Feb 16•12 min read
On Ordinals
Image: Inscription #127,700 on Satoshi Ordinal #1,304,345,874,590,749, which was first mined on June 20, 2014 (Block #311,738).
This individual Sat will carry this data on Bitcoin’s blockchain for eternity.
By now, most in the Bitcoin community have heard of “Ordinals,” but few have been able to wrap their heads around the concept, with many equating them to NFT’s. In reality though, while Ordinal Inscriptions can be considered another form of digitally owned art/data, they are not akin to NFT’s in any way; in fact, technically speaking, they are kind of the opposite.
They do have one thing in common though: enormous potential.
So, what are Ordinal Inscriptions?
To understand what they are, how they work, and the difference between Ordinal Inscriptions (hereon referred to as “OI’s”) and NFT’s (non-fungible tokens), let’s take a step back from the complexities of protocol and use some real world examples.
NFT’s
Starting with NFT’s: they are non-fungible, meaning they are separate from the underlying token being used to value it, and their value is based on what someone else is willing to pay for it. Thus far, most NFT’s you’re likely familiar with are forms of artwork; 1/1’s, PFP’s, etc. But they can also be tickets to VeeCon, or entry into a gated online community.
There are 10,000 Bored Apes and, in the eyes of the network, they are each just 1 BAYC NFT. However, each of them can be valued in fungible ETH based on what someone is willing to pay.
In a real world example, say you own this piece of artwork shown below. It exists separately from the currency the artist used to create it (paint, canvas, frame) and will be used to value it when put up for sale. Its value will be determined by whichever price the artist and customer agree to.
Should the artist paint multiples of this same work, even if they are all identical to the average person, it’s likely the original piece will be valued higher by the market since it was the first.
Should the artist paint a collection of works which are all different but of the same style, the market will value them based on other characteristics, such as preference of aesthetics, subject matter, condition, etc.
The valuation of these paintings is in a given currency, in exchange for 1 painting. The sale is likely facilitated by an art gallery or dealer, who takes a fee for the service rendered, delivering the cash to the artist and the painting to the customer.
NFT’s are similar, but in the digital world. Smart contracts and the gas fees used to interact with them eliminate the need for the 3rd party gallery/dealer, allowing you to buy and sell the “deed” for a given piece of artwork in exchange for your preferred blockchain’s native, fungible token.
Important note: most NFT’s do not exist on the blockchain; they are instead stored on a separate server, with the NFT on-chain pointing to it’s location online. The notable exception to this is the acclaimed Cryptopunk collection, where each image is actually stored on the Ethereum blockchain due to their small data size. This is one of the key reasons Punks are so valuable: they exist on every node across the Ethereum network, and thus are immutable, and as permanent as the ETH blockchain itself.
Ordinal Inscriptions
OI’s are not NFT’s. They are not managed by smart contracts, and are not separate from the network’s native, fungible token (in this case, Bitcoin’s smallest denomination: Satoshi’s). Instead, OI’s are the “marking” of an individual Satoshi, making it unique and giving it some sort of numismatic value.
This is a huge deal: before a couple weeks ago, fungible tokens across blockchains were ubiquitous, where 1 ETH token is no different from another ETH token; they are each worth the same and carry no individuality.
This is no longer the case on Bitcoin.
Now, every Satoshi on the network carries a number based on when it was created. This has been accomplished by using ordinal number mathematics, where each unit in a given set is assigned a number based on a specified order (hence the name “ordinal”).
In the case of Bitcoin OI’s, the number set is every Satoshi in existence on the network, and the specified order is when each Satoshi was first created. Sats #1 through #5,000,000,000 were created when Satoshi Nakamoto mined the genesis block in January 2009 (and have never moved).
This is similar to the dollars in your pocket right now: each of them carries with it identifying marks which make it unique compared to other dollars in circulation:
With this protocol - developed by Casey Rodarmor - every Satoshi can now be identified by its assigned number, and with this number we can see when that specific Satoshi was first mined and track its journey across the network.
But this is only half of what makes OI’s special.
The other side is the Inscriptions: since we can track individual Satoshis, we can now also attach data to it on the blockchain, giving it an individual characteristic. This “marking” of a Satoshi (with the data attached to the transaction) makes it unique compared to other Sats.
What kinds of data can be Inscribed onto Satoshi’s? Well, just about anything: simple text, beautiful artwork (like the one I inscribed below), personal photos, pixelated PFPs, audio files, or even games…assuming the data doesn’t exceed the block size memory limit.
Image: Inscription #38,343, marked onto Satoshi Ordinal #851,156,796,589,291, which was mined on March 8, 2012.
This wonderful piece of art was drawn by talented Chilean artist Florencia Montoya Salvadores. The original was purchased by a good friend of mine years ago for 0.06 BTC, and sits framed in his study. He wanted to scan and inscribe it onto the blockchain, where it can live for eternity; I was happy to oblige.
This gives that particular Satoshi numismatic value, and is where the potential of OI’s gets very interesting.
Important note #2: Every Ordinal Inscription DOES exist on the blockchain, and is downloaded by the thousands of full nodes operating on the network; a stark contrast to how an NFT’s existence is maintained.
So, what is numismatic value?
Using gold as an example: one ounce of gold is generally worth any other ounce of gold; each molecule of the element is like every other molecule, and can be melted down to shape, combine or break up however you see fit. It is ubiquitous.
But there are ounces of gold out there that are worth more than other ounces of gold.
For instance, a 1933 Saint-Gaudens Double Eagle gold coin is considered one of the most valuable in the world. Why? Because of its history.
