Bitcoin ordinals are a way of naming Bitcoin blocks and transactions. They are based on the block height, which is the number of blocks that have been mined since the Genesis block. The first block has an ordinal of 0, the second block has an ordinal of 1, and so on.
Transactions also have ordinals, starting with 0 for the first transaction in a block. This allows for the unique identification of blocks and transactions, which is important for tracking and auditing purposes.
Bitcoin ordinals are a simple but effective way of naming blocks and transactions. They are easy to understand and use, and they provide a reliable way of identifying specific blocks and transactions.
While that’s Bitcoin Ordinals in a nutshell, there’s a lot more to it than that. Let’s attempt to break it down and get to the bottom of what Bitcoin Ordinals actually do. They are part of the protocol that assigns unique identifiers to satoshis (SATs).
SATs are a fraction of a Bitcoin. There are 100,000,000 SATS in one Bitcoin. It is the smallest unit of Bitcoin, just like the penny is the smallest denomination of the U.S. Dollar that we can physically hold.
So, Bitcoin Ordinals allow you to break Bitcoin down into smaller pieces, each one with its own assigned identifier.
Casey Rldarmor is the creator of this protocol, which allows NFTs (non-fungible tokens) to be created on the Bitcoin blockchain. These are called Ordinal NFTs, and they are digital assets that are inscribed on a single SAT. By inscribing SATs (including identifying information on them), we can now differentiate them for many different purposes.
Before the development of the protocol, Bitcoin was fungible. SATs on the blockchain couldn’t be differentiated from each other. Two different advantageous updates to the original protocol allowed for this change - Segregated Witness and Taproot.
This update, also known as SegWit, allows witness information and transaction data to remain separate on the blockchain. Decoupling these two things increases Bitcoin’s block size. Users are now able to inscribe image and video data, digital signatures, and other validation information in the witness script. SetWit also allows more transactions per block.
Taproot is simply an address format that the Bitcoin Ordinal protocol uses to identify individual SATs. However, the way it does this is rather complex - and genius. Now, all parties in a transaction cooperate to combine their public keys, creating a new public key. They also combine their signatures to create a new signature, all while making these complex transactions appear like standard Bitcoin person-to-person transactions.
This upgrade to the protocol also makes it more challenging to identify transaction inputs, which enhances security. It reduces the data needed to make them, lowering transaction costs.
NFTs are simply a representation of ownership in a digital asset. We’ve seen the popularity of NFTs soar with things like the Bored Ape Yacht Club and CryptoPunks. With NFTs, the ownership metadata stays in a separate off-chain location from the digital asset itself.
Ordinal NFTs, on the other hand, store the digital asset and the witness data together on-chain. The digital asset resides within the transaction’s witness data. Because the Bitcoin Ordinal protocol allows for a single block to be broken down into smaller pieces, the inscription remains in the first SAT of the transaction.
For non-technical users, this all seems a bit daunting, but developers have been working for almost a decade to bring this to fruition. It’s something the developers of Bitcoin couldn’t anticipate or expect, but that offers a new level of usability for the most popular blockchain.
There will always be naysayers, and Bitcoin Ordinals have plenty of them. There’s a lot of debate in the community regarding the benefits and drawbacks of these inscribed SATs. Some argue that it uses block space inefficiently, which could lead to increased transaction fees instead of the decreases we’re seeing now.
They also point out slower transactions for everyone using the network due to the complexity of the inscriptions.
Despite these criticisms, Bitcoin Ordinals produce a lot of new use cases. Many want to know its use cases beyond your typical financial transaction. Users could also attach ordinal SATs to stablecoins or security tokens, enabling Bitcoin smart contracts. This would appeal to a larger audience and make Bitcoin even more relevant than it currently is.
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