What Are Ordinals? (Bitcoin NFTs) – Crypto Trading Review 2023
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Ordinals are one of the latest developments in the Bitcoin ecosystem. Since they were established in January 2023 as a unique way of creating non-fungible tokens (NFTs) on the Bitcoin network, Bitcoin Ordinals have taken the world by storm.
With Bitcoin Ordinals, users have more use cases for Bitcoin. However, since Ordinals are a new concept, they may be challenging to understand by beginners. This article demystifies Ordinals to answer the question, “What are Bitcoin Ordinals?”
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What are Ordinals?
In simple terms, Ordinals are the latest ways to create Bitcoin NFTs. They came to the fore in January 2023 after a developer, Casey Rodarmor, launched them on the Bitcoin mainnet. Not until a while ago, NFTs were primarily accessed on NFT apps and minted on popular blockchains like the Ethereum, Solana, and the BNB Chain.
However, Ordinals weren’t the first NFTs on the Bitcoin Network, as layer-2 networks in the Bitcoin ecosystem, like Counterparty and Stacks, had initially created Bitcoin-based NFTs. But the Ordinals’ team devised a method of minting Bitcoin NFTs by inscribing data into individual satoshis (sats).
Satoshis are the smallest units of Bitcoin, with a single BTC having 100,000,000 sats (1 sats = 0.00000001 BTC). So, with the Ordinals protocol, users can store data or digital content on the Bitcoin blockchain by inscribing – the unique data storage process.
In other words, each Ordinal has a distinct identity, and like NFTs on different blockchains, an ordinal cannot be edited or deleted as long as Bitcoin exists. So, once users store data on an Ordinal, it lasts forever.
Definition and explanation of ordinals in the context of Bitcoin NFTs
The Bitcoin Ordinal is a protocol for creating NFTs on Bitcoin using individual satoshis. Before the arrival of the Ordinals, Bitcoin was fungible. That is, Bitcoin was interchangeable from one person to another. At the same time, a Bitcoin satoshi could not be separated from another.
When NFTs became popular in 2021, content creators and other users found a different way to own and store digital collections on Ethereum and Solana. But with Ordinals, digital ownership on the Bitcoin network became a thing.
Since the launch of Bitcoin Ordinals, more than 500,000 Bitcoin NFTs have been created – thanks to the blockchain’s large user community, developers, and Bitcoin enthusiasts driving the interest in native Bitcoin NFTs. Developers have minted Bitcoin NFTs in the form of audio files, videos, video games, JPEGs, and more, as Ordinals have gained momentum in recent times.
Understanding the significance of ordinals in non-fungible tokens
Investors’ interest in NFTs dipped with the 2022 bear market. NFTs are crashing, and holders, including owners of the famous Bored Ape Yacht Club (BAYC), have recorded significant declines in their assets’ values.
But with the emerging Bitcoin Ordinals and NFTs, there’s a new wave of interest in NFTs because of their unique approach to storing information on the world’s largest network. At the same time, Ordinals are connected to Bitcoin’s longevity, giving users and developers a long-term approach to creating and investing in NFTs.
On the other hand, Ordinals are important to NFTs because, without the protocol, users cannot inscribe and store data on the Bitcoin blockchain. Ordinals also allow users to store data directly on-chain, without a smart contract via a sidechain or an additional token – since it works using a fraction of Bitcoin called Sats.
As such, the Ordinals protocol offers Bitcoin NFTs an additional level of simplicity, security, immutability, and durability that Bitcoin itself provides.
Unique Properties of Bitcoin NFTs
At its core, the Ordinals protocol assigns a numismatic value to a unit of sats to make it a Bitcoin NFT. Upon completion, users can collect and trade the assets. The assigning process, called “inscription,” creates artifacts on the native blockchain network.
The inscriptions on sats tokens vary. Pictures, videos, and other content inscribed into the Bitcoin blockchain as Ordinals can be traced on the blockchain using the Ordinals protocol.
How Bitcoin NFTs differ from traditional NFTs on other blockchains
Though Bitcoin NFTs are similar to traditional NFTs on alternative blockchains like Solana and Ethereum, they differ in properties and operational models.
