As Ordinals attract new users and transactions to the Bitcoin network, miners have also benefited from increased usage.
For a long time after its birth, Bitcoin progressed slowly. However, Ordinals, a new development within the Bitcoin ecosystem, emerged in early 2023, allowing users to enroll unique and verifiable crypto assets in specific Satoshis on the Bitcoin network, which has sparked a bit of a craze around native Bitcoin tokens and NFTs.
Furthermore, Ordinals also helped Bitcoin to improve the inflow of funds, creating a vibrant ecosystem. As of May 31, more than 10 million signups have been created, costing more than 1,600 BTC and transaction fees exceeding $40 million.
Despite that, this development has also generated some controversy in the Bitcoin community. Critics say it deviates from Bitcoin’s original purpose as a peer-to-peer electronic currency, and it creates clutter in precious block space.
Foundation of Ordinals
In August 2017, Bitcoin SegWit (Segregated Witness) was officially activated. The Bitcoin Core developers were directly opposed to increasing the block size limit without technical improvements, and without taking balanced resource expenditure into account.
However, SegWit allows each block to accommodate more transactions without directly increasing the original 1MB limit. This update introduced the concept of witness data by moving certain information (such as transaction signatures) to the witness data, reducing the block space occupied by each transaction and indirectly improving the throughput of the network.
However, for nodes that support SegWit, the actual data received often exceeds 1 MB (block + token data) because the token data is stored separately.
In 2021, Taproot, the most significant technical upgrade to the Bitcoin network after SegWit, officially went live, and it introduced new scripting features such as Schnorr signatures and Pay-to-Taproot (P2TR) outputs.
Schnorr signatures make multi-signature scripts indistinguishable from single-signature scripts, providing greater privacy for all Taproot users. Most importantly, Taproot removes the witness data size limit from a transaction, allowing data storage of up to 4MB in BTC.
Birth of Ordinals
The activation of SegWit and Taproot laid the foundation for the rise of the Bitcoin Ordinals protocol. Proposed in January 2023, Ordinals is a protocol that assigns off-chain numbers to Satoshis, the smallest unit of Bitcoin, and gradually gained market consensus.
Leveraging the technical features of SegWit and Taproot on the Bitcoin network, the protocol enables direct minting, transfer, and destruction of NFTs on the Bitcoin Blockchain.
The Ordinals protocol has brought a new dimension to Bitcoin, expanding its applications beyond traditional payment and store of value to NFTs and FTs. Prominent NFT projects such as BAYC started issuing Bitcoin NFTs through the Ordinals protocol, while anonymous Ordinals NFT projects also gained popularity in the market.
Bitcoin enrollments store all content within Taproot scripts, while Ethereum NFTs often rely on URIs (Uniform Resource Identifiers) to locate associated metadata, allowing the network to identify media resources (for example, images) linked to the specific NFTs.
In early May, the Bitcoin network became congested due to massive transactions and transaction fees even exceeded block rewards, which is extremely rare. Despite the immense popularity, due to network performance, the user experience was far from satisfactory, and the market hype did not last long.
Bitcoin is expected to experience another halving in 2024, which will once again cut block rewards in half. The rise of Ordinals opens up possibilities for changes to the mining fee model following future Bitcoin halvings.
By Audy Castaneda
