Bitcoin's New Narrative: Ordinals

Introduction

It would be our luck that a few weeks after publishing a Bitcoin in 2022 update, the most interesting thing to happen to Bitcoin since El Salvador made it legal tender would occur — Ordinals.

Ordinals are data that users inscribe to specific sats on Bitcoin. To inscribe data on Bitcoin, these users use a combination of Taproot and ordinal theory. Users have already used these tools to inscribe mostly JPEGs on Bitcoin. Since going live, these inscriptions have caused a minor frenzy around inscriptions and Bitcoin-native “NFTs.”

However, change comes slowly to Bitcoin. Many in the Bitcoin community have expressed strong reservations about Ordinals. The recent inscription craze has caused fees to climb and blocks to get much bigger. But the fee increase is a godsend to struggling miners and could help with Bitcoin’s overall security budget — something we noted as a concern earlier this year.

For the first time in a long time, users are showing up to use Bitcoin rather than just HODL it.

As Ordinals are new, there are issues to overcome. Content moderation is hugely challenging, the UX/UI needs to be upgraded, and the infra around Ordinals needs to improve. But Ordinal inscriptions are an entirely new use case for Bitcoin. They could bring in a substantial swathe of users who are more into NFTs and digital artifacts than hard money and digital gold.

Ordinals bring both promises and challenges to Bitcoin. This report will help readers navigate this new technology.

The Ordinal Stack

Casey Rodarmor, a former Bitcoin core contributor, built the ordinal stack by adding a few additions of his own to Bitcoin’s core stack. Understanding these additions is vital to understanding how Ordinals work on Bitcoin and how they differ from existing NFTs.

Ordinal Theory

The most crucial concept to understand with Bitcoin Ordinals is ordinal theory. Ordinal theory ascribes a unique number to every sat on Bitcoin. As a refresher, a sat (or satoshi) is the lowest denomination of a Bitcoin. Each BTC has 100M sats. In ordinal theory, each of Bitcoin’s 2.1 quadrillion sats has a unique identifier. These identifiers have five different notations — an integer, decimal, degree, percentile or name. Ordinals make each sat unique, with enormous ramifications for Bitcoin.

Inscriptions and Taproot

Ordinal sats would be interesting enough, but Rodarmor unlocked further potential with Taproot and inscriptions. Inscriptions inscribe sats with arbitrary data. Data can include pictures, gifs, videos (they would have to be short), and even HTML code. People have mostly been inscribing sats with pictures, including copies or derivatives of more popular Ethereum collections.

Right now, Bitcoin blocks can store 4MB of arbitrary data, so the max size of an inscription is 4MB at status quo. Inscribing data is not free. Users have to pay fees to miners to store tha