Nfts
Understanding Ordinals: The Evolution of NFTs on Bitcoin
Ordinals are not NFTs: they are ordinals. But what exactly makes Ordinals different? And what is it about its ecosystem that has inspired so much passion, FOMO, and debate within the Bitcoin ecosystem? Understanding this requires going back in time to the beginnings of NFTs to trace their journey from Bitcoin to Ethereum and then back again.
Yes, ordinals share a number of similarities with NFTs. They are, after all, non-fungible tokens that are demonstrably unique, fully owned, and stored on-chain. But thanks to the genius of creator Casey Rodarmor, Ordinals incorporate a number of unique features that have transformed them into a multi-billion dollar industry, even as NFTs on Ethereum have faltered. Today, Ordinals form a distinct marketplace whose community is one of the most original and engaged in all of crypto. And that’s quite an achievement.
From colorful pieces to PFP
One of the most curious things about NFTs is that their origins can be traced back to Bitcoin. Although the Bitcoin network was never designed for anything other than transacting and securing BTC, it didn’t take long for imaginations to start imagining other ways to use it. One of them, which merged in 2012, was Colorful piecesa system for creating non-fungible assets by adding unique metadata to BTC transactions.
Although the colorful pieces never really took off, they planted a seed and, within two years, the first NFT was created on the Namecoin blockchain. Then, in 2017, the now-famous Crypto Kitties emerged on Ethereum, briefly clogging the network and sparking the first wave of NFTs as we know them. By 2020, the concept of PFPs had been popularized: a thematic collection of unique characters, often numbering 10,000, which launched the modern era of NFTs.
In 2021, NFTs went stratospheric on Ethereum, making their early adopters extremely wealthy in the case of top collections such as Bored Apes and Crypto Punks. At this point, a few basic rules defining NFTs had been established: each was unique but often part of a larger collection of themed characters; their metadata was stored on-chain where possible or using decentralized file storage when necessary; and their true value lay in the communities that coalesced around them.
While anyone can create an NFT, it takes memes, energy, and perseverance to turn 10,000 “jpegs,” as they’re pejoratively known, into a multimillion-dollar move. Many tried and most failed, but a handful of NFT communities survived the ensuing bear market, which saw valuations plummet as celebrities who had FOMO faded from the scene almost as quickly.
But despite naysayers’ predictions, NFTs were not dead. In fact, they were about to rekindle on the channel where it all started. Enter Casey Rodarmor, ordinals and Bitcoin.
A wild ordinal appears
In December 2022, at the height of the crypto and NFT bear market, Ordinary went live. A system for minting or “writing” unique metadata onto a satoshi – the smallest unit of a bitcoin – Ordinals has been launched with little fanfare. But the relative ambivalence that greeted their launch didn’t last long: once bored bitcoiners and bear market survivors hung in there, Ordinals went stratospheric. And they haven’t stopped since.
In the first six months, over 23 million Ordinals listings were created and a thriving marketplace emerged to support their business. People started paying ridiculous money for Bitcoin-based “jpegs” while miners gratefully absorbed the revenue generated by increased transaction fees. The ordinals now have generated nearly half a billion dollars in transaction fees, solving the problem of dwindling block rewards, and over 66 million registrations were generated.
Like many crypto crazes, Ordinals have sometimes been victims of their own success, leading to increased Bitcoin network fees during hyped launches. But as often happens, when cryptography creates a problem, it creates a solution. As the Bitcoin ecosystem has expanded to accommodate L2s and accommodate DeFi, networks have arisen to support the pressure, including Ordinal action.
Merlin Channel, for example, supports native Bitcoin assets including ordinals, providing a cheaper and faster environment for trade listings. This allows Ordinals to be traded without incurring the high L1 fees and long confirmation times that are one of the biggest barriers to greater adoption. Bitcoin L2s have the ability to facilitate actions such as swiping a collection (i.e. purchasing multiple listings in a single transaction) which are an essential part of Ethereum NFTs.
As a result, Ordinals can inherit the properties that have made NFTs so eminently collectible while retaining the unique characteristic of Bitcoin: scarcity. And not just the rarity of the inscription itself, but also that of the satoshi on which it is encoded.
Understanding rare sats
Case Rodamor had two masterstrokes when designing the Ordinals. The first was to design a protocol to encode images and metadata into a single satoshi. The second was to design a value system for the satoshis themselves, making specific satoshis extremely collectible, even without an inscription added, based solely on their age and transaction history.
Like magical Eden explain in his guide to rare satoshis, “Satoshis that were mined by Satoshi Nakamoto himself are… highly sought after by collectors… The Rodarmor Rarity Index is a classification system designed by Casey Rodarmor and rooted in ordinal theory – these satoshis are classified according to pivotal moments. in the Bitcoin timeline, such as mining difficulty adjustments and halving events.
Combine rare satoshis with unique inscriptions and you have the ultimate collectible: a Bitcoin artifact as coveted for its past as for its current reincarnation. It’s a powerful formula that blends Bitcoin tradition with NFT culture and is at the heart of Ordinals’ compelling value proposition.
NFTs, but different
While the token assigned to each Ethereum NFT is mundane and there only to map each media item to a digital unit of exchange, the sats to which many Ordinals are attached have their own significance that, in the eyes of their collectors, enhances their appeal . .
But there are also fundamental differences between Ordinals and NFTs that are less mystical in nature. Like the fact that unlike NFT collections traded on EVM chains, Ordinals creators do not receive royalties on each resale. This doesn’t inherently make either medium superior to the other, but it does show that Ordinals are driven less by the creator and more by the community behind the collection. Until now, renowned artists have been slow to release Ordinals collections, which have instead emerged in a more popular way.
Bitcoiners who supported Ordinals hope that their listings will prove more durable than NFTs, and thus avoid the boom-and-bust cycle that has hit the latter. Whether this turns out to be the case remains to be seen. But this can be said with certainty: whatever the ordinals are, they are not NFTs. They are Ordinals, and in the eyes of their most ardent collectors, they are the best thing since Bitcoin.