First, other NFTs are usually created using a unique token identifier that combines different properties, including a name, digital identity, digital photos, etc. However, with Bitcoin NFTs, a user doesn’t need a unique token or a token identifier when inscribing – since the asset has already been inscribed into an existing sats.
Additionally, Bitcoin NFTs do not run on smart contracts like traditional ones. For instance, when users want to mint NFTs on other blockchains like Ethereum, the assets are usually stored or hosted on third-party blockchain networks. But with Ordinals, users get direct on-chain support to store information on Bitcoin blocks.
Another notable difference between Ordinals and traditional NFTs is the rarity or pricing mechanism. With traditional NFTs on Ethereum-based networks, assets’ attributes are usually defined by their rarity. The more rare they are, the higher their values. However, Bitcoin Ordinals derive their values from critical moments of the Bitcoin block they belong to.
For example, the first 1000 to 10,000 inscribed Ordinals may hold more value for collectors. Similarly, the very first Bitcoin Ordinal may be auctioned for millions of dollars in the future. In other words, the first sats of any Bitcoin NFT will be rarer than the next sats in the same block.
Benefits and challenges of using Bitcoin as a base layer for NFTs
Like every other innovation, Ordinals are promising to Bitcoin users and the entire ecosystem. With Ordinals, Bitcoin offers more utility to users and developers. However, using Bitcoin as a base NFT network has generated controversies in the crypto industry, especially within the Bitcoin community.
One major criticism is the argument that the Bitcoin founder, Satoshi Nakamoto, primarily created the cryptocurrency as a store and transfer of value. With Ordinals, the simple use case of Bitcoin would be defeated.
Another downside to Bitcoin NFTs is their design, incorporating them into transaction blocks. With more Bitcoin NFTs, the inscribed sats and regular Bitcoin transactions have to compete for block space, which may result in higher transaction fees. However, some Ordinals enthusiasts believe it could be another way of improving miners’ incentives and continue keeping the network secure.
With the next Bitcoin halving scheduled for 2024 and other halvings to come, the only incentive for miners will come from network fees, as block rewards will reduce and eventually be eliminated.
Ultimately, Bitcoin NFTs are here, and it’s left to the entire Bitcoin community to decide if they will stay unanimously.
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The Bitcoin NFT Standard
Like Ethereum NFTs, Bitcoin Ordinals have a new token standard called the BRC-721E token standard or Ordinals Collection Protocol. With the new token standard, users can burn and transfer Ethereum-based (ERC-271) tokens and convert them to inscriptions acceptable on the Bitcoin network.
That way, their old Ethereum NFTs can be converted to Bitcoin NFTs.
Overview of the technical standard used for creating NFTs on the Bitcoin blockchain
The BRC-721E token standard acts as the bridge between the Ethereum and Bitcoin networks. It allows traders and investors to convert their Ethereum NFTs for Bitcoin without hassles.
However, the standard has rules that traders must comply with during migration from one network to another. First, traders must burn their ERC-721 NFT using the ETH call function. With this, an irreversible on-chain inscription happens.
Afterward, users must inscribe the BRC-721E data on the smallest Bitcoin unit (sats), and a merge will happen across both chains. Upon successfully connecting both bridges, the user will get a new NFT on the Ordinals market collection page, and its metadata will be made available.
Key features and functionalities of the Bitcoin NFT standard
As stated earlier, the primary feature of the Bitcoin NFT standard is the conversion of Ethereum-based NFTs to Bitcoin NFTs. The standard is the bridge between both blockchains, and its functionalities include issuing tokens on the Bitcoin network, storing users’ assets, and facilitating on-chain trading.
In addition, the token standard will offer additional support for the network’s NFT collections and implement a post-reveal mechanism for metadata. In essence, each token minted via the BRC-721 standard will have a unique identifier separating it from other tokens.
Finally, the standard will support collections and simplify the Ordinal collections NFT minting process by eliminating upfront payment.
Ordinal Generation and Verification
After generating Bitcoin Ordinals via conversion, users can find them in the custom Ordinals market with their complete metadata. Since the asset’s metadata won’t be initially stored on the chain, they can keep a low-quality image of the asset to ensure it references the Ether.
