November 28, 2023

Blockchain Ordinals: What Are They And Why Do They Matter?

There’s always something new cooking in the crypto world, and ordinals are definitely worth your attention. Ordinals are a new concept that enables the creation of unique, non-fungible satoshi-based tokens. This may open up new opportunities for tokenization and digital ownership.

The Ordinal theory concerns satoshis - Bitcoin network's atomic, native money. One bitcoin can only be subdivided into 100,000,000 satoshis. Individual satoshis can be imprinted with arbitrary content, resulting in one-of-a-kind Bitcoin-native digital artifacts that can be stored in Bitcoin wallets and transferred using Bitcoin transactions.

What exactly are Ordinals and why are they capturing everyone’s attention these days? Keep reading to get a primer on Ordinals.

What are Blockchain Ordinals?

Ordinals assign a serial number to a given satoshi, thanks to which that satoshi can be differentiated in the network. Moreover, Ordinals assign content to satoshis (for example, images or text), effectively allowing for the identification and differentiation of individual satoshi units in the bitcoin network.

Ordinal numbers ranging from 0 to 2,100,000,000,000,000 can be assigned to each satoshi. Each one-of-a-kind satoshi can then be engraved with one-of-a-kind data to create a digital artefact.

The creators provide two possible use-cases: infrastructure for public key rotation and decentralized DNS.

What benefits do Ordinals bring to users?

By assigning any content to a single satoshi and keeping this content on the chain itself, Ordinals open the door to new use cases. Users can transfer ordinals with a regular Bitcoin transaction, confident that the inscription model includes the type of content and the content itself in the form of a string of bytes.

How do Blockchain Ordinals work?

Ordinals is the most recent approach to the concept of "token coloring," which involves labeling individual satoshis in a way that allows them to carry additional information. Each satoshi is ranked sequentially based on its mining time.

Ordinal Inscriptions developer Casey Rodarmor discovered a vulnerability in the 2021 Taproot update and the OP_RETURN function. This flaw enables users to write any form of data (music, image, PDF, application, or even game) on their coins. Naturally, block size is a constraint, and larger files must be divided.

When an Ordinal NFT is minted in a transaction, it’s entered on the first satoshi of the transaction's initial exit. Texts, photos, videos, and other media are included in it. Users may then assign Ordinals to each satoshi from the inputs, and then assign them to the outputs using the first-in-first-out mechanism, with any remaining Ordinals going to the miner.

Ordinals vs. NFTs

When comparing Ordinals to NFTs (non-fungible tokens), we need to remember that in Ordinals, all the content is stored on the chain itself, not on an IPFS-style side chain.

The main difference between Ordinals and NFTs is that the content assigned to satoshis in Ordinals is stored directly on the Bitcoin network, while most NFTs use networks such as Ethereum and store data in side chain systems such as IPFS. This makes Ordinals unchangeable and entirely decentralized, whereas one of the many objections leveled at Ethereum NFTs is that metadata can be destroyed if the centralized tool storing it fails.

Then there are the fundamental differences between Inscriptions and traditional NFTs. It’s worth underlining that Ordinals represent an entirely different approach than in smart contract-based blockchains like Ethereum, where token standards (like ERC721, ERC1155) are used to create collections for NFTs, with each NFT receiving a tokenID to uniquely refer to it together with the account for the collection smart contract.

How to use Ordinals

If you’d like to create Ordinals on your own, the only cost comes from maintaining the node. You’ll need to set up the node and synchronize your setup, which may take up to several days.

What do you need to start using Ordinals?

You definitely need the ord tool since the Bitcoin Core wallet doesn’t support Ordinals. You only need ord to trade Ordinals.

Are Ordinals secure?

When it comes to security, Ordinals are pretty simple. There are no additional special security measures compared to what Bitcoin itself already has – which is a lot! The immutability of this content means that illegal content will remain on the chain indefinitely. Apart from this, there are no known vulnerabilities or threats around Ordinals to date.

Limitations of Ordinals

Since it will be possible to load any content on the chain, including large files, the memory required to store all transactions may increase significantly. Ordinals have caused congestion in the mempool and have put ongoing rising pressure on rates.

The future of Blockchain Ordinals

While some believe that Ordinals may negatively affect the fee amount and the speed of the entire Bitcoin network, others think Ordinals are the best new thing that happened to Bitcoin, creating a likely long-term demand for the BTC blockchain area.

Given the dramatic growth of NFTs on Ethereum and other chains in 2021-2022, Inscriptions written on the oldest and largest blockchain are expected to earn some degree of long-term appeal.

Ordinals, Inscriptions, and NFTs on Bitcoin are intriguing trends whose evolution we will be able to see in the next few months and, most likely, years.

November 28, 2023