Bitcoin has come a long way since its launch in 2009 as a fairly obscure form of digital cash. The project would go relatively unnoticed by the general public for several years, but gained popularity in 2013 and skyrocketed to become the largest asset class in the world.
Although Bitcoin was the first-ever cryptocurrency, its invention led to thousands of new cryptocurrencies following suit, with complex use cases, extensive derivatives markets, and a growing list of added features. Bitcoin developers have also continued to innovate on the project, with the biggest update in recent years being Bitcoin Ordinals, which rolled out in 2023.
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What are Bitcoin Ordinal Numbers? Bitcoin ordinal numbers explained
Bitcoin Ordinals are Bitcoin’s answer to NFTs, making it possible to write data onto a specific satoshi (one-millionth of a bitcoin) in a way that distinguishes that satoshi from others or makes it non-fungible.
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So why is this important?
Bitcoin was originally launched as a fungible form of digital cash. Like a US dollar, one is pretty much the same as the other as far as the people doing the transactions are concerned. However, Bitcoin Ordinals allows users to identify satoshis from each other.
For example, a collector may be interested in owning a satoshi from a pivotal point in Bitcoin history, such as the Bitcoin halving that occurs every four years, and thus be willing to spend more than the market value of one satoshi to acquire it. buy.
This leads Bitcoin into the realm of digital collectibles and NFTs. The Ethereum NFT (non-fungible token) market exploded in 2021, with NFT sales exceeding $24 billion. These NFTs are typically digital assets on the Ethereum network with unique identification numbers and were used to represent ownership of assets such as art and music.
Bitcoin Ordinals could be used for exactly the same thing, with the added benefit of being associated with the most popular and long-standing cryptocurrency on the market.
How do Bitcoin ordinal numbers work?
Bitcoin Ordinals assign a unique identification number to the satoshis in a given bitcoin. Bitcoin developer Casey Rodarmor introduced the idea in 2023 and used a feature of Bitcoin’s 2021 Taproot upgrade, which allowed data to be stored directly on the Bitcoin blockchain, to make this possible.
Ordinals work by making each unit of a single bitcoin uniquely identifiable. When a bitcoin is mined, all million satoshis are assigned a number in the order they were created. Satoshis can be tracked individually across multiple wallets, meaning you can spend BTC and still track individual Satoshis or Ordinals.
While Ethereum NFTs sometimes require metadata to be stored off-chain, sometimes on a traditional web2 website, Bitcoin Ordinal’s data is all stored on-chain, reducing the risk of data loss. Thanks to the Bitcoin network’s SegWit and Taproot updates, a lot of data can be stored in this way.
Buy, sell and trade Bitcoin Ordinals
To buy Bitcoin Ordinals, you need a wallet that is compatible with Taproot addresses. Many of the most popular Bitcoin wallets, such as Trust Wallet, Mycelium, and Blockchain.com wallets, do not support this feature. You can use wallets like Sparrow Wallet instead.
Bitcoin addresses compatible with taproot usually start with the characters ‘bc1p’.
How to Buy Bitcoin Ordinals
Once your wallet is set up, you can visit marketplaces like Ordinals Market or OpenOrdex to view the ordinal numbers offered. As with Ethereum NFTs, these ordinal numbers are often associated with the sale of digital artwork or other assets.
Deposit your funds on the platform (at your own risk) or link your BTC wallet. From there you can bid on an Ordinal or simply make an immediate purchase.
That’s how it’s done! You can also list Ordinals for sale on the same platform or trade them peer-to-peer with other users.
Real-world examples and usage scenarios
Bitcoin Ordinals can be used to represent the sale of digital or real-world assets, to act as a collectible piece of BTC network history, or to permanently inscribe data into an immutable blockchain as a form of censorship-resistant art, protest, or historical heritage. conservation.
Right now the main use case is in artwork, much like Ethereum NFTs. The market for Bitcoin Ordinals is relatively small, but not insignificant. BTC Ordinals’ revenue reached more than $170 million in March 2024.
Examples of Bitcoin Ordinals could include collecting “souvenirs” from history, allowing users to own a piece of a bitcoin from a specific moment in time, such as a major world event or simply an interesting moment in Bitcoin mining history.
Potential Challenges and Disadvantages of Bitcoin Ordinals
Of course, we’ve already seen the market for Ethereum NFTs plummet in recent years, with the value of NFT collectibles dropping by around 90% in total. Although the technology isn’t going anywhere, the market quickly became saturated with low-effort artwork, aggressive marketing practices, and shady or abusive trading tactics such as wash trading to artificially inflate auction prices.
It’s safe to say that the market has taken a step back from NFTs and this muted sentiment could also carry over to Bitcoin Ordinals in the near future.
Another problem with Ordinals is one of privacy and surveillance. Allowing unique identifying data to be engraved on individual millionths of each Bitcoin arguably threatens Bitcoin’s fungibility and pseudonymous nature.
A new Bitcoin civil war looms over ordinal numbers and privacy!
We might even see a fork
I’m going to explain as briefly as possible how we got here, why we got here and how we can avoid things like this in the future.
Join us!
1/16 pic.twitter.com/5dDNLfaCNn— Joel Valenzuela (@TheDesertLynx) December 11, 2023
Ordinal numbers allow on-chain surveillance analysts to cluster wallets and identify Bitcoin users more easily, which some people may disagree with.
Finally, there is potentially a risk of creating a derivatives market that could distort BTC prices. If Ordinals were to take off, there is a possibility that users spending a lot of money on specific millionths of a Bitcoin could have unforeseen consequences for Bitcoin’s price and the health of the market, although this is just speculation at the time of launch . to write.
Whatever happens with Bitcoin Ordinals, the technology has been warmly welcomed by a large number of cryptocurrency enthusiasts, and it looks like the market will continue to develop in the coming months and years.
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