In April 1933, in the midst of the Great Depression, President Roosevelt signed Executive Order #6102, which made the private ownership of gold illegal, and authorized the government to seize gold from the citizenry. The US Mint had already produced over 400,000 1933 Double Eagles by that point, but had yet to release them into circulation. In keeping with the Executive Order, the Mint ordered all but 2 (to be given the the Smithsonian) be melted down and recast into bullion (bars). However, roughly 20 additional coins were stolen/saved before being melted down, likely by mint employees. As of today, it’s estimated that maybe a dozen or so are in existence outside of the US Government; the most recent one selling for nearly $19 million in June 2021.
This history is attached to the coin because it bears the provable characteristics of a 1933 Double Eagle, and thus carries numismatic value beyond the $20 face value, or the current spot price of the ounce of gold used to cast it.
In the tangible world, a numismatic coin is a coin whose value depends on its date, condition, rarity, history, aesthetic attraction and/or mint mark of the coin, rather than - and usually beyond - its face value.
As another example, imagine an artist decides instead to create their work not on a canvas, but rather onto a dollar bill.
James Charles is an artist who has done this very thing. In 2010, he debuted a collection produced directly onto bills of varying denominations, and collectors bought them up for $700+ a piece, well above the face value.
Image: Pieces from James Charles’ “American Inconomics” collection, 2010.
Yet, in the eyes of the network (in this case, the Federal Reserve System), those bills are still only worth their face value: If you purchased one for $700 and brought to your local bar, it’s doubtful the bartender will allow you to pick up everyone’s tab with it, regardless of how much you may value the art drawn onto it. To them, the dollar is just a dollar, because that’s all the network will honor it for when brought to the bank for deposit.
This is what OI’s are: Satoshis with numismatic value based on what has been inscribed upon it on the blockchain. The network still sees it as worth 0.00000001 Bitcoin, but to us - the users of the network - it can hold value above and beyond 1 sat, similar to the 1933 Double Eagle or one of James Charles’ bills.
This is an exciting development, and I cannot emphasize the potential this has as wallets and exchanges build out the infrastructure needed to make creating, buying, storing and exchanging OI’s more user-friendly.
With that, here are two notes to keep in mind:
The fact that OI’s are mixed in with other Satoshi’s, and the network (Bitcoin’s blockchain & the nodes who maintain it) doesn’t discriminate between “blank” sats vs “inscribed” sats, developers have a lot of work ahead of them to build tools and apps to make creation, storing and trading OI’s easy & functional, while also preventing users from accidentally “spending” their prized Ordinal Satoshi as part of a standard BTC transaction. These tools are being built now by the great minds at Xverse, Hiro, Gamma, Ordinals Wallet, and more (all linked in the appendix at the end of this article).
NFT’s on smart contract capable chains (like STX, ETH, SOL, etc) don’t have this challenge for the reasons stated earlier: the NFT’s are a separate token from the funds in your wallet, just as they are separate from the chain itself (since they live on external servers).Will people inscribe dumb things onto Satoshis? Of course, and it’s already happening (for example, Inscription #1342 is a 1-second recording of a fart). People do this to fiat currency as well, as seen below, but we just drive on using them at face value:
Spoiler: This inscribed bill is worth $20.
In Closing
In these early days of OI’s, a lot of us are going to wonder which ones are valuable beyond the 1 Satoshi face value, and which characteristics make it valuable? Is it the artwork? The amount of data it takes up on the chain? The sat’s ordinal number? The inscription number? Perhaps where that Satoshi has been, or what it was used for?
In my opinion: If the history of numismatic currencies plays out again in the digital space, the real question of what makes a given OI valuable is likely going to be: what’s its story?
Appendix
Interested in learning more about OI’s and exploring the ecosystem? Here’s a list of places to get started:
Ordinals website & explorer, including docs which go more in depth on “Ordinal Theory.” ordinals.com
Hiro’s new Ordinals explorer; faster, simpler and more user-friendly. https://ordinals.hiro.so/
Xverse Wallet, my favorite Bitcoin wallet, where you can now create, store and tx/trade OI’s.
https://www.xverse.app/Ordinals Wallet, one of the very first ordinal wallets and marketplaces (all in one btw), designed to easily store, send and trade your OI’s.
https://ordinalswallet.com/Hiro Wallet, another Bitcoin wallet with Ordinals support and LN support imminent. https://wallet.hiro.so/
Gamma, a Bitcoin NFT exchange (built on Stacks) where you can also create OI’s seamlessly.
gamma.io. They are also about to launch their Ordinals marketplace on the platform (update: ordinal marketplace is live now, and it’s pretty dope).Ordinals Bot, built by the Satoshibles NFT community, where you can create OI’s.
https://ordinalsbot.com/Ordwap.io is a marketplace where you can buy, sell, store and transfer Ordinals. The first to spin up sales entirely in native BTC.
Magic Eden (SOL NFT marketplace) has joined the Ordinal’s industry with their own marketplace. https://magiceden.io/ordinals
Ordlists.com is a new tool indexing inscriptions as they hit the blockchain, allowing users to search for data already inscribed on-chain. Very relevant to the new Sats Names.
Ord.io is a new concept just launched 3/28/23, which allows ordinal holders to upvote the ones they like most, then indexes them so the higher voted OI’s come up first, removing a lot of the noise you would have to sort through on other indexers/explorers (like the OG ordinals.com, which simply displays them in the order they were inscribed). This is a cool idea, because it adds another layer of subjective value a given Ordinal (votes from other OI holders) in addition to its Inscription # and Satoshi rarity.
Note: We’re in the early days of OI’s, so I expect the list of exchanges, wallets and other fun tools to grow rapidly in the coming weeks. Let me know if you happen to see an OI project that should be added to the list and I’ll update. Skol!
