- A new protocol called Ordinals was launched in January 2023 by Casey Rodarmor, a former Bitcoin Core contributor. Leveraging the 2021 Bitcoin Taproot upgrade, Rodarmor expanded the capabilities of Bitcoin and introduced on-chain Bitcoin-native NFTs.
- The Taproot upgrade provided a means to enhance the base layer of Bitcoin by reducing transaction size and promoting the utilization of smart contracts.
Bitcoin NFTs have swiftly gained attention in the world of cryptocurrencies, presenting fresh opportunities for both long-standing blockchain enthusiasts and digital art aficionados. Since their surge in popularity in 2020, NFTs have predominantly been minted and traded on platforms built on Ethereum, as well as other blockchains like Cardano and Solana.
However, a new protocol called Ordinals was launched in January 2023 by Casey Rodarmor, a former Bitcoin Core contributor. Leveraging the 2021 Bitcoin Taproot upgrade, Rodarmor expanded the capabilities of Bitcoin and introduced on-chain Bitcoin-native NFTs.
The Taproot upgrade provided a means to enhance the base layer of Bitcoin by reducing transaction size and promoting the utilization of smart contracts. This upgrade significantly broadened the range of possible transactions on Bitcoin, including decentralized finance (DeFi) and NFT applications.
By February 2023, Yuga Labs, the world’s largest issuer of NFTs, announced the creation of TwelveFold, a new NFT collection issued on Bitcoin. This endorsement further solidified the success and viability of Bitcoin NFTs.
Here’s what you should know about Bitcoin NFTs, how they differ from the more popular Ethereum-based alternatives, and the process of creating and selling them.
What are Ordinals?
Ordinals refer to unique serial numbers engraved in individual satoshis (sats), which are the smallest units of Bitcoin. These numbers are assigned based on the ordinal theory, which assigns them in the order they are mined. The first satoshi in the initial block is assigned the ordinal number 0, while the second receives the ordinal number 1, and so on, with the last satoshi in the first block holding the ordinal number 4,999,999,999.
Colored coins emerged in 2012 as the earliest representation of this concept. They involved repurposing crypto assets to symbolize something of value by adding metadata information. Another endeavor in this direction is Counterparty, which aimed to embed data into regular Bitcoin transactions. However, Counterparty introduced its own XCP token, required for certain functionalities, effectively making it an altcoin rather than an extension or second layer for Bitcoin.
The ordinal theory grants satoshis with numismatic value, enabling them to be collected and traded as rare items. Each satoshi is endowed with an individual identity, allowing it to be tracked, transferred, and imbued with meaningful arbitrary data, such as images, text, or videos, through a Bitcoin transaction that becomes permanently ingrained in the blockchain. Such data can be viewed using Ordinals-compatible wallets like the Sparrow wallet and online explorers.
Inscriptions
The process of allocating assets to individual satoshis is known as inscription. Inscriptions are digital artifacts that exist within the Bitcoin blockchain, serving as the digital counterparts of physical artifacts.
Unlike other approaches that rely on sidechains or separate tokens, inscriptions are entirely on-chain. They make use of the Ordinals protocol to embed content onto satoshis, utilizing elements such as ord (index), an explorer, and a wallet that relies on Bitcoin Core for managing private keys and transaction signing.
Through Ord, it becomes possible to track the location of specific satoshis along with their ordinal numbers. This information can be accessed using the Ordinals explorer. In contrast to traditional NFTs that depend on off-chain content stored in the interplanetary file system (IPFS), inscriptions benefit from Bitcoin’s inherent immutability and security. They have no permission and cannot be censored, as they can be freely sold without the need for royalty payments.
How to create Bitcoin NFTs
The development of the Ordinals ecosystem is underway, although its accessibility is currently limited to two main approaches for minting an ordinal NFT.
