What are Bitcoin ordinals?

bitcoin has come a long way since its launch in 2009 as a rather obscure form of digital cash. The project would go relatively unnoticed by the general public for several years, gaining popularity in 2013 and skyrocketing to become the largest asset class in the world.

In fact, while bitcoin was the first cryptocurrency, its invention spurred thousands of new cryptocurrencies to follow suit, with complex use cases, expansive derivatives markets, and a growing list of added features. bitcoin developers have also continued to innovate on the project, with the biggest update in recent years being bitcoin Ordinals, which launched in 2023.

<h2 class="wp-block-heading" id="what-are-bitcoin-ordinals-bitcoin-ordinals-explained”>What are bitcoin ordinals? bitcoin Ordinals Explained

bitcoin Ordinals are bitcoin's answer to nfts, allowing a way to inscribe data into a specific satoshi (one millionth of a bitcoin) in a way that makes that satoshi distinct from others or non-fungible.

So why is this important?

bitcoin was originally launched as a fungible form of digital cash. Just like a US dollar, one is very similar to the other when it comes to the people transacting. However, bitcoin Ordinals allow users to identify satoshis from each other.

For example, a collector might be interested in owning a satoshi from a pivotal moment in bitcoin history, such as the bitcoin halving that occurs every four years, and therefore be willing to spend more than the value of market for a satoshi to buy it.

This brings bitcoin into the realm of digital collectibles and nfts. The ethereum nft (non-fungible token) market exploded in 2021, with over $24 billion in nft sales. These nfts are typically digital assets on the ethereum network with unique identification numbers and are used to represent ownership of assets such as art and music.

bitcoin Ordinals could be used for exactly the same thing, with the added benefit of being associated with the most popular and oldest cryptocurrency on the market.

<h2 class="wp-block-heading" id="how-do-bitcoin-ordinals-work”>How do bitcoin ordinals work?

bitcoin ordinals assign a unique identification number to satoshis in any given bitcoin. bitcoin developer Casey Rodarmor introduced the idea in 2023 and used a feature from bitcoin's 2021 Taproot update, which allowed data to be stored directly on the bitcoin blockchain to make this happen.

Ordinals work by making each unit of a single bitcoin uniquely identifiable. When a bitcoin is mined, the million satoshis are assigned a number in the order of their creation. Satoshis can be tracked individually across multiple wallets, meaning you can spend btc and still keep track of individual satoshis or ordinals.

While ethereum nfts sometimes require metadata to be stored off-chain, sometimes on a traditional web2 website, bitcoin Ordinal data is all stored on-chain, reducing the risk of data loss. The SegWit and Taproot upgrades to the bitcoin network allow a large amount of data to be stored this way.

<h2 class="wp-block-heading" id="buying-selling-and-trading-bitcoin-ordinals”>Buy, sell and exchange bitcoin ordinals

To purchase bitcoin Ordinals, you will need to use a wallet that supports Taproot addresses. Many of the most popular bitcoin wallets, such as Trust Wallet, Mycelium, and Blockchain.com wallets, do not support this feature. Instead, you can use wallets like Sparrow Wallet.

bitcoin addresses that support taproot usually start with the characters 'bc1p'.

How to buy bitcoin ordinals

With your wallet set up, you can visit marketplaces like Ordinals Market or OpenOrdex to see the ordinals on offer. As with ethereum nfts, these ordinals will often be associated with the sale of digital artwork or other assets.

Deposit your funds on the platform (at your own risk) or connect your btc wallet. From there, bid on an Ordinal or simply make a direct purchase.

That's how it's done! You can also put Ordinals up for sale on the same platform or exchange them on a peer-to-peer basis with other users.

Real-world examples and use cases

bitcoin Ordinals can be used to represent the sale of digital or real-world assets, to act as a collectible piece of btc network history, or to permanently inscribe data on an immutable blockchain as a form of art, protest, or censorship-resistant history. preservation.

At the moment, the main use case is artwork, as well as ethereum nfts. The bitcoin Ordinals market is relatively small, although not insignificant. btc Ordinals sales reached over $170 million in March 2024.

Examples of bitcoin Ordinals could include collecting “souvenirs” from history, allowing users to own a portion of a bitcoin from a certain point in time, such as a major world event or simply an interesting moment in bitcoin mining history.

<h2 class="wp-block-heading" id="potential-challenges-and-downsides-of-bitcoin-ordinals”>Possible challenges and disadvantages of bitcoin ordinals

Of course, we've already seen the ethereum nft market suffer a massive drop over the past few years, with the value of nft collectibles dropping around 90% overall. While the technology is not going anywhere, the market has quickly become saturated with low-effort artwork, aggressive marketing practices, and shady or abusive business tactics, such as wash trading to artificially inflate auction prices.

It's safe to say that the market has taken a step back from nfts and this muted sentiment may also carry over to bitcoin Ordinals in the near future.

Another problem with Ordinals is that of privacy and surveillance. By allowing unique identifying data to be inscribed into individual millionths of each bitcoin, the fungibility and pseudonymous nature of bitcoin is arguably threatened.

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Ordinals allow on-chain surveillance analysts to group wallets and identify bitcoin users more easily, something some people may disagree with.

Finally, there is the potential risk of creating a derivatives market that could alter btc prices. If Ordinals were to take off in a big way, there is a chance that users spending a lot of money on specific bitcoin millionths could have unforeseen effects on the price of bitcoin and the health of the market, although this is mere speculation at the time of writing.

Whatever happens with bitcoin Ordinals, the technology has been welcomed by many cryptocurrency enthusiasts and it looks like the market will continue to develop in the coming months and years.