What are Ordinals?
I heard of Bitcoin NFTs…
Ordinals is a new technology that utilizes the Bitcoin blockchain and was spread in 2023.
While new uses have been created, problems have also arisen, and the bitcoin community is divided on the issue.
In this article, I'll explain the features of Ordinals and the problems that are happening in Ordinals.
This article was written in Japanese and converted to English using a translation tool.
Date of writing (Japanese version): January 2024
What are Ordinals?
Bitcoin's "Ordinals" is a protocol (communication protocol) that assigns a unique number to each satoshi (sats) on the Bitcoin blockchain.
A "satoshi (sats)" is the smallest unit of bitcoin. 1 BTC = 100 million sats.
Ordinals refers to rules for assigning information such as "this satoshi is the number of the satoshi generated in the 55,000th block" to every satoshi.
In addition, using the Ordinals mechanism, "on-chain data inscribed in a particular satoshi and stored in images, text, etc." are called Ordinal Inscriptions.
Ordinals," which is a hot topic these days, often refers to Ordinal Inscriptions.
It seems that buying and selling images stored directly in bitcoin is a hot topic!
Inscription
Inscription refers to a technology that stores data such as images, text and audio files on the Bitcoin blockchain.
*Inscription… Inscription (text engraved on a stone monument)
With the introduction of Bitcoin's major "Taproot" update in 2021, the amount of data that can be stored in a contract has increased, and with special usage, large data such as images can also be stored.
Taproot was updated to improve scalability and enhance privacy.
Ordinals and Inscriptions may be used a little differently than the original purpose of Taproot.
Ordinals NFT
Ordinals NFTs are images or texts that are stored on the Bitcoin blockchain using the "Inscription" technology.
Also called "Bitcoin NFTs," the terms Inscription and Ordinals are sometimes used to refer to Bitcoin NFTs.
*NFT (non-fungible token)…digital data created on the blockchain.
Differences between Bitcoin NFTs and traditional NFTs
- Full on-chain (all image data is stored on the bitcoin blockchain)
- Most NFTs on Ethereum store only the location of the image data (e.g., URL) on the blockchain, and if the image at the storage location is lost, data related to the NFT may be lost.
- CryptoPunks," which are trading at high prices on Ethereum, are full-on-chain NFTs, and some investors are expecting bitcoin NFTs to soar.
I wonder if some people think "full-on chain will fetch a higher price."
If so, why aren't full-on chain NFTs in Ethereum more common?
When you make a full-on-chain NFT in Ethereum, the cost, called the gas cost, is extremely high.
When compared with full-on-chain NFTs, bitcoin is cheaper to create than ethereum.
BRC-20
BRC-20 is a token standard that circulates on the Bitcoin blockchain.
It uses the Ordinal Inscriptions mechanism to issue tokens.
The name is similar to the widely circulated Ethereum token standard ERC-20, but it does not have smart contract functionality and cannot perform complex functions like ERC-20 tokens.
*Smart contract…A mechanism that automatically executes contracts according to default rules.
BRC-20 doesn't have smart contract functionality, so unlike ERC-20 tokens, its use doesn't seem to be widespread, but why is it being talked about?
Speculative buying and selling is taking place, and the price spike is getting a lot of attention.
However, the declines are also very large, so it is quite risky for beginners to trade.
Impact of Ordinals on Bitcoin
I've heard that with the advent of Ordinals, new things can be done with Bitcoin, but there are also problems arising.
Let me explain the impact of Ordinals on Bitcoin.
Transaction Delays and Rising Fees
Number of BTC Transactions (Transaction Data)
Top gray: Ordinals (excluding BRC-20) Red: BRC-20 Black: Other than Ordinals
Ordinals utilize Bitcoin's block space, directly leading to increased fees and transaction delays. At one point, a large number of transactions were pending confirmation, and exchanges like Binance temporarily restricted Bitcoin withdrawals.
The primary use of Bitcoin, financial transactions, has been affected, and there are voices in the Bitcoin community viewing Ordinals as problematic.
Additionally, Ordinals are being used in a way that the Taproot developers did not intend.
To put it simply, the data storage location is set in a "separate area from transaction data, which reduces fee costs to a quarter."
It allows you to send a large amount of data at a lower cost than regular transactions!
For people who want to send Bitcoin as usual, the increased fees due to Ordinals can be troublesome…
Be Cautious of Speculative Moves
Ordinals have a strong speculative nature, and it's important to be aware of the sharp price spikes and crashes. For example, BRC-20 tokens are similar to meme coins, and speculative trading is accelerating.
*Meme coin…A cryptocurrency created based on a joke with no practical use.
This is not limited to Ordinals, but altcoins often experience a bubble, leading to an increase in reports of massive profits on social media. This can create an illusion of "easy money," influenced by social media. However, it's important to remember that social media influencers often don't report their losses, which are frequently occurring behind the scenes.
For example, the "PIZA" token of BRC-20 tripled in price over five days starting December 12, 2023.
However, six days later, it fell by more than half, and two weeks after the peak, it crashed to a quarter of its high value.
If you easily buy Ordinals influenced by social media, you might end up buying at a high price and getting caught in a crash…
Bitcoin is said to be a volatile asset, but the price fluctuations of Ordinals are incomparable, and it seems quite risky for beginners to jump in.
