What Are Bitcoin Ordinals and How Do They Differ From NFTs?
Reading Time: 5 minutesBitcoin Ordinals have given the world’s most popular crypto a brand new function, but how do Ordinals work?
NFTs have carved out a space in the crypto and DeFi industries, with some selling for tens of millions of dollars. Ethereum is known for its diverse NFT market, but now Bitcoin has entered the NFT game with Bitcoin Ordinals.
So, what are Bitcoin Ordinals, how do they work, and are they the same as ‘standard’ NFTs?
What Are Bitcoin Ordinals?
Many people know Bitcoin as the world’s most popular cryptocurrency. But Bitcoin now has another interesting element: Ordinals.
Bitcoin Ordinals is a Layer 1 protocol that works with Satoshis and came about via the Bitcoin Taproot upgrade that completed in November 2021 and effectively allows massive Bitcoin block sizes through executable scripts (but is typically limited to 4MB). On the Bitcoin blockchain, one BTC contains 100 million Satoshis (or Sats). But now, these minuscule Bitcoin fragments can carry additional data over the blockchain via the Ordinals protocol.
Using Ordinals, individual Satoshis can be transferred and tracked (rather than just whole Bitcoins) while being recorded according to when each was mined. What’s more, Bitcoin Ordinals allow the Bitcoin blockchain to support NFTs (which traditionally exist on the Ethereum blockchain, though several other blockchains support NFTs).
A maximum data amount of 3.9MB can be added to a given Satoshi transaction, and much of this data is currently utilized for digital art files. The introduction of Ordinals gives the Bitcoin blockchain a new lease of life regarding utility, as creators can now serve a purpose within the network.
Bitcoin Ordinals use inscriptions to add extra data to transactions. Inscriptions are what point to the location of these Bitcoin NFTs, which is also a typical element in Ethereum-based NFTs. However, these do share differences, which we’ll discuss later.
When a given file is inscribed during a Bitcoin transaction, the transaction heads to the mempool (a standard practice) but is larger than a typical Bitcoin transaction due to the additional data. It’s then down to the miner whether they want to create a standard block with regular BTC transactions or a block containing an Ordinal (along with smaller transactions to make up for the remaining space). Inscriptions are stored within the unique Bitcoin transaction signature.
What’s important to note is that Bitcoin inscriptions can contain additional digital content within Satoshis, such as images and videos, similar to typical NFTs. Because of the location reference offered by inscriptions, Satoshis can become NFTs in their own right and traded as such.
Bitcoin Stacks
Though the focus here is Ordinals, it’s also worth mentioning Stacks. Bitcoin Stacks stem from another blockchain protocol that lets users build smart contracts. This is similar to Ethereum, a blockchain that supports smart contracts to execute transactions more efficiently. However, Stacks is a Layer 2 solution, unlike Ordinals, which exist on Layer 1.
The biggest difference between Stacks and Ordinals is that the former uses smart contracts, and the latter does not. However, these two separate protocols can work together on the Bitcoin blockchain.
Does Litecoin Support Ordinals?
While Ordinals have been available for Bitcoin since the beginning of 2023, they are also present on the Litecoin blockchain after a hard fork introduced them on February 20, 2023.
The hard fork gave Litecoin the ability to support NFTs. The whitepaper used for this fork is known as ‘MimbleWimble’ and has been received positively and negatively by different users.
Bitcoin Ordinals received significant hype throughout February 2023, and many hope that this protocol will help BTC recover in value (2022 was a bad year for crypto, but there are reasons 2023 might be better!). After all, when a coin’s utility increases, a positive impact on the price can often occur.
Bitcoin Taproot utilization steeply rose between January and February 2023, peaking at 9.75% of all transactions on February 9. At the time of writing, Taproot utilization has eased off and currently sits at 4.58% of all transactions, which is still pretty significant.
Bitcoin Ordinals vs. NFTs: What’s the Difference?
While Bitcoin Ordinals and NFTs share similarities, they are not the same. Let’s explore the factors these two technologies do and don’t share to understand further how they work.
Two key similarities shared by Bitcoin Ordinals and NFTs are that they are both non-fungible and they are both associated with digital art. However, Ordinals only exist on-chain, never off-chain, and are totally immutable, meaning they cannot be altered in any way. Ordinals can also be minted directly onto the chain in the same way as typical BTC coins.
NFTs, on the other hand, aren’t always immutable and can also exist off-chain.
Additionally, Ordinals do not have separate metadata files. For example, a typical Ethereum-based NFT will have a separate metadata file that references the content itself (be it an image, video, or sound file), contains a link to the content the NFT represents, and displays proof of ownership. On the other hand, Ordinals store this file within the witness signature field of the Bitcoin Satoshi transaction, not separately.
This can prove to be beneficial, as NFTs pose the risk of losing the file reference in the case of malfunction. For example, if the storage platform used to hold the metadata file experiences an outage, the token itself can no longer reference it, meaning it loses the description, proof of ownership, etc.
The Controversy Surrounding Bitcoin Ordinals
While Bitcoin Ordinals could be useful, not everyone is on board with this element of Bitcoin. In fact, some believe that adding an NFT element to the blockchain goes against what Bitcoin’s pseudonymous creator Satoshi Nakamoto intended when the asset was launched in 2009. More specifically, Bitcoin Core developers are against Ordinals, believing that it is not a good application for Bitcoin.
Taproots Wizards founder Udi Wertheimer spoke to Coin Telegraph about Ordinals, stating that Bitcoin core developers have ‘ignored what actual Bitcoin users want’ for some time. Wertheimer also noted that ‘because the block space is scarce and because there’s demand for stuff like inscriptions, there’s a lot of hope that we will get enough people who want to pay fees in order to keep the Bitcoin network secure.’
Wertheimer’s view that larger blocks could help mitigate network congestion is also interesting, as latency is a huge problem on the Bitcoin blockchain.
Wertheimer received pushback in early February 2023 after posting on Twitter that he had mined the largest Bitcoin block in history.
This block consisted of a 4MB Ordinal, which exceeds the average 1MB-2MB Bitcoin block size for regular transactions. Wertheimer has continued to support Ordinals, despite some disagreeing with his views.
But many other individuals view Ordinals as a good thing for Bitcoin and other proof of work networks, such as Litecoin. The proof of work consensus mechanism has often placed limitations on the utility of a blockchain and its assets, so the emergence of Ordinals can tackle such restrictions and give these networks a new lease of life. With utility in the digital art space, Bitcoin could become even more popular, specifically among collectors and creators.
Bitcoin Ordinals Have Incredible Potential
While not everyone is on board with Bitcoin Ordinals, there’s no doubt that this upgrade has given the blockchain an increased level of utility and may play a big role in reducing network congestion. Of course, time will tell whether Ordinals become a major part of the Bitcoin blockchain, but the possibilities are certainly promising.
Reference: https://www.makeuseof.com/what-are-bitcoin-ordinals-how-differ-from-nfts/
Ref: makeuseof
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