Bitcoin Ordinals: The Next Wave of NFT Hype?

Bitcoin, the oldest and most established cryptocurrency, has historically been straightforward in its function. However, a recent upgrade has allowed for the creation of Ordinals, a new way to create NFTs on the Bitcoin blockchain. Let’s look at the history of NFTs on Bitcoin, how Ordinals were made possible, and what the future could hold for these new assets.

When Bitcoin was released in 2009, it was meant to solely be a “peer-to-peer electronic cash”, as stated in the whitepaper. At the time, a decentralized store of value was a revolutionary concept and only made possible through the invention of blockchain technology. However, over time, developers realized that blockchains were useful for more than simply sending digital money from one person to another, and Ethereum was created as a way to deploy smart contracts to a blockchain.

Over the past 14 years, Bitcoin has upgraded its protocol, but still maintains a relatively simple codebase. The argument for keeping Bitcoin simple is to keep the asset as stable as possible and reduce the risk of blockchain-breaking bugs or exploits. One of these upgrades, the OP_RETURN opcode, allowed for the creation of Counterparty, the first NFTs-for-Bitcoin protocol released in 2014. Counterparty essentially acted as a Layer 2 for Bitcoin and inherited the blockchain’s security while providing new use cases. It also allowed for tokens, multi-signature wallets, DAOs, and a decentralized exchange, all years before the explosion of DeFi on Ethereum in 2020. Today, Counterparty is not nearly as popular as it once was but is still historically notable for pioneering many popular concepts and ideas. Other necessary protocols that provided the basis for more data to be added to Bitcoin include Mastercoin and Colored Coins.

Ordinals were released in 2023 and take advantage of two recent Bitcoin developments: Taproot and SegWit transactions. Without diving too deep into the technical details, these improvements to the Bitcoin protocol make it possible to store data and write functions on Bitcoin.

Ordinal theory, the basis behind the Ordinal NFTs, is the idea of individually numbering satoshis, the smallest denomination of Bitcoin equal to one hundred millionths of a coin, or 0.00000001 BTC. The sats are numbered according to the order in which they are mined. This is where the “Ordinals” name comes from, as the numbering is entirely related to the mining order. By numbering the satoshis, some immediately became more valuable than others, such as those in early Bitcoin blocks, satoshis that were mined during significant events, or those with notable numbers.

Ordinal Digital Artifacts, the official name for the “Bitcoin NFTs,” have some exciting characteristics unique to their implementation. They are minted by inscribing data to an individual satoshi. Once inscribed, the data is fully immutable and can never be changed, and is always directly on the Bitcoin blockchain. This differs from Ethereum NFTs, which may use a data storage service like Arweave or IPFS to host NFT metadata and only store a pointer or link to this storage location on the chain.

This novel concept immediately exploded in popularity, and tens of thousands of digital artifacts have already been created. Additionally, Yuga Labs, the company behind one of the most famous NFT collections, Bored Apes Yacht Club, announced that they would release a collection called TwelveFold using Ordinals. The collection is meant to represent data related to the Bitcoin blockchain. The auction sold 288 of the 300 Digital Artifacts, with the highest bid being around $160,000 and the lowest at $50,000.

Unsurprisingly, Ordinals are not without controversy in the Bitcoin community: some criticize them for straying from Bitcoin’s original intention to be solely digital cash. Additionally, Ordinals take up a lot of space on-chain, and miners must choose between including a few Digital Artifacts or many regular transactions. 

The future success of Ordinals and Digital Artifacts is by no means guaranteed, and it is clear that the hype surrounding them is incredibly high. That being said, they do offer some interesting benefits over Ethereum-based NFTs, and more projects will likely continue to be released as Ordinals to capitalize on the current excitement. If the Bitcoin community rallies behind its new assets, it could provide a new and prevalent use case to help Bitcoin retain its status as the most valuable cryptocurrency.

By Lincoln Murr

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