Introducing Ordinals — Theory, Protocol, Bitcoin NFTs & New Possibilities.
March 2023
Much has been said about the Bitcoin ecosystem since the 2008 whitepaper detailing a decentralized network & the genesis of the first block of Bitcoin days later. However, what has stayed true is Bitcoin's hardened stability and security as a network layer ever since. While other networks have experience downtime, attacks, and more, the Bitcoin network managed to stay the course proving its viability as the ultimate Layer 1 (L1). However, this came at a cost, as it has been historically challenging to develop on top of or write directly to the network itself.
Over the years, we've seen several networks rise to leverage the network's strengths, such as Stacks, Lightning, RSK, etc. which led inevitably to the creation of an ecosystem comprised of Bitcoin Layers. However, left unsolved was the ability to write to the network and enter Ordinals.
SegWit & Block Capacity.
In the wise words of Carl Sagan, "you have to know the past to understand the present," to do so, we need to start with the upgrades that made all this possible—starting with the July 2017 SegWit update, which stands for "segregated witness," that brought with it the ability to collect all unlocking code in a dedicated section for each Bitcoin transaction, along with decreasing transaction times and increasing block capacity beyond the 1MB max, initially set by Satoshi Nakamoto in 2010.
SegWit introduced a new blocksize measured in terms of Weight Units (wu), later called a vsize/vbyte, with a maximum capacity of 4 million weight units or 4wu per block. This brought the total maximum capacity of a block to ~4MB. The new measurement standard had been designed to be fully backward compatible with all previous versions of Bitcoin Core.
SegWit accomplished this via a split data structure separating the "witness" data within a transaction, including the signatures & scripts, to an entirely new part of a Bitcoin block, known as "transaction data," containing details of the sender, receiver, etc. The introductions of this structure split the new 4wu block size into
- Witness data with each vbyte of counting for 1wu or 25% of the weight per vbyte compared to Transaction data.
- Transaction data with each vbyte of counting for 4wu or four times the weight per vbyte compared to Witness data.
The Taproot Unlock.
Following SegWit, the next major upgrade was activated in November 2021, known as Taproot, also a soft fork. With it, Taproot removed constraints previously implemented on per-transaction maximums for witness data footprints. Additionally, the upgrade unlocked increased speeds, more privacy (MAST), multiple key signatures (Schnorr), and issuing, sending, and receiving assets on the Bitcoin base layer (Pay-to-Taproot & Taro).
- Taro (Taproot Asset Representation Overlay), powered by Taproot, is a proposed protocol for issuing, sending, and receiving assets on the Bitcoin base layer (L1) and Lighting Network.
- Schnorr signatures unlock key aggregation by introducing the ability to combine multiple public keys and signatures into one. Simply put, combining multiple signatures for verification rather than aggregating individually provides greater transaction efficiency.
- MAST (Merkelized Alternative Script Trees) hides any preset conditions tied to transactions. Unused outcomes are not published on-chain, giving added privacy and condensing the size of transactions, thus less data usage.
- P2TR (Pay-to-Taproot) adds a new method of spending Bitcoin with Taproot addresses.
Ordinal Theory.
Fast forwarding to late January 2023, Casey Rodarmor released the Ordinal Theory framework, that when put into practice, created Ordinals (Ord) requiring no separate side-chain, token, or updates to the Bitcoin core. According to the project's GitHub, the code base's earliest version (v0.0.2) was uploaded in June 2022. Ordinals play a vital role in the thriving Bitcoin ecosystem.
Why, you ask? Well, Bitcoin (BTC) has a fixed supply of 21 million, and within each Bitcoin (BTC), there live 100M Satoshis or "sats." Ordinals provide a numbering system (ordinal numbers) that determines order (first-in-first-out) based on minting and assigns an identity to those individual sats beginning with "0" up to "4,999,999,999" per block, allowing them to be individually tracked and traded. This numbering system is not new and dates back to the Proof of Activity (PoA) proposed in August 2012.
The introduction of Ordinals enabled Bitcoin inscriptions (i.e., Bitcoin NFTs) directly onto individual Satoshis (and therefore the Bitcoin network), unlike other major networks such as Ethereum, which require the use of smart contracts.
Inscriptions.
