Bitcoin NFTs: How the Ordinals protocol works
With more than 38 million inscriptions so far, the Bitcoin Ordinals protocol opens new horizons in the world of NFTs by bringing them directly onto the Bitcoin blockchain.
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Since the Ordinals protocol launched in January 2023, the popularity of Bitcoin NFTs has skyrocketed. The protocol allows NFTs to be created directly on the Bitcoin blockchain. Through “Ordinal Theory,” every satoshi gets a unique identity, making it non-fungible. The main advantage of Ordinals NFTs is that they live on the Bitcoin blockchain itself.
The evolution of NFTs on Bitcoin: despite the limited smart contract functionality of Bitcoin and the lack of an NFT standard like Ethereum’s ERC-721, NFTs are not new to Bitcoin. Colored Coins, around since 2012, are considered the ancestors of today’s Bitcoin NFTs.
What is the Bitcoin Ordinals protocol?
In short, and with plenty of technical terms, the Bitcoin Ordinals protocol makes it possible to assign a unique identity to every satoshi through Ordinal Theory. Developed by Casey Rodarmor, the protocol makes it possible to track and transfer satoshis and to imbue them with unique meaning through inscriptions.
Because they are so new, Bitcoin Ordinals NFTs come with a wealth of technical terms. To better understand how the Ordinals protocol works, here is first a brief explanation of the key terms used:
Key terms for understanding Bitcoin NFTs
- Inscription: Metadata attached to Bitcoin satoshis, known as “sats”
- Metadata: Information about an NFT’s main characteristics, such as its name and description, as well as an image file or a link to it
- Satoshi: The smallest unit of a bitcoin (1/100,000,000 of a bitcoin), often called a “sat”
- Token ID: A unique identifier for each NFT
- Witness: The transaction signatures associated with a specific Bitcoin transaction
Bitcoin Ordinals NFTs work on the basis of Ordinal Theory, implementing the corresponding protocol created by Casey Rodarmor. The main goal of Ordinal Theory is to assign a unique identity to every satoshi. This makes it possible to track and redistribute satoshis and to give each one a unique meaning through special inscriptions.
In this way, every satoshi can be distinguished from any other, and so becomes non-fungible.
The core principles of Ordinal Theory and the Ordinals protocol cover the following points:
- The Ordinals protocol assigns each satoshi a serial number based on when it was mined. In other words, the first ordinal corresponds to the first satoshi ever created.
- Each satoshi can then be enriched with additional data, such as photos, text or video, through a Bitcoin transaction. The additional data can be up to 4 MB.
- Once the transaction is mined, the additional data becomes an integral part of the Bitcoin blockchain. It is also displayed through wallets and online platforms that support Ordinals.
- To sum up, each satoshi’s ID is its serial number, while an Ordinal NFT’s metadata consists of the extra information embedded in the transaction’s “witness” data.
One of the main advantages of Ordinal NFTs compared with other blockchains is that their metadata is self-contained on the Bitcoin blockchain. This means Ordinals NFTs exist directly on the Bitcoin blockchain and don’t have to rely on an additional, separate layer (extra layer). Many consider this more reliable.
In contrast, in many other NFT collections the actual artwork file is stored off-chain, so the metadata only contains a link to the file, which leaves the work open to modification by third parties.
Developments in Bitcoin NFTs
The Bitcoin Stamps protocol (Secure Tradeable Art Maintained Securely) is a recent innovation that proposes a different approach from the Ordinals protocol for embedding image data in the Bitcoin network.
NFTs created with Bitcoin Stamps are similar to ERC-1155 semi-fungible tokens or digital collectibles. However, these NFTs are stored in Bitcoin’s unspent transaction outputs (UTXOs), instead of being embedded in the witness data as with the Ordinals protocol. UTXOs represent unspent bitcoins resulting from transactions between two addresses. The way metadata is stored in the Bitcoin Stamps protocol means it cannot be pruned (that is, the data cannot be removed) by a full node, which ensures the integrity of the data.
Bitcoin Ordinals vs Bitcoin Stamps
| Ordinals | Stamps | |
| Pros | They store the image data in the transactions’ “witness” data, which can be pruned, so creating NFTs costs less than with Stamps (which store data across many different UTXOs). | The image data cannot be deleted by a full node, as it is stored across many different UTXOs. This helps preserve decentralization. |
| Cons | The NFTs’ data could theoretically be deleted by individual nodes, but the record on the blockchain remains. | Higher cost, because the data is stored on every Bitcoin node. The creator of the Stamps protocol suggests limiting image resolution and size to lightweight 24x24-pixel images with 8 colors in PNG or GIF format. |
Besides protocols such as Bitcoin Ordinals and Bitcoin Stamps that are built directly on the base layer, Bitcoin NFTs can also be created on Bitcoin layer 2s that support smart contracts and transaction settlement, making the creation and trading of Bitcoin NFTs cheaper, more sustainable and more scalable. Examples of Bitcoin layer 2s that support smart contracts and NFTs include Stacks, Rootstock and the Liquid Network.
What are the most popular Bitcoin NFT projects?
Several of the most popular Bitcoin Ordinals NFT projects are based on Ethereum counterparts. For example, Ordinal Punks and Bitcoin Punks are based on CryptoPunks.
Ordinal Punks
The Ordinal Punks collection consists of 100 unique PFPs (profile pictures) generated entirely on-chain on the Bitcoin blockchain within the first 650 inscriptions. Ordinal Punks use an open-source algorithm to generate the PFPs, which measure 192×192 pixels.
TwelveFold
Leading NFT companies are also getting involved in Ordinals. Yuga Labs, the company behind the popular Ethereum-based NFT collection Bored Ape Yacht Club, recently released its first Bitcoin Ordinals NFT collection, called TwelveFold. It consists of 300 unique generative art pieces inscribed on satoshis on the Bitcoin blockchain.
Domain name projects
Other notable Bitcoin-based NFT projects include Bitcoin domain names. These aim to offer functionality similar to Ethereum domain names such as the Ethereum Name Service (ENS). Stacks is a Bitcoin layer 2 solution that provides a .BTC domain name as a decentralized online identity and a human-readable wallet address.
Ordinals and the BRC-20 token standard
The BRC-20 token standard is an experimental layer for the Bitcoin blockchain. It was created by an anonymous on-chain analyst going by the name ‘domo’ in March 2023.
Inspired by Ethereum’s ERC-20, BRC-20 tokens let developers create and transfer fungible tokens using the Ordinals protocol. However, unlike ERC-20, BRC-20 tokens don’t use smart contracts.
The BRC-20 token standard uses Ordinals inscriptions of JSON data to deploy, mint and transfer tokens. So far, more than 34,000 BRC-20 tokens have been created, such as ORDI, the first BRC-20 token.
Conclusion
Bitcoin NFTs have recently attracted a lot of interest and gained recognition since the introduction of the Ordinals protocol in January 2023, which allows NFTs to be created directly on the Bitcoin blockchain.
Bitcoin Ordinals NFTs are based on Ordinal Theory through the Ordinals protocol, which aims to assign a unique identity to every satoshi, allowing satoshis to be tracked, transferred and given individual meaning through inscriptions. This lets each satoshi be distinguished from the others, making it non-fungible. Other notable developments in Bitcoin NFTs are the Stamps protocol and Bitcoin domain names.