Bitcoin Ordinals 101

Ordinals made a sensation in the NFT world, with over 2,750,000 “Bitcoin NFTs” inscribed so far. Some Ordinals sell for many thousands of dollars. We explain how they work, why they aren’t really NFTs, and where to buy them.

Does Bitcoin really have NFTs?

In the world of crypto, it doesn’t get any bigger than Bitcoin or NFTs. The entire crypto space began with Bitcoin itself, and it remains the biggest cryptocurrency by far. And NFTs powered crypto to its highest heights, with turbocharged bull runs that introduced many people to blockchains.

However, the Bitcoin blockchain can’t support NFTs as we know them. NFTs require either a smart contract or a native token standard that can support various attributes and record ownership. Bitcoin doesn’t have either - at least not out of the box.

On top of this, Bitcoin’s slow processing power, high fees, and tiny data capacity made it an unlikely choice for widespread NFT adoption. For these reasons, Ethereum wound up powering the NFT boom of the late aughts and early 2020s.

Still, NFT-like objects have existed in the Bitcoin ecosystem for a long time. The first were Rare Pepes, trading cards created in 2016. To launch anything non-fungible on Bitcoin, you need a Layer-2 protocol - for example, Rare Pepes rely on one called Counterparty.

Another popular L2 solution that can power NFT-like assets on Bitcoin is Stacks, a smart contract layer. We’ll come back to Stacks when we talk about the tools for creating and trading Bitcoin Ordinals.

Few people have heard of Rare Pepes or Stacks, though, while almost everyone by now has heard of Bitcoin Ordinals. It’s a new Layer-2 protocol for encoding data on satoshis (fractions of bitcoins). These are not exactly non-fungible tokens, but their own new category.

Some say that Ordinals finally gave Bitcoin a powerful use case beyond value storage. Others believe them to be antithetical to the Bitcoin ethos. In this article, we’ll break down the history and technology behind Bitcoin Ordinals, how they compare to true NFTs, the most popular Ordinal collections and marketplaces, and the controversies around them.

The upgrades that made Ordinals possible: SegWit and Taproot

Bitcoin Ordinals wouldn’t exist if it wasn’t for the unintended consequences of two very important Bitcoin upgrades.

SegWit

The first was Segregated Witness, or SegWit, implemented in August 2017 in order to improve Bitcoin scalability. It did several things:

• Changed how data is recorded in a Bitcoin block. SegWit separates the sender and receiver (input and output) data from the so-called witness data (transaction signatures and scripts). This “witness” is now “segregated” in a different part of the block. This made data storage more efficient: now you could fit more transactions into one block. Bitcoin Ordinals inscriptions are placed in the witness part.

• Raised the maximum data that could be embedded in a block from 1 million weight units (WU) to 4 million WU. The 1m WU part held the input and output data, while the witness data went to the 3m WU “extended block” part. Weight units don’t correspond exactly to megabytes, but 4 MB is the maximum block size.

Taproot

SegWit paved the way for the Taproot upgrade in September 2022. Taproot increased scalability by grouping together multiple signatures and transactions, making verification faster. It also improved privacy for multi-party transactions by scrambling their data into one signature.

What is crucial for the Ordinals story is that Taproot removed the upper size limit on the witness part of a transaction. Now one witness signature can potentially be as big as the whole extended block part - enough to hold the “metadata” portion of an Ordinal NFT, such as an image or even a video.

Both SegWit and Taproot were designed to improve Bitcoin as a transaction medium, making it more attractive as a means of exchange. Many investors hope that this will cause more transactions to be made in Bitcoin, thereby raising its value as a currency. But the most surprising (and controversial) result of the faster verification and improved data storage was Ordinals.

Introducing: Ordinals

In late 2022, a software developer and Bitcoiner named Casey Rodarmor developed Bitcoin Ordinals, a Layer 2 protocol for Bitcoin that inscribes data upon a satoshi to create a “digital artifact.” A couple of definitions before we proceed:

• Satoshi: The sub-unit of Bitcoin. There are 100 million satoshis in a bitcoin, similar to how there are 100 cents in a dollar. The name comes from Satoshi Nakamoto, the anonymous creator of Bitcoin.
• Ordinal numbers: In mathematics, ordinal numbers indicate the position of objects in a set. For example,  we are using ordinals when we say that runners finished a race 1st, 2nd, 3rd, etc.

In December 2022, Rodarmor created the first Bitcoin Ordinal: an image of a pixelated skull. In January 2023, he created the Ordinals protocol to share the technology with others.

Ordinals take their name from ordinal theory: essentially, assigning numbers to things to describe their order. Each bitcoin that has ever been minted can be put in order of when it was minted. This is also true for each satoshi. With Rodarmor’s method of inscribing data upon it, each satoshi can hold up to 4MB of data and be identified as an ordinal. Therefore, satoshis can be made into digital artifacts - something akin to NFTs.