Inscriptions are immutable on-chain digital artifacts (i.e., Non-Fungible Tokens/NFTs) inscribed on Bitcoin sats. Each inscription is permanently and forever recorded directly on the blockchain through Bitcoin transactions. They can be transferred or sent to Bitcoin addresses (i.e., BNS, Sats Names), held in bitcoin UTXOs, wallets (Xverse & Hiro), placed on marketplaces (Gamma, Ordswap & Ordinals Hub), and more, all within standard Bitcoin transactions.
UTXO Overview: Unspent Transaction Outputs (UTXOs) are BItcoin's accounting methodology enabling bitcoin transactions comprised of outputs from prior transactions. Each bitcoin address includes a set of UTXOs representing a balance rather than a singular Bitcoin representing an entire balance. UXTOs are created and destroyed when bitcoins are spent, providing the network with the information to prevent double-spending and prove a user's bitcoin balance.
Each inscription's content structure consists of the content type (MIME type) & the content itself (byte string). This structure inherently stores the content of an inscription entirely on-chain in taproot script-path spend scripts.
In their current state, inscriptions can contain data such as images, videos, audio files (Greetings to the Universe in 55 Different Languages), text files (ex. 1984), media/news (1btc News, Ordinals News Standard), and even executable software (DOOM | playable) living in the Witness data portion of a transaction. As this content is stored on-chain, the larger the content, the higher the fee that the inscription transaction will cost.
Today, to inscribe (or mint rather) and have complete control over an inscription, the creator must run the Bitcoin Core (v24 or later) and operate a full node with a Bitcoin Core wallet. However, if you want a less technical route, many applications (& dApps) provide these services and offer a more user-friendly approach.
Ordinals vs. NFTs As We Knew Them
NFTs saw a massive growth phase during 2020–2022 thanks to the reintroduction of the format and added utilities. Towards the last quarter of 2022, despite the decline in trading volume ($24.7Bn compared to $25.1Bn in 2021), we began to see the emergence of NFTs linked to real-world assets, improved gaming assets, digital identity, experiences, and more leading us to the next wave of untapped potential for digital artifacts or NFTs.
Historically NFTs have been unique and indivisible as opposed to other digital assets, such as fungible or interchangeable tokens (one BTC is worth the same as another BTC, for example). There's a growing debate on the first NFT; many see it as 2014's "Quantum," created by Anil Dash & Kevin McCoy, which was minted on Namecoin (a 2011 fork of Bitcoin), which depicted a video of a set of spinning dollar symbols set inside a picture frame. Which technically means the NFT was on a Bitcoin-based blockchain.
In 2015, the first NFT project (457 pieces), Etheriain, was released. Soon after, Spells of Genesis was released (2015) as the first-ever blockchain-based game, and Rare Pepes were released (2016) on Counterparty. Then in 2017, the industry would see early mainstream adoption with the rise of NFTs on Ethereum & later Etherrum-based networks. NFT, For more history on NFTs, check out NFT Historian Leonidas.
As you see, NFTs on Bitcoin & Bitcoin Layers are not new, but thanks to many developments and the launch of Stacks mainnet in 2021, interest has only continued to rise. The ecosystem has improved with thriving marketplaces (i.e., Gamma, NeoSwap), tooling (i.e., HeyLayer), wallets (i.e., Xverse, Hiro, etc.), and infrastructure such as Satoshibles NFT bridge (StacksBridge) for projects expanding from Ethereum to Stacks.
Ordinals, unlike other NFTs, are complete, permissionless, uncensorable, immutable, and have ownership. Generally, on networks such as Ethereum, while an NFT is unique, it references the underlining file (i.e., an image) hosted elsewhere on external sources and off-chain with cloud services (AWS), IPSF, etc. An Ordinals inscription contains the raw file data written directly into the Bitcoin blockchain.
In just two months, the market has seen more than 549,500 inscriptions having been inscribed as of publication, increasing daily as more utility is added, applications (& dApps) integrate Ordinals, and collections launch on Bitcoin. As Bitcoin NFTs are not new, with the market beginning to ramp back up, the potential market size could surpass $4.5 billion by 2025, according to a report by Galaxy Research.
PBSTs & Dutch Auctions.