Pros and Cons of Ordinals in the Bitcoin Community
Ordinals have divided opinions within the Bitcoin community, with some traditional Bitcoin supporters voicing criticisms.
Opinions of Ordinals Supporters
- Explore new possibilities for Bitcoin
- Can inscribe illustrations on-chain (cheaper than on Ethereum)
- Miners' revenue increases if transaction fees rise
Opinions of Ordinals Opponents
- Rising transaction fees and delays negatively impact traditional Bitcoin transactions
- Transaction data is crowded, increasing the cost for full nodes (network validators)
→ This could reduce the number of full nodes, potentially affecting network decentralization - Attracts speculative behavior to the Bitcoin network
Proponent: Domo (Creator of BRC-20)
gm. I'm glad that some people like the experiment. Some additional notes.
— domo (@domodata) March 9, 2023
1. These will be worthless. Please do not waste money mass minting.
2. Due to how some inscription tools are set up, the 'balance' may be minted to the intermediary address used in https://t.co/mja39YGIow…
Opponent: Luke Dash Jr (Bitcoin Core Developer)
PSA: “Inscriptions” are exploiting a vulnerability in #Bitcoin Core to spam the blockchain. Bitcoin Core has, since 2013, allowed users to set a limit on the size of extra data in transactions they relay or mine (`-datacarriersize`). By obfuscating their data as program code,…
— Luke Dashjr (@LukeDashjr) December 6, 2023
It seems that speculative money is flowing into Bitcoin through Ordinals, similar to how it has with meme coins and NFTs.
Some people think, "The boom will eventually pass."
If Bitcoin prices rise and Ordinals issuance and transaction fees become significant, the benefits for investors handling Ordinals might diminish.
There are also opinions that the issues caused by Ordinals might accelerate the development of transaction technologies like the Lightning Network.
A Question and Answer on Ordinals
I want to know more about Ordinals.
I'll explain about Ordinals in a question-and-answer format.
How to Buy Ordinals NFTs
To buy Ordinals NFTs, you need Bitcoin and an Ordinals-compatible wallet.
*Ordinals-compatible wallets: Xverse Wallet, Ordinal Wallet, etc.
Steps to Buy Ordinals NFTs
- Prepare Bitcoin in your wallet
- Connect your wallet to an NFT marketplace that supports Ordinals NFTs
- Purchase the desired NFT
It might feel a bit inconvenient compared to buying Ethereum NFTs.
Be careful of fake NFTs as well.
What NFT Marketplaces Handle Ordinals?
Ordinals NFTs are available on several marketplaces, including Magic Eden (an NFT marketplace on Solana).
NFT Marketplaces where you can buy Ordinals (Examples)
- Magic Eden
- Gamma.io
It looks like meme-like NFTs such as CryptoPunks and PEPE are being traded there.
As of May 2023, over 10 million Ordinals Inscriptions have been issued.
How to Create Ordinals NFTs
To create Ordinals NFTs, you need digital data to be turned into an NFT, Bitcoin, and an Ordinals-compatible wallet.
You can issue Ordinals NFTs in a similar process to Ethereum NFTs using platforms like Gamma.io.
Steps to Create Ordinals NFTs
- Upload digital data to a platform where you can create NFTs
- Choose the network fee
- Enter the recipient address for the work
- Pay the network fee and issuance fee
There are file size limits and format specifications for the data, so be sure to check the latest information on the platform you use.
If you set the fee lower, it might take a few days to complete the creation process.
What are Ordinals' Gas Fees?
Gas fees refer to the costs required to execute transactions or smart contracts (automatic execution of contracts) in cryptocurrencies like Ethereum.
In Bitcoin, the term used is "fee," but some people handling Ordinals also refer to it as gas fees.
You can check the status of Bitcoin transaction fees on "mempool".
The fees vary depending on network congestion.
What to Watch Out for with Ordinals?
Ordinals are controversial even within the Bitcoin community, and the future developments and changes are unknown.
A large number of NFTs and BRC-20 tokens have been issued, leading to speculative movements.
Ordinals have much higher volatility than Bitcoin, and you could incur significant losses in just a few days, depending on your purchase timing.
I've seen meme coins being hyped up on social media, and it might be wise to be cautious with Ordinals too.
I'll be careful not to jump on the bandwagon thinking "I can make a quick profit!" influenced by others' posts.
If you want to know more about the mechanism of Ordinals, you should also read the article by btc_dakara titled ”「バグ修正」でOrdinalsが使えなくなることはない”.
[Summary] What are Ordinals / Bitcoin NFTs?
Key Points
- Ordinals is a protocol that assigns unique numbers to each satoshi on the Bitcoin blockchain.
- Using the Ordinals mechanism, Inscription (Bitcoin NFTs) and BRC-20 tokens are issued.
- Ordinals lead to fee hikes and transaction delays, dividing opinions within the Bitcoin community.
As of now, trading Ordinals seems to be accelerating for speculative purposes.
Prices can double or halve in a few days, so trading without careful consideration might be risky.
Ordinals are a new technology in Bitcoin, but whether the trend will continue to heat up or die down is uncertain.
Bitcoin seemed difficult and filled with unfamiliar terms, so I was a bit anxious, but now I want to learn more.
Let's learn more about Bitcoin!
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Writer：Sigeru Minami
Creator of "Bitcoin-zukan.com."
Active as a handmade craftsman of Bitcoin goods.