With Ordinals, Bitcoin Is Changing The Perception Of NFTs

Ordinals are a lot like non-fungible tokens or NFTs, but there are some marked differences that set them apart from their traditional tokenized counterparts.

They’re similar to NFTs in that they’re both unique, digital assets that can be owned by an individual and stored on the blockchain. But creator Casey Rodarmor has blessed Ordinals with some novel features that has seen the market for these transformative NFTs explode, even as traditional NFTs on blockchains such as Ethereum lose their sheen.

Today, the market for Ordinals is worth well over a billion dollars, and the community that has grown around it has emerged as one of the most quirky and engaged in the entire crypto industry.

What are Ordinals?

Previously, NFTs were only minted and used on smart contract blockchains such as Ethereum, Solana, Tezos and BNB Chain. On Bitcoin, they didn’t really exist because of its lack of smart contract capabilities. But everything changed with the emergence of the Ordinals project in late 2022.

Ordinals is a protocol that provides a system for numbering satoshis, which are the smallest denomination of BTC. A single BTC can be split into 100,000,000 satoshis, with each one being worth 0.00000001 BTC. By giving each Ordinal what is essentially a serial number, they become unique. These ordinal numbers are inscribed on each satoshi by the addition of extra data, in a process known as “inscription”. Besides giving satoshis a number, the inscription process also allows for other information, such as images, to be added to them.

With Ordinals, each satoshi is numbered according to the order it was first mined and transferred. These numbers can be used as stable identifiers for each satoshi, and also the data attached to them.

The rise of NFTs

The first ever NFTs are thought to be the Colored Coins project, which was conceived in 2012 as a system for creating non-fungible assets by adding metadata to BTC transactions. That idea, although quite revolutionary, never took off, but it may well have been the inspiration for the first true NFTs that emerged on the Namecoin blockchain in 2014. The first really successful NFT collection was Crypto Kitties, which was hosted on the Ethereum chain and sparked a crypto community craze with their launch in 2017, briefly congesting that network and causing gas fees to spike dramatically, resulting in the first questions around its limited scalability.

During the bull run of 2021, NFTs caught the imagination like never before, with millions of dollars being thrown around on things like a tokenized version of the first-ever Tweet, and a cool $69 billion spent to procure a single digital artwork created by an artist known as Beeple.

As the crypto industry entered its most recent “winter”, the hysteria rapidly abated and the value of most NFTs crumbled, leading many to wonder if these unique digital tokens would ever live up to their potential.

Ordinals breathed new life into NFTs

The market for NFTs was still down in the dumps when Rodarmor put the finishing touches to his Ordinals protocol, which launched initially without much fanfare in December 2022. However, by early 2023, the Ordinals suddenly picked up steam, getting tons of attention from bored Bitcoin holders and others in the crypto community looking for the next big thing.

Within six months, the community that quickly embraced Rodarmor’s concept had created more than 23 million Ordinals, and a thriving market for trading them emerged. Users were suddenly spending crazy amounts of money for this new breed of Bitcoin NFTs, while the revenue their transactions generated brought a windfall to miners. To date, Ordinals transfers have generated more than half a billion in fees, while more than 66 million inscriptions have now been created.

There were some hiccups along the way. Just as with Crypto Kitties and Ethereum, the craze resulted in a heavily congested network, slowing down transaction speeds to a snail’s pace. However, as always in the crypto market, innovation saved the day, and many Ordinals users switched to so-called Layer-2 networks such as Stacks and Merlin Chain.

Merlin Chain has created an entire ecosystem around Bitcoin-native assets, providing a more efficient platform for trading and inscribing Ordinals, together with a thriving marketplace and a launchpad for Ordinals-based projects. The unique thing about L2s such as Merlin Chain is they can facilitate multiple transactions, such as buying and selling thousands of inscriptions in a single transaction.

The unique value proposition

The main distinction between Ordinals and NFTs is that their value is not only linked to the artwork inscribed in each sat, but also the history of the sat itself. Besides creating a technique for numbering sats, Rordarmor designed a system for indexing “rare sats” to distinguish the most famous satoshis, such as those mined by the creator of Bitcoin, Satoshi Nakamoto.

The age and transaction history of a single sat can enhance its value. As Magic Eden points out, sats mined by Satoshi himself are becoming increasingly sought after by a new generation of rare sat collectors. Other sats are highly valued for being minted at specific halving events, mining difficulty adjustments and similar milestones in Bitcoin’s colorful history.

There are some technical differences between traditional NFTs and Ordinals, too, leading some to believe Ordinals represent a significant improvement on NFTs. Rodarmor himself says NFTs, which he refers to as “digital artifacts”, are incomplete because many of them require off-chain data to attach things like royalties for their original creators. With Ordinals, all of their data is inscribed on the Bitcoin blockchain, making them more “complete”, the creator says.

The technical improvements, combined with the concept of rare satoshis and the uniqueness of traditional NFTs, means Ordinals can be considered as the next evolution of digital assets. They enhance the value of NFTs by embedding Bitcoin’s rich history and making them more decentralized, creating an altogether more compelling value proposition for crypto enthusiasts.

Ordinals lack the ability to create a mechanism that pays royalties to their creators and many believe this has prevented some of the most famous NFT artists from embracing them thus far. But the lack of notable NFT artists has simply encouraged others to take up the slack, and the top Ordinals collections are the work of the grassroots community, adding to their allure.

Bitcoin: The future of NFTs

Ordinals are changing the perception of digital art, paving the way for a new generation of more distinguishable NFTs deployed on the original blockchain, Bitcoin itself. With their rapid rise, Ordinals have created much-needed new utility for Bitcoin, boosting its on-chain activity and helping to propel its value to new, all-time highs.

Ordinals represent a unique and transformative moment for Bitcoin, which is evolving from a simple store of value and payment mechanism, into a network that can be so much more.