Ordinals vs. NFTs

Are Ordinals NFTs? Short answer: sort of, but not really.

1. Both fungible and non-fungible qualities

Rodarmor himself prefers the term “digital artifact” and points out that all digital artifacts are NFTs, but far from all NFTs are digital artifacts. Any satoshi can be identified through its unique ordinal number, so there can be only one corresponding pair of an inscription and a satoshi. You can inscribe the same JPEG on many satoshis, but they will all have different ordinal identifiers. In this sense, Ordinal inscriptions are non-fungible.

But on the other hand, being subunits of bitcoins, satoshis are still cryptocurrency, so they can be sent as part of any BTC payment (though you shouldn’t do this).  An analogy is that of coin collecting.

All US pennies are worth one cent; that is, they are interchangeable for each other (fungible). However, certain pennies have massive value as collectibles: the 1944 Steel Wheat Penny is worth $400,000 for instance. Its value as a non-fungible collectible is immense, yet its value as a fungible unit of currency is still one cent. (But you would be quite foolish to buy something with one of these!)

The same goes for Bitcoin Ordinals: the inscribed satoshis are both non-fungible collectibles and fungible units of currency. Certain Ordinal protocols even offer the feature of “locking” your Ordinal, so you don’t accidentally send the collectible as part of a transaction!

2. On-chain vs. off-chain

All Ordinals metadata is stored on the Bitcoin blockchain itself, inscribed on a satoshi. By contrast, NFT metadata is stored off-chain, be it in a decentralized system like IPFS or Arweave or (in the worst case scenario) on a centralized server.

For Rodarmor, this means Ordinals have true immutability and decentralization where NFTs don’t. Metadata can be altered or become unavailable if all the nodes that serve it go offline. But nobody can change or remove an Ordinal’s metadata. On the flipside, we’ll never have those fun NFT reveal events with Ordinals collections.

3. No royalties

You can’t program royalty payments into an Ordinal - or any other complex logic, for that matter (like upgradeability). Thus, creators can’t earn from secondary sales automatically, through some on-chain mechanism. However, Ordinals marketplaces can introduce off-chain opt-in royalties - as is done on Gamma.io, for example.

How to Create an Ordinal

Creating and collecting Ordinals is a bit more challenging than NFTs, but it’s become much easier since the protocol was introduced.

Just a few months ago, you still needed to run your own Bitcoin node using Bitcoin Core in order to inscribe an Ordinal This is not trivial: you must have 500 GB free for the initial download plus an additional 5-10 GB a month to run a node. You also needed to download the Ord utility and run numerous commands. Compare this lengthy and demanding process to an NFT platform like OpenSea, which can create an ERC-721 NFT in just a few clicks.

However, some platforms like Gamma have begun to offer this type of no-code service for Ordinals. Gamma.io is one of many projects using Stacks, the smart contract layer for Bitcoin that we mentioned before.

In the second part of this article, we’ll teach you how to create a Bitcoin Ordinal spending less than $15 in gas fees. Here we’ll just list the key steps:

1. Create an Ordinals-friendly Wallet - Ordinals Wallet, Xverse, or Hiro, among others - and send enough BTC to it to cover the fees (at least $15-20).
2. Upload the text or image you want to inscribe to Gamma (works with Xverse and Hiro) or Ordinals Wallet’s Inscribe platform. You pay per byte, so text is much cheaper to inscribe.
3. Pay the network fee and the service fee and wait for your Ordinal to be inscribed - this can take up to a few days, depending on how much you spend on gas.
4. The ready inscription will appear in the wallet. Now you can list it on a marketplace.

Be careful! Remember that if you send the inscribed satoshi as part of a transaction, you’ll lose your Ordinal.

Inscribing Ordinals: Time & Fees

The Bitcoin network is congested by thousands of Ordinals transactions, but you can choose to pay a higher gas fee to get your inscription picked up faster by miners. A high fee like 20-40 sat per byte can get an inscription processed within a few hours, but will likely cost you $30-50 for a simple image. With a standard fee around 5 sat/byte, an inscription will likely take a few days to arrive in your wallet.

You can track your place in the queue in an explorer like Blockhair, while Mempool.space is the best for monitoring the average gas fee in the recent blocks and in the mempool.

Bitcoin Ordinals By The Numbers

How many Ordinals are there? According to Dune Analytics, there were 2,759,000 Ordinal inscriptions as of May 1, 2023. There are days when over 200,000 Ordinals are inscribed.

Over 75% of all the inscriptions are plain text, while around 23% are images in various formats. Text requires less data and so is much cheaper to inscribe.

Ordinals’ popularity has caused Bitcoin transaction fees to go up. The average fee rose 200% from $0.80 in early January to $2.4 at the start of May.

