A revolutionary protocol has been introduced to the network of the original cryptocurrency, Bitcoin. Known as Ordinals, this innovative system enables the hosting of images and various types of data directly on the Bitcoin blockchain without the need for specialized tokens or sidechains.
Unveiled in January 2023, Ordinals garnered immediate attention from both cryptocurrency experts and everyday users, sparking excitement and generating mixed reactions within the community.
Bitcoin Ordinals: Understanding the Concept and Functionality
Ordinals is a novel protocol for the Bitcoin blockchain developed by former Bitcoin Core developer Casey Rodarmor. It introduces a numbering system that assigns a unique ordinal (serial number) to each satoshi, enabling the tracking of fractional bitcoins during transactions.
A satoshi (SATS) represents the smallest unit of a bitcoin, with 100 million satoshis equivalent to one BTC.
Furthermore, this innovation adds additional data, in the form of inscriptions, to individual satoshis, rendering them distinctive. These serial numbers can be associated with images, videos, texts, and more. Consequently, the Ordinals protocol allows for the creation of digital artifacts similar to non-fungible tokens (NFTs) directly on the Bitcoin blockchain.
The foundations of Bitcoin Ordinals rely on three technical solutions:
- OP_return: This feature adds an extra output to transactions, which is unspendable. It enables the storage of non-cryptocurrency data on the Bitcoin network by utilizing metadata referring to objects such as images or videos, as it is not part of the unspent transaction output (UTXO).
- Taproot: Introduced as a soft fork update to the Bitcoin network in 2021, Taproot enhances privacy, scalability, and the utilization of more intricate smart contracts. It also raises the limit of data storage in OP_return from the original 80 bytes to 400 kilobytes.
- Ordinals: The protocol responsible for numbering satoshis and enabling their uniqueness.
Bitcoin Ordinals vs. NFTs: Key Distinctions
While there are apparent similarities between non-fungible tokens and digital artifacts on the Bitcoin network, these technologies possess notable differences.
Non-fungible tokens adhere to specific standards for interaction with the network, such as ERC-721 and ERC-1155, with information about NFTs stored in smart contracts. In contrast, Bitcoin “signatures” are directly stored on the blockchain, ensuring 100% immutability, unlike NFTs, which can be modified with new data or characteristics.
Digital artifacts are not independent tokens like NFTs; they are inherently linked to specific satoshis.
Bitcoin-based counterparts to NFTs are directly added to blocks on the Bitcoin network, while NFTs primarily include links to information stored outside the blockchain.
The Future of Bitcoin Ordinals
Ordinals generated considerable excitement upon its introduction and quickly gained popularity. Many experts anticipate continued development of this technology, expecting improvements in functionality, a broader range of applications, and the creation of infrastructure projects.
Ordinals has already attracted interest in relation to the new BRC-20 token standard.
The BRC-20 Standard and Next-Generation Token Use Cases
In March 2023, an anonymous developer known as “domo” proposed the experimental BRC-20 standard, enabling the deployment of new tokens on the Bitcoin blockchain.
Unlike the ERC-20 standard on the Ethereum network, BRC-20 does not rely on smart contracts. Instead, it is based on the Ordinals protocol. Tokens are created by adding JSON text files to the network, defining various characteristics of the new cryptocurrencies, including token supply and issuance limits. The BRC-20 standard is less advanced than ERC-20 due to intentionally limited programmability within the Bitcoin network.
The first BRC-20 token created, ordi, started at $0.1 and skyrocketed with the news of listing on various centralized exchanges, reaching a high of $31. Other tokens such as nals, meme, pepe, and piza have a market capitalization of $10M to $40M
Currently, ORDI is trading at $4.81 as of June 12, with a market capitalization just above $100 million. It is listed on major centralized exchanges (CEXs) such as OKX, Gate.io, and Huobi.
BRC-20 standard tokens can be transferred between wallets, with transaction fees charged in satoshis.
