ordinal protocol makes it possible to create unique and scarce digital assets, such as non-fungible tokens (NFTs), that benefit from the security and decentralization of Bitcoin’s blockchain. The Bitcoin mainnet Ordinals software was released in January 2023.

Key Takeaways

  • Ordinals are a new method of creating NFTs, meme tokens, and other assets on the Bitcoin blockchain.
  • The launch of Ordinals has been controversial in the Bitcoin community because some believe the activity to be similar to spam email.
  • Unlike most previous iterations of NFTs, the image, video, audio, or other content associated with an Ordinal is inscribed directly onto the Bitcoin blockchain.
  • While most Ordinals activity has revolved around NFTs, the protocol may also be useful for other applications.

How Do Bitcoin Ordinals Work?

The Ordinals protocol assigns more information to the serial numbers of each satoshi, the smallest bitcoin unit. This extra data is referred to as an inscription. A single bitcoin can be divided into 100 million satoshis, each worth 0.00000001 BTC. Satoshis are numbered according to the order they were mined on the Bitcoin blockchain.

Note

The Ordinals protocol lets users create NFTs and other assets on the base Bitcoin blockchain without needing a secondary protocol layer like a sidechain.

Ordinal inscriptions are embedded directly into individual satoshis and stored in Bitcoin blocks. This way, Ordinals inherit the security, immutability, and durability of Bitcoin itself.

How to Mine Bitcoin Ordinals

Bitcoin Ordinals are mined (minted) in the same manner as traditional Bitcoin transactions, as they are just special types of Bitcoin transactions following a specific protocol. However, there are two key ways in which mining Bitcoin Ordinals is different from how traditional NFTs are mined:

  • Bitcoin Ordinals point to data that is inscribed directly on the Bitcoin blockchain. While this is also possible on other blockchains, such as Ethereum and Solana, the NFT information is generally stored in an off-chain location.
  • Bitcoin uses proof of work (PoW) for its mining process, while other chains that have been more closely associated with NFTs in the past use proof of stake (PoS).

How to Buy, Sell, and Trade Bitcoin Ordinals

Bitcoin Ordinals can be bought, sold, and traded like traditional NFTs. There are several different marketplaces, such as Ordinals Wallet and OKX, that allow you to trade Bitcoin Ordinals.

The Bitcoin Ordinals market is much less active than NFTs on other blockchains. This means there is less liquidity and interest, so it is essential to do your research and due diligence before jumping into Ordinals.

Specific directions for trading Ordinals can be found at each respective marketplace; however, the process will usually look something like this:

  1. Visit any Bitcoin Ordinals marketplace in a web browser or via an app.
  2. Create a Bitcoin wallet within an Ordinals marketplace or connect to one that has been used in the past.
  3. Make sure there is some bitcoin in the wallet to be used for trading.
  4. Search the marketplace’s various Ordinals collections.
  5. Find a Bitcoin Ordinal worth purchasing, and use the connected Bitcoin wallet to make the purchase.

Three wallets that support Bitcoin Ordinals are Ordinals Wallet, Xverse, and UniSat. It’s also possible to trade Bitcoin Ordinals in an over-the-counter (OTC), peer-to-peer (P2P) manner.

Most Bitcoin wallets don’t support the Ordinals protocol. Those looking to buy, sell, or trade Bitcoin Ordinals will need to download a specific wallet or use a wallet associated with one of the Ordinals marketplaces.

Note that you should use caution with new blockchain software, offerings, and protocols.

Bitcoin Ordinals vs. NFTs

The key difference between Bitcoin Ordinals and traditional NFTs is how the data related to the token is stored. Traditional standards for the NFT issues on other crypto networks usually only contain metadata or a URL pointer to some off-chain data. However, Ordinals store the content on the blockchain via inscriptions. The intention here is to make Ordinals more decentralized and censorship-resistant. But this also makes them more expensive and limited in size.