On the other hand, inscription fees help Bitcoin miners stay profitable and keep working to secure the blockchain. In total, they have earned $6.6 million in gas fees thanks to Ordinals so far, making them an increasingly important part of the Bitcoin ecosystem.

It’s not just fees that have increased. The average block size is up over 60% from 1 MB in January to 1.64 MB in April (peaking at 2.5 MB in February, when the excitement around Ordinals reached its peak). The mempool (transaction queue) size is up, too, though nowhere close to the November 2022 spike, when everyone rushed to sell their crypto during the FTX collapse.

Ordinals and BRC-20: $ORDI, $OG and $PEPE

BRC-20 (Bitcoin Request for Comment) are experimental, meme-like fungible tokens on top of the Ordinals protocol. It was created by the user @domodata who is responsible for the excellent Dune Analytics board on Ordinals marketplaces.

To mint BRC-20, satoshis are mass-inscribed with metadata so that each sat “becomes” a token. BRC-20 tokens are intended to be worthless - a fun experiment by a creative person. And yet, their market cap exploded, reaching $600 million in a few days.

The hype around BRC-20 caused more congestion on the Bitcoin network, so that now you have to wait for your BTC payments or inscriptions to confirm even longer. If you decide to buy some BRC-20, remember that they don’t have - and probably won’t have - any utility whatsoever.

How to collect and trade Bitcoin Ordinals

Partially signed Bitcoin transactions (PSBT)

The PSBT standard was introduced back in 2017 in BIP-174 (Bitcoin Improvement Proposal no.174), which was part of the Taproot upgrade. PSBT allows one wallet to create a transaction and transfer it to another wallet, which will sign it with a private key and send it to the mempool for confirmation.

PSBT is used on most Ordinals marketplaces. To list a digital artifact, the seller creates a partially signed transaction with the details of the Ordinal and the price. This part doesn’t require any gas fee. The buyer signs it and broadcasts it to the network, paying a gas fee .

If you want to cancel a listing, though, you’ll need to pay a small gas fee. That’s because the only way to unlist an Ordinal is to send it back to your address, after signing the PSBT.

PSBTs technically allow you to trade Ordinals peer-to-peer in a fully trustless and decentralized way, without any marketplace. That’s how it was done in the early period, though now marketplaces dominate.

How to Buy Ordinals on Marketplaces

The process is similar to buying NFTs on OpenSea, Topaz marketplace on Aptos, and so on. Connect a wallet, find an item you like, and click on Buy Now. For the first purchase, you’ll be prompted to create a UTXO (Unspent Transaction Output) to make sure that you don’t accidentally send your own precious inscribed sats to someone as part of a payment.

You’ll need a few dollars to create an UTXO. After that, you’ll be able to buy an Ordinal NFT. Every Bitcoin transaction requires at least 6 confirmations, so it can take up to an hour to get finalized.

Ordinals Marketplaces

As of May 2, the total Ordinals trading volume has reached $32 million across 86,000 trades, according to Dune Analytics. Over 30,000 unique users have bought or sold inscriptions. These are split between 7 marketplaces, though a lot of earlier trading was done via OTC in Discord servers and so is difficult to measure.

Ordinals Wallet’s marketplace still has the highest share of unique users and transactions, but Magic Eden dominates the volume. On some days, there can be spikes in trading on a specific marketplace when a popular mint goes live. Unisat, the latest Ordinals marketplace to launch, started by catching up fast but was halted after a vulnerability in the code led to a wave of double-spend attacks.

If you browse the collections on different marketplaces, you’ll see that the leaders aren’t the same. For example, on Magic Eden, the biggest by volume are BTC DeGods, Nakamoto Whales, and Bitcoin Punks, while Ordinals Wallet’s marketplace is dominated by Clay Pepes, Bitcoin Punks, and Pixel Pepes. The only “collection” that is always at or near the top is the Sub 100k, which includes the first 100,000 inscriptions ever made.

The Ordinals market is still very new, though, and perhaps all marketplaces will support all major wallets eventually. Just a few months ago there were no Bitcoin Ordinals at all!

Buying and selling Ordinals on Discord

A lot of trading in Ordinals is happening in dedicated Discord servers, with other members serving as escrow. The best-known server is Ordicord, with over 17,000 users. Casey Rodarmor himself is an active member. You can post links to your listings on Magic Eden and other marketplaces.

Inscription rarity: what’s up with Sub 1k, Sub 10k, etc.?

An inscription's value is influenced by its Ordinal number. The very first one (the pixelated skull) is number zero, and each inscription after that is numbered. The closer to zero, the “rarer” a digital artifact is perceived to be.

