Ordinals in a nutshell

An Ordinal is a number. More specifically, it’s an ordered number that nominates which order something appears in a sequence.

Bitcoin Ordinals are sats on the Bitcoin Network that can be inscribed with arbitrary data as a result of Casey Rodamor’s Ordinal Protocol. The protocol builds on the Taproot and SegWit upgrades to facilitate the inscription of satoshis, thereby making them distinguishable from one another and allowing for the transferring and tracking of individual sats. We refer to them as Ordinals since the number scheme orders satoshis based on their chronological order of creation. In that sense, the lower the number, the older the sat.

The Ordinals protocol has an intriguing way of assigning numbers to sats. First, there's the integer, which represents the order in which the sat was created. Then, there's the decimal value, indicating the sat's position within the block height of its corresponding Bitcoin block. To add another layer of distinction, each sat's position in the entire Bitcoin supply is expressed as a percentile. But here's the fun part: sats are named using the letters of the alphabet, from 'a' to 'z'. As time passes, the names of sats become shorter and more concise. So, the last sat ever mined will have the name "a," symbolizing the culmination of this remarkable journey.

This results in a four-part notation known as degrees that provides insights into the rarity and uniqueness of each sat. It tells us:

1. The cycle to which the sat belongs, which is roughly every six halvings. This helps us understand the sat's place within a specific interval.
2. When the sat's block was produced relative to the most recent Bitcoin halving. Halving events significantly impact the supply dynamics of the cryptocurrency.
   
3. When the sat's block was produced in relation to the last adjustment of mining difficulty. This adjustment is crucial for maintaining the stability of the mining network.
   
4. The precise position of the sat within its block. This detail allows us to grasp the sat's placement within the broader context of Bitcoin's intricate ecosystem.
   

Determining Rarity

By considering these factors together, we can determine the rarity of each sat. It's a captivating blend of numbering, timing, and positioning that unveils the unique characteristics of every satoshi in the Bitcoin network.

Of course, Ordinals are more than their number since they can be inscribed with additional data. This practice was already possible on the Bitcoin Network in 2014 but has only improved since, largely as a result of the SegWit and Taproot upgrades in 2017 and 2021 that allowed for the inscription of arbitrary data at a bigger scale.

As outlined above, the rarity, and thereby value, of an Ordinal is dependent on its notation and how it distinguishes itself in relation to its block, halving epoch, difficulty, and cycle.

There’s more to it than that, though. Given that a sat also has an alphabetical value, it’s easy to imagine that specific words, names, or phrases will be deemed more valuable than others. To give some scope to this, every letter combination of 10 characters or fewer either already exists or will exist as an Ordinal.

Due to every sat having a notation that makes it easy to determine which block it belongs to, it’s easy to imagine that sats from blocks that have a historical or sentimental value will be valued more than those that do not. Casey Rodamor refers to these specific sats as Exotics. Of course, whether a sat is Exotic or not is, in the end, an inter-subjective matter, and there’s not yet a clear consensus as to which specific sats can be generally considered Exotic.

As we’ve discovered above, Ordinals interestingly carry an intrinsic value based on their notation, name, and whether they can be considered an Exotic. When the Ordinal is inscribed with arbitrary data, it becomes a proper digital artifact that closely resembles NFTs.

Ordinals vs. NFTs

So how do Bitcoin Ordinals compare to NFTs? Well, most importantly, Ordinals, inscribed or not, retain their fungibility and can still be used as regular satoshis if users would want to do that. This is an interesting aspect of Ordinals and one that really sets it apart from NFTs.

While NFTs can be immutable, Ordinals are by nature always immutable since they do not rely on smart contracts and since there’s no smart contract owner with the opportunity to make changes to it. Furthermore, data is directly inscribed onto each satoshi, meaning that inscription data is always on-chain, while NFTs usually refer to off-chain data stored on IPFS or private servers.

In that sense, Bitcoin Ordinals are not NFTs but something entirely different. While they serve the same functionality as NFTs do and can be used for the same purposes, they are technologically very different from each other. The ensured immutability, fungibility as well as the fact that all inscriptions are always on-chain mean that in the future, Ordinals may very well also be used for different purposes than NFTs.

In conclusion

Bitcoin Ordinals (or digital artifacts) allow for NFT-like objects to be implemented on the Bitcoin Network. Their unique notation, name, and origin give them rarity as well as historical and sentimental value. While NFTs are minted via a smart contract, digital artifacts are satoshis that are inscribed directly on the network. This allows for complete immutability, retention of fungibility, and use cases that closely resemble those of NFTs. By inscribing data directly onto satoshis, all data is naturally on-chain, which guarantees that the data will always be there since they do not rely on IPFS or private servers staying online.