BITCOIN

Biteye | An Overview of Ordinals Technology, Ecosystem, and Data

2023/5/9

This article is authorized for republication by Biteye. Original Article Link

Author: Biteye core contributor Louis Wang

Editor: Biteye core contributor Crush

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*Approximately 2800 words, estimated reading time: 6 minutes.

Table of Contents

Innovation in the Bitcoin Network

Bitcoin, often referred to as digital gold, holds more than half of the cryptocurrency market value. While Bitcoin has always played the role of a "peer-to-peer electronic cash system," the excitement in the current crypto world is mostly based on smart contracts. Unlike Ethereum, which acts as a "world computer," the Bitcoin network lacks smart contract functionality, limiting its applications.

However, innovation within the Bitcoin ecosystem has never ceased. Technologies such as the Lightning Network and Stacks have emerged. At the end of last year, Bitcoin core contributor Casey Rodarmor created the Ordinals protocol, introducing the concepts of Ordinals and Inscriptions, giving birth to the first NFT on the Bitcoin network.

By leveraging the SegWit (2017) and Taproot (2021) upgrades on the Bitcoin network, Ordinals enables the recording of arbitrary data (images, videos, text, etc.) on the Bitcoin blockchain, making it possible to create digital art or NFTs.

Since then, the minting of Bitcoin NFTs has skyrocketed, with more attention being paid to the new possibilities on the Bitcoin network. More projects like Yuga Labs and Magic Eden have joined this ecosystem, with new builders shaping the future of Bitcoin.

Bitcoin seems to have entered a period of rejuvenation.

Intuitive Questions

On Ethereum, we are very familiar with NFTs, but how is it possible to issue NFTs on the Bitcoin network, which lacks smart contracts?

Rodarmor's solution is simple: engraving NFTs on BTC.

Bitcoin's total supply is 21 million coins, with the smallest indivisible unit being a satoshi (sat), where 1 BTC equals 100 million satoshis.

Rodarmor introduced the theory of Ordinals, where each satoshi is numbered from 0 in the order they are mined. For example, the first satoshi in the first block is numbered 0, the second is numbered 1, and the last one is numbered 4,999,999,999, assigning each satoshi an ID attribute.

Through this method, each satoshi is assigned a sequence number between 0 and 2,100,000,000,000,000, then linked with other information such as images, text, videos, and code, giving each satoshi the characteristics of indivisibility, non-fungibility, and traceability.

This essentially gives Bitcoin the native ability to create NFTs.

These unique satoshis can be "engraved" with any content, such as text, images, videos, etc., to create "Inscriptions." Inscriptions are the metadata concept in Bitcoin NFTs, stored on-chain in the Taproot script.

For example, the data format for "Hello, world!" is as shown in the image below:

https://docs.ordinals.com/inscriptions.html

Since the Inscriptions are on-chain, unable to reference off-chain content, unlike Ethereum NFTs that reference IPFS or AWS off-chain for indexing, it truly achieves decentralized NFTs.

For example, with CryptoPunks on BTC, details of each NFT's satoshi, block, and Inscriptions can be viewed through Ordinals, as shown below:

https://ordinals.com/inscription/ea57c0ae99af317ef24c3812f0f804010c27a9f14c9dd9106eac7cb05eb3b038i0

What is BRC-20?

Since NFTs can be issued through Ordinals, can tokens also be minted through Ordinals?

On March 8, 2023, domo proposed the use of Ordinals Inscriptions in JSON data format to deploy token contracts, mint tokens, and transfer them.

The experimental Bitcoin network homogenized token protocol BRC-20 emerged, issuing the first BRC-20 token - $ordi, with a total supply of 21 million (in tribute to BTC), available on a first-come, first-served basis for free minting.

https://domo-2.gitbook.io/brc-20-experiment/

As the name suggests, this protocol mirrors the ERC-20 token standard, with core functionalities including deploying tokens, minting tokens, and transferring tokens, each corresponding to different Inscriptions.

Deploying Tokens

For deploying tokens, simply modify the text file format as shown below:

First, change "ordi" to the name of the token
Then modify the maximum supply of the token, changing "max: 21,000,000" to the desired quantity, e.g., "max: 9,999"
Finally, adjust the maximum amount allowed for minting in each transaction, as needed, e.g., change "lim: 1000" to "lim: 11," and so on.

This completes the deployment of the token.

Minting Tokens

If someone wants to mint the tokens you just deployed, modify as shown below, and mint as Inscriptions.

Change "tick: ordi" to the symbol of the token you want to mint, and adjust the minting quantity "amt: 1" to your desired amount, ensuring it does not exceed the maximum limit set during token deployment.

