Exploring Bitcoin NFTs: A Beginner's Guide to Ordinals
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Chapter 1: The Rise of Bitcoin Ordinals
In recent years, cryptocurrencies like Ethereum and Solana have demonstrated a significant appetite for NFTs. Historically, Bitcoin's blockchain wasn't designed for such applications, which is why it didn't participate in the NFT boom—until now.
Thanks to the introduction of Ordinals, Bitcoin has surged to the forefront of the NFT conversation. Since the protocol's inception, over 8.5 million Ordinals have been created, a remarkable leap from just 1,000 in February and around 1 million by mid-April.
A key question arises: Are Ordinals merely a passing trend, or do they have lasting significance? While I cannot definitively answer that, I can provide an overview of what Ordinals entail, their functionality, and their current applications.
The surge in Ordinals inscriptions began in late April, as evidenced by Dune Analytics.
Section 1.1: Understanding Bitcoin Basics
When Satoshi Nakamoto launched Bitcoin, the code stipulated a capped supply of 21 million BTC. Each Bitcoin is subdivided into smaller units known as satoshis (or "sats"), where 1 BTC equals 100 million sats.
In typical transactions, the breakdown into satoshis is irrelevant. For instance, if you're transferring 0.01 BTC, you're unaware of the individual sats involved. It's akin to using a handful of pennies for a purchase—fungible tokens, unlike NFTs (non-fungible tokens).
Ordinals transform these fungible Bitcoin units into unique tokens, granting individual sats distinct meaning and value.
Subsection 1.1.1: The Ordinal Protocol
The Ordinal Protocol, developed by Casey Rodarmor, a dedicated Bitcoin developer, allows users to pinpoint individual satoshis. This is intriguing due to the Ordinal rarity scheme, which ascribes historical significance to certain satoshis.
For Bitcoin enthusiasts, satoshis mined during Bitcoin's early days carry particular interest. The commonly acknowledged rarity hierarchy includes:
- Common: Any satoshi other than the first of its block (totaling 2.1 quadrillions)
- Uncommon: The first satoshi of each block (totaling 6,929,999)
- Rare: The first satoshi of each difficulty adjustment (totaling 3,437)
- Epic: The first satoshi after each cycle, theoretically after every 6th halving (totaling 5)
- Mythic: The first satoshi of the genesis block (totaling 1)
This aspect of Ordinals captivates me, and Rodarmor has penned an insightful blog post exploring supply, rarity, naming conventions, and the concept of “archaeology” within the NFT and Ordinals landscape.
Section 1.2: Applications of Ordinals
The ability to identify individual satoshis is fascinating, transforming them into collectibles. The Ordinals Protocol also facilitates the transaction of satoshis with supplementary data through a process called inscription.
Think of inscriptions as etching designs onto a coin; if the engraving is significant or created by a renowned artist, the coin's value soars beyond its mere monetary worth. One notable project is DeGods, which has launched an Ordinals collection.
While many Ordinals currently lack depth, prominent NFT companies have begun to participate. For example, Yuga Labs introduced TwelveFold, a collection of 300 unique generative artworks, generating $16.5 million in an auction.
So far, most Ordinals consist of text, artworks, and profile pictures. However, creators are continually expanding their horizons. A remarkable instance is someone inscribing the classic video game DOOM as an Ordinal.
Another exciting innovation is the BRC-20 token standard, enabling new currencies to be established on the Bitcoin blockchain via the Ordinals protocol. As this area is still in its infancy, a more detailed exploration will follow in future articles.
Chapter 2: Ordinals vs. Traditional NFTs
The NFT craze has predominantly been driven by platforms like Ethereum, Solana, and Tezos, which utilize smart contracts—programs that execute specific code when predetermined conditions are met.
Though Bitcoin has its own version of smart contracts, they are less sophisticated due to the blockchain's inherent limitations. This disparity explains why NFTs have not flourished on Bitcoin until now.
Unlike NFTs on other blockchains, which are new tokens built on existing frameworks, Ordinals repurpose the native Bitcoin currency—individual BTC units. Consequently, many in the crypto and NFT communities hesitate to label Ordinals as true NFTs. They are indeed non-fungible, but not in the traditional sense. Rodarmor sometimes refers to them as "digital artifacts."
Furthermore, Ordinals are entirely on-chain, unlike most NFTs that rely on external storage solutions like IPFS (InterPlanetary File System). Ordinal data is directly inscribed onto BTC units, ensuring complete ownership and control—an asset that will endure as long as Bitcoin itself.
While the limitations of Ordinals may concern some collectors, many appreciate that they inherit the strengths and ethos of the Bitcoin blockchain.
What You Need to Know to Get Started
Only a few months ago, early adopters of Ordinals relied on spreadsheets and trust for trading. Managing an Ordinal separate from regular satoshis was a challenge.
Fortunately, tools for Ordinals have evolved rapidly. To start collecting, you'll need a Bitcoin wallet with BTC and a platform to transact.
Wallets: Several Bitcoin wallets have integrated Ordinals, making it easy to view and trade them. Notable options include Xverse, Hiro Wallet, and Ordinals Wallet, the latter specifically for Ordinals.
Marketplaces: Reputable NFT marketplaces have begun offering Ordinals. Magic Eden, a leading marketplace for Solana NFTs, now dominates over 50% of the Ordinals market.
UniSat is another noteworthy platform, providing an open-source marketplace and wallet for Ordinals collectors. Given the rapid pace of innovation, expect new wallets and marketplaces to emerge shortly.
Closing Thoughts: A Bit of Controversy
As a long-time Bitcoin supporter, I view Bitcoin as both decentralized money and digital gold. Ordinals introduce a novel use case that alters the Bitcoin narrative, though not everyone is on board.
Some Bitcoin purists argue that Bitcoin should solely serve as a medium for value transfer, dismissing Ordinals as a distraction or a workaround for unintended applications.
I advocate for innovation and experimentation with new technologies, particularly when they unite Bitcoin with digital art and collectibles. The fact that satoshis were not initially intended as collectibles but gained significance over time feels more genuine than artifacts created solely for that purpose.
While I acknowledge my biases, I believe Ordinals have the potential to enrich the Bitcoin ecosystem. They enhance the blockchain's value and provide miners with increased activity, which may become crucial as block rewards diminish over time.
Discussions continue as Bitcoin enthusiasts weigh the advantages and disadvantages of Ordinals. If you're interested in delving deeper, I recommend exploring the following resources:
- Ordinal Theory Handbook by Casey Rodarmor
- Ordinal Theory Explained: Satoshi Serial Numbers and NFTs on Bitcoin on the Hell Money Podcast
- Bitcoin Ordinals NFTs with Casey Rodarmor & Eric Wall on Bankless
- Bitcoin NFTs? Ordinals Inscriptions Explained (Finding, Buying, & More) on the nft now blog
- Demystifying Bitcoin Ordinals | Insights w/ creator Casey Rodarmor on the NFT Catcher Podcast
Originally published at www.studiobycj.com on May 24, 2023.
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In this video titled "Bitcoin NFTs Are BLOWING Up! - Beginner Guide To Ordinals," the host provides a comprehensive overview of Ordinals, detailing their significance and the burgeoning market surrounding them.
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