Bitcoin Ordinals: All You Need to Know
Ordinals launched on the Bitcoin network in January ‘23. They created an uproar in the Bitcoin community as many argued against their introduction to the genesis blockchain.
The number of Bitcoin Ordinal inscriptions has already surpassed 45,000, but could be a lot higher by the time the article publishes. 21,000 were inscribed yesterday alone.
This article will provide context as to their origination, establish how to go about obtaining these relics and assess the overall market sentiment for the nascent Bitcoin relics.
Article Outline
Background
Mechanics
Collections
Trading
Analysis
Comparisons
Closing Remarks
Background
Bitcoin NFT History
The Bitcoin network was established by the pseudonymous founder, Satoshi Nakamoto, in response to Great Financial Crisis in 2008. This article won’t go into the intricacies of the network itself but will focus on the Ordinals and NFT side.
For those wanting to familiarize themselves with the Bitcoin network, this Origins article provides a good background and position on the various key mechanics of the Bitcoin network.
Ordinals are not the first NFT on the Bitcoin network. Colored coins were launched in December 2012 and were arguably the first NFT in existence. Rare Pepes were subsequently launched on the Counterparty protocol several years later.
https://twitter.com/S4mmyEth/status/1516494521680506880?s=20&t=6zw4SURWHzWSJd8Hjww3dw
Bitcoin Ordinals were only recently made possible through the creation of Ordinal theory. This protocol enables the ability to order inscribed satoshis into chronological order and a significant amount more data than previously possible. The interest has exploded in the past few days.
We can see there are currently 45,000 Bitcoin Ordinal inscriptions:
Individual satoshis can be inscribed with arbitrary content, creating unique Bitcoin-native digital artefacts that can be held in Bitcoin wallets and transferred using Bitcoin transactions. Most of the content to date is visual, although there are some new audio files being stored in recent days.
This was made possible using tapscripts, the scripting function created through the Taproot update. As can be seen below, Ordinals are the obvious driving force behind its adoption.
Mechanics
Atomic Value - Satoshis
Satoshis are the atomic native currency of the Bitcoin network. One bitcoin can be subdivided into 100,000,000 satoshis.
It’s likely there will be an over-saturation of ordinals in the market eventually. For now, the early grails are being actively sought out.
https://twitter.com/S4mmyEth/status/1623629040056774657?s=20&t=Fuh9Uupk9UColCpg73879g
Inscriptions are as durable, immutable, secure, and decentralized as Bitcoin itself.
Ordinal Theory
Ordinal theory is a protocol for assigning serial numbers to satoshis and tracking those satoshis as they are spent by transactions.
Every satoshi, which is ¹⁄₁₀₀,₀₀₀,₀₀₀ of a bitcoin, has an ordinal number so each number could be very large for instance 1,899,766,099,970,100.
It assigns identities to individual satoshis, allowing them to be individually tracked and traded and hence by nature become non-fungible tokens (NFT). Whereas traditional Bitcoin satoshis are identical/fungible, they are not uniquely identifiable.
It leverages OP_RETURNs which allows you to drop the data from your full node since they’re unspendable, and so they don’t add bloat to the chain size. The origins of this methodology go back to 2014 with the Counterparty network wars, which became divisive amongst the Bitcoin community. We will touch on this later in the article.
The first instance of this development has memetic roots by embedding the lyrics to “Never Gonna Give You Up” by Rick Astley.
How to Take Advantage
Guides on how to go about entering the Bitcoin Ordinal ecosystem are popping up, predominantly via Twitter. @Jiurn provides one of the best I’ve seen.
https://twitter.com/Jiurn/status/1623356721908355076?s=20&t=Fuh9Uupk9UColCpg73879g
Bitcoin Node
There are major headwinds to most adopting the new wave of NFTs. One is the requirement to set up and run your own node in most instances with wallets like Sparrow.
Although, the rate of development is faster than expected given the lessons learned from Ethereum NFT infrastructure development. So for those that are unable to go through this process, it is likely these requirements will drop away as others allow the use of Bitcoin proxies.
Until this is possible, @0xVopa provides a good guide on setting up your own Bitcoin node.
https://twitter.com/0xvopa/status/1623126511111884804?s=20&t=-oeFcWrasQwo79oUd3Pl0Q
Collections
There are now more than 45,000 Ordinals on the Bitcoin network. The key collections within the first 1,000 include:
The first ordinal is inscription 0.
Ordinal Rocks contain 100 rocks and take inspiration from the EtherRocks.
Ordinal Punks take inspiration from the CryptoPunks on Ethereum and include 100 total.
Bitcoin Shrooms are a novel type that has a range of art from wizards to cats.
Shadow Hats are said to pay homage to the Pseudonymous Satoshi Nakamoto. The founders are the same as those who established Forgotten Runes. The ethos focused on ensuring longevity to the artefacts or the project art.
The Dan Files consists of several collections, for instance, the tough pill to swallow pictured below.
