What Are Ordinals? Bitcoin NFTs Explained

Developer Casey Rodarmor deployed Ordinals on Bitcoin’s mainnet on January 20, 2023, with a fresh way of minting NFTs on the Bitcoin blockchain. Bitcoin NFTs are not new per se—thanks to layer-2 technologies such as Counterparty and Stacks—Ordinal NFTs are different because they have a completely different architecture.

Since they went live, more than 200,000 Ordinal NFTs have been made by a rapidly growing community of developers, collectors, and hobbyists excited by the idea of NFTs natively native to Bitcoin. But what are they, and how do they really function?

What Are Ordinal Inscriptions?

Ordinal NFTs, or inscriptions, are produced by stamping data—like pictures, videos, or text—right onto specific satoshis (the lowest-denomination unit of Bitcoin) in the Bitcoin base layer. While previous Bitcoin NFTs on secondary layers used to work, Ordinal NFTs have no use of secondary layers whatsoever.

This is facilitated by ordinal theory, which gives each satoshi a serial number, essentially a distinct identity. This method does not involve any protocol changes to Bitcoin or depend on extra layers. It is completely backward compatible and renders Ordinal NFTs native to the network.

A satoshi (or “sat”) is 1/100,000,000 of a Bitcoin, the smallest unit of denomination.

The History of Ordinal NFTs

While the conceptual foundations of Ordinal NFTs were borrowed from ordinal theory, their concrete development was only made possible due to two fundamental protocol upgrades to the Bitcoin protocol: Segregated Witness (SegWit) in 2017 and Taproot in 2021.

Although these protocol upgrades weren’t specifically designed to enable NFTs, they inadvertently allowed the possibility for NFTs to exist natively on Bitcoin by making on-chain data storage more flexible.

Segregated Witness (SegWit)

Launched in 2017, SegWit was a soft fork Bitcoin protocol upgrade. It separated Bitcoin transactions into two components by relocating the signature (or “witness”) data to an independent area towards the end of the transaction. This format allowed Bitcoin to:

• Bypass strict blocksize constraints
• Allow optional arbitrary data inclusion
• Solve for transaction malleability problems

This update provided for a discount on block weight when storing witness data, allowing more data to be added to transactions without going over blocksize limits. Although SegWit was not designed to enable NFTs, it laid the groundwork for their existence by increasing the amount of space available for arbitrary data in each block.

Taproot

Taproot, which was enabled in November 2021, was a major protocol update that aimed to increase privacy, scalability, and smart contract functionality within Bitcoin. Among its numerous enhancements, Taproot streamlined handling and storage of witness data and eased restrictions on arbitrary data inclusion in a transaction.

These improvements made it possible for NFT information to be placed within Bitcoin transactions in the form of Taproot script-path spend scripts, building the technical underpinnings of what later came to be called the “ord” standard.

Taproot made it possible for a single Bitcoin transaction to now hold data loads of as much as Bitcoin’s 4MB block size, radically opening up on-chain media possibilities, including high-definition images, video, and even complete applications.

How Do Bitcoin NFTs Work?

To fully grasp how ordinal NFTs function, there needs to be a differentiation between two very close terms: ordinals and inscriptions, which are often interchanged with one another but capture different facets of the concept.

Ordinals refer to the numbering of satoshis (the smallest unit of Bitcoin) in a specific order to provide each one a unique identity, essentially building the “non-fungible” component.

Inscriptions are the real NFT content, e.g., an image, a video, or text contained within a particular satoshi, rendering it a full NFT.

This design can be likened to the classic NFTs on other blockchains, which typically are composed of two primary components: a tokenID and its respective metadata.

TokenID

Fungible tokens are replaceable. Like one dollar bill is identical to another, you can’t differentiate one Ethereum token from another. TokenIDs make NFTs special—they give each token a unique identifier that makes it transform from a fungible asset into a non-fungible asset.

Note: Two NFTs technically can be the same tokenID if they’re created from two different smart contracts. The contract itself is then what separates them.

Ordinal Theory as TokenID

Bitcoin is fungible by default, there’s no mechanism built into it to differentiate between two satoshis. That’s where ordinal theory comes in.

The breakthrough technology of ordinal NFTs is the framework used to give every single satoshi a special serial number depending on the order of its creation through mining. The very first satoshi that was ever made, the one that existed in 2008, is ordinal #0. Satoshis are then assigned numbers sequentially, and upon passing, their order is preserved in a first-in, first-out transaction framework.

Notably, ordinal theory is not natively a component of the Bitcoin protocol. The Bitcoin network does not technically recognize these figures. Rather, the ordinal system is maintained through a social agreement among developers and users who’ve created tools with it, lending satoshis a distinct existence without changing the fundamental fungibility of Bitcoin.

Metadata

On the majority of blockchains that aren’t Bitcoin, metadata is extra information associated with a token – artwork, in-game items, PFPs, or digital collectibles. This metadata establishes what the NFT is and usually gets stored off-chain or inside a smart contract.

Inscriptions as Metadata

In ordinal NFTs, there is no standalone metadata field as with Ethereum or Solana. Instead, the data is inscribed directly into a Bitcoin transaction’s witness data. This is what it means to be born of the “inscription” term, a term that names the action of inscribing arbitrary data onto a given satoshi.

In order to create an inscription, a user initiates a transaction to a wallet that supports Taproot, and they define which satoshi will be the one to bear the data and include the data within the transaction itself. Care needs to be taken so that the satoshi being inscribed is not used by mistake as the transaction fee. Fortunately, software has been developed to facilitate this with automation and make it available for non-technical users.

How Are Bitcoin Ordinals Different from NFTs?

The key difference between Bitcoin ordinals and regular NFTs is their flexibility and interpretive nature.

Since Bitcoin itself does not officially acknowledge ordinal theory, these NFTs are non-fungible only in practice, not by protocol. This implies that whether an ordinal satoshi is saved as a distinct digital collectible or not is entirely up to its owner.

If a user doesn’t care or recognize the ordinal inscription, they can use the satoshi just like any other Bitcoin – pay with it, use it as a network fee, or transfer it. The inscription is still there, but its meaning is lost if not preserved. This is in contrast to Ethereum NFTs, which are actually distinct from Ethereum tokens and are specially identified and treated by the Ethereum protocol.

Fundamentally, ordinal NFTs are only non-fungible to those who opt to see them as non-fungible, a communal level of meaning over Bitcoin’s fungibility.

The Ordinal NFT Debate

The introduction of ordinal NFTs has generated a heated debate among the Bitcoin community, questioning the purpose of Bitcoin as intended and the future direction of Bitcoin.

On the other hand, some critics contend that Bitcoin should be kept concentrated on secure, peer-to-peer monetary transactions. They see the increasing popularity of ordinal inscriptions, often driven by memes and digital collectibles, as an unwarranted strain on the network. From this view, ordinal NFTs are wasting valuable blockspace and helping drive up transaction fees, diverting from Bitcoin’s original purpose as a decentralized monetary system.

Conversely, proponents view ordinal NFTs as a cultural advancement of Bitcoin. They welcome the possibility of employing Bitcoin’s immutable and decentralized ledger for something other than money, perceiving ordinal inscriptions as an opportunity to fill the network with art, history, and digital permanence.

Because ordinal NFTs are currently supported by the existing Bitcoin ruleset, turning them off would need to be a protocol-level adjustment, a difficult and uncommon occurrence. In the end, whether ordinals become a long-term fixture in Bitcoin’s universe will ultimately be up to how the wider community wants to define and frame the future of the network.