Bitcoin NFTs: What are ordinals?

Bitcoin and non-fungible tokens (NFTs) have a long, well-documented history together.

In fact, the technical foundations of NFTs date back to 2012. In those early years of blockchain technology,  an experiment based on the Bitcoin blockchain captured the minds of the community.

Long before the arrival of Ethereum, its creator Vitalik Buterin co-authored a paper with Yoni Assia, Lior Hakim, and Meni Rosenfeld. The document outlined a concept called "Colored Coins" — a method of expanding Bitcoin's utility beyond the peer-to-peer electronic cash system first outlined in the Bitcoin white paper. 

The Colored Coins white paper laid out a vision for how to use the Bitcoin network in a way similar to how NFTs are used today.

Despite its promise, the Colored Coins project didn't gain traction in the market. But, what it did do was showcase the potential for tokenizing assets on a public blockchain ledger. This idea would steadily lead to the rise of  alternative uses of crypto and blockchain technology such as NFTs, play-to-earn games, and the metaverse.

Ten years on, one person has picked up where Colored Coins left off and reinvented the concept of NFTs on Bitcoin. 

Known as bitcoin ordinals, it represents a new system for permanently storing any type of data directly on Bitcoin's blockchain.

Bitcoin ordinals represents a new system for adding digital content to individual satoshis (SATs) on Bitcoin's blockchain. You can think of it like a next-generation Colored Coins protocol.

Software engineer Casey Rodarmor developed bitcoin ordinals in 2022, with an aim to "make bitcoin fun again."

There are three components to bitcoin ordinals: 

• Ordinal theory
• Ord software
• Ordinal inscriptions

Ordinal theory is the name given to the system that uniquely numbers each bitcoin satoshi in circulation. 

Every single bitcoin consists of 100 million satoshi units. With approximately 20 million bitcoin in circulation, this means that there are hundreds of trillions of satoshis in circulation.

If you want to learn more about satoshis or see how much different amounts of satoshis are worth, you can check out our Satoshi to USD Converter to learn more.

Each number assigned to a satoshi is known as an "ordinal number."

Satoshis are numbered in the order they were first mined and entered circulation. According to ordinal theory, this format based on when the satoshi entered circulation is known as "integer notation."

However, the official ordinal theory overview document offers other way to represent the unique numbering system which bitcoin ordinals use: 

• Decimal notation: The block height number followed by the number of the satoshi within the block.
• Degree notation: A rarity grading score based on a satoshis inherent values.
• Percentile notation: The satoshi's position in Bitcoin's supply, expressed as a percentage.
• Name: An encoding of the ordinal number using the characters a through z.

In this way, each satoshi has its own rarity level. 

For example, a satoshi that was the first in its block, the first after a difficulty adjustment, the first sat after a bitcoin halving cycle, etc is considered rarer, and therefore potentially more desirable, than other satoshis.

Breaking this down, the ordinal theory has established its own satoshi rarity ranking system:

Using this numbering system, it becomes possible to assign arbitrary data to specific satoshi units and easily track them.

Additionally, the recorded order of when each satoshi entered circulation on the blockchain is immutable. This makes it nearly impossible to alter or corrupt their ordinal numbers.

To begin adding data to bitcoin satoshis, users must first download and run a Bitcoin full node. This process requires downloading Bitcoin Core and synchronizing with the Bitcoin blockchain.

Downloading Bitcoin Core will also provide users with a Bitcoin wallet. However, users will need to download Ord software to give bitcoin satoshis non-fungible qualities.

At this stage, it's also important to note that when using ordinals, Bitcoin NFTs are specifically called "digital artifacts." While the name is different from the more widely used acronym “NFT,” Bitcoin digital artifacts act in a way that is extremely similar to other on-chain NFT digital assets.

After downloading Ord software, users will be able to add any kind of data they wish to individual satoshi units. This process is known as "inscribing," and any satoshi units that are inscribed are referred to as "inscriptions."

Using Ord explorer, anyone can view the tens of millions of satoshi units already inscribed by members of the Bitcoin community.

Ordinal inscriptions are entirely on-chain and stored within the script of a taproot transaction. 

This process of keeping all media and metadata associated with the NFT differs from many of the most prevalent NFT collections on Ethereum, Solana, Polygon and other popular blockchains for NFTs.

Usually, the Ethereum blockchain only stores the record of an NFT on-chain. Meanwhile, the media file associated with the NFT typically lives elsewhere on the internet rather than on the blockchain.

Only a handful of NFT collections such as CryptoPunks and CrypToadz store both the media and the NFT directly on-chain.

Inscribers could initially attach up to 4 megabytes (MB) of data to each satoshi, whether it be an audio file, image, etc. However, following the introduction of recursive inscriptions in 2023, inscriptions can now call data from other existing inscriptions.

This breakthrough has significantly expanded the theoretical limit of how much data users can associate with each satoshi. This has allowed for further innovations, such as allowing for video games and on-chain software applications to exist on the Bitcoin blockchain.

Although Kraken NFT does not support bitcoin ordinals just yet, we do offer hunderds of the most popular NFT collections in the market today.

Browse the millions of NFTs avalible on Kraken NFT to find the NFT that is right for you today!