We’ve also seen meme culture prevail with the 10,000th Ordinal being an image of the number 69.
Capturing the memetic internet culture for as long as the Bitcoin network exists.
Trading
Credit where credit is due; @dotta provides top guides for those interested in getting into Bitcoin Ordinals.
OTC Trading
But most of the BTC ordinal trading happens in Discord over the counter. This clearly raises many risks associated with bad actors exploiting traders. Some example order books for a couple of projects:
The main location for discourse is in the BTC Ordinal Discord, but scams and bad actors are prevalent.
Escrow Services
There are however trusted intermediaries that are offering escrow services to reduce the risk of misappropriation of assets.
https://twitter.com/shanicucic96/status/1623510945673928709?s=20&t=lWUlMh4plXd_TEGvWOc1HQ
Migrating Ethereum Based Collections
An alternative approach that appears to be doing well is trading Ethereum-based NFTs that are promising a move to be inscribed as Bitcoin Ordinals. OCM announced this yesterday.
https://twitter.com/OnChainMonkey/status/1623784604309278720?s=20&t=3v0v38783iPcsmu01Uo_Bg
Trading volume spiked as those unable to access Bitcoin Ordinals saw this as a means of getting exposure to the ecosystem.
Since the top 1,000 inscriptions, the market is becoming saturated with several thousand new ordinals being inscribed or bridged from other chains each day. There are those that are more legitimate than others. Will these actually be bridged? It’s important to do your own research on each project that pops up as it is likely some will not.
@nullish has several viable projects that are intended to be bridged to Bitcoin.
https://twitter.com/null_ish/status/1623454467860606976?s=20&t=lWUlMh4plXd_TEGvWOc1HQ
Volume has come into these problems from speculative collectors. TradFiLines was minted on Ethereum on February 6, trading at 0.01 ETH. The 500-piece collection is now selling for 3 to 4 ETH ($4.6 to $6.2k USD) within three days, driven by the Ordinal inscription news.
Inscribing
For those wanting to inscribe their own Ordinal, there are bots available to expedite the process. Ordinals Bot was founded by the Satoshibles and is probably one of the most widely used bots to inscribe Ordinals.
It can take 12 hours for them to be inscribed once the request has been sent.
You can see some of the recent Ordinal inscriptions on the website (below).
Analysis
The current bid-ask spread is dictated on google docs.
https://twitter.com/punk9059/status/1623411865597407233?s=20&t=m1hYVJTNxCbU-Y22t1gmRA
User Interface/Experience (UI/UX)
The UI/UX is not yet ready for the average user. Traders could quite easily fat-finger their ordinals to the wrong address, or send the incorrect satoshi.
https://twitter.com/tropoFarmer/status/1623392835301957635?s=20&t=m1hYVJTNxCbU-Y22t1gmRA
But there are developers that intend to make the process easier to verify and custody the new assets.
https://twitter.com/null_ish/status/1623469436425408512?s=20&t=lWUlMh4plXd_TEGvWOc1HQ
Top Sales
The top ordinal sale is for an Ordinal Punk which went for 9.5 BTC ($207K USD) on February 8, 2023.
Other non-punk high-end sales include this Ordinal Loop, selling for $96k USD (4.178 BTC). Most recent Punk sales are in the 4 BTC ($88k USD) range now.
https://twitter.com/tropoFarmer/status/1623436963473936386?s=20&t=Q09vDX_0apaSA0UoGWl8Jw
The rarity of the satoshi also plays a part in the valuation of the ordinal. The rarer the satoshi, the higher the value. There are bounties put out to hunt and obtain the rare satoshis to then inscribe the ordinals.
So while there is provenance in obtaining an early minted ordinal, the later minted ordinals with rare satoshis should also hold some intrinsic value.
There has been discussion that an optimal Ordinal would be a rare satoshi combined with a 1/1 piece of notable artwork. That type of relic could command a significant sum of money for those that appreciate art with the benefit of immutability on the most secure blockchain.
Holders
There are several top NFT collectors seizing the early access opportunities. The low collection size coupled with a spike in interest has sent the prices astronomical to rival the high-end Ethereum-based grails. Dingaling holds seven Ordinal Punks while Vopa has also acquired several ordinal assets.
We can see from the Ordinal Punk order book that there are several renowned collectors holding or bidding for these low ordinal grails. Of the 100 Ordinal punks, there are 18 currently listed for sale with the lowest ask of 4 BTC ($88k USD). P Ether, founder of BYOP currently has the highest offer at 4 BTC ($88k USD) for a sub-500 inscription.
The analysis is relatively manual currently given the individual project spreadsheets. Another example is the Ordinal Pepes, where we can see TropoFarmer and Dingaling present as holders also.
Conflicting Interest
There have been disputes over the best use of the Bitcoin network for years. We can see from the “Open Return Wars” in 2014, that many felt that anything other than focusing on the efficient and cost-effective process of transactions is peripheral to the core objective of the network.
