By using a specific numbering scheme, the Ordinal Theory brought another functionality to the Bitcoin blockchain, allowing it to have its own native Non-fungible Tokens or NFTs without requiring any change or a separate blockchain or sidechain.
Bitcoin consists of smaller units called Satoshi and each Bitcoin can be divided into 100 million satoshis. The ordinal numbering scheme is based on the order satoshis are created or mined and can act as a unique identifier.
A few months after their creation, Bitcoin originals, or Bitcoin NFTs, started to gain popularity, causing a sharp increase in transaction fees on the Bitcoin blockchain. In the past six months, a whopping number of 40.4 million US dollars have been paid as ordinal fees which highlights the limitations of the Bitcoin blockchain.
But what is the Ordinal Theory and how does it manage to add functionality to the Bitcoin blockchain without changing its infrastructure?
Let’s find out!
Proposed on January 2023 by Casey Rodarmor, ordinals enable the Bitcoin blockchain to store content directly on its system. In other words, ordinals allow for the native Bitcoin NFTs also known as Bitcoin Ordinals.
Inscriptions help the arbitrary content to be linked (or attached) to each individual satoshi, making them trackable on the Bitcoin network. Inscriptions can do this on the current Bitcoin blockchain without changing any code or requiring any other chain or token.
Just shortly after its launch, the idea gained much attraction from the crypto community. According to Dune Analytics, more than 11 million inscriptions have been created to date. The increasing demand for Bitcoin-native NFTs has put a huge pressure on the Bitcoin blockchain, driving transaction fees quite high. The total transaction fees paid for ordinals stands at 1,667 bitcoins at the time we were drafting this article.
But what is the ordinal theory or ordinal protocol?
The ordinal theory is a numbering system for the smaller units of Bitcoin, called satoshis. Each Bitcoin consists of 100 million satoshis and the ordinal theory tries to number them based on the time they were mined or created.
The ordinal numbers, then can be used as unique identifiers for digital artifacts such as non-fungible tokens (NFTs) and rare coins. Each NFT can be linked to a specific satoshi which users can hold in their Bitcoin wallets. Users can also transfer their Bitcoin NFTs from one wallet to another through regular Bitcoin transactions.
Ordinals have an explorer as well which you can use to track the latest ordinals and inscriptions on the Bitcoin blockchain.
Now, let’s dig a little deeper into how ordinals can make native NFTs possible on the Bitcoin blockchain without changing its code.
To understand how Bitcoin ordinals work, we need to first talk about inscriptions.
Inscriptions help any arbitrary content to be linked or attached to a specific satoshi using the ordinal numbering system. This content is included in the transaction and can be transferred on the Bitcoin blockchain.
Let’s consider this with an example.
An Ethereum NFT has different attributes that make it unique the way it is. The details of these attributes are quite important as they define an NFT. The Ethereum NFT is based on a standard that allows it to store these details within itself. Therefore, we can say that an Ethereum-based NFT and an Ethereum-based coin are different from each other as they are based on different standards and serve different purposes (ERC-721 and ERC-20 respectively).
Now, Bitcoin wasn’t designed with NFTs in mind so by default, there’s no specific place where the details of the digital artifact can be stored. Previous Bitcoin NFT proposals used another layer to store this data, but Casey came up with a better idea.
An inscription on the Bitcoin blockchain – Source: Ordinals.com
He used the order in which satoshis had been mined as the base for a numbering system. In other words, satoshis are numbered based on the time they are created. This number is then used as an ID.
The details of the content or the Metadata are stored in the transaction witness which is usually used to hold other transaction details. The type of content is also stored there as well.
Ord is the official and recommended wallet that can be used to store and transfer Bitcoin ordinals or Bitcoin NFTs. However, if used in specific ways, Bitcoin ordinals can be held in other Bitcoin wallets as well.
As mentioned above, ordinals are stored in satoshis and are part of a Bitcoin. Therefore, they can be spent the same way any unit of Bitcoin is spent. In simple words, you may spend your expensive NFT by mistake while transferring your bitcoins to another address.
Considering this, this is quite important that you use a specific Bitcoin wallet only for your Bitcoin NFTs and use another one for your usual Bitcoin transfers.