When everyone thought they knew everything about Bitcoin’s capabilities, the largest cryptocurrency by market cap launched its version of non-fungible tokens.
Ordinals are similar to non-fungible tokens because they are digital units inscribed with information, which differentiates them from the others. The rapid growth in popularity of the Ordinals has divided the crypto community because while some find them the next big thing in the sector, others think they might damage the blockchain’s performance.
In May 2023, Bitcoin became the second-largest blockchain for non-fungible tokens, with its sales volumes surpassing Solana and Polygon. This also brought an increase in Bitcoin price because there is a higher crypto demand on the market. Ethereum’s creator, Vitalik Buterin, defined Ordinals as an organic return of builder culture to Bitcoin, which could only mean that the blockchain will enjoy several benefits from inscriptions.
Ordinal inscriptions are digital assets inscribed on the smallest unit of a Bitcoin, a satoshi. They’re possible due to the Taproot upgrade Bitcoin completed in November 2021.
Discussing Bitcoin Ordinals
The crypto community showed great interest in non-fungible tokens based on altcoin blockchains. Most NFT projects are built on networks like Ethereum, Solana, Polygon, or BNB Smart Chain because they have smart contracts technology that powers non-fungible tokens. Bitcoin didn’t join the NFT trend before 2023 because it lacked the necessary technology to enable the creation of such digital assets. Bitcoin was designed to prevent any code change in Bitcoin applications. Additionally, the decentralized network of nodes and developers refuses to take the risk of damaging the network’s security by adding a new capability to the blockchain.
However, after several upgrades and the development of the Ordinals Protocol, Bitcoin’s NFTs have finally arrived. After Casey Rodarmor launched the project in January 2023, the Ordinals have become the most talked about digital assets. The Ordinals are the most minor units of Bitcoin, also known as satoshis, which have been minted and now contain a unique piece of information. After the inscription, satoshis earn their own identity and gain characteristics similar to non-fungible tokens.
What does the inscription process imply?
We mentioned earlier that satoshis gain uniqueness by being inscribed with a piece of information. Ordinals are created by inscribing a digital asset on the smallest unit of a Bitcoin. They differ from traditional non-fungible tokens in that their data is on-chain (non-fungible tokens have data stored off-chain) and are more affordable to create than when developing digital assets with the help of smart contracts. It was crucial for Bitcoin to facilitate affordable services because it’s already an expensive blockchain, and the space for NFTs is already limited. The inscription process allows for any kind of media content to be recorded on Bitcoin units and to build applications on the Bitcoin network, similar to Ethereum apps. The Ordinals protocol could bring some new and interesting utilities and use cases.
How did the Bitcoin blockchain get to this point?
The Ordinals Protocol is a genius move from Casey Rodarmor because he took several different things from the blockchain, pieced them together, and created the perfect base for developing new digital products. In order to create an ordinal, developers need to download Bitcoin Core and sync the node to the ecosystem. Then they have to open an Ordinals wallet and add satoshis to it.
The upgrade Segregated Witness fixed numerous issues in the Bitcoin Core, enabling the network to process more transactions per block and creating the perfect groundwork for Layer 2 payment channels. The upgrade triggered a lot of buzz in the Bitcoin community because it caused a hard fork of the blockchain and enabled the apparition of competitors like Bitcoin SV, Bitcoin Satoshi’s Vision, and Bitcoin Cash.
Many critics believe that Bitcoin’s NFTs are abusing the blockchain, but so far, their accusations have remained unfounded.
The Taproot upgrade made it possible for all parties in a transaction to collaborate, so it looks like a traditional P2P exchange. Transaction parties combine their public keys to create a new signature with the help of a special device. It also increases privacy because it reduces the amount of data necessary to complete a transaction. This has another benefit for the network, as it lowered transaction costs and made Bitcoin even more popular among the public than it already was.
Most crypto enthusiasts don’t know that for Bitcoin to be a secure network, the blocks must be full. This is an essential part of its security model.
Why are Ordinals different from traditional non-fungible tokens?
Many people have the misconception Ordinals are identical to non-fungible tokens based on other blockchains. It’s important to note that Ordinals have different characteristics due to their unique inscription process.
Ordinals result from on-chain minting
One of the first differences between Ordinals and traditional non-fungible tokens is that they store file data directly on the Bitcoin blockchain. NFTs on other blockchains host their files off-chain in other places.
Inscription is different from tokenization.
The inscription process is specific to the Bitcoin network. Some people assume Ordinals are regular NFTs because they also record content like video, audio, or text. However, they get this piece of information through the inscription process, which is different from tokenization. Through tokenization, new tokens are created, while existing satoshis are modified through inscription.
Ordinals have no smart contract functionality.
Another difference is that Bitcoin lacks smart contract capabilities, so Ordinals don’t rely on them. It’s more challenging to trade Ordinals when no decentralized exchange acts as a third party. At present, people can trade Bitcoin Ordinals only via the OTC trading model and Over the Counter.
Ordinals could deal with concurrency issues.
Ordinals can be subjected to concurrency problems because the inscription process could allow for multiple inscriptions on the same Satoshi. On the other hand, NFTs are assigned to particular assets.
The growth in the crypto and Web3 landscapes has triggered a rise in the popularity of non-fungible tokens. The new market additions could only follow the same path.