Ordinals Overview
"Ordinals are a hypothetical construct that allows for the numbering of Satoshis to enable tracking and transferring individual Sats."
Last updated
"Ordinals are a hypothetical construct that allows for the numbering of Satoshis to enable tracking and transferring individual Sats."
Last updated
Recently, a new development in the Bitcoin ecosystem called the Ordinals Protocol has become a hot topic of discussion. Ordinals, created by Casey Rodarmor, enables the embedding of data into the Bitcoin Blockchain and its Forks. This section of the handbook aims to examine the Ordinals Protocol and its impact on the Bitcoin, Litecion, and Dogecoin Networks. Ordinals has created excitement and has reignited old debates and opened new opportunities in the cryptocurrency ecosystem.
The Ordinals Protocol has two levels, Ordinals and Inscriptions, that enable the embedding of data into the Bitcoin Blockchain. The numbering convention of the Ordinals allows for the unique identification of the smallest denominations, essentially the pennies of Crypto. On Bitcoin, they are called Satoshis, on Litecoin Litoshi, and on Dogecoin Shibes. Inscriptions provide the ability to assign data to them. This content can be viewed through Explorers, Wallets, and Browsers.
Ordinals are a numbering convention that anyone can opt into and accept as a tenet. According to the creator, Casey Rodarmor's blog post, "Ordinals are a hypothetical construct that allows for the numbering of Satoshis to enable tracking and transferring individual Sats. This provides a way to uniquely identify each Satoshi with a serialized Satoshis number." The serial number of a Satoshi gives its place in the total supply of Bitcoins in the network, and it is assigned to every Satoshi in the order in which they are mined.
In contrast, Inscriptions are a way of assigning arbitrary content to a Satoshis. Inscriptions can be considered as Non-fungible Tokens (NFTs) as they can attach metadata to an on-chain identifier for transfer. The project promoters refer to Inscriptions as Digtial Artifacts rather than NFTs. Content can be inscribed to Ordinals in two ways: on-chain by including the content's hash in a Bitcoin transaction or off-chain with a digital signature. These Sats can then be transferred in a regular Bitcoin transaction but Taproot is preferred.
In an Inscriptions transaction, the content is included in the Witness portion of a Bitcoin Taproot transaction. The Witness section is usually used to include Signatures and Scripts as per Bitcoin's SegWit upgrade. The Taproot upgrade has enabled the scenario where inscription content is stored in the witness as an input script, which Ordinals has taken advantage of. Before Taproot, there were instances of embedding data into the Bitcoin Blockchain, but Taproot's properties offer certain advantages.
One advantage of these Taproot transactions over non-Taproot transactions is that the witness input data never enters the Unspent Transaction Output (UTXO) set. The issue with data entering the UTXO set as outputs is that it can become burdensome on the network because nodes have to download more data. There is also a possibility to increase efficiency by introducing Witness Pruning in the future. This means that Bitcoin nodes do not need to download the witnesses below a certain height, an outcome of SegWit.
The SegWit upgrade offers Inscriptions certain advantages, such as the witness discount. Inscriptions are charged a lower fee per real byte due to their higher proportion of witness data relative to virtual data (vBytes). At the same time, Taproot inputs can store data until the block size limit of 4 MB is reached.
The Ordinals Protocol provides a way to identify RARE Satoshis and attach a numismatic value to them. The first Satoshi in the Genesis block could be rare, and various events in the Bitcoin network, like Halving and Difficulty Adjustment, can be used to determine the rarity of certain Satoshis.
Six rarity levels: Common, Uncommon, Rare, Very Rare, Ultra Rare, and Legendary.
Common Satoshis would be those that have no special significance or rarity. Uncommon Satoshis may have some historical significance or be associated with a well-known event in the Bitcoin network, but they are still relatively common.
Rare Satoshis would be those that are more difficult to come by, either because of their age or their association with a significant event. Very Rare Satoshis would be even rarer, and Ultra Rare Satoshis would be extremely difficult to find. Legendary Satoshis would be the rarest of them all, and only a handful of them may exist.
The numismatic value of these rare Satoshis would be determined by a combination of their rarity, historical significance, and demand from collectors. This value would be separate from the actual Bitcoin value of the Satoshis and would be based on the market demand and supply for these rare digital assets.
Additionally, the use of Ordinals, Serial Numbers, and Inscriptions can have an impact on Bitcoin's fungibility, a fundamental property of money. Fungibility means that every unit of a currency is interchangeable with another unit of the same currency. In other words, every unit of a currency has the same value as any other unit of the same currency. This is why we can use any dollar bill to buy goods or services, and it doesn't matter which specific bill we use.
