An Intro to Ordinals: Bitcoin NFTs

Yo, welcome to Week 3. This one is gonna be a new style and be focused solely on a single topic: Ordinals.

If you’ve been hanging out with me this week, or your name is Florian (who told me about this), this is probably no surprise. But this should be a good one for everyone else.

WTF are Ordinals?

Ordinals are “NFTs” on the Bitcoin network. I put NFTs in quotes because they work a little differently than normal NFTs, but we’ll get to that later (and if my Mom is reading this, NFT stand for Non-Fungible Token).

They’re unique because they’re the first NFTs that are on-chain, on the L1 Bitcoin network. Instead of using an L2 solution like Stacks or an EVM, the NFTs are encoded directly into Satoshis (aka Sats, representing 0.00000001 BTC or the smallest unit of a bitcoin).

Ok I get it, you’re confused. Lets take a step back.

WTF is an NFT?

As mentioned above, NFT stands for Non-Fungible Token. For example, a dollar bill is fungible (1 dollar bill = 1 dollar bill). A ticket to a baseball game, however, is not fungible (tickets behind home plate are not the same as tickets in the top deck).

Similarly, when applied to cryptocurrency, a token on the Ethereum blockchain (ether or ETH) is fungible (1 ETH = 1 ETH), but an NFT is not (a cryptopunk is not the same as a BOID).

Ok cool, but that still doesn’t really explain how they work.

NFTs started on the Ethereum blockchain. Ethereum allows for the deployment of smart contracts, which are essentially code that gets put on the blockchain to be interacted with. Cool, right? With these smart contracts, came NFTs: a way to track specific “tokens” on the blockchain, and embed in those tokens images or a link to an image.

Though they aren’t in the native currency (ETH), you can buy, sell, and trade these NFTs using ETH through the NFT smart contracts. And thats really all there is to it. Write a smart contract, upload some data (images usually), sell (or give away) the NFTs. Easy peasy.

If its that easy, then how are there sales of NFTs for $23 million you may ask (see below)? Well, its just the same as people pay for Babe Ruth autographs or Michael Jordan rookie cards or even famous watches and cars.

There’s a lot more nuance to NFTs as well, especially in terms of potential applications, but lets stay on track for now.

Ok, I get NFTs now. But WTF are Ordinals?

Ordinals are ~really~ a numbering scheme for sats. Sats are numbered based on the order in which they are mined, hence ordinals (see Week 2 for mining overview). The technical details can be found here.

With a recent upgrade to the Bitcoin network, these sats can now be “inscribed” with any arbitrary asset, hence the rise of Bitcoin NFTs. Unlike Ethereum NFTs, where the NFT is its own token on the network, Ordinals are actually inscribed into the native currency.

This is a key difference. Instead of having first row seats to an NBA game, instead of being in the rafters, its more similar to having a dollar bill with art drawn on it. Maybe the art was done by Picasso, but at the end of the day, a dollar is a dollar.

Of course, however, that hasn’t stopped anyone. As far as I know, the highest sale of an ordinal is 11.5 BTC (or around $250,000). This specific Ordinal was one of the first 500 inscribed onto the blockchain and part of a set of Ordinal Punks (different than Bitcoin Punks discussed below). As I said, a dollar is a dollar, right?

Whats so cool about them?

In a way, ordinals are the ultimate form of decentralization when it comes to NFTs. Instead of having someone write a smart contract, deploy the smart contract, make the images, etc, anyone can inscribe any ordinal. Its actually surprisingly easy to do, although you need to be running a full Bitcoin node to do it (you’re welcome Florian 😂 ).

On Ethereum, collections (or NFT projects) are simply defined by any NFT thats been minted (created) on that specific smart contract. With ordinals, however, NFTs are defined in a completely different way. Either someone inscribes all of the NFTs, then sells them, or you get full decentralization like the Bitcoin Punks.

Bitcoin Punks has no centralized entity, or even contract. On Ethereum, there are 10,000 cryptopunks. All Bitcoin Punks are is images of those 10k cryptopunks inscribed on the Bitcoin network, and inscribing is ~essentially~ free. If you inscribed the Punk first (as is provable on the blockchain), then that Punk is yours. Thats right. Anyone could go inscribe the rarest Punk to the blockchain, but because they weren’t the first, it doesn’t count.

I agree, it feels like a made up game thats played on the playground.

But these have real value. Even with 10k, the cheapest Bitcoin Punks are selling for ~$2500, with the most expensive going for well over $15,000. A wild game. There’s also no marketplace for these. Instead of selling based on smart contracts in a trusted way, ordinals are currently traded based off of trust. Yup. If you want to buy a Bitcoin Punk, send an anonymous stranger $2500 and trust that they will then send you the punk. The wild west.

All in all, (as with everything in crypto) its a risky bet. That being said, inscribing, selling being a part of the orange background community has been scarily fun, maybe the most fun crypto has been since when ETH was over $4500 lol.

For anyone who thinks its the slightest bit cool, here is my Bitcoin Punk.

As will all Bitcoin Punks, they were free to inscribe with a full node. I’ve been running a full Bitcoin node for the past year or so for the sake of decentralization, but I didn’t expect to need it for this lol. I guess luck favors the prepared.

Anyways, I hope you learned something about NFTs, the blockchain, and Ordinals, thanks Florian for the hot tip, and I’ll see you next week.