What are Ordinals?

Ordinals protocol is a satoshi numbering system that was launched on the Bitcoin mainnet by Casey Rodarmor in January 2023. It employs the ordinal theory to assign a unique identifier number to each satoshi. The order in which satoshis were mined and transferred determines their number. So, the number 0 is assigned to the first satoshi in the first block, followed by 1 for the second, 2 for the third, and so on.

The protocol also provides the possibility of inscribing various types of data (text, image, video, etc.) on satoshis, this way creating unique digital artifacts that can be collected and traded. Therefore, it is now often used for creating Bitcoin-based NFTs, also referred to as ordinal NFTs. Though, you might notice that some refer to these NFTs as inscriptions, which is not entirely correct, as an inscription is the actual content that is encoded on a satoshi.

The creation of the Ordinals protocol was made possible by the Segregated Witness (SegWit) update (which took place in 2017) and the Taproot update (which happened in 2021). The SegWit update added the “witness data” section to a Bitcoin transaction, this way dividing it into two sections and allowing the support for arbitrary data. The Taproot update increased the amount of arbitrary data that could be included in a Bitcoin transaction to 4 MB and established a simpler structure for storing witness data.

What's the Difference Between Ordinal NFTs and Traditional NFTs?

Even though it was already possible to create NFTs on Bitcoin through such Layer-2 solutions as Stacks or Counterparty, the Ordinals protocol brought a unique way of creating on-chain NFTs that are backward compatible and don't require any additional layers or separate tokens.

However, the Ordinals protocol is not recognized by Bitcoin as some sort of an NFT standard, because it is not. So, the data attached to a satoshi doesn't have to be seen as an NFT, which means that a satoshi inscribed with data can be used simply as any other Bitcoin to pay for network fees or make transactions.

Thus, Ordinals inscriptions can be used to create fungible assets as well. A Twitter user named domo (@domodata) recognized this potential and developed an experimental BRC-20 token standard that allows the creation of fungible tokens on the Bitcoin network through the usage of Ordinals inscriptions.

Additionally, due to the complexity of the Ordinals protocol, creating an ordinal NFT is not as easy as creating an Ethereum NFT. You cannot just go to an NFT marketplace and mint your ordinal NFT there. On the contrary, ordinal NFT creation requires having some technical knowledge.

Put as simply as possible, though, you first have to run a full Bitcoin node. Then, you have to install a Taproot-compatible wallet on the node you're running and send a satoshi to that wallet inscribed with the data of your choice. However, since the whole idea of creating ordinal NFTs exploded, no-code ordinal mining applications also started emerging, providing users with an easier way of creating these NFTs.