Each bitcoin consists of 100,000,000 Satoshi (sats). The #ordinals protocol makes it possible to identify each individual Satoshi and manipulate them with the additional data attached (through a process known as embossing).
Ordinals has created another use case for bitcoin that goes beyond simple value transfer, making #Bitcoin NFT tokens a reality.
Until recently, #NFT tokens were mainly minted and used on blockchains such as Ethereum, Solana and the BNB smart chain, however, the team in charge of Ordinals believes that non-exchangeable tokens also have their place on the Bitcoin blockchain, therefore, this led to the emergence of the Ordinals project.
History has proven that changing part of the Bitcoin code is very difficult. This problem is mainly due to the decentralized network of nodes and developers who do not want to risk the security of the network. As such, Bitcoin NFT tokens have not gained as much traction. However, the growth of the cryptocurrency ecosystem has opened the doors to more innovative minds that consider the creation of NFT tokens for bitcoin as part of the future of web 3.
As of February 2023, inscriptions using Ordinals exceeded 100,000, as users put photos, video games and other content on the network. We will see in the following how it works.
What are Ordinals for bitcoin
The Ordinals protocol is a system for numbering Satoshi units so that each Satoshi unit is given a serial number and tracked through transactions. Simply put, Ordinals allows users to make individual Satoshi modules unique by attaching additional data to them, this process is known as "engraving".
Satoshi-named after the pseudonymous creator of bitcoin Satoshi Nakamoto – is the smallest denomination of bitcoin (BTC). One BTC can be divided into 100,000,000 Satoshi units, which means that each Satoshi is equal to 0.00000001 BTC.
Satoshi units are numbered based on the order in which they were minted and transported. The numbering scheme is based on the order of mining of Satoshi units, while the transfer scheme is based on the order of input and output of transactions. Hence the name Ordinals, which means"ordinal numbers".
While traditional NFT symbols are similar to ordinal numbers in some ways, there are some key differences between them. NFT tokens are usually created using smart contracts on blockchains such as Ethereum, Solana, and the BNB smart chain, and sometimes, the assets they represent are hosted elsewhere. And, on the contrary, ordinal numbers are engraved directly on individual Satoshi units, which are then embedded in blocks on the Bitcoin blockchain chain. The ordinal numbers are located entirely on the blockchain and do not require a side chain or a separate token. In this sense, the inscriptions of ordinal numbers inherit the simplicity, stability, security and durability of bitcoin itself.
Theory of arrangement and inscriptions
In the context of bitcoin, the ranking theory is a proposed methodology for identifying each Satoshi via a serial number and tracking them in the total inventory of bitcoin, starting from its minting for the first time and up to the expiration of its transaction life. This process is referred to as "engraving". Thus, the inscriptions of ordinal numbers are digital assets, similar to NFT symbols, inscribed on Satoshi in the Bitcoin network. This process was made possible thanks to the taproot upgrade, which was launched on November 14, 2021. For this reason, the inscriptions of ordinal numbers do not require a side chain or a separate token.
Since the theory of order allows tracking and transferring individual Satoshi units, it made it possible to collect them. Based on the total stock of bitcoin, the following ranks were determined to denote the scarcity of various Satoshi units:
Rumor: any Satoshi other than the first Satoshi of its own mass (total inventory is 2.1 quadrillion).
Uncommon: the first Satoshi of each block (total inventory 6,929,999).
Rare: the first Satoshi of each difficulty adjustment period (total inventory 3,437).
Epic: the first Satoshi after each halving (Total Stock 32).
Legendary: the first Satoshi of each cycle* (total inventory 5).
Fairy: the first Satoshi from the genesis block (total inventory 1).
The cycle represents the period between the conjugations that occur when the halving and the difficulty adjustment coincide. Theoretically, this happens every 6 halves, but the first pairing has not yet happened (it is expected in 2032).
Advantages and disadvantages of Ordinals
Ordinals has created another use case for the Bitcoin network that goes beyond simple value transfer. However, the Ordinals protocol has been met with controversy because it raises a fundamental problem among members of the bitcoin community. On the one hand, there is a category that believes that the relative simplicity of bitcoin should be preserved in its restrictions on the storage and transfer of value, and on the other hand, there is a category that believes that bitcoin should evolve to include new features and use cases.
Patterned Satoshi units are now competing for block space with regular BTC transactions, increasing network fees. This has caused some controversy in the bitcoin community, but some Ordinals supporters argue that this could be positive as the fees represent a crucial incentive for miners to secure the blockchain. And in the future, as block rewards dwindle over time, network fees will become the primary incentive for allocating the hash power of bitcoin. It seems that the cryptocurrency community is divided on the topic, but the project certainly brought innovation to the bitcoin sphere.
Final thoughts
Ordinals is changing the world of blockchain art by providing a completely new way to store information for bitcoin transactions. It adds an additional benefit and has led to an increase in the number of non-zero bitcoin addresses to an all-time high. We are witnessing a unique moment in the history of bitcoin, where innovation generates network activity that goes beyond the typical use cases of investment and cash transfer. Does this mean that Ordinals will continue to grow Not necessarily. We'll have to wait and see.
What is Taproot and how will bitcoin benefit
Taproot is an upgrade to the Bitcoin network, implemented on November 14, 2021. In addition to Schnorr's signatures, Taproot is one of the most important and highly anticipated technological upgrades for bitcoin since the introduction of SegWit. Taproot's goal is to change the way bitcoin scripts work to improve privacy, scalability, and security. These and many other advantages will be achieved by combining Taproot and The Associated promotion called Schnorr signatures.
Anyone familiar with the cryptocurrency community knows that privacy, scalability and security are the main concerns. While bitcoin is the most popular digital currency in the world, these problems still need to be solved. The taproot upgrade aims to achieve this solution.
Bitcoin has experienced ups and downs, but it has proven to be the anchor that maintains the status of digital currencies. Regardless of the problems that have arisen over the years, such as the Mt Gox hack. Or the notorious bitcoin chain splits, the cryptocurrency community has supported bitcoin.
But there are some problems that cannot be overlooked – the biggest one is the problem of privacy. Since bitcoin represents a public blockchain, anyone can monitor the transactions taking place on the network. This is a major concern for some.
It is possible to increase your anonymity through techniques such as currency blending and coinjoins. But, unfortunately, none of these technologies make bitcoin a special currency. While this does not apply to the taproot upgrade, it may help increase anonymity on the network.
The taproot upgrade was widely anticipated as a major first step towards solving bitcoin's lack of privacy and other related concerns. On November 14, 2021, Taproot was activated on the Bitcoin network after approval from miners around the world.