Explaining the process of generating ordinals for Bitcoin NFTs
The Bitcoin Ordinals creation process is currently complicated because the ecosystem is still young. In other words, only people with adequate technical knowledge can scale through the Ordinals generation process.
For starters, creating a Bitcoin NFT requires a full Bitcoin node and, running a Taproot-compatible wallet on the node, then inscribing satoshis into the wallet. Alternatively, users can employ a no-code tool like Gamma to complete the Ordinal inscription process.
However, it’s recommended that users connect a wallet with a “coin control” feature to avoid spending sats on network fees. The wallet should also have enough Bitcoin balance to cover the transaction fee.
Verifying the uniqueness and authenticity of ordinals
To ensure things are done correctly after the Ordinal creation process, indexers verify the data inscriptions of the NFT burned by traders to ensure every token has only one valid inscription. The indexers also verify that the burn transaction call data is the same as the Genesis address. That way, the uniqueness and authenticity of the migrated NFTs are preserved.
Collectibles and Digital Art
Ordinals’ most significant potential beneficiaries are digital artists, collectors, and investors. We highlight the intersection of Ordinals and the digital arts space in the sections below.
How artists and creators leverage ordinals in their NFT artworks
Bitcoin Ordinals offer users a unique approach to minting, collecting, and investing in NFTs. By imprinting digital items into sats, owners have an irreplicable item that connects directly to the Bitcoin network.
As such, their items maintain uniqueness and collectors and investors can transact securely.
Collectible items and their value in the NFT space
Bitcoin Ordinals have their values tied to scarcity or rarity, and as there’s more demand for Bitcoin NFTs, there will be an established marketplace for such assets. At the same time, the earliest NFTs minted on the network will hold more value.
Ultimately, there will be more players in the NFT space because of the substantial value that the NFTs will have.
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Gaming and Virtual Assets
Another way Bitcoin Ordinals can be utilized is through blockchain gaming and digital asset ownership. We explain further below.
Integration of ordinals in gaming NFTs and virtual asset ownership
With the virtual economy and digital asset ownership prominent in the blockchain gaming space, gamers can own unique digital assets, including game characters, in-game rewards, etc. Therefore, they will have complete control over their investments, with proper avenues for monetization and engagement.
Benefits for gamers and game developers in using Bitcoin NFTs
Players and game developers can monetize their skills using leveraging the play-to-earn model of blockchain games. For example, they can get tokenized rewards via Bitcoin NFTs that they can convert to real-world items. They can also get direct crypto rewards that they can use for in-game purchases.
Proof of Authenticity and Rarity
As stated earlier, Bitcoin Ordinals thrive on complete authenticity and rarity. We review how ordinals achieve this below.
How ordinals serve as proof of ownership and rarity in NFTs
Ordinals work with a unique system that allows users to store information on Bitcoin blocks. With its BRC-721 standard, the network ensures all Bitcoin NFTs are unique to each investor, with only one valid inscription. That way, the NFTs cannot be interchanged, and as users mint more NFTs, they get rare from the earliest to the oldest.
The role of ordinals in establishing the uniqueness of digital assets
At its core, the Bitcoin Ordinals standard was built to ensure assets are unique to their owners. Every asset has its unique data stored on the Bitcoin network, and once created, the information cannot be changed or interchanged.
With its unique data storage model, digital asset owners can ensure their assets are unique to themselves and cannot be replicated or altered by other digital creators.
Scarcity and Market Value
Just like the best crypto presales amongst mainstream cryptocurrencies, Bitcoin Ordinals are slowly becoming one of the most sought-after NFTs in 2023 . And in line with the Ordinal rarity system, Bitcoin NFTs are poised to increase in market value. We highlight the possibilities below.
The connection between ordinals, scarcity, and market value of Bitcoin NFTs
The Ordinals rarity system categorizes NFT sats in accordance with their scarcity. As new NFTs are imprinted into sats, the old sats get more valuable because they cannot be changed. As such, Bitcoin NFTs will have more market value as time goes by and it continues to attract more investors.
Factors influencing the pricing of NFTs with specific ordinals
Ethereum, Solana, and the BNB Chain pioneered the advent of NFTs, but now, we have Bitcoin Ordinals giving investors access to NFTs built on the Bitcoin blockchain. One of the major factors that affect the value of NFTs is the network they are on. For instance, Ethereum and Bitcoin are two of the world’s largest cryptocurrencies. Currently, Ethereum NFTs are more valuable, but as Bitcoin NFTs continue to attract more investors, their value will increase.
