September 24, 2023 - 7 min read
These are essentially Bitcoin NFTs — or ways to inscribe digital content within the metadata of individual satoshis.
First off, Bitcoin ordinal theory is still in its infancy. In fact, Casey Rodarmor just launched Bitcoin ordinals back in 2022 after first publishing his theory. His protocol suggests a way to treat satoshis, the atomic measurement of the blockchain’s currency, as individual units upon which inscriptions can be made so that they become unique, identifiable, and even non-fungible.
That is, satoshis are given individual identities or verification signatures, allowing them to be publicly tracked, transferred, and verified. To inscribe a satoshi and create an ordinal inscription, users need to send some BTC to a compatible wallet and attach their inscription within its metadata.
Inscribing rare images in the form of ordinals introduces an innovative cross-section of art, technology, ownership, and investment. Though still somewhat controversial amongst hardcore Bitcoiners, ordinals have the potential to catalyze new market participants and the proliferation of more platforms for Bitcoin art. Consequently it’s also prompted heated debates regarding what these emerging technologies have in store for future generations. Things are really only getting started.
The mechanics behind how Bitcoin ordinals work revolves around the atomic unit of the Bitcoin network, the satoshi. Another way to count your bitcoins is to denominate them in 100 million sats each. Sats are ordained with numbered identifiers as they’re mined, and this is what’s known as an ordinal number.
Once inscribed, sats become immutable digital collectibles that can be transacted on the Bitcoin network using Bitcoin wallets. Nevertheless, Rodarmor has been vocal about not equating Bitcoin ordinals with the NFTs we all know and love. That doesn’t negate the fact that explaining Bitcoin ordinals is easiest by using JPEG NFTs as a quick example before expanding beyond them.
Going a step further, ordinal-inscription owners can create what’s called child inscriptions. These help trace the provenance of an inscription on-chain, meaning that child inscriptions are publicly and transparently linked to the owner. This established a family tree of digital signatures, with the children of a parent inscription containing identifiers proving their origination from the same family.
Child inscriptions can themselves create further “children,” allowing for highly complex hierarchies. Imagine if the famous painter Claude Monet could create an ordinal inscription of his signature, child inscriptions representing certain styles or time periods of his works, and a further sub-inscription representing individual works. Codifying and storing the information on-chain is not only possible, but it is publicly auditable as well.
In this way, Bitcoin ordinals could serve as historical artifacts or a sort of shared record, providing insights into the progression of Bitcoin and its culture as adoption grew. Given the immutability of blockchains, it could guarantee future generations an uncensored glimpse into the culture of Bitcoin adopters chronologically.
Of course, the Wikipedia model is well known and rather useful, but even co-founder Larry Sanger no longer trusts its contents after so many deceptive edits have taken place. Perhaps an immutable, Bitcoin-ipedia which requires public consensus would provide the necessary guard rails to better maintain its credibility over time. A theoretical, publicly uncensorable communications network could also be useful if for some reason they’re being censored or blocked by tyrants.
Ordinals can be sent to any bitcoin address, and are safe as long as the UTXO that contains them is not spent. Keep in mind though that most wallets are unable to distinguish between regular sats and sats with ordinal inscriptions.
This is why it’s important to use a wallet that recognizes ordinal inscriptions and has the functionality supporting sat-control and sat-selection. If an unsupported wallet receives an inscribed sat as payment but is later used to send sats, it may spend your ordinal or use it for transaction fees without “knowing” that one of those sats was special to you.
Of course, Bitcoin ordinals are necessarily a part of the base layer protocol. Instead, Rodarmor sparked a movement of enthusiasts who have taken it upon themselves to develop wallets which recognize ordinal inscriptions in a shared, numbering system which makes individual satoshis unique. This will have interesting implications as to the fungibility of certain sats with inscription characteristics.
Imagine receiving a payment only to find out that your funds are inscribed with some sort of sinister graffiti or otherwise offensive content. Simply ignoring the inscription sounds simple enough, but until the concept has time to mature it will be difficult to draw meaningful conclusions as to whether or not this becomes a significant issue.
Ordinals exist on the base layer, making them unique in that they are artificial yet more measurable than commodities found in the natural world. As such, Bitcoin-native artifacts that are immutable written on-chain make inscriptions as durable as the Bitcoin network itself. Fortunately, the inscriptions exist in the most prunable part of a satoshi’s metadata, meaning that it will not clog up the blockchain or create undue congestion.
So long as your wallet allows for some functionality like sat-control or sat-selection, to allow you to safely store and send ordinals, you’re able to make use of this technology. Secondary markets are likely to spring up, leading to increased network activity. Miners are therefore incentivized to join the network, which of course leads to added security via the increased hash rate.
This is a clear catalyst for the network’s already-explosive growth. However, increased activity just for the sake of it is not a use case in and of itself. Collectors and history buffs could seek to acquire rare sats which mark certain calendar days, on-chain events, or even communicate emergency signals during war or other times of crisis.
Perhaps one could start small and try to collect the first sat of a given block, and with more experience try ambitiously to capture the first or last sat before a given halving. Another interesting idea is that Bitcoin ordinals could serve as historical artifacts, providing insights into the progression of Bitcoin and its culture.
Given the immutability of blockchains, it could guarantee future generations an uncensored glimpse into the culture of Bitcoin adopters chronologically. The possibilities are as endless as the human experience is varied.
Take Scarce City for example, a marketplace that trades inscribed ordinals on the Lightning network. Inarguably, it is one of the closest parallels to NFT marketplaces on other blockchains. A corollary of Ebay exists on Bitcoin as well, running parallel to Scarce City..
In fact, SatsCrap uses bitcoin for payments and listing collateral to facilitate transactions while maintaining user privacy. Anyone with a compatible wallet can trade legal items P2P using Bitcoin. No registration, login, or bank accounts are involved; the ultimate experiment in mixing DeFi and the exchange of physical goods sans intermediary. This exists thanks to Lightning infrastructure.
Speaking of which, popular Lightning wallets are easy to download and get started with your business. Depending on your needs, keeping assets meant for long-term storage in non-custodial wallets may be prudent, while in other cases custodial wallets may be more convenient for using certain services. It’s important to do your own research or speak to a professional to determine your own risk tolerance and optimal liquidity needs.
For beginners, custodial wallets like Wallet of Satoshi or Strike are most often recommended. However, these are custodial wallets, meaning your assets are ultimately held and controlled by these custodians with which you simply create an account. The upside with these options is that if you happen to lose your password, they’ll be able to help you reset it without your funds being lost forever.
Keep in mind that plenty of wallets and exchanges using a custodial setup have gone bust over the years, with users suddenly finding themselves unable to withdraw assets. Recovering these funds often takes years and benefits lawyers and opportunistic regulators who swoop in and figure out ways to carve out income streams for themselves.
Though it involves more personal responsibility, non-custodial wallets like Phoenix and Muun top the list as recommended picks. These tend to be more popular with more experienced users and those already running Bitcoin Lightning nodes themselves as they offer control over your own private keys.
With great power comes great responsibility though, meaning you need to understand operational security strategies so that you don’t accidentally lose your funds by losing your private keys. So, if you want to get into the Bitcoin ordinals market, head on over to Ordinals Market or Magic Eden today to get started.
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