Bitcoin Ordinals: What are they? How do they work? And why are they important?

Bitcoin Ordinals are Bitcoin's answer to NFTs, allowing a way of inscribing data onto a specific satoshi (one-millionth of a bitcoin) in a way that makes that satoshi distinct from others or non-fungible.

Bitcoin has come a long way since launching in 2009 as a fairly obscure form of digital cash. The project would go relatively unnoticed by the general public for several years, gaining popularity in 2013 and skyrocketing to become the largest asset class in the world.

In fact, while Bitcoin was the first-ever cryptocurrency, its invention prompted thousands of new cryptocurrencies to follow suit, with complex use cases, expansive derivative markets, and a growing list of features added on. Bitcoin developers have also continued to innovate on the project, with the biggest update in recent years being Bitcoin Ordinals, which rolled out in 2023.

Here's a quick guide on what Bitcoin Ordinals are, how they work, and how to buy them. We'll also cover some real-world examples and use cases of Bitcoin Ordinals. Finally, we'll discuss some potential challenges and downsides of Bitcoin Ordinals.

What are Bitcoin Ordinals? Bitcoin Ordinals explained

Bitcoin Ordinals are Bitcoin’s answer to NFTs, allowing a way of inscribing data onto a specific satoshi (one-millionth of a bitcoin) in a way that makes that satoshi distinct from others or non-fungible.

So why is this important?

Originally, Bitcoin was launched as a fungible form of digital cash. Like a US dollar, one is much the same as the other as far as the people transacting are concerned. However, Bitcoin Ordinals allow users to identify satoshis from one another.

For example, a collector might be interested in owning a satoshi from a crucial moment in Bitcoin’s history, like the Bitcoin halving that takes place every four years, and thus be willing to spend more than the market value of one satoshi to buy it.

This leads Bitcoin into the realm of digital collectables and NFTs. The Ethereum NFT (non-fungible token) market exploded in 2021, with over $24 billion in sales of NFTs. These NFTs are typically digital assets on the Ethereum network with unique identifying numbers and were used to represent ownership of assets like art and music.

Bitcoin Ordinals could be used for exactly the same thing, with the added benefit of being associated with the most popular and long-standing cryptocurrency on the market.

How do Bitcoin Ordinals work?

Bitcoin Ordinals assign a unique identifier number to the satoshis in any given bitcoin. Bitcoin developer Casey Rodarmor introduced the idea in 2023 and used a feature of Bitcoin’s 2021 Taproot upgrade, which allowed for data to be stored directly on the Bitcoin blockchain to make it happen.

Ordinals work by making each unit of a single bitcoin uniquely identifiable. When a bitcoin is mined, all one million satoshis are assigned a number in the order of their creation. Satoshis can be tracked individually across multiple wallets, meaning you can spend BTC and still keep track of individual satoshis or Ordinals.

Whereas Ethereum NFTs sometimes require metadata to be stored off-chain, sometimes on a traditional web2 website, Bitcoin Ordinal data is all stored on-chain, reducing the risk of data loss. The SegWit and Taproot updates to the Bitcoin network allow for a lot of data to be stored in this manner.

Buying, selling, and trading Bitcoin Ordinals

To buy Bitcoin Ordinals, you’ll need to use a wallet that is compatible with Taproot addresses. Many of the most popular Bitcoin wallets, such as Trust Wallet, Mycelium, and Blockchain.com wallets, do not support this feature. You can use wallets like Sparrow Wallet instead.

Bitcoin addresses that are compatible with taproot usually start with the characters ‘bc1p’.

How to buy Bitcoin Ordinals

With your wallet set up, you can visit marketplaces like Ordinals Market or OpenOrdex to take a look at the ordinals on offer. As with Ethereum NFTs, these ordinals will often be associated with the sale of digital artwork or other assets.

Deposit your funds to the platform (at your own risk) or connect your BTC wallet. From there, bid on an Ordinal or simply make a direct purchase.

That’s how it’s done! You can also list Ordinals for sale on the same platform or trade them peer-to-peer with other users.

Real-world examples and use cases

Bitcoin Ordinals can be used to represent the sale of digital or real-world assets, to act as a collectable piece of BTC network history, or to permanently inscribe data to an immutable blockchain as a form of censorship-resistant art, protest, or historic preservation.

At the moment, the main use case lies in artwork, much like with Ethereum NFTs. The market for Bitcoin Ordinals is relatively small, although not insignificant. Sales of BTC Ordinals reached over $170 million in March 2024.

Examples of Bitcoin Ordinals could include collecting