On most marketplaces, you’ll see sub-1000, sub-10k, and sub-100k inscriptions grouped together into “Clubs”. They aren’t cohesive collections, just digital artifacts that happened to be created earlier. Many collectors hunt such rare Ordinals, no matter what’s in them: as you can see, a tiny eggplant was listed for 1 BTC just because it has such a low ordinal number (#118 out of 2.75 million).

There are a few more rarity factors, such as a sat’s position within its block (the first one in the block being the most valuable), the position of the block relative to the difficulty adjustment (which happens every 2,106 blocks), etc.

Famous Ordinals

While the Ordinals market is only a few months old, the market is estimated above $200 million, according to OrdMarketCap.io. (Note that it is difficult to accurately gather trading data on Ordinals, as their transaction data is not attached directly to the artifact itself on-chain.) Also, Ordinals collections tend to be far smaller than NFT collections, with many only containing 100 artifacts. Let’s take a look at some of the most popular Ordinals collections.

Bitcoin DeGods

BTC DeGods are from the same team as the famous Solana DeGods, which later moved to Polygon. On Bitcoin, the supply of DeGods is limited to just 535: they were all burned on the original chain and now returned as Ordinals.

The floor price is an impressive 0.75 BTC (May 2023) - even higher than that of the original collection. It’s also the top Ordinals collection by volume on Magic Eden. Interestingly, all DeGods were inscribed in the same Bitcoin block.

Ord Rocks

Ord Rocks are similar to the legendary Ether Rocks, and very hard to come by on marketplaces: only one was listed on Magic Eden as of May 1, 2023, for 0.1 BTC. All have inscription numbers below 40,000, which adds to their value. In fact, one Ord Rock sold for $90,000.

Bitcoin Punks

An Ordinals version of CryptoPunks, and with the same supply of 10,000. The floor price is far lower ($1,700 for a Bitcoin Punk vs. $100,000 on Ethereum), but one Bitcoin Punk sold for $214,000 in February, making it one of the most expensive Ordinals ever.

Taproot Wizards

Taproot Wizards were launched by Udi Wertheimer, a well-known Bitcoin activist and public speaker. They were designed by the same artist, @mavensbot, who drew the iconic 2013 Bitcoin Wizard meme.

There are 2,105 Wizards in total, but they are very difficult to buy: your best bet is to enroll in the Wizard School and complete some quests.

Ordinal Loops

Ordinal Loops are an interesting collection of ASCII animations reflecting on Bitcoin culture, with titles like “Do Not Fiat” and “Roots of Immutability.” They are created by a non-profit with deep ties to the Bitcoin community.

Pros and Cons

As with anything new in crypto, Ordinals have won their fair share of proponents and detractors. We can’t possibly begin to encapsulate that ongoing debate in this article, but we can summarize some of the key claims from both sides:

Pros:

• Ordinals are always immutable, unlike some NFTs, which can have their metadata and/or source code altered later by the contract owner.
• Inscribed content is on-chain, while NFTs have their content stored on IPFS, Arweave or elsewhere (even a centralized server) where it can become unavailable.
• Ordinals take advantage of Bitcoin, which some consider to be a superior blockchain for various reasons. Bitcoin’s inherent scarcity, for instance, can be seen as a boon for digital artifacts.
• Ordinals can be traded peer-to-peer using partially-signed transactions, without relying on centralized marketplaces or exchanges.
• Ordinals rely on Bitcoin’s simpler transaction model, which keeps users safe from various smart contract risks and exploits.
• Growth in transaction fees supports miners and the network at large.
• The MIME data model used by Ordinals supports any content type that is supported by the web.
• The Bitcoin market is larger than Ethereum’s, and far larger than other NFT-supporting blockchains.

Cons:

• Ordinals use excessive block data, which will be needed if Bitcoin achieves widespread global adoption.
• Some say that Ordinals damage the fundamental premise of Bitcoin by removing its total fungibility - or that they distort Bitcoin’s primary function as a trustless currency and misuse Bitcoin’s software, network, and nodes.
• Bitcoin transaction fees are based on data sizes, so Ordinals cause fees to spike. This causes transaction fees to rise compared to miner fees, which is not supposed to happen until many more bitcoins have been mined.
• As the order of individual satoshis becomes more important, Ordinals incentivize miners to exploit Maximum Extractable Value (MEV) by reordering blocks in a transaction.
• Ordinals
• Ordinals enable malware and copyright violations to be stored on Bitcoin, exposing the network to legal risks.
• Ordinals associate Bitcoin with negative aspects of NFT and crypto culture, like shilling and rugpulls.
• Ordinals have no on-chain support for royalties, unlike Ethereum NFTs.
• Transaction fees rise significantly during Ordinals trading sprees.

Have you created or collected an Ordinal yet? What do you think of this emerging technology? Let us know, and keep up with Pontem on Twitter, Discord, and Telegram for updates!

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