Ordinals aren’t NFTs: they’re Ordinals. But what exactly makes Ordinals different? And what is it about its ecosystem that’s inspired so much passion, FOMO, and debate within the Bitcoin ecosystem? Understanding this calls for tracking 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 provably unique, fully ownable, and stored onchain. 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 sector, even as NFTs on Ethereum have faltered. Today, Ordinals form a distinct market whose community is one of the quirkiest and most highly engaged in all of crypto. And that’s quite a feat.
From Colored Coins to PFPs
One of the most curious things about NFTs is that their origins can be traced back to Bitcoin. Despite the Bitcoin network having never been designed for anything more than transacting and securing BTC, it didn’t take long for imagineers to start, well, imagining other ways it could be used. One of these, which merged in 2012, was Colored Coins, a system for creating non-fungible assets through adding unique metadata to BTC transactions.
While Colored Coins never really took off, it 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 starting the first wave of NFTs as we know them. By 2020, the concept of PFPs had been popularized: a themed collection of unique characters, often numbering 10,000, which kickstarted the modern era of NFTs.
In 2021, NFTs went stratospheric on Ethereum, making their early adopters extremely wealthy in the case of blue chip collections such as Bored Apes and Crypto Punks. By this stage, a few basic rules defining NFTs had been established: each one was unique but often part of a larger collection of themed characters; their metadata was stored onchain where possible or using decentralized file storage where required; and their real value lay in the communities that coalesced around them.
Although anyone can create an NFT, it takes memes, energy, and perseverance to turn 10,000 “jpegs” as they’re pejoratively dubbed, into a multi-million dollar movement. Many tried and most failed but a handful of NFT communities rode out the subsequent bear market that saw valuations plummet as celebrities who had FOMO’d in faded the scene almost as fast.
But despite the predictions of naysayers, NFTs weren’t dead. In fact, they were about to be reignited on the chain where it all began. Enter Casey Rodarmor, Ordinals, and Bitcoin.
A Wild Ordinal Appears
In December 2022, at the height of the crypto and NFT bear market, Ordinals went live. A system for minting or “inscribing” unique metadata onto a satoshi – the smallest unit of a bitcoin – Ordinals launched with little fanfare. But the relative ambivalence that greeted their launch didn’t last for long: once bored bitcoiners and bear market survivors latched on, Ordinals went stratospheric. And they haven’t stopped since.
In their first six months, more than 23 million Ordinals inscriptions were created and a thriving market sprung up to support their trading. People began paying silly money for Bitcoin-based “jpegs” while miners gratefully soaked up the revenue the increase in transaction fees brought about. Ordinals have now generated almost half a billion dollars in transaction fees, solving the problem of diminishing block rewards, and over 66 million inscriptions have been generated.
Like many crypto crazes, Ordinals have at times been a victim of their own success, resulting in Bitcoin network fees spiking during hyped launches. But as so often happens, when crypto creates a problem, it engineers a solution. As the Bitcoin ecosystem has expanded to take in L2s and accommodate DeFi, networks have sprung up to take the strain – including Ordinals action.
Merlin Chain, for instance, supports native Bitcoin assets including Ordinals, providing a cheaper and faster environment for trading inscriptions. This enables Ordinals to be traded without incurring the high L1 fees and long confirmation times that are one of the greatest barriers to greater adoption. Bitcoin L2s have the ability to facilitate actions such as sweeping a collection (i.e. buying multiple inscriptions in one transaction) that are a staple of Ethereum NFTs.
As a result, Ordinals can inherit the properties that have made NFTs so eminently collectable while retaining the characteristic that is unique to Bitcoin – rarity. And not just the rarity of the inscription itself, but of the very satoshi it’s encoded on.
Understanding Rare Sats
Case Rodamor had two masterstrokes when devising Ordinals. The first was conceiving a protocol that would enable images and metadata to be encoded into a single satoshi. The second was devising a value system for the satoshis themselves, making specific sats extremely collectable, even without an inscription being added, on account of their age and transaction history alone.
As Magic Eden explains in its guide to rare sats, “Sats that were mined by Satoshi Nakamoto himself are…highly sought after by collectors…The Rodarmor Rarity Index is a classification system conceived by Casey Rodarmor and rooted in Ordinal Theory — these satoshis are categorized based on pivotal moments in Bitcoin’s timeline, such as mining difficulty adjustments and halving events.”
Combine rare satoshis with unique inscriptions and you have the ultimate collectible: a Bitcoin artefact that is as coveted for its past as it is for its present reincarnation. It’s a powerful formula that blends Bitcoin lore with NFT culture and it’s at the heart of Ordinals’ compelling value proposition.
NFTs, But Different
Whereas the token assigned to each Ethereum NFT is unremarkable and there solely for mapping each piece of multimedia to a digital unit of exchange, the sats that many Ordinals are attached to have their own significance which, in the eyes of their collectors, heightens 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 don’t receive royalties from each resale. This doesn’t intrinsically make either medium superior to the other, but it shows that Ordinals are driven less by the creator and more by the community behind the collection. So far, big name artists have been slow to release Ordinals collections, which have instead emerged in a more grassroots fashion.
Bitcoiners who have thrown their weight behind Ordinals are hopeful that their inscriptions will prove to be more durable than NFTs, and thus avoid the boom and bust cycle that has befallen the latter. It remains to be seen whether that proves to be the case. But this much can be said for certain: whatever Ordinals are, they are not NFTs. They’re Ordinals, and in the eyes of their most ardent collectors, they’re the best thing since Bitcoin.