4.5 Bitcoin Ordinals and Inscriptions
The introduction of Bitcoin Ordinals in early 2023 marked a radical departure from the established paradigm of Non-Fungible Tokens. Unlike the smart contract-based standards of Ethereum and Solana, the Ordinals protocol operates directly on the Bitcoin base layer, creating unique digital artifacts without relying on separate tokens or complex programmable logic. This approach represents a distinct philosophical choice, prioritizing the unparalleled security and permanence of the Bitcoin blockchain over the functional flexibility offered by smart contracts. [1]
A Paradigm Shift: NFTs Without Smart Contracts
Bitcoin Ordinals are not "tokens" in the traditional sense. They are a system for identifying, tracking, and imbuing individual satoshis—the smallest divisible unit of a bitcoin (1 BTC=100,000,000 satoshis)—with unique data. This system is built upon two core concepts: Ordinal Theory and Inscriptions. [2]
The entire framework was developed by software engineer Casey Rodarmor and introduced in early 2023. It is important to note that Ordinal Theory itself is a social convention—an off-chain methodology for numbering satoshis based on the order in which they are mined and subsequently transferred. It does not require any changes to the Bitcoin protocol and is a lens through which users can choose to view the UTXO (Unspent Transaction Output) set. For a user who does not subscribe to this theory, an inscribed satoshi is indistinguishable from any other satoshi. [3]
Ordinal Theory: Numbering and Rarity
The theory provides a systematic way to assign a unique ordinal number to each of the approximately 2.1 quadrillion satoshis that will ever exist. Satoshis are numbered sequentially based on when they were mined and are tracked as they move from transaction inputs to outputs in a first-in-first-out (FIFO) order. This numbering scheme allows any individual satoshi to be uniquely identified and followed throughout its lifecycle. [2]
A key innovation of Ordinal Theory is the introduction of a hierarchical system of rarity, derived from Bitcoin's own periodic and predictable events. This creates a new layer of collectibility based on the inherent properties of the blockchain itself, independent of any data attached to the satoshi. The rarity levels are: [3]
Common: Any satoshi that is not the first to be mined in its block.
Uncommon: The first satoshi of each new block (mined approximately every 10 minutes).
Rare: The first satoshi of each difficulty adjustment period (every 2,016 blocks, or approximately every two weeks).
Epic: The first satoshi of each halving epoch (every 210,000 blocks, or approximately every four years). Legendary: The first satoshi of each "cycle," a rare event where a halving and a difficulty adjustment coincide (approximately every 24 years). Mythic: The single first satoshi of the genesis block, mined by Satoshi Nakamoto.
The Inscription Process: Data on Bitcoin
An Inscription is the act of attaching arbitrary data—such as an image, text, audio file, or even an application—to a specific, ordinally-numbered satoshi. This process transforms the satoshi into what Ordinals proponents call a "digital artifact," a permanent and immutable piece of data stored directly on the Bitcoin blockchain.
This capability was made possible by two major upgrades to the Bitcoin protocol, neither of which was originally intended for this purpose: [4]
Segregated Witness (SegWit): Introduced in 2017, SegWit restructured Bitcoin transactions by separating the cryptographic signatures (the "witness" data) from the core transaction data. It also provided a "weight discount" for data stored in the witness portion, making it more economically feasible to include larger amounts of data in a transaction.
Taproot: Activated in 2021, the Taproot upgrade enhanced Bitcoin's scripting capabilities and, crucially, removed the previous size limit for witness data. This inadvertently created the capacity to store up to 4MB of arbitrary data within the witness field of a single Bitcoin transaction.
The inscription process itself involves a two-step "commit and reveal" transaction. The data to be inscribed is embedded within the witness portion of the reveal transaction. Once this transaction is mined and confirmed, the data becomes a permanent, unchangeable part of the Bitcoin ledger, inextricably linked to the satoshi it was inscribed upon.
The Emergence of BRC-20
The ability to inscribe text data, specifically JSON (JavaScript Object Notation), quickly led to further experimentation. In March 2023, a pseudonymous developer named Domo introduced the BRC-20 token standard, an experimental framework for creating fungible tokens on Bitcoin. BRC-20 uses JSON text inscriptions to define the key operations of a fungible token: deploy (to create the token and set its properties like ticker and max supply), mint (to create new units of the token), and transfer (to move tokens between owners). Unlike Ethereum's ERC-20, BRC-20 does not use smart contracts. Instead, the "state" of the token system—who owns what and how much—is determined by off-chain indexers that scan the Bitcoin blockchain, read the sequence of BRC-20 inscriptions, and calculate the resulting balances. [5]
The architectural and philosophical differences between the Bitcoin-native Ordinals approach and the smart contract-based models of Ethereum and Solana are summarized in the table below.
Underlying Technology
Smart Contracts
Ordinal Theory & Inscriptions
Data Storage
Mostly off-chain (blockchain stores a pointer to data)
Fully on-chain (data stored in transaction witness)
Immutability
Metadata can be mutable if the pointer or off-chain data is changed
Data is fully immutable once inscribed on the Bitcoin blockchain
Programmability
High (enables royalties, dynamic features, gaming logic, DeFi)
None (static digital artifacts with no on-chain logic)
Security Model
Relies on the security of the specific smart contract
Inherits the full security of the Bitcoin base layer
Ecosystem
Mature marketplaces, wallets, and DeFi integration
Nascent; requires specialized Ordinal-aware wallets and indexers
Efficiency
Can be highly efficient (e.g., ERC-1155 batching, Solana's speed)
Inefficient; can cause network congestion and high fees on Bitcoin
This comparison reveals the fundamental trade-off at the heart of the Ordinals protocol. It consciously sacrifices all forms of programmability—the very feature that defines smart contract-based NFTs and enables functionalities like royalties, in-game interactions, and DeFi integration. In return, it achieves a level of permanence and security that is arguably unmatched. Because the inscribed data is stored directly within a Bitcoin transaction, it becomes part of the Bitcoin blockchain itself, making it as immutable and censorship-resistant as Bitcoin. Smart contract NFTs, with their reliance on potentially fallible contract code and often-off-chain metadata, introduce layers of complexity and potential points of failure that Ordinals completely avoid. Ordinals are therefore better understood not as digital "applications" but as digital "fossils"—perfectly preserved artifacts secured by the world's most robust decentralized network.
References
[1] Pixelplex - "Bitcoin Ordinals 101: Your Guide to Bitcoin NFTs" - https://pixelplex.io/blog/bitcoin-ordinals/
[2] Investopedia - "Bitcoin Ordinal NFT: Everything You Need to Know" - https://www.investopedia.com/what-are-bitcoin-ordinals-7486436
[3] Ordinals - "Ordinal Theory Overview" - https://docs.ordinals.com/overview.html
[4] Ledger - "Bitcoin Inscriptions Meaning" - https://www.ledger.com/academy/glossary/bitcoin-inscriptions
[5] Hiro - "Creating New Fungible Tokens On Bitcoin With BRC-20 Tokens" - https://www.hiro.so/blog/creating-new-fungible-tokens-on-bitcoin-with-brc-20-tokens
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