The crypto industry took a surprising turn earlier this year – with the introduction of Ordinals. Ordinal protocol debuted in January 2023 by Bitcoin developer Casey Rodarmor, allowing users to directly inscribe text, images, or videos on the Bitcoin blockchain. Commonly referred to as Bitcoin NFTs, the introduction of the protocol was met with a mixture of excitement, skepticism, and curiosity from the crypto community.
Regardless of the divided opinions, Ordinals have definitely taken the crypto world by storm since inception. In April 2023 alone, the daily record of inscriptions made was broken 4 times, with over 223,000 Ordinals inscribed on April 29. According to Dune Analytics, there are over 13.6 million inscriptions on the Bitcoin network, with over 1,779 BTC in fees paid to date.
Let’s read the fine inscriptions on these Ordinals, and understand why they’ve turned the crypto industry upside down.
As mentioned, the Ordinal protocol is a way for users to inscribe data such as text, images, videos, and smart contracts directly on the Bitcoin blockchain. The data is inscribed on satoshis – the smallest units of Bitcoin – with each inscription generating an Ordinal (also known as a Bitcoin NFT). Ordinals were made possible through the 2017 SegWit upgrade (which created a separate field within transactions to allow more data like scripts/smart contracts) and the 2021 Taproot upgrade (advanced Bitcoin’s smart contract capabilities).
Inscription refers to a novel method of storing large amounts of data on the Bitcoin blockchain in a single transaction, which is also the method used to create Ordinals. Simply put, Ordinals are a numbering mechanism for Bitcoin that allows the tracking and transferring of individual satoshis on the network. It provides a simple way of tracking and assigning value to individual satoshis without requiring official records on the blockchain. Ordinals can also be transferred between owners, making it possible to buy, sell or trade individual satoshis.
When Ordinals first launched, it was met with intense debate from the Bitcoin community on whether the Bitcoin blockchain should be used for non-financial purposes. However, Ordinals are a way to add a new layer of utility and value to Bitcoin beyond its use as a digital currency, providing a way to track and transfer unique digital assets while securely managing digital ownership. Additionally, several developers have argued that Bitcoin NFTs could bring drastic benefits to the network, as it would invite more miners to secure the blockchain and developers to build on top of it.
Introducing Ordinals to Bitcoin will drive up transaction fees, in turn incentivizing more miners to secure the network - which is important as mining rewards decrease with each Bitcoin halving. Additionally, Bitcoin will become more commercially profitable with the new use case. Whether these benefits will be fully delivered, is yet to be determined – but the surge of interest in creating Ordinals may signal it is headed in the right direction.
Shortly after Ordinals became a reality, there was a new wave of interest in the Bitcoin blockchain and its capabilities. Developers all across the crypto world began experimenting with the potential of the network and eventually, the BRC-20 standard was born.
Similar to Ethereum’s ERC-20, the BRC-20 standard is an experimental token protocol that allows for the minting and transfer of fungible tokens on the Bitcoin network through Ordinal inscriptions. This allows users to store script files on Bitcoin and use that to attribute tokens to individual satoshis. Unlike ERC-20 tokens, BRC-20 tokens exist directly on the Bitcoin network. They also do not use smart contracts like ERC-20 tokens, meaning BRC-20 tokens have less functionality than their Ethereum cousins.
All in all, it’s essential to recognize that BRC-20 tokens are still very much in the early experimental stages. The long-term viability of BRC-20 as well as Ordinals seem to be undecided, and many are still cautious of the potential risks associated. In their current state, BRC-20 tokens have yet to establish a track record like its Ethereum counterpart ERC-20, and only time will tell whether the tokens hold real promise in the long term.
What this does reflect, however, is the ever-evolving digital asset industry and the community’s spirit to continuously break new grounds in the digital frontier. Although Bitcoin was the first blockchain to emerge back in 2009, the network has only seen a few (but major) upgrades since then. Some might overlook the Bitcoin blockchain because they say it is asleep - but as Napoleon put it: when she awakes, she will shake the world.