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.

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.

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.

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.

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.

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.