Ordinals are more important than what you think.
History
Ordinals were introduced in January of 2023 by Casey Rodamor . It’s a technology that allows for incrementally assigning unique numbers to each Satoshi (Sat) on the Bitcoin blockchain. On top of that, it allows for data to be included in the Blockspace. Developers now have a tool to “load data” to a specific Sat and permanently store them on-chain. This process is called “inscription. This is possible only after the introduction of the Taproot upgrade that happened on Bitcoin in 2021 and the Segwit upgrade in 2017.
Activity
After the introduction of ordinals, we have the introduction of a bunch of proposals/protocols to standardize the creation of NTS, assets, color coins, and a bunch of other things as well. The activity going on is ridiculous. We are talking about 20 different marketplaces and another 10 different minting platforms popping up in the last 3 months.
Every mint that happens on Ordinals makes more money to the miners than they make from actually mining a block. This has never happened before. Never.
It also causes delays and some frustration but we all know that the old guy has limited capacity and for a good reason. I won’t go on debating now whether this will need to be on L1 or we need an L2 or the most ridiculous of all ideas - banning Ordinals minting. Old timers just don’t get it.
The hidden value
So, what I want to analyze in this post is something that was inspired by a twitter post from jake.xbt and made me think deeper.
By design, inscriptions are assigned to a Sat which belongs to a UTXO (the base of the bitcoin system). Let’s say that you have a UTXO of 100,000 satoshi (0.001 BTC) and you decide to inscribe your art on a satoshi from this UTXO. You still have 0.001BTC UTXO but now it has a nice piece of art attached to it.
Would you use this UTXO to send a payment somewhere? What is the actual value of this UTXO since it now has this art with it? Most likely you would not. This is the single most important thing that Ordinals have brought to Bitcoin. Each UTXO with the same amount of Sats, it’s not equal. They do have the same “floor” (because 1 Sat is 1 Sat) but one can be worth way more than 1 Sat. Effectively what happens is that every UTXO used in inscriptions is removed from the market of Bitcoin. You won’t sell this to exchange. You will probably sell it for much more BTC. This makes Bitcoin even more scarce. Unlike ERC721 and other NFTs, the uniqueness of Ordinals is that the underlying asset is BTC. A UTXO. Is not a new token with no base/floor. It’s backed by the satoshis that are inscribed.
Thoughts
You might hate ordinals because it reminds you of the NFT craze that faded or because you can’t make fast transactions and need to pay more on fees. But you can not ignore the value they bring by making Bitcoin even more scarce. Or, more importantly to me and the folks at the Ordinals Foundation, it makes Bitcoin fun to use.
I haven’t had any more fun using Bitcoin than I had in the last 3 months. The people who are building are just full of passion and hard-core Bitcoin believers. They don’t talk, they don’t sell. They just deliver.
Love it or hate it, this is the greatest innovation we ever had on Bitcoin since 2010.
Fin.