What are Bitcoin ordinals and their benefit to Bitcoin miners?

Since its launch in January 2023, over three million Bitcoin ordinals inscriptions have been recorded in less than five months. During this time, inscriptions have ranged from images to apps to meme tokens. Entities inscribing ordinals onto the Bitcoin blockchain have paid over $8 million in fees (as of May 3, 2023). With ordinals supporting everything from images to meme coins, what exactly are Bitcoin ordinals? Do ordinals have any benefit to Bitcoin miners? Are ordinals NFTs? 

Below, we look at what are Bitcoin ordinals and their benefit to Bitcoin miners, plus whether ordinals are non-fungible tokens (NFTs) on the Bitcoin blockchain.

What are Bitcoin ordinals?

Did you know that the smallest unit of a Bitcoin (BTC) is called a satoshi or sat and that one BTC contains 100 million (100,000,000) sats? Back to the main question. Now, data can be attached to each satoshi forming an ordinal. The process of linking data to a satoshi is called minting or inscribing hence the name Bitcoin ordinals inscriptions.

Bitcoin ordinals protocol was developed by Casey Rodarmor and its implementation was made possible by the Taproot upgrade on the Bitcoin blockchain. Casey initially wanted to bring digital artworks to the Bitcoin network, the protocol can also support fungible tokens allowing people to create Bitcoin-powered meme coins on the network. 

As such, although digital artworks were the first to be inscribed on a satoshi, Bitcoin ordinals can do much more than just NFTs and fungible tokens. Some popular projects utilizing the Bitcoin ordinals protocol, as of the time of writing, include Yuga Labs’ TwelveFold NFT project and the Pepe meme coin

What makes Bitcoin Ordinals different from other NFTs or tokens

Although the process of creating new fungible tokens and NFTs on the Bitcoin blockchain seems similar to doing the same on other blockchains, there are key differences when doing it on Bitcoin compared to other blockchains. For example:

• Ordinals aren’t new tokens – In essence, you are only attaching data to an existing satoshi. On the other hand, digital artworks on other chains like Ethereum are developed as standalone creations.
• Primarily live on the blockchain – Since the ordinals project links creations to existing satoshis, those creations are always hosted on the Bitcoin blockchain. On other networks, NFTs can include files stored outside the network only providing reference to the off-chain elements.
• No smart contracts are involved – Bitcoin’s smart contract capabilities are at a very nascent stage compared to other chains like Ethereum. As such, this makes it hard to interact with ordinals, something that has forced Bitcoin NFT collectors to turn to over-the-counter options.

How do Bitcoin ordinals benefit Bitcoin miners?

The arrival of Bitcoin ordinals divided the Bitcoin community. Those against the idea argue that having digital artworks on Bitcoin goes against the vision of the network’s creator Satoshi Nakamoto who wanted the platform to focus on the transfer of value.

On the other hand, the project’s supporters said that it brings more value to the blockchain. In the midst of whether or not fungible and non-fungible tokens should be supported on the decentralized network, Bitcoin miners are among the biggest beneficiaries of Bitcoin ordinals.

How? Good question. Bitcoin ordinals increase activities on the network leading to congestion and consequently, an increase in transaction fees that goes to miners. For example, on May 1, 2023, the number of daily ordinals inscriptions touched a new high of 372,832 which coincided with the ordinals fees paid reaching a high of 23 BTC. 

So far, miners have pocketed over $9 million in fees generated by Bitcoin ordinals in less than five months since the project’s launch.

Due to an increase in fees and automatically declining Bitcoin mining rewards, Bitcoin ordinals may motivate miners to pack every block mined with more transactions to attract a larger percentage of the fees paid by entities inscribing data on satoshis. This model may also attract more miners to join the blockchain especially those who consider crypto mining better than buying the coin itself.

Conclusion

From our above discussion on what are Bitcoin ordinals and their benefit to Bitcoin miners, its evident that although the Bitcoin community is divided on whether ordinals are a worthy addition to the Bitcoin blockchain, the project has proved beneficial to Bitcoin miners. The project has also showcased the hidden power of the decentralized platform.