Another difference between Ordinals and traditional NFTs is how they derive rarity and value. Traditional NFTs often depend on the attributes of the artwork or the scarcity of the supply to determine their price.

While this is also true for Bitcoin Ordinals, other factors might influence prices. Ordinals might eventually rely on key moments in Bitcoin’s history associated with certain satoshis. For example, the first Ordinal inscribed on a new block, a new adjustment period, or a new halving epoch could be viewed as more rare and valuable than others.

Finally, there is the issue of how these NFTs are added to their respective blockchain networks. In the case of Bitcoin Ordinals, PoW is used in the mining process—minting Ordinals contributes to the already massive Bitcoin network energy requirements. NFTs on chains that use PoS consume much less energy and are faster.

Impact of Bitcoin Ordinals

The impact of Bitcoin Ordinals is best illustrated through the division it has created among Bitcoin users. This new functionality on Bitcoin has sparked a heated debate among users who have differing opinions on whether Ordinals are beneficial for the network.

Some supporters argue that Ordinals are an innovative and elegant way to make Bitcoin more sustainable over the longer term by creating more demand for block space, because Bitcoin will eventually lose its block rewards and become completely reliant on transaction fees for miner revenue. They also say that Ordinals attract new developers and users who were previously more interested in other non-Bitcoin crypto projects.

Advocates also claim that Ordinals are more secure, decentralized, and censorship-resistant than traditional NFTs, which rely on third-party platforms and intermediaries.

However, some critics contend that Ordinals are a misuse of the Bitcoin network and a waste of its scarce resources. They point to the large amount of data associated with Ordinal inscriptions and the increased demand for block space, which could lead to higher fees and congestion on the network.

Additionally, they question the legality and ethics of Ordinals, which could be used to conduct scams on the blockchain by issuing fraudulent assets. It is also argued that Ordinals aren’t compatible with the original vision and design of Bitcoin, which is meant to be a P2P electronic cash system.

What Is an Example of a Bitcoin Ordinal?

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One example of a Bitcoin Ordinal is the first NFT from the Taproot Wizard collection. At its issuance, this Taproot Wizard was part of the largest Bitcoin transaction of all time and was included in the largest Bitcoin block ever. The NFT was minted via a collaboration between independent developer Udi Wertheimer and Bitcoin mining pool Luxor. Luxor included the transaction in the block for no on-chain fee.

What Platform Are Bitcoin Ordinals on?

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Bitcoin Ordinals are issued directly via the Bitcoin blockchain. Wrapped versions of Ordinals can be made available via other crypto networks, such as Ethereum.

What Is an Ordinals Wallet?

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Ordinals Wallet is a noncustodial Bitcoin wallet that allows users to view, store, buy, sell, and trade Bitcoin Ordinals. To interact with the Ordinals protocol, a Bitcoin wallet with a Taproot wallet address and “coin control” is required. An Ordinals Wallet is one of the few that support these features while handling regular Bitcoin transactions.

How Do I Inscribe Bitcoin Ordinals?

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Initially, it was only possible to inscribe new Bitcoin Ordinals while running a Bitcoin Core full node. However, several services are now available that make it much easier for the average person to create their own Bitcoin NFTs and other assets. When using one of these services, such as Gamma or OrdinalsBot, you would follow the directions by each platform to inscribe Bitcoin Ordinals.

Is There an Index for Bitcoin Ordinals?

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A number of indexes for Bitcoin Ordinals exist online. One such index is the Ordinals Explorer found at Ordinals.com. As of Oct. 26, 2023, a benchmark index hasn’t yet been developed for these assets.

The Bottom Line

The Ordinals protocol has created another way to issue alternative digital assets on the Bitcoin blockchain. Controversial from its earliest days, at least one developer has claimed there isn’t much that Bitcoin users can do about removing this functionality in a principled manner.

Although it has mostly been used to issue NFTs initially, this will be an area to watch for new potential uses. The eventual impact of Ordinals on Bitcoin’s fees will depend on how popular these new assets become.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own Ordinals.

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