Bitcoin "Ordinals": From Magic Internet Money to Magic Internet JPEGs

A “Bitcoin Punk" NFT recently sold for 9.5 BTC, roughly $230'000. Bitcoin NFTs have exploded. What's the fuzz all about? How does it work? And will it change Bitcoin forever? A primer.

A “Bitcoin Punk” NFT recently sold for 9.5 BTC, roughly $214’000.

The “Ordinal Punk” NFT collection, minted on the Bitcoin-native “Ordinals Protocol”, sold out earlier this month and features 100 NFTs in the style of the famous Ethereum-based CryptoPunks collection.

As of now, more than 155’000 Bitcoin NFTs, named “ordinals”, have been minted (“inscribed” is the official term). Growth has exploded and it’s not slowing down.

But wait… I thought Bitcoin couldn’t do NFTs? And what's all that fuss all about, anyway? Today, we’re going to look at:

• What are ordinals & how they work, technically

• Why ordinals are regarded as “better” NFTs (at least for some)

• Why ordinals divide the Bitcoin community

• How to find, buy, create, and receive ordinals 

• The difference between “Ordinal Punks” and “Bitcoin Punks”

• Impact of ordinals on miners

• Impact of ordinals on NFTs as we know them

• What this means for Bitcoin (the big picture)

One thing is clear: It's certainly one of the most exciting developments in crypto recently. Let’s dive in.

What are Bitcoin NFTs, aka ordinals?

“Ordinals” allow users to inscribe (“mint”) files to Bitcoin's blockchain for the first time ever, including images, text, small videos, etc. without a separate token, side chain, or change to Bitcoin’s underlying code.

This is big.

So, how does it work?

“Ordinals” stands for nothing else than a numbering scheme for satoshis, or “sats” (as you know, one Bitcoin contains 100’000’000 sats), that allows individually identifying (via a serial number), and tracking each individual satoshi throughout the Bitcoin coin supply. These numbers are called ordinals.

“Inscribing” means attaching content like an image, text, SVG, or HTML, to individual sats through an inscription transaction. The content is included in the transaction witness, which normally contains signatures and other data proving that a transaction is authorized.¹ Notice: While Ordinal numbering scheme has no on-chain footprint, and satoshis are not actually serialized at a protocol level, content is still inscribed on-chain.

You can compare it to painting the exact same image on two $1 bills. They are both unique, as both bills are numbered.

This makes them almost like NFTs. Or even better, some argue. Why?

Ordinals: “Better” NFTs?

Compared to NFTs on other blockchains, ordinals don’t require “off-chain” data, meaning that the file (metadata) is stored on-chain, instead only including a reference pointer to the target file on a separate decentralized server (e.g. on the interplanetary file system, or “IPSF”) like a standard NFT.²

This is why the creator of ordinals, software engineer Casey Rodarmor, refers to them as “digital artefacts”. He writes:

Inscriptions are digital artifacts, and digital artifacts are NFTs, but not all NFTs are digital artifacts. Digital artifacts are NFTs held to a higher standard, closer to their ideal. For an NFT to be a digital artifact, it must be decentralized, immutable, on-chain, and unrestricted. The vast majority of NFTs are not digital artifacts.

This makes Bitcoin ordinals “better” NFTs, according to some, and questions the value of NFTs for which the file is usually not stored on-chain, like on Ethereum or Polygon (even though some projects with on-chain data exist, such as “Moonbirds”).³

And Rodarmor is pretty blunt about it:

“So I basically decided that I can make Ethereum NFTs, but I wouldn’t feel comfortable actually telling anybody to buy them due to security problems and centralization. I was like all right, I guess I have to figure out a way to do NFTs on Bitcoin if I want to make some JPEGs for people to buy.”

It's interesting that this concept makes Bitcoin NFTs theoretically more scarce than Ethereum NFTs. While Bitcoin is limited to 21m BTCs total supply with only 10k inscriptions per BTC (more on that below), Ethereum contracts can create unlimited amounts of NFTs.

Casey Rodarmor even proposed a classification to track rarity levels of ordinals:

• common: Any sat that is not the first sat of its block

• uncommon: The first sat of each block

• rare: The first sat of each difficulty adjustment period

• epic: The first sat of each halving epoch

• legendary: The first sat of each cycle

• mythic: The first sat of the genesis block

And the corresponding supply:

Total Supply

• common: 2.1 quadrillion

• uncommon: 6,929,999

• rare: 3437

• epic: 32

• legendary: 5

• mythic: 1

Current Supply

• common: 1.9 quadrillion

• uncommon: 745,855

• rare: 369

• epic: 3

• legendary: 0

• mythic: 1

Wait, I thought Bitcoin only stores numbers? 

Although the official maximum size of a Bitcoin block used to be 1MB, following the 2017 SegWit update blocks can now be much larger (up to 4MB) if data is counted as “witness” data. Ordinals makes use of this by inscribing data in the witness section of a transaction. 

According to Denis, the CTO of Blockworks, each inscription is tied to 10’000 stats (=0.0001 BTC) total by default. This is the minimum amount an inscription costs. Additionally, you need to pay for mining fees based on the size of your image.

For the following example, you need to understand what “vB” means. It’s an abbreviation for “virtual byte”. After the SegWit update, each byte in the non-witness part of a transaction counts as 1 virtual byte. Each byte in the witness part of a transaction counts as 1/4 of a virtual byte.