With the introduction of Inscriptions, certain Satoshis can become more valuable than others because of the data attached to them. This means that some Satoshis may be considered "tainted" or "less desirable" than others. If this becomes widespread, it could threaten the fungibility of Bitcoin, making it more difficult to use as a currency.
On the other hand, proponents argue that Inscriptions can actually enhance Bitcoin's fungibility by creating more demand for certain Satoshis. If people are willing to pay more for a Sat with a certain inscription, it increases the value of that Sat and makes it more interchangeable with other Satoshis of the same value.
The analysis of Inscriptions on-chain reveals that there are seven different media types, known as Multipurpose Internet Mail Extensions (MIME) types, of content that have been inscribed. These MIME types have around 24 subtypes, with images and text being the majority. The number of Inscriptions recorded in a single day has reduced from over 20,000 at its peak to around 5,000 - 10,000 daily Inscriptions.
Sending Ordinals to wallets that do not support them is safe as long as the UTXO containing them is not spent. However, caution should be taken when using the wallet to send Bitcoin. The Ordinals and Inscriptions ecosystem is noteworthy, comprising Inscriptions & Escrow Services, Wallets, Marketplaces, Listings, Directories, DeFi platforms, and Other Services. The Ordinals concept has been replicated on the Litecoin and Dogecoin networks as forks, and the concept of on-chain inscriptions is being bridged over to the Ethereum ecosystem. Early indications suggest that Ordinals DeFi use cases, such as lending and borrowing, are beginning to appear. Luxor, a Bitcoin Mining company, recently acquired OrdinalHub, an Ordinals marketplace, which could be considered as the first Ordinals ecosystem acquisition to take place.
The surge in online searches for Ordinals-related terms corresponds to when the Ordinals Protocol was officially launched in late January 2023, which is also reflected in the rise of the Ordinals website's ranking. The project's creator, Casey Rodarmor, had seen a marked increase in his Twitter followers in the 30 days leading up to February 21st, 2023.
The popularity of Ordinals Inscriptions appears to have brought about a spike in Bitcoin Network activity, with block size usage noticeably increasing. This trend implies that users are increasingly taking advantage of SegWit technology. There has been a notable rise in the number of Taproot transactions, which can be directly linked to the growth in Ordinals Inscriptions.
The implementation of the Ordinals Protocol calls for the downloading of Bitcoin Core full nodes. The project promoter believes this would ultimately improve Bitcoin network health by encouraging a broad and secure node infrastructure. The distribution of Bitcoin nodes across the Bitcoin Core version 24.0.1 has increased, although not entirely attributable to the growth of Ordinals. The Bitcoin Blockchain has swollen significantly since the advent of the Ordinals Protocol, adding 0.281GB per day at a yearly growth rate of 22.43%. Inscriptions have visibly impacted the fees market, with miners earning over 56 BTC. Inscriptions usually pay lower fees per vByte, resulting in a lower total fee amount than traditional Bitcoin transactions.
Ordinals have received criticism for a number of reasons. Financial transactions that require urgent confirmation may be delayed due to Ordinals. The fees for transactions may be driven up, and it may become expensive to maintain nodes in the long run. Additionally, there are concerns about illegal content being added to the blockchain.
Spamming is another issue related to Ordinals. To address the problem of spam on the Bitcoin Network, node patches have been implemented as spam filters to prevent "ord" in witness scripts from being used.
The Inscriptions feature is considered to be the most problematic element of the Ordinals Protocol by the MiniBolt. Inscriptions abuse the Bitcoin network and create significant issues, such as a threat to Bitcoin decentralization, network congestion, and an enlarged blockchain that could increase expenses for operating full archival nodes.
Although Ordinals is a unique idea that has generated excitement, it is not exempt from criticism. For those who subscribe to the Ordinals convention, the value of a Legendary Satoshis is based on its rarity alone, not the content inscribed on it. However, the Inscriptions process challenges the fungibility of Bitcoins, as an inscribed Satoshi holds a different value than a non-inscribed one. This raises questions about the true worth of the Bitcoin market capitalization figures.
Furthermore, there is the potential for violations of laws and certain content may be objectionable, as seen in a particular case. It is also necessary to consider copyright and trademark circumstances when inscribing content on the blockchain.
The Ordinals ecosystem is still in its early stages of development, and both successes and failures are expected. The future of Ordinals remains to be seen.
