Ordinals: common ground for Ethereum and Bitcoin maximalists?

Representing real world assets on the Bitcoin blockchain is nothing new.

More than a decade ago, projects such as the Colored Coin protocol and the Counterparty exchange demonstrated Bitcoin you could track items, not just units of currency, in a decentralized way.

However, consensus issues prevented either project from gaining widespread market adoption. Ethereal it quickly became the go-to platform for coining and implementing unique digital artifacts. This preference led to the rise of non-fungible tokens or NFTs as they are more commonly known today.

But, things seem to have come full circle as a Bitcoin developer looks to reinvent tokenized assets on the Bitcoin blockchain. Even the Ethereum community seems to be rooting for this new venture. The move suggests a potential unity between what many see as two of the cryptocurrency industry’s oldest rivals.

What are Bitcoin ordinals?

Bitcoin Ordinals uses an open source protocol that assigns unique identities to individuals satoshis (sat). Named after the creator of Bitcoin, Satoshi Nakamoto, satoshis are the smallest units of bitcoin. Using Ord software, the protocol adds data to these satellites and allows software users to track them based on a system called ordinal numbers.

At a high level, this involves assigning a numerical value to each satoshi based on various factors. These factors include when that satoshi entered circulation through mining as well as the specific block height where satoshi appears

Users can use software called Ord to track each satoshi. The system also enrolls them with content to create native bitcoin digital artifacts.

Users can trade and transfer these uniquely identified satoshis just like any normal bitcoin unit. But unlike colored coins or most Ethereum NFTs, the digital item itself is stored entirely on-chain, not anywhere else on the internet.

This functionality would not be possible in Bitcoin without implementing SegWit and Main root — two soft fork upgrades that helped increase Bitcoin’s block capacity.

Who Created the Bitcoin Ordinals?

Bitcoin developer Casey Rodarmor released the Ordinal protocol on January 21, 2023. Rodarmor set out to create a system for numbering satoshis that would give each one a unique serial number. This unique identifier would allow users to track each satoshi through the blockchain. He wanted to be able to achieve this in a way that was completely native to Bitcoin, without using separate sidechains or tokens.

Rodarmor earned a BS in Computer Science from the University of California, Berkeley. Most recently, he worked as a software engineer for Agora, an open source application that improves the Bitcoin Lightning Network.

Rodarmor’s idea is not the first time a numbering system has been proposed to assign unique identifiers to individual satoshis. In fact, a BitcoinTalk user named jl2012 published an almost identical proposal for Ordinals in October 2012. At the time, another Bitcoin developer debunked the post as an “old idea.”

Rodarmor has since recognized the work of jl2012 in the last section of a mailing list post announcing Ordinales.

How do ordinals work?

The Ordinal protocol consists of two main parts:

Ordinal Theory: The method of numbering satoshis for purposes of tracking, transferring, and assigning value.
Enrollment: The process of using the Ord software to associate content with a satoshi based on the number assigned by the software. Ord Software associates content with actual satoshis, but does so according to a numbering scheme unique to Ord Software.

ordinal theory

Ordinals offer a method of assigning a unique identifier value to each of the 2.1 quadrillion satoshis that will be created.

The numerical value assigned to each satoshi acts as a serial number. The system creates this serial number based on how that satoshi relates to different periodic events that occur on the Bitcoin blockchain, including:

Blocks: batches of transactions that are committed to the Bitcoin blockchain approximately every 10 minutes. Blocks are the most common event that ordinals use to derive their numerical value.
Difficulty Adjustment Periods: After every 2,016 blocks (approximately every two weeks), the Bitcoin protocol adjusts its mining difficulty target based on the amount of computational power being used to maintain the network. We call this hashrate.
Halving times: After every 210,000 blocks (approximately every four years), the system halves the number of new bitcoins entering circulation. There have been three halves since the launch of Bitcoin.
Cycles: After every six halves, a difficulty adjustment and halving take place simultaneously, resulting in an event known as a conjunction. Because halves only occur every four years, conjunctions only occur every 24 years. Conjunctions are the least common event that ordinals track, and the time frame between conjunctions is called a cycle.

The ordinals use these events to create a process for tracking the comparative rarity of satoshis. the ordinal theory handbook analyze how satoshis relate to each of these events using the following levels of rarity:

rarity level
Condition
Amount (in total BTC supply)

Common
Any sat other than the first sat of your block
2,099,999,990,756,525

Rare
The first Saturday of each block.
6,929,999

Strange
The first Saturday of each difficulty adjustment period.
3,437

Epic
The first Saturday of each halving season
32

Legendary
The first Saturday of each cycle.
5

mythical
The first satellite of the genesis block.
1

By assigning a unique identifier to each satoshi, ordinals open up a way to turn inherently fungible satoshis into non-fungible items. This identifier makes them completely unique, just like NFTs.

ordinal inscription

We refer to the delivery of a piece of content to a satoshi as a “subscription”. This process is carried out using orderand you can see inscriptions with the ordinal explorer.

The system identifies content by its MIME type (whether it’s a JPEG file, MP3 file, HTML code, etc.) and a byte string (the content itself). Enrollments do not necessarily have to represent a non-fungible token. Users can also create security tokens based on Bitcoin and other assets.

Ordinal entries are completely on-chain and are stored within the script of a main transaction. This process is different from many of the more prevalent NFT collections on the Ethereum blockchain. Typically, the Ethereum blockchain stores NFT media content off-chain, while keeping only a record of the NFT on the blockchain.

Only a few select NFT collections, the most prominent being cryptopunksstore both media and the NFT directly on the chain.

Through this enrollment process, the blockchain stores content along with a specific satoshi. The process turns satoshi into a unique digital artifact that users can track, transfer, hold, buy and sell.

How Bitcoin Ordinals (Can) Impact Ethereum NFTs

The Ordinals protocol has resurrected the great potential of asset tokenization on the highly secure and decentralized Bitcoin blockchain. Not only that, it also serves as a means to permanently store digital content directly on-chain, something rarely seen in the NFT space.

This innovation has already sparked interest from existing Ethereum-based NFT creators, including Tom W, co-founder of cool cats. About him Ordinals Discord official serverThey commented, “Hello everyone, I’m Tom, one of the co-founders of Cool Cats NFT. Here to experiment with something cool. https://twitter.com/coolcats.”

With revamped capabilities to launch existing popular collections on the Bitcoin blockchain, Ordinals can help combat the long-standing problem of missing NFTs. This prevents external file storage issues and could open up new potential revenue streams for NFT creators.

Interestingly, ordinals are actually gaining ground. For example, Bitcoin Rocks from the original Ethereum-based collection has already sold for 0.2 BTCwhile a verified Twitter user with a blue check with the identifier “businessman.eth” aware“WOW!!! Selling 0.42 BTC for a @OrdinalPunks #Bitcoin The ordinals are beginning to gain strength.”

While the true impact of ordinals is still emerging, one thing is clear: Maximalists in the Bitcoin and Ethereum fields are excited about the new opportunities these digital artifacts present.

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These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell or hold any digital asset or to engage in any specific trading strategy. Some cryptographic markets and products are not regulated and you may not be protected by government compensation schemes and/or regulatory protection. The unpredictable nature of crypto asset markets can lead to loss of funds. Taxes may be payable on any returns and/or on any increase in the value of your crypto assets and you should seek independent advice on your tax position.