What are BTC Ordinals? Can I still buy it?

This article briefly discusses the relevant facts, technical details and prospects of BTC Ordinals.

Ordinals, or bitcoin NFTs, have taken the market by storm over the last month.

While the first Ordinal was created on December 14, 2022, it didn’t become popular until February 2023. So far, approximately 350,000 Ordinals have been created on the bitcoin chain. Pictures were initially the most popular type, but text later became more popular. Images and text combined make up 99.4% of the Ordinals that have been minted so far, with images accounting for 62.8% and text 36.6%.

Yuga Labs also recently completed an auction for TwelveFold, which brought in a total of 735 BTC (approximately $16.5 million). TwelveFold is a collection of 300 pieces of generative art on the bitcoin blockchain. The highest bidder paid 7.12 BTC (approximately $160,000).

So what exactly are Ordinals? Is it too late to rush now?

What are Ordinals?

In December 2022, Bitcoin developer Casey Rodarmor released an open source software called ORD that runs on Bitcoin Core software. ORD allows users to mint Bitcoin NFTs in two steps: 1) Enter arbitrary information on the Bitcoin blockchain, such as a string of text or images ("inscription", some translations call it inscriptions), 2) upload the inscription Connected ("ordinal") to a specific satoshi. Satoshi is the smallest unit of Bitcoin. 1 BTC = 100,000,000 satoshi. The final product is an inscribed satoshi, otherwise known as a Bitcoin NFT.

inscriptions

As the inscription is uploaded, the information is etched into the taproot script of the witness data in the Bitcoin transaction. Unlike minting Ethereum NFTs, where each newly created NFT is a separate ERC-721 token, the upload of Inscription does not create a new token. Instead, they tie arbitrary information to existing tokens (satoshi).

Segregated Witness (SegWit) and Taproot are two updates to the Bitcoin network that make inscription possible. SegWit happened in July 2017 and increased the size of witness data. Completed in November 2021, Taproot makes it easier to insert arbitrary witness data into Bitcoin transactions.

An inscription consists of a content type (also called a MIME type) and the content itself, which is a string. The inscription contents are entirely on-chain and they are stored in the taproot script.

For example, the inscription "Hello, world!" can be implemented with the following code:

First, enter the string ord to indicate that an ORD-based inscription follows.

OP_1 indicates that the next push contains the type of inscription content, which in this example is a utf-8 text string. Other types include images (jpeg, gif), videos (mp4), applications (pdf), etc.

OP_0 means that the subsequent data push contains the content itself, in this case "Hello, world!". Large inscriptions require the use of multiple data pushes because one of the few limitations of taproot is that a single data push cannot exceed 520 bytes. Inscription has a theoretical maximum capacity of 400,000 bytes, as one Inscription transaction can theoretically occupy an entire Bitcoin block (4MB, but in practice, Bitcoin Core limits this size to 400,000 bytes).

The inscription content is included in the input of a Bitcoin transaction and is associated with the first satoshi of the first output of this transaction. This satoshi can then be tracked according to Ordinal theory, allowing it to be transferred, bought, sold, lost and recovered.

One of the controversies raised by Inscription is that using taproot scripts to store arbitrary data was not the intent of the taproot update. If the Bitcoin community had known about this unintended consequence, the taproot update would probably not have been approved. However, there is currently no way to limit the use of taproot scripts in this particular application. So ordinals (Bitcoin NFTs) are not going away.

Ordinals (Ordinal theory)

Ordinal theory associates arbitrary features (inscriptions) with individual satoshis and allows individual satoshis to be tracked and transferred. But it's not a complex mechanism. Instead, it is a simple satoshi numbering scheme.

All generated satoshi are numbered by Ordinal theory according to two rules.

First, numbers are assigned to satoshis in the order they were mined. For example, the first satoshi in the first Bitcoin block (the genesis block) has an ordinal number of 0 and the second ordinal number is 1.

Due to Bitcoin's UTXO model, satoshis always exist as unspent outputs, but transactions reconstruct the outputs and create new outputs. Ordinal theory tracks satoshi from the input of a transaction to its output according to the "first in, first out" principle, which is the second rule of Ordinal theory.

For example, the following transaction has three inputs and two outputs, all labeled with their own values:

[2] [1] [3] → [4] [2]

Source: Ordinals documentation

Now let's label each input with the number of the satoshi it contains, and temporarily label each output with a question mark. Because satoshi numbers are unimaginably large, let's use the letters a through f instead in this example:

[a b] [c] [d e f] → [? ? ? ?] [? ?]

Question marks are easy to figure out based on the first-in-first-out rule:

[a b] [c] [d e f] → [a b c d] [e f]

You may ask, what about transaction fees? good question! Let’s assume the same transaction, this time with a fee of two satoshis. A transaction with a fee sends more satoshi in the input than the output receives:

[2] [1] [3] → [4]

As a result, satoshi "e" and "f" will no longer appear in the output, since they flow as transaction fees to the miner who mined this block:

[a b] [c] [d e f] → [a b c d]

According to the Ordinal theory, fees paid by a transaction are treated as additional inputs to the coinbase transaction and are ordered according to the order of their corresponding transactions in the block. The coinbase transaction of the block, assuming it contains only one transaction, would look like this:

[SUBSIDY] [e f] → [SUBSIDY e f]

Here SUBSIDY refers to the block reward, which is the Bitcoin given to the miners of this block. The numbering of SUBSIDY follows the first rule, which states that numbers are assigned to satoshis in the order of mining.

