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Bitcoin Ordinals

The Difference Between NFTs and Bitcoin Ordinal Inscriptions

There are key differences between NFTs on Ethereum and Bitcoin Ordinals. Trust Machines explains how distinguishing between an NFT and digital artifact is key to the renewed discussion around Bitcoin NFTs.
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In January 2023, the introduction of Ordinals revived excitement around non-fungible tokens on the Bitcoin network and became a game changer for the cryptocurrency space. 

All thanks to Bitcoin Ordinal inscriptions.

To better understand how Bitcoin Ordinals have reignited interest in NFTs on Bitcoin, it’s worth explaining how Ordinal NFTs work and how they differ from NFTs as we know them. 

So how are Ordinals and NFTs different? We’ll start with NFTs.

How do NFTs Work?

The world has been buzzing about NFTs for years. 

They are digital representations for ownership of unique items. NFTs have commonly consisted of art pieces, collectibles, memorabilia and even real estate. One of the first NFT collections was Cryptokitties, or digital cats that can be traded for ether. 

They generally also live on newer blockchains, with Ethereum being the most popular blockchain for NFTs (it was also the first to support NFTs). That being said, the original NFT collection was technically “Rare Pepes”on Bitcoin, though they weren’t called NFTs at the time.

Of course, NFTs aren't just on Bitcoin or the Ethereum network. This blog post highlights the major differences between Ethereum NFTs and Bitcoin digital artifacts as ETH is the most common blockchain for NFTs.

NFTs on blockchains like Ethereum are minted through smart contracts that assign owners to the tokens and manage how they can be transferred. When an NFT is minted or created, code is executed, stored in smart contracts, and added to the blockchain. A new block of transactions is created, validated, and recorded on the blockchain.

The NFT market has been hyped up as a way for people to own property in the metaverse, or in the new version of the Web. Each token has a unique identifier that links to, say, one Ethereum address and it isn’t interchangeable with another NFT.

People can check who owns a token. They can also easily buy and sell NFTs online by participating in NFT marketplaces like OpenSea, where NFT trading is also often an option.

What is an Ordinal and What are Ordinal Inscriptions?

Ordinals are a numbering scheme for the smallest units on the BTC blockchain. Numbering the smallest units — called satoshis — helps keep track of the order they have been mined. This means that even if a satoshi (sat, for short) is moved to a different wallet, the ordinal number affixed to it remains the same.

Assigning numbers to satoshis is called ordinal theory, and numbering sats opens up the technology to a whole new host of use cases.

A big reason people have been talking about Ordinals, after all, is ordinal inscriptions. 

Essentially, you can inscribe a file (be it a photo, music file, video, or more) onto a Bitcoin block.

Each inscription is actually processed as a bitcoin transaction, which means that each inscribed file is stored directly on the Bitcoin blockchain itself.

The latter is an essential characteristic of digital artifacts.

Digital Artifacts vs. NFTs

The fact that Ordinal inscriptions happen directly on the Bitcoin blockchain is one of the keys to understanding the difference between an Ordinal NFT and our common concept of an NFT. Namely, it's a characteristic of what we can call a "digital artifact."

As software engineer and Ordinals creator Casey Rodarmor puts it, digital artifacts are inscriptions and NFTs, but not all NFTs are digital artifacts. To qualify as a digital artifact, an NFT must be decentralized, immutable, unrestricted, and on the blockchain.

Most NFTs don’t hit all these requirements. Often, their content is not stored on the blockchain, or they are on a centralized chain like Ethereum or Solana.

Ordinals inscriptions are somewhat like NFTs, but they don’t use smart contracts. NFTs, on the other hand, are activated by smart contracts that run on a blockchain. 

Consequently, Ordinals also don’t possess separate metadata files, unlike NFTs. 

Instead, Ordinals store files within the witness signature field of the bitcoin transaction directly while NFTs store metadata separately. Ordinals’ direct storage of data can help users hold on to important files and information. In the event of a platform malfunction, Ordinals are likely to retain data.

In short, Ordinal inscriptions, which are digital artifacts, have the additional benefit of being immutable, decentralized, and settle directly onto the Bitcoin blockchain. 

Impact of Ordinals on the Bitcoin Network

Since Ordinals were introduced, they have sent ripples across crypto and other Web3 communities. Already, users are experimenting with digital art like apes, cats, robots, and more as the protocol allows them to inscribe any sort of content. 

Popular Bitcoin Ordinals projects have also appeared among collectors such as Ordinal Punks, 100 NFTs on Bitcoin that pay homage to CryptoPunks. They were minted within the first 650 inscriptions on the blockchain and were so immediately in demand that one Ordinal Punk Bitcoin NFT from the ordinal collection sold for about $214,000 just weeks after the Ordinals protocol launch. 

Recently, someone also decided to swap one of their CryptoPunks for an Ordinal Punk in what looks to be the first major swap of its kind. The floor price for that trade was $100,000.

As Rodarmor describes it, these new use cases can be “strange, beautiful, ugly, and profane.” Even the video game Doom has been inscribed on Bitcoin as a simplified version that can be played from the web browser. 

The conversation around Ordinals has driven people to believe in building more on the Bitcoin blockchain and not just see Bitcoin as a digital asset. Aside from Bitcoin NFTs, many in the crypto space are excited about Ordinals as they believe the protocol will improve Bitcoin's security, raise transaction fees for mining (and, subsequently, help miners), and shed a light on Bitcoin upgrades, like Taproot

There are, however, concerns about the protocol's long-term effects. Most notably, critics are concerned about the Bitcoin block size needed for inscriptions, leading to concerns about block space. 

That said, ultimately, Ordinals have extended the known capabilities of the Bitcoin chain and convinced many in the crypto community that Bitcoin isn't just the world's largest cryptocurrency that primarily acts as a store of value.

In fact, Bitcoin could serve as a settlement layer for a wide variety of applications and, with developments like Ordinals, looks poised to change the world of crypto.