One of Bitcoin’s main contributors in 2014, Jeff Garzik, stated that the arbitrary inclusion of data into unspent outputs was a waste of block space.
We are seeing this same argument crop up now that we have Bitcoin maximalists uninterested in non-fungible transactions and the arbitrary inclusion of artefacts or data onto satoshis.
https://twitter.com/web3_ready/status/1623408775787950082?s=20&t=m1hYVJTNxCbU-Y22t1gmRA
The main reason is the increased transaction cost from a greater hash rate on the network following the flurry of activity.
The current hash rate is around 277 million terahashes per second (or 277,000,000 TH/s) which is up from 220 million on December 28, 2022 (just before Bitcoin Ordinals went live).
What happens if these interests are aligned? Well we can look at the distribution of Bitcoin wallets to see the sheer capital sidelined should these Bitcoin relics become of interest.
Imagine if one of the four wallets holding more than 100k BTC ($2.2b USD) were to get involved.
Comparison
You are probably thinking these aren’t the first Bitcoin NFT, so why the hype? Let’s compare it to a few examples.
1) Rare Pepes and Counterparty Network
Rare Pepes were minted on the Counterparty network, which was a protocol integrated with the Bitcoin network. The technology allows Counterparty nodes to communicate with each other via the Bitcoin blockchain.
The issue here is that there was a limitation on the amount of data that could originally be stored on the Counterparty network, meaning a lot of the images you see below were not fully on-chain.
Whereas Ordinal theory and inscriptions allow these images to be fully stored on-chain. Decentralization in its finest form with no requirement to trust a third party to maintain the storage.
2) Colored Coins
Colored Coins were minted on the Bitcoin network back in 2012. Again the data limitations meant that these were very primitive. The Enhanced Padded Order-Based Coloring (EPOBC) assigns a single atom of a color value is one satoshi, thus making it distinct from a normal satoshi.
Colored coins were the original representation of assets on the blockchain. They are not widely used because the transaction structure required to represent colored coins relies on unspent transaction outputs (UTXO), which Ethereum-based blockchain systems do not support.
Inscriptions permit a significant amount more data so a greater range of artefacts can be stored for eternity, or at least until the Bitcoin network exists.
3) Genesis Block
The Genesis Block was created on January 3, 2009 and represents the first block by Satoshi Nakamoto. The wording was included in the first block similar to the idea of inscriptions.
The 50-bitcoin coinbase reward in the Genesis block is unredeemable, as it was omitted from the transaction database. This means any attempt to spend it would be rejected by the network. However, this data was stored within a block as opposed to the satoshi itself.
The genesis block was never mined, it was an anchor block. So while this data was included within the block it is unique in that regard. Although not technically correct one could see similarities between the description within the Genesis Block and that of a soulbound NFT.
Ethereum Comparison
Inscriptions like Bitcoin Ordinals are completely on-chain.
Some Ethereum NFT content is on-chain (EtherOrcs, Anonymice), but much is off-chain and is stored on platforms like IPFS or Arweave, or on fully centralized web servers like AWS.
In fact, we are seeing some movement in the fully on-chain Ethereum-based projects - potentially signs of a new meta.
https://twitter.com/S4mmyEth/status/1623698313177341956?s=20&t=3G9wN8ABRNt7nvOyBm3wwA
For instance, Anonymice saw a huge pump, with their floor price doubling from 0.25ETH ($0.4k USD) to 0.5 ETH ($0.8K USD) within 24 hours.
Ethereum-based NFTs (ERC-721 or ERC 11-55) use a different token from its fungible counterpart (ERC-20) whereas Bitcoin Ordinals use the same atomic denomination, satoshis.
Royalties
A large drawback of Bitcoin Inscriptions is that they do not support on-chain royalties. Although it’s argued that even royalties on Ethereum are being circumvented via non-enforceable marketplaces given the optionality.
Cost
At $20,000 per BTC and the minimum relay fee of 1 satoshi per vbyte, publishing inscription content costs $50 per 1 million bytes. The Bitcoin protocol limits a block to 4 million weight units, equivalent to a maximum of 4 megabytes. It’s not cheap compared to Ethereum transactions or their layer two scalability solutions.
However, that may be the price of being early - when the masses can transact after marketplaces are established then this original cost base may be baked into the underlying value of the lower ordinal numbers.
Closing Remarks
Bitcoin ordinals are all the hype at the moment, but simple supply-demand mechanics suggest that as the market becomes saturated with the assets their price will be adversely impacted. Some of the lower-numbered ordinals, or those minted on rare satoshis, will likely retain the provenance of being on the genesis blockchain.
The clunky nature and over-the-counter process for trading these assets create a barrier to entry. Those willing to spend time understanding the mechanics and developing infrastructure could prosper greatly.
The Bitcoin Whales dwarf any of the Ethereum Whales, so should the tide change and they come around to the idea then the earlier more scarce assets could be worth astronomical values. But until hash rates drop, and trading the assets become seamless it is unlikely to allow for the masses to get involved in the nascent market.
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