At the same time, an NFT’s use cases matter in its value and pricing. Bitcoin Ordinals provide more utility for the Bitcoin network. As such, investors will have enough reasons to invest in Bitcoin NFTs.
Finally, since the Bitcoin standard allows users to convert their ETH-backed NFTs to Bitcoin NFTs, we may see more crypto investors switch networks due to the elimination of upfront payments.
Security Considerations with Bitcoin NFTs
Below, we highlight some potential security issues that users must consider when investing in Bitcoin NFTs.
Potential security risks related to ordinals and Bitcoin NFTs
The foremost security risk with Bitcoin NFTs is transaction malleability or double-spending. This happens when a third-party changes some data on the Bitcoin protocol by exploiting the mining process.
Similarly, there is the risk of mining pool concentration, which happens when an investor has a large portion of the hash rate. They can exploit the system to their advantage.
Additionally, there is the possibility of getting scammed by fake NFT creators in the Ordinals Marketplace. Currently, there are scam Ordinals on OpenSea looking to defraud investors.
Finally, like every other asset, Bitcoin NFTs are prone to hacking or phishing when stored in a digital wallet.
Best practices for users to safeguard their NFT assets
The most reliable way to safeguard your assets is to use a cold wallet that is secured against hacking and phishing. Other safe practices include;
- Not sharing your password or seed phrases
- Using a virtual private network (VPN) to encrypt your data
- Trading on reliable exchanges like Bitstamp
- Avoiding suspicious links
- Using two-factor authentication (2FA)
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Future Innovations and Applications
Though Bitcoin NFTs are new, a lot lies ahead in the future of Ordinals. We review some future possibilities in the next section.
Exploring potential future developments and use cases for Bitcoin NFTs and ordinals
Within a few months, Bitcoin surpassed Solana to become the second most-used NFT blockchain. Evidently, investors are bullish on Bitcoin NFTs, and popular projects like Yuga Labs, MagaPunks, and DeGods have started executing exciting Bitcoin NFT projects.
Ultimately, Bitcoin will attract more users and developers with its unique identity and asset storage system. With the possibility of Ethereum NFT holders easily switching to the Bitcoin Ordinal network, there’s so much to look forward to.
The role of Bitcoin’s layer 2 solutions in enhancing NFT functionality
Many layer-2 solutions have joined the Bitcoin ecosystem, with some of the latest projects expanding the network’s use cases beyond payments and storing value. With more projects building on Bitcoin, we’re seeing more activities in the decentralized finance (DeFi) and NFT spaces, especially with innovations such as defi apps.
With more of such solutions, Bitcoin NFTs will gain more speed, scalability, and security, which will drive wider adoption and improve the Bitcoin NFT’s functionality over time.
What are Bitcoin Ordinals? – eToro Complete Guide
Now that you have answers to the question, “What are Ordinals?,” we review how you can kickstart your Bitcoin Ordinals journey by purchasing Bitcoin for minting NFTs. Apart from being one of the best free stock apps around, you can also buy cryptocurrencies like Bitcoin on the platform.
eToro expanded from being a commodity trading app to supporting cryptocurrencies when it added Bitcoin (BTC) in 2013. Since then, it has become a hub of crypto trading.
- Visit the eToro website on your mobile or desktop device and click “Create an account.”
- Enter your personal information, including your full name, email address, place of residence, and date of birth.
- Complete verification by submitting proof of identity and residence.
- Deposit funds and buy Bitcoin.
What are Ordinals? – Conclusion
In this guide, we’ve provided answers to the lingering question, “What are Ordinals Bitcoin?” Bitcoin Ordinals allow users to create NFTs on the Bitcoin network, providing more utility for the blockchain. And with time, we may see Ordinals surpass existing Ethereum NFTs.
The best place to buy Bitcoin right now is eToro. The exchange features a simple trading platform and low fees. Kickstart your Bitcoin NFT journey by buying BTC on eToro.
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FAQs
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Maryam Jìnádù