With the scale of adoption around Ordinals, we're seeing renewed concepts introduced into applications and use cases that could have profound untapped potential surrounding digital artifacts and their ownership.
Partially Signed Bitcoin Transactions (PSBTs) are a Bitcoin core transaction format that debuted in 2017 (BIP 174) with the taproot upgrade. In its infancy, the format contains the information necessary for a signer to produce signatures for a transaction while holding the signatures for an input when the complete set of signatures is unavailable — i.e., representing an unsigned or partially signed transaction.
Later, in 2021 PSBT v2 (BIP-370) would be released, opening additional inputs and outputs added after PSBT creation. The format has created an excellent infrastructure for trustless transactions between two parties using Bitcoin (BTC) as the underlying currency.
The format's introduction simplified multiple party coordinations (i.e., varying times, online/offline, etc.) and how wallets would communicate and enact users to perform and sign offline transactions without needing to make any changes a Bitcoin's state.
What impact does this have on Ordinals? The team at Trust Machines provided an excellent example via the concept of PSBT Dutch Auctions, the merger of both PSBTs, and that of a Dutch Auction.
"By merging the mechanics of a Dutch Auction and implementing PSBTs, a seller can facilitate a PSBT auction with Ordinals manually or by writing a script to automate the Auction. The selling party of a PSBT auction publicly sets the parameters for their Dutch Auction. The clock starts at the initially set price. At each time interval, the seller signs the PSBT, which triggers each descending price tick. The winning bidder effectively signs the final transaction, sending the bid amount net of transaction fees to the seller."
In summary, the impact of PSBTs is massive as they allow for entirely decentralized and trustless transactions, listings & purchases, zero fees on those transactions, and inherent privacy with transactions made private by default, among others.
Future of Ordinals and Inscriptions.
Today's applications are just beginning to scratch the surface of what is possible as digital artifacts are inscribed to the most stable and secure blockchain network. In the coming months and through 2023, expect to see many trials, new collection announcements, and infrastructure upgrades, including Stacks 2.1, which went live on March 19, 2023, all of which will significantly impact the growth of Ordinals.
Recent Market Activity.
- [March-23] Gamma announces the launch of its trustless Bitcoin ordinals marketplace following the creation of over 30,000 inscriptions on Bitcoin, representing ~10% of all inscriptions. Read more.
- [March-23] Hiro Wallet announces trading support for Ordinals in a wallet via Gamma using PSBTs.
- [March-23] DeGods launches a new collection on Bitcoin, selling out in a single block.
- [March-23] Hiro launches Ordinals Explorer (to discover & view) & Ordinals API (v. 0.0.1) with a full index of all ordinal inscription data on the Bitcoin blockchain. Read more.
- [Feb-23] Xverse launches Sats Connect, a simple open-source Bitcoin wallet API that connects applications to Bitcoin wallets and enables PSBT signing and address retrievals and viewing transaction details, with mobile support to follow.
- [March-23] Hiro Wallet announces trading support for Ordinals in a wallet via Gamma using PSBTs.
- [March-23] Yuga Labs, creators of Bored Ape Yacht Club (BAYC), debuts its first NFT collection on Bitcoin, TwelveFold. Read More.
- [March-23] Megaponts debuts its latest collection of Bitcoin NFTs.
- [Feb-23] Xverse enables Ordinal transactions and inscriptions directly in the wallet without running a node.
- [Feb-23] Hiro Wallet announces trading support for Ordinals in a wallet via OpenOrdex using PSBTs.
- [Feb-23] Gamma, a Bitcoin NFT marketplace & launchpad, announces both Ordinals Collection Mints & no-code tools for inscription, including bulk inscriptions.
- [Feb-23] AnthonyOnChain forks Ordinals to the Litecoin network. Read more.
- [Feb-23] Bitcoin Mining company Luxor Technologies acquires Ordinalshub, a marketplace for Bitcoin-based NFTs. Read more.
- [Feb-23] Hiro Wallet announces support for Ordinals in a wallet. Read more.
To learn more and hear from additional thought leaders & developers in the ecosystem, listen to the latest podcasts I hosted of the Crypto Internet Show on the Growing Bitcoin Ordinals Ecosystem (3/1) & Introducing Bitcoin Ordinals (2/15).
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