Transferring Tokens

To mint Inscriptions, modify as shown below, changing "ordi" to the symbol of the token you want to send, and adjust the amount to be sent in "amt," ensuring it does not exceed your account balance. The "to" and "fee" fields are optional.

Clearly, these BRC-20 tokens differ significantly from ERC-20 tokens in terms of utility value, serving as a way to store script files in Bitcoin and imbuing meaning to tokens through satoshis, allowing them to be transferred from one user to another.

Data Interpretation

However, market sentiment towards BRC-20 is notably bullish. According to data from the BRC-20 website, over 14,000 BRC-20 tokens have been deployed, with a total market value exceeding $800 million. Among them, $ordi ranks first with a market value of $530 million, accounting for 65% of the overall BRC-20 market value. (Data as of May 8, 2023, 16:27)

Trading of BRC-20 tokens has rapidly increased, especially with the rapid rise in prices led by $ordi, making the entire BRC-20 market active. Currently, the total number of BRC-20 transactions is close to 3.5 million, with total fees exceeding 382 BTC.

The number of transactions has surged from less than 10,000 daily in mid-April to an average of around 200,000 daily recently, a twenty-fold increase in transactions within two weeks. On May 1 alone, the daily transaction volume reached nearly 370,000, maintaining a high of 320,000 daily over the past two days.

Transactions involving BRC-20 tokens dominate a significant proportion of Ordinals transactions, exceeding 90%. The active trading volume of BRC-20 tokens has had a considerable impact on the entire BTC network. In recent days, over 50% of transactions on the BTC network are BRC-20 token transactions.

The significant amount of BRC-20 token transactions has led to miner fees accounting for nearly 30% of the entire BTC network recently. On May 7, the proportion of BRC-20 fees reached a historic high, an astonishing 61%. Higher fees benefit miner income and overall network security, but pose challenges for users requiring daily BTC network usage.

Opportunities and Risks

Opportunities

As the largest cryptocurrency by market value, Bitcoin, with Ordinals, has opened a new door in the Bitcoin ecosystem. If even a fraction of Bitcoin's funds flow into its ecosystem, it can unlock a realm of boundless imagination.

NFTs on the BTC network or BRC-20 tokens have essential differences from NFTs and FTs under the ERC standard we are familiar with.

The advantage lies in the direct storage of Inscriptions on the Bitcoin L1 chain, contrasting with the numerous metadata stored off-chain in IPFS, Arweave, or even centralized Web2 server platforms under the ERC standard. NFTs or Inscription tokens on the BTC network are more decentralized, with Inscriptions being immutable, adding to their enduring significance.

Since Inscriptions are engraved on individual satoshis using the Ordinals theory, each satoshi is categorized into different rarity tiers. Another hotspot for BRC-20 is the search for rare satoshis, which is highly attractive to collectors, such as those collecting Inscriptions with numbers less than 100k or the first Inscriptions after a block halving.

The wave in the entire BTC token sector sparked by Ordinals can be called the BTC Ordinals ecosystem. GrayScale sees promising prospects for BTC network applications arising from this; top exchanges like Binance and OKX show strong interest and eagerness to try; Wang Feng expresses extreme optimism for BRC-20 Inscription tokens, intending to integrate BRC-20 into Element for easy trading; OpenSea will also integrate BRC-20...

However, the participation threshold for the Ordinals ecosystem is relatively high, as most people are still unfamiliar with the Bitcoin network, resulting in fewer actual participants. Taking some standout tokens as examples:

$ordi - Market value of $210 million, named after the first 4 letters of the Ordinals protocol, the first token under the BRC-20 protocol, holding address: 7381.
$nals - Market value of $18 million, named after the last 4 letters of the Ordinals protocol, holding address: 1767.
$insc - Market value of $4 million, named after the first 4 letters of the Inscription, holding address: 936.
$pusy - Market value of $900,000, named after "pussy," reportedly promoted by @XEN_Crypto, holding address: 605.
$piza - Market value of $10 million, named after the story of buying 1 pizza with 10,000 bitcoins (Bitcoin Pizza Day on May 22 is approaching), holding address: 1045.
$pepe - Market value of $16 million, named after the meme coin, also the fourth BRC-20 token deployed, holding address: 3418.
$hash - Market value of $2.4 million, named after Bitcoin's hash algorithm, holding address: 634.

Among all BRC-20 tokens, only 22 Inscription tokens with over a thousand holders exist, considering potential overlap among holders, the total number of participants in the entire BRC-20 market is likely around ten thousand. Due to the few hands, it is easier to drive up prices, with $ordi's price having multiplied many times within a week.