Bitcoin Ordinals: Purposeful or Unworkable?

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17 Jan 2024

Previously there was Segwit, Lightning, and Taproot; producing a consensus of being productive for the Bitcoin network. The Bitcoin ecosystem is not a stagnant dumb rock, it is perpetually evolving and innovating, the most recent development being “Ordinals”. Ordinals has sparked both excitement and skepticism as with most other network propositions. Here are the basics and what you should know:
What is an Ordinal?
Ordinals, introduced in early 2023, represent a novel utilization of Bitcoin’s blockchain. They allow users to inscribe data onto the smallest unit of bitcoin (a satoshi), effectively intertwining this data with Bitcoin’s decentralized and globally verified ledger. This innovation has been likened to the creation of Non-Fungible Tokens (NFTs), marking a significant variation from Bitcoin’s traditional use case.
An easy way to understand this is if you use Venmo. When you send your friend a payment, you typically must inscribe the transaction with a “memo” or emoji in most cases. This attaches data to the transaction. It could be text, image, or a gif. This uniquely identifies the record of the transaction (although Venmo doesn’t enforce as non-fungible). Now this is a trivial representation, but a similar concept.
The name ‘Ordinal’ is derived from the method of their creation. It is similar to ordinal number in set theory in the sense of being a unique number in a series. Each bitcoin can be subdivided into 100 million smaller units, known as satoshis/sats. Ordinals are essentially a way of distinguishing these sats with a unique twist: they carry attached data that is directly embedded onto the blockchain. Each inscription assigns a specific ordinal number based on the order in which the sat was mined. This numbering system, known as ordinal theory, allows for precise tracking and individual verification of each sat.
The process to uniquely classify a sat is not terribly complex and resembles a similar convention to video games. The rare aspect of the sat depends on the combination of its origins.
Common: Nothing special sat
Uncommon: First sat from a transaction block
Rare: First sat after difficulty adjustments
Epic: First sat after halving
Legendary: The first sat of each cycle
Mythic: The very first sat ever mined
The buzz around Ordinals primarily stems from “Bitcoin Inscriptions,” where digital artifacts are created by inscribing content onto sats. This process utilizes two key Bitcoin soft fork upgrades: SegWit, which expanded the block capacity, and Taproot, which enhanced transaction efficiency. By leveraging a design aspect of Taproot, files (such as images or videos) can be inscribed onto individual sats as part of the blockchain’s witness data, each acquiring a unique identifier.
The concept of digital artifacts brought about by Ordinals is distinct from traditional NFTs. Unlike NFTs, which rely on smart contracts and are often stored off-chain, digital artifacts are directly stored on the Bitcoin base layer. They are immutable, decentralized, and secure, embodying the essence of the Bitcoin blockchain.

The popularity of Ordinals has led to an increase in blockchain activity. Trading platforms like Binance and OKX have reported significant trading volumes. This heightened activity has had a direct impact on Bitcoin’s transaction fees, which saw a significant spike due to the additional block space required by these inscriptions. This is where controversy comes in.
Critics point to the substantial block space consumed by inscriptions and potential network congestion leading to longer transaction confirmation times. This also introduces a transaction fee affordability barrier for those in unbanked regions with heavy reliance on the Bitcoin network. Following Ordinals’ launch, average block sizes and transaction fees notably increased.
Proponents, however, argue that the market demand for Ordinals could benefit the infrastructure, driving demand for block space and elevating transaction fees. These higher fees could provide additional income for miners, potentially bolstering Bitcoin’s security model in the face of halving events. Transactions fees will be the bread and butter for miners come 2140.
The rise of Ordinals has brought to light several issues concerning the efficiency and scalability of the Bitcoin blockchain. The primary concern revolves around the fact that Ordinals require direct on-chain validation, which consumes considerable block space and creates UTXOs (Unspent Transaction Outputs) that are unlikely to be spent as regular currency. This has led to concerns of potential blockchain ‘spamming’, deteriorating the user experience for regular Bitcoin transactions.
However, this development has also been immensely profitable for Bitcoin miners. The increased transaction fees associated with Ordinals have become a significant source of income, especially in light of the upcoming Bitcoin halving, which will see mining rewards cut in half. The profitability of these transaction fees has provided a cushion for miners against the expected decrease in earnings post-halving.
While some view this as a natural progression of Bitcoin’s capabilities, others see it as a deviation from Bitcoin’s core principles. Innovations like Ordinals could detract from Bitcoin’s primary function as a decentralized peer-to-peer payment transfer mechanism.
Bitcoin developer Luke Dashjr has even registered a method that allows Ordinal inscriptions as a code vulnerability, citing concerns over the bypassing of datacarrier size limits. This action has been met with resistance from other developers, producing a divided agreement for the future direction of Bitcoin’s development.
Despite these controversies, Bitcoin’s network has demonstrated remarkable resilience and adaptability — traits often described as ‘antifragility.’ The network has shown an ability to absorb shocks and stresses, such as those introduced by Ordinals, and emerge stronger.
As the debate continues, the future of Ordinals and their role in Bitcoin’s ecosystem remains uncertain. While they represent a significant innovation, bringing versatility and new functionalities to Bitcoin, they also challenge the networks efficiency and scalability. The ongoing discourse is not merely about Ordinals but reflects a broader conversation about the direction and purpose of Bitcoin as it continues to mature and evolve.
Ordinals represent a significant moment in Bitcoin’s history, highlighting its potential as a foundational layer for a wide range of applications. While the long-term implications are yet to be fully realized, Ordinals have undoubtedly reignited conversations about Bitcoin’s fundamentals. While Ordinals don’t require a hard fork, they do bring potential challenges that could affect the usage of the network. Whether Ordinals will be widely adopted and deemed useful will largely depend on how these challenges are addressed and managed by the community and developers. Nonetheless, Bitcoin will continue to adapt and iterate in the fashion of hard immutable cyber energy.
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