Carefully! Lots of text.
Each Bitcoin consists of 100,000,000 Satoshi (SATS). The Ordinals protocol allows you to identify each individual satoshi and send them along with additional data (in the form of an inscription).
Ordinals provide another option for using the Bitcoin network beyond simply transferring funds by gifting users with Bitcoin NFTs.
Introduction
Until recently, NFTs were primarily created and used on blockchains such as Ethereum, Solana, and BNB Smart Chain. However, the Ordinals team believes that non-fungible tokens should also exist on Bitcoin. The Ordinals project was created for this purpose.
Changing part of Bitcoin's code is extremely difficult due to the decentralized network of nodes and developers who do not want to risk the security of the network. Because of this, Bitcoin NFTs have not received widespread adoption. Yet, over time, the growth of the crypto ecosystem attracted many developers with innovative ideas that allowed Bitcoin NFTs to become part of the future of Web3.
As of February 2023, the number of ordinal inscriptions exceeded 100,000 as users uploaded images, video games and other content online. Let's figure out how it works.
What is the Ordinals Protocol for Bitcoin
The Ordinals Protocol is a numbering system that assigns each Satoshi a serial number (ordinal) and tracks them throughout transactions. In other words, the protocol allows you to make individual satoshis unique by attaching additional data to them. In the process of doing this, they add a "letter".
Satoshi, named after Bitcoin's creator Satoshi Nakamoto, is the smallest indivisible unit of Bitcoin (BTC). One BTC consists of 100,000,000 satoshis, meaning each satoshi is worth 0.00000001 BTC.
Satoshis are numbered in the order in which they were created and transferred. The numbering scheme is based on the order in which Satoshis are created, and the transfer scheme is based on the order in which transactions enter and exit. Hence the name “ordinals” (from the English ordinals - “ordinal numbers”).
While traditional NFTs are similar to ordinals in some ways, they have a few key differences. Typically, NFTs are created using smart contracts on blockchains such as Ethereum, Solana and BNB Smart Chain, and sometimes the assets they represent are hosted elsewhere. Ordinals are written directly onto individual satoshis, which are then included in blocks of the Bitcoin blockchain. Ordinals are hosted entirely on the blockchain and do not require a sidechain or a separate token. In this sense, ordinal inscriptions inherit the simplicity, immutability, security and durability of the Bitcoin network itself.
Ordinal theory and inscriptions
In the context of Bitcoin, ordinal theory is a proposed methodology for identifying each Satoshi using a serial number and tracking them in the Bitcoin coin supply, including all movement data since creation. In the process of doing this, they add a "letter". Thus, serial inscriptions are digital assets similar to NFTs and recorded on Satoshis on the Bitcoin network. This process was made possible by the Taproot update implemented on November 14, 2021. Thanks to it, such inscriptions do not require a sidechain or a separate token.
Because ordinal theory allows individual satoshis to be tracked and transferred, it has also opened up the possibility of collecting them. Based on the total supply of bitcoins, the following Satoshi rarity levels have been established:
Regular: any satoshi, except the first satoshi of your block (total 2.1 quadrillion).
Uncommon: first satoshi of each block (total 6,929,999).
Rare: the first satoshi of each difficulty adjustment period (3437 in total).
Epic: first satoshi after each halving (32 in total).
Legendary: first satoshi of each cycle* (5 in total).
Mythical: the first satoshi from the genesis block (1 total).
*A cycle is the period between the moments when the halving coincides and the difficulty adjustment occurs. Theoretically, this happens every 6 halvings, but the first match has still not happened (expected in 2032).
Pros and cons of ordinals
The Ordinals have created a new use case for the Bitcoin network that goes beyond simply transferring funds. However, the Ordinals protocol was met with mixed reactions in the Bitcoin community. Some believe that the relative simplicity of Bitcoin should be preserved so that it simply stores and transfers funds. Others believe that Bitcoin must evolve and add new features and use cases.
In addition, signed satoshis now compete for block space with regular BTC transactions, causing network fees to increase. This causes dissatisfaction in the Bitcoin community, but Ordinals supporters see this as a benefit as the fees incentivize miners to ensure the security of the blockchain. In the future, as block rewards decline, network fees will become the main incentive to allocate hashing power to Bitcoin. These controversies have divided the crypto community into two camps, but one thing is for sure: the project has brought innovation to the Bitcoin space.
In conclusion
Ordinals are changing the world of blockchain art by offering a completely new way to store information on Bitcoin transactions. They added another use case for the network and increased the number of non-zero Bitcoin addresses to an all-time high. We are at a unique moment in Bitcoin's history, where innovation is introducing a new way of working on the network beyond investing or transferring money. Does this mean that the Ordinals protocol will continue to evolve? Who knows. All that remains is to wait and follow the news.
Recommended reading
What is NFT
What is Taproot and how will it benefit Bitcoin?
Countdown to Bitcoin halving
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