A satoshi, or sat, is the smallest unit of bitcoin and is named after Bitcoin’s creator, Satoshi Nakamoto. Since there are 100 million sats in one bitcoin, each sat is worth 0.00000001 BTC. When all 21 million Bitcoin are mined, 2.1 quadrillion sats will exist.
Normally, each sat is indistinguishable from the others. Because every sat is equal to another sat—and can be exchanged for equal value—they are considered fungible. The same is true of other blockchain-based tokens like ETH and DOT, as well as the smaller divisions of these coins.
The Ordinals protocol is a system that makes it possible to distinguish and track individual sats, a key building block to creating Bitcoin-based NFTs. When a new Bitcoin block is mined and new bitcoin are created as mining rewards, the protocol assigns a unique number to each sat based on when it was mined. Smaller numbers correspond to older sats.
As transactions occur, the Ordinals protocol tracks each sat through subsequent transactions in a “first-in-first-out” scheme. The sats’ identifying numbers are called Ordinals, since both the identification and the tracking mechanism are dependent on the chronological order of creation and transactions.
NFTs saw a huge boom in popularity on smart contract platforms like Ethereum during 2021. After the rise of NFTs on other blockchains, the Bitcoin community was primed to support a new, Bitcoin-based project with similar functionality. In January 2023, Ordinals were introduced by Casey Rodarmor, who described the primary utility of Ordinals as supporting digital artifacts.
Specifically, he explained that digital artifacts are assets that are immutable, ownable, permissionless, uncensorable, and have self-contained data (i.e., doesn’t refer to off-chain information). These bits of data are referred to as inscriptions, and each unique inscription essentially turns its associated sat into an NFT.
The history of arbitrary data and NFTs on Bitcoin
Embedding arbitrary data on the blockchain has been a known feature since the genesis block of Bitcoin, where Satoshi famously referenced a newspaper headline: “Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” Arguably the first piece of blockchain-based art came two years later, when a 2011 message appeared on Bitcoin’s blockchain with ASCII renderings of Bitcoin developer Len Sassaman and then-Chair of the Federal Reserve Ben Bernanke.
However, although this data became immutably recorded on the blockchain, it was not owned by a particular user. The first unique, ownable digital assets (and therefore widely regarded as the first NFTs) were on the Namecoin blockchain. Namecoin forked from Bitcoin in 2011 and provided the first blockchain-based domain name service, granting .bit domain names to owners. “Quantum,” the first visual NFT represented by a GIF file, was created on Namecoin in 2014.
The idea of colored coins was introduced by Israeli developer Meni Rosenfeld in 2012. He conceived of “coloring” certain Bitcoins to distinguish them from the rest, allowing them to be used for alternative currencies, certificates of ownership for real world assets, and other purposes.
In 2014, a layer 2 protocol for Bitcoin called Counterparty creatively used a portion of Bitcoin’s code called OP_MULTISIG to create tokens on top of the blockchain. This resulted in the development of projects like trading card games (Spells of Genesis, 2015) and collectable digital “cards” (Rare Pepes, 2016) to the crypto community.
Following this, an increasing excitement in the crypto community mounted for non-Bitcoin NFTs with the introduction of projects like CryptoPunks (2017), CryptoKitties (2017), Axie Infinity (2018), and the Bored Ape Yacht Club (2021). Coupled with the technical changes accompanying the SegWit (2017) and Taproot (2021) updates to Bitcoin, this momentum paved the way for the launch of Ordinals.
How do Ordinals work?
Ordinals simply refer to the system for numbering and tracking satoshis. Each sat is assigned a unique identifying number when they are created (mined) which can be traced through every subsequent transaction. Each sats identified by the Ordinals protocol can also be referred to as an Ordinal.
The Ordinals protocol assigns a number to each sat based on the order in which it was created, called the integer. It also assigns a decimal based on the sat’s position in the block height of its Bitcoin block. Finally, its position in the entire Bitcoin supply is expressed as a percentile, and its name is assigned using the letters a-z. The names of sats get shorter as time goes on, such that the last sat ever mined will be “a.”
Ordinals can also be represented as degrees, a four-part notation that describes each sat according to where it is in a block:
- which cycle (defined as roughly every six halvings) the sat belongs to,
- when its block was produced in relation to the last Bitcoin halving,
- when its block was produced in relation to the last time the mining difficulty was adjusted, and
- what position the sat is in its block.
Combined, these factors determine the rarity of each sat.
After a sat has been identified by the Ordinals protocol, users can inscribe a sat with arbitrary data to give it its unique characteristics, defined as a digital artifact. Writing arbitrary data into a sat only became possible after the SegWit (2017) and Taproot (2021) upgrades to Bitcoin Core.
When an Ordinal is inscribed, the inscription is tied to a special type of taproot code, called a script-path spend script. Although previous methods of putting arbitrary data on Bitcoin were more limited, this new method has a greater capacity for the size/amount of data that an inscription can include.
Creating and interacting with inscriptions requires running a full Bitcoin node and a special, ordinal-enabled wallet.
Ordinals + Inscriptions = NFTs
Taken together, the combined functions of 1) identifying and tracking satoshis as Ordinals, and 2) inscribing them with unique arbitrary data imbues them with the same characteristics as traditional NFTs—but without the need for smart contracts.
However, it is important to make a distinction between ordinal inscriptions and the NFTs present in other blockchains. Most notably, inscribed Ordinals are the same sats that have always existed, not new tokens. These sats can be sent and spent like any other sat, which means that, in a sense, they still maintain their fungibility.
Ordinal theory can be imagined as a way of looking at the Bitcoin blockchain with special goggles on, allowing users to create, see, and track the extra information associated with each sat.
In contrast to non-fungible Ordinals, BRC-20 (a reference to Ethereum’s ERC-20) is a token standard built on Bitcoin using the Ordinals protocol which allows users to create fungible tokens.
However, despite the similar name, BRC-20 tokens do not have the same expressive smart contract support as Ethereum’s ERC-20 tokens due to the Bitcoin blockchain’s intentionally limited programmability.
This standard enables users to create and manage blockchain-based assets using their Ordinal wallets.
What are Ordinals used for?
The first ordinal was inscribed on a sat from 2014. By April 2023, more than 1 million Ordinals had been inscribed, with most depicting either text or images. In total, that activity had generated over 172 Bitcoin in fees, or around $5 million at the time.
Many Ordinals are copies of NFT collections that have launched previously on other chains. This includes BTC DeGods, Bitcoin Rocks, Bitcoin Punks, and Ordinal Punks. Pixel Pepes, a reference to the Rare Pepes of Bitcoin’s own NFT past, have even been inscribed as Ordinals. Furthermore, Yuga Labs—the creator of the Bored Apes Yacht Club—has even released a generative art project as Ordinals.
In the early days, Ordinals have largely been used to port Ethereum (and other chain) NFT collections to Bitcoin, but unique projects are also beginning to stake a claim to digital artifacts tied to the original cryptocurrency.
It is important to note that Ordinals are a new technology and the use cases for them keeps growing.
Bitcoin Ordinals essentials
- Ordinals are a method for identifying and tracing the movement of satoshis (Bitcoins smallest unit) by assigning them numbers based on when they were mined.
- The process of inscribing data onto particular Ordinals gives them similar functionality to non-fungible tokens (NFTs) on smart contract platforms like Ethereum.
- Although there is a long history of storing “arbitrary data” on Bitcoin, Ordinals and inscriptions represent a new, efficient method that—coupled with an increased community enthusiasm for NFTs—may have staying power.