While inscriptions (images, videos, etc.) are stored entirely on-chain, the Ordinals theory is not. The link between an inscription and a single satoshi (Ordinal) is established by the Ordinal theory, an off-chain numbering scheme. In other words, the existence of the Ordinal requires a community consensus and universal acceptance of the Ordinal theory. Without Ordinal theory, inscriptions cannot be tracked or traded, as inscriptions do not automatically point to a single satoshi. From a blockchain perspective, every satoshi is the same.

For the history of Bitcoin NFTs or the technical details of how to mint Bitcoin NFTs, I recommend pourteaux’s Illegal Bitcoin Trading or Galaxy Research’s white paper.

Outlook

Built-in 1000x

Ordinals will be at least as big as Ethereum NFTs.

Bitcoin’s market capitalization is 2.3 times that of Ethereum. Its influence is far more than 2.3 times that of Ethereum. Ethereum NFTs have proven their product-market fit and become a multi-billion dollar industry. Even if Ordinals only achieves 50% of what Ethereum NFTs achieve, it will become as big as Ethereum NFTs. While smart contract-like functionality is not supported on the Bitcoin blockchain, meaning Ordinals cannot enable fancy operations like NFT staking or NFT gaming, the immutability and security of Ordinals guaranteed through the Bitcoin network have their own audience.

The controversy surrounding Ordinals among the core Bitcoin community focuses on the fact that Ordinals’ existence detracts from the primary purpose of the Bitcoin blockchain – a peer-to-peer electronic cash system. However, as briefly discussed in the Inscriptions section, the Ordinals did not disappear because of these disputes. While the Bitcoin blockchain may update or modify certain parameters in the future (for example, increasing the cost of minting Ordinals), it is extremely unlikely that inscriptions or Ordinals will be banned.

The market currently has varying valuations for Ethereum NFTs. Galaxy Research’s answer is $16.9 billion (worst-case scenario is $11.7 billion). NFTGo’s estimate is $22.75 billion. DegenKnows calculates that to be a staggering $47.240 billion.

Combined, the Ordinals are currently worth up to tens of millions of dollars. To catch up to Ethereum NFTs, that’s 1000x built in.

Infrastructure and individual projects

ERC-721 was proposed in January 2018 and finalized in June 2018. Translated, Ordinals currently are like Ethereum NFTs in August 2018.

The main opportunities right now are the infrastructure players, namely markets and wallets, Ordinals’ OpenSea and MetaMask.

It wasn’t that long ago that market participants had to rely on Google Docs to buy and sell Ordinal punks, which shows us how inchoate the industry is and how Ordinals lack the necessary infrastructure.

After a month of development, there are now at least a dozen Ordinals trading markets emerging on the market. Ordinals Market looks to be in the lead right now, but it is based on existing Ethereum infrastructure, while other projects are more native Bitcoin solutions. Two other relatively well-known projects are Ordswap and Ordinals Wallet.

OpenOrdex is a new project worth paying attention to because it is completely open source and 100% decentralized, and has gained some support in the community for this. If Magic Eden wants to make a comeback, Ordinals is a good option.

There are also some exchange market projects that have launched tokens, such as Ordinal BTC ($oBTC) and ordinex ($ORD). I would not touch a project like this that issues coins before the product can be used.

In terms of wallets, Sparrow, Electrum and Xverse are commonly used by Ordinals traders because their UI allows users to select UTXO for easy trading and tracking of specific satoshis (Ordinal). Also, MetaMask is a terrible wallet for Ethereum NFTs. So the opportunity is greater here in the wallet. After conquering Ordinals, a project can continue to take over Ethereum NFTs, and the future is limitless.

I am not as optimistic about the Ordinals project that has been released compared to the infrastructure project. Except for individual projects (presumably only Yuga's TwelveFold), all other projects will be replaced by new projects when the technology becomes more mature and the community becomes larger. Back in August 2018, while CryptoPunks was already a year old, it was still early days for BAYC and Azuki. Of course, Ordinals' timeline will be shortened because people already know where they're going.

The market is like a baby, always looking for shiny new toys. Ethereum blue-chip projects appear every 1-2 months, such as Penguin (July 2021), Doodles (October 2021), Clone X (November 2021), Azuki (January 2022), and more. There are many opportunities in the future. Don’t think that the so-called early OG projects will be popular in the future. They won't. Mooncats is an OG project on Ethereum, dating back to the CryptoPunk era, and was launched on Ethereum in August 2017. Does anyone care about it now?

If you think our analysis is spot on, give it a like ❤️

Help us forward more

You can also discuss together in the comment area 💬

Read the full report: https://tokeninsight.com/zh/research/analysts-pick/what-are-btc-ordinals-are-they-ape-able