Ordinals

Key points

• Ordinals is a protocol that numbers each satoshi, the smallest unit of the currency, allowing them to be treated individually.
• Based on that numbering, it is possible to inscribe data on specific satoshis, creating unique items similar to NFTs on the Bitcoin network.
• It brought a type of use to the Bitcoin network that was previously associated with other networks, generating both enthusiasm and debate.

What is Ordinals?

Ordinals is a protocol that assigns an order number to each satoshi, the smallest division of the currency on the Bitcoin network. This numbering, based on the sequence in which satoshis are created, makes it possible to distinguish and track each one individually. From there, it becomes possible to inscribe data on specific satoshis, giving rise to unique digital items directly on the blockchain, without needing a network geared toward smart contracts.

How it works

The protocol relies on two combined ideas. The first is ordinal theory, which defines a way of numbering satoshis according to the order in which they come into existence, making it possible to reference each one. The second is inscription, which attaches content, such as an image or a text, to a specific satoshi. Together, these ideas make it possible to create the equivalent of unique collectibles using only the existing infrastructure of the Bitcoin network.

The result is entities similar to NFTs that are native to this network. Unlike digital items on other blockchains, which usually point to external files, an inscription made via Ordinals writes the content directly into the network's ledger, inheriting its durability. Each inscribed satoshi can be transferred as a unique item, carrying with it the data associated with it.

The emergence of Ordinals generated great repercussion. On one hand, it was celebrated as a creative way to expand the uses of the Bitcoin network; on the other, it was criticized for taking up space on the blockchain and raising fees during periods of high demand, competing with ordinary transfers. The protocol also served as the basis for later experiments, such as token standards built on top of inscriptions. This is a recent and still evolving area, with significant technical uncertainties.

Understanding Ordinals helps in following one of the most talked-about developments in the use of the Bitcoin network.

Why it matters

Understanding Ordinals helps in understanding how the Bitcoin network came to host unique items and why this generated debate about the network's use and its fees. It is a concept linked to recent trends in the ecosystem. This is a technical topic, and none of this represents any recommendation to trade any asset.

Risks and limitations

Ordinals and their associated inscriptions take up permanent space on the blockchain and can raise fees during demand peaks, competing with ordinary transfers. This is a recent and experimental area, with technical uncertainties and uneven compatibility between tools. Because they are permanently recorded, inscribed content cannot be removed. None of this represents a recommendation to trade.