Ordinalswallet.com, a platform launched shortly after the standard’s introduction, facilitates the trading of BRC-20 tokens and inscriptions. These assets could become integral to a decentralized financial ecosystem based on the Bitcoin network. Possible use cases for these crypto assets include integration into decentralized exchanges (DEXs), yield farming platforms, and lending platforms.
Network bridges connecting wrapped BRC-20 tokens to other blockchains will play a crucial role in developing a DeFi ecosystem on the Bitcoin network.
Building DeFi Products on Bitcoin with Portal Finance
Our portfolio company Portal Finance aims to change the narrative by pushing for massive DeFi adoption on Bitcoin. Portal is building a DeFi platform for cross-chain atomic swaps on the Bitcoin network- a task formerly considered to be too nuanced to pursue. Dubbed Portal DEX, it’s the first trustless cross-chain decentralized exchange, powered by Fabric.
Fabric (Fabric Protocol) itself is a smart contracts protocol for building powerful decentralized applications, known as dApps, with Bitcoin as the underlying security layer. Fabric is both Layer 2 and Layer 3 technology enabling the creation of a free, censorship-resistant market on Bitcoin.
Portal blends the best of Bitcoin with Fabric’s atomic swaps feature to enable trustless, zero-knowledge swaps between Bitcoin and other cryptocurrencies across multiple non-native chains.
Thanks to Bitcoin and Fabric technology, Portal is able to offer trustless execution while maintaining the speed and liquidity of centralized finance products. The platform unlocks Bitcoin’s potential to legitimately decentralize finance in more than just name, using on-chain, P2P contracts and without any third party involvement.
The Quest for Rare Satoshis
Following the development of the Ordinals protocol, Casey Rodarmor proposed a method for identifying “special” satoshis. This approach involves predetermined events in Bitcoin’s evolution, assigning rarity levels to the first satoshis mined during these events.
Thus, the Rodarmor Rarity Index was established, featuring five rarity levels. According to the index:
- The first satoshi of each new block is considered “Uncommon.”
- The satoshi following a change in network complexity (occurring once per 2016 blocks, approximately four times per year, resulting in one satoshi per 1.26 trillion) is classified as “Rare.”
- The satoshi following each halving is labeled “Epic.”
- The satoshi after every six halvings, corresponding to a complete cycle, is designated as “Legendary.”
- The unspent satoshi from the genesis block created by Nakamoto receives the status of “Mythic.”
Other unique satoshis include those involved in the initial transaction from Nakamoto to Hal Finney in January 2009 (the first Bitcoin transaction) and the satoshis from Laszlo Hanyecz’s purchase of two pizzas for 10,000 BTC in May 2010.
The pursuit of these coins is gaining momentum, with some crypto enthusiasts willing to pay more for these satoshis than for an entire bitcoin.
Online, a group of collectors called the Rare Satoshi Society has emerged. During their treasure hunt, they have already combed through over $1 billion worth of Bitcoin, systematically withdrawing bitcoins from exchanges, scrutinizing them for rare coins, and returning the ordinary satoshis.
Community Perspectives on Ordinals
The response to Ordinals has been divisive. Some staunch supporters of the original cryptocurrency believe that Bitcoin’s simplicity must be preserved at all costs, with the network’s true purpose being solely the storage and transfer of crypto. Conversely, others firmly believe that the Bitcoin blockchain should evolve and expand its functionality.
As inscriptions now compete with standard transactions for block space, transaction fees have increased. However, Ordinals proponents do not see this as an issue and believe it will incentivize miners, especially in the future when block rewards become negligible and nodes primarily earn through transaction fees.
Ordinals has received a wave of negative reactions from many blockchain developers, as the protocol allows for the minting of high volumes of meme tokens and NFTs on the blockchain. Some have proposed implementing a filtering system, similar to a spam filter, to block transactions involving inscriptions.
In conclusion, Bitcoin Ordinals represents an intriguing and controversial technology that challenges prevailing notions about the primary cryptocurrency. Given the polarized opinions, it is expected that Bitcoin Ordinals will continue to ignite passionate discussions in the near future.