Ordinals

Inscribing Digital Artifacts on Bitcoin

Introduction

Ordinals, launched in January 2023, introduced a way to track and number individual satoshis, the smallest units of Bitcoin. Using features from Taproot and Segwit Upgrades, Ordinals allows for the creation and transfer of digital artifacts, which are similar to non-fungible tokens, over Bitcoin network’s Layer 1 [1].

Ordinal Theory

Ordinals is the numbering scheme that allows for the unique identification, tracking, and transfer of individual satoshis. There are 3 parts to Ordinal Theory [2]:

Numbering: Satoshis are numbered, starting at 0, according to the order in which they are mined. For example, the genesis block satoshis which are numbered 0 to 49,999,999.
Rarity: The rarity of ordinals is determined by their position in significant Bitcoin events. For instance, the first satoshi of the block, difficulty adjustment period, halving epoch, and conjunction cycle can be classified from uncommon to mythic rarity, with special consideration for the very first satoshi from the genesis block.
Transfers: Ordinals need to be tracked when transferred to preserve integrity and historical traceability. They are traced according to a first-in-first-out (FIFO) system within transactions, where the order of the satoshis being spent in a transaction follows the sequence in which they were originally mined and previously spent, preserving the ordinal numbering throughout transfers.

Shown below is a diagram of the transfer process:

Inscriptions and Digital Artifacts

An inscription is the act of embedding arbitrary content, whether it is images, text, or code, onto a satoshi.

Inscriptions create digital artifacts, a unique and indivisible token of digital property that can be traded or collected. Unlike many NFTs, the content for digital artifacts is immutable and always stored on-chain. Digital Artifact Inscriptions come with various features [3]:

Storage

The Taproot update to Bitcoin introduced a method for creating on-chain digital artifacts through inscriptions using a two-step process: first, a commit transaction is made with a Taproot output that commits a script with any desired content below 4MB. [4] Second, this output is spent in a reveal transaction, which makes the content publicly visible on the blockchain. The content, which includes a MIME type and the actual data, is serialized within the script using a structure called “envelopes”. This system allows for images, files, and video to be stored as inscriptions.

Tracking and Transfer of Digital Artifacts

The first satoshi in the input of the reveal transaction is where the inscription is made, ensuring it can be uniquely tracked and managed according to the rules of ordinal theory. When transferring an inscribed satoshi, the sender must construct a transaction that designates a specific UTXO containing the inscribed satoshi as input. The sender then creates an output where the exact amount of satoshis, including the inscribed one, is specified to be sent to the recipient’s UTXO set. [3]

Child Inscriptions and Recursion

Child Inscriptions and Recursion refer to the ways in which inscriptions can interact with each other to establish lineage or ownership history on the blockchain. Recursion enables inscriptions to reference the content of other inscriptions, providing use cases such as creative reuse and remixing of content. This includes the use of shared code snippets or combining elements from other inscriptions for generative art. Child inscriptions employ recursion to establish provenance; by referencing parent inscriptions, the owner of the parent can establish linkages to its children. A common use case for provenance is in collections, where the children of a parent inscription are members of the same collection. Below is a typical architecture for collections:

Child Inscriptions and Recursion refer to the ways in which inscriptions can interact with each other to establish lineage or ownership history on the blockchain. [5] Recursion enables inscriptions to reference the content of other inscriptions, providing use cases such as creative reuse and remixing of content. This includes using shared code snippets or combining elements from other inscriptions for generative art. Child inscriptions employ recursion to establish provenance; by referencing the parent inscriptions, the owner of the parent can establish linkages to its children. A common use case for provenance are collections, with the children of a parent inscription being members of the same collection. Shown below is a typical child-parent architecture for collections: [6]

Impact

Ordinals have had a wide-reaching impact on the Bitcoin ecosystem, with tens of millions of inscriptions having been created. [7] Ordinals have unleashed a wave of creativity, giving way to new capabilities and innovation:

Notable Collections

Ordinals have led to the creation of many collections. Notable Bitcoin Ordinals collections include:

Twelvefold: A generative art collection on Ordinals launched by Yuga Labs, the company behind Bored Ape Yacht Club. The auction ended with $16.5 million in sales for the 300-piece collection. [8]
On-Chain Monkey: On Chain Monkey announced the migration of their 10k Genesis collection from Ethereum to Bitcoin, spending over $1 million to inscribe all of its existing artwork on Bitcoin in a single transaction. [9] Their 3D generative profile picture collection, OCM Dimensions, are inscribed on rare 2009 satoshis and pioneered the use of recursion, provenance, and compression. [10]
Taproot Wizards: Taproot Wizards is a profile picture collection of 2,121 wizards referencing the iconic Bitcoin mascot helmed by Bitcoin advocates Udi Wertheimer and Eric Wall. On February 1st, 2023, the team orchestrated the largest block and transaction in Bitcoin history. Over 99% of blockspace (3.96MB) was taken by the inscription of Taproot Wizard Number #0001, shown below: [11]

Ordinals Wallets and Marketplaces

Wallets such as Xverse, Ordinals wallet, and Hiro allow users to receive, store, and inscribe ordinals easily without the need to run a full node. Marketplaces such as Magiceden, Ordswap, and Gamma facilitate the trading of Ordinals. These marketplaces and wallets significantly enhance the accessibility of usability of Ordinals, making it feasible for a wider audience to engage with this new technology.

BRC-20 Standard

Ordinals have also brought about the rise of fungible tokens without the need for another layer through the BRC-20 Standard. BRC-20 tokens are inscribed with JSON (Javascript Object Notation) data, which gives functionality to deploy, mint, and transfer tokens on the Bitcoin network. Tokens such as PEPE, ORDI, and MEME have reached hundreds of millions in market cap, thousands of owners, and brought about BRC-20 Marketplaces. [12]

Controversy

The advent of Ordinals has caused much controversy in the Bitcoin community. On one hand, ordinals mean new users and higher fees per block, which provide additional income for miners. Proponents argue that ordinals stave off the impacts that come with halving events, when block mining rewards halve. On the other hand, higher transaction fees have led to concerns about accessibility. Since the cost for decentralized peer-to-peer transactions increases, users who send money over the Bitcoin network might deviate as transaction fees get costly. [13] Tools have been created that protest the adoption of Ordinals, such as Ordisrespector, a spam patch-filter for nodes that detect Ordinal transactions and reject them. [14]