The initial method for creating Bitcoin Ordinals involves a certain level of technical proficiency. It entails running a full Bitcoin node and installing the Ord software on this node to inscribe satoshis into an Ordinals wallet, thereby producing Bitcoin Ordinals NFTs. Two types of Bitcoin wallets are capable of processing Ordinals. Both of these wallets need to be Taproot-compatible and possess a “coin control” feature to prevent spending Ordinal satoshis as network fees or accidentally including them in other transactions.
- To prevent accidental sending of Ordinal satoshis, it is advised to use the Sparrow wallet solely for receiving Ordinals. Notably, setting up and utilizing the Sparrow wallet does not necessitate running a full node. Here are the steps to configure a Sparrow wallet.
Setting up an Ord wallet involves running a full node with a storage capacity of 500GB. Unlike the Sparrow wallet, an Ord wallet provides the capability to create inscriptions and lock the inscribed satoshis to prevent unintended expenditures. Here are the steps to establish an Ord wallet.
The second method is more straightforward and involves using a no-code tool, such as Gamma or Ordinalsbot.com, to inscribe your ordinal NFT. Here’s how to mint your Ordinal on Gamma:
- Select the type of file you’d like to use to mint your Bitcoin NFT.
- Upload the necessary file from your computer.
- Set up the transaction fee depending on how long you’d like to wait for your Ordinal to be minted.
- Copy and paste the Bitcoin address where to send the digital artifact, which needs to be an Ordinal-compatible address or a Taproot address.
- Wait for the NFT to be minted. Such a wait depends on the fee you paid for the process to be completed and may be hours or even days. You’ll be able to track the minting status through a link you’ll receive by email.
- View your minted Ordinal on OrdinalsViewer.
How to trade Ordinals
While the development of the necessary infrastructure and marketplaces for trading Bitcoin Ordinals is in progress, these digital artifacts are currently exchanged in peer-to-peer over-the-counter (OTC) transactions within dedicated Discord servers. In these transactions, escrows act as intermediaries, and the details are tracked using Google Sheets.
In comparison to the more widely embraced NFTs traded on platforms like Ethereum and other blockchains, the trading of Bitcoin Ordinals may seem like an outdated approach. However, this hasn’t dampened people’s enthusiasm for Bitcoin NFTs, as evidenced by the rapid emergence of hundreds of thousands of newly minted digital artifacts within a few weeks of the launch.
The Ordinals market operates on a trustless basis, employing secure technology known as partially signed Bitcoin transactions (PSBT). This enables users to easily sign transactions while keeping their funds in cold storage. Additionally, the market facilitates atomic swaps without the need for intermediaries, charging a market fee of 2.7%. Furthermore, a system is being developed to verify creators and implement creator royalties, set at 4.2%.
How to buy Bitcoin NFTs
To purchase Bitcoin Ordinals, it is essential to utilize Taproot-compatible wallets like the Ordinals wallet, the Xverse wallet, and the Hiro wallet. The Ordinals wallet is user-friendly and easy to navigate, and the other mentioned wallets share a similar user experience:
- Create an account, secure your seed phrase, and deposit funds into the wallet.
- Select the Ordinals you wish to purchase and click “Buy Now.”
- Once the transaction has been executed, the Ordinals will be added to your wallet.
How to sell Bitcoin NFTs
Similar to buying a Bitcoin NFT, you’ll need to pick a Bitcoin Taproot-compatible wallet and download it.
- Create an account, secure your seed phrase, and upload your inscription. The fee will depend on the file size and how fast you’d like the transaction completed.
- Once your file has been inscribed onto the blockchain, you can view it on the Ordinals.com inscriptions page.
- You can freeze the Ordinals to make sure you do not spend them.
- You’ll need to use a peer-to-peer OTC market, usually, the Bitcoin Ordinals Discord server, to sell your inscription.
Related to Bitcoin NFTs
Extra caution is strongly advised when engaging in these transactions. Since they take place within an unregulated peer-to-peer over-the-counter (OTC) market, these platforms are rife with individuals attempting to exploit the growing popularity of Bitcoin NFTs.
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