BTC NFTs: A beginner's guide to Bitcoin Ordinals

Since its inception, Bitcoin (BTC) has primarily been regarded as a peer-to-peer (P2P) digital currency. While Bitcoin’s role as a financial asset remains central, its potential applications continue to expand. Recent updates to Bitcoin’s architecture have made it easier for developers to introduce new features and applications to the network. One of the most notable – and controversial – of these innovations is the Ordinals protocol. Launched by developer Casey Rodarmor in 2023, Ordinals enables the creation of digital collectibles directly on Bitcoin.

Although Ordinals have gained significant traction, not every Bitcoiner supports this development. Here, we’ll tell you what you need to know about Bitcoin Ordinals and how they’re inscribing art onto digital gold.

What are Ordinals in crypto?

Bitcoin Ordinals are often likened to digital markers on BTC's smallest units. The Ordinals protocol makes it possible to inscribe data – including images, videos, or text – directly onto individual satoshis, the smallest units of Bitcoin. This process effectively transforms satoshis into unique digital artifacts, similar to non-fungible tokens (NFTs) on other blockchains but with differences in structure and functionality. While traditional NFTs store unique metadata in distinct tokens on blockchains, Ordinals are a part of Bitcoins and don’t require smart contracts to create new tokens.

One satoshi equals 1/100,000,000 of a Bitcoin, and with Bitcoin’s maximum supply capped at 21 million coins, there can only ever be 2.1 quadrillion Ordinal inscriptions.

Developer Casey Rodarmor introduced Bitcoin Ordinals in early 2023, leveraging a Bitcoin upgrade called Taproot. Interest surged quickly, leading to millions of onchain inscriptions. While Bitcoin NFTs were previously possible on layer 2 solutions like Stacks (STX), the Ordinals protocol enabled digital art and onchain collectibles to exist directly on Bitcoin’s main blockchain.

How do Bitcoin Ordinals work? 

Bitcoin Ordinals use a numbering system to assign a unique identifier to each satoshi. In this system, the first satoshi mined in 2009 is labeled "1," with each subsequent satoshi receiving the next number in sequence up to 2.1 quadrillion. This structure allows creators to inscribe data onto specific satoshis and track their onchain locations.

While Ordinals can be transferred between crypto wallets like standard Bitcoin transactions, specialized tools are required to read the metadata. As a result, trading Ordinals relies on custom-built wallets and marketplaces that support ordinal-aware transactions.

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The benefits of Bitcoin Ordinals

When the Ordinals protocol launched on Bitcoin’s blockchain, it sparked intense debate within the crypto community. Some developers saw Ordinals as an opportunity for new applications and use cases, while others criticized them for congesting the network. While Ordinals cannot be removed from Bitcoin’s current programming, discussions continue about their long-term impact on the network.

Pros of Bitcoin Ordinals 

• Leverages Bitcoin’s security: Unlike NFTs on other blockchains that rely on smart contracts or layer 2 solutions, Ordinals inherit Bitcoin’s proven Proof-of-Work (PoW) security. Each inscription benefits from Bitcoin’s immutability and censorship resistance.
• Expands Bitcoin’s use cases: Ordinals transform Bitcoin from being solely a medium of exchange and store of value to a platform for onchain digital artifacts. This opens the door to new applications and innovations that bring more functionality to the Bitcoin ecosystem.
• Scarcity and collectibility: Ordinals can’t be inscribed indefinitely – Bitcoin’s 21 million coin supply introduces an element of rarity. The limited space for inscriptions gives them perceived value among collectors and investors.
• Potential miner incentives: Since Ordinals add extra data to Bitcoin transactions, they contribute to higher transaction fees, benefiting miners. Their collectible nature could also create new economic incentives, addressing concerns about miner rewards once Bitcoin’s supply cap is reached.

Criticisms of Bitcoin Ordinals 

• Challenges Bitcoin’s fungibility: While Ordinals don’t have inherent value, some inscriptions may become more desirable than others. This distinction could create a market for “special” satoshis, challenging Bitcoin’s neutrality as a fungible asset.
• Reduces privacy: Ordinals introduce unique metadata to Bitcoin transactions, making it easier to track activity onchain. Analysts can use these inscriptions to trace wallets and exchange accounts, potentially undermining privacy.
• Increases transaction fees: While higher fees benefit miners, they also make Bitcoin transactions more expensive for users. Increased network congestion can lead to longer wait times and higher costs.
• Adds blockchain bloat: Ordinals embed additional data into transactions, increasing Bitcoin’s block size and mempool usage. This added load makes it more resource-intensive for nodes to store and validate transactions, potentially affecting overall network efficiency.

How to buy, sell, and trade Bitcoin Ordinals

Collecting Bitcoin Ordinals is more complex than trading NFTs on blockchains like Ethereum (ETH) or Solana (SOL). Since Ordinals exist directly on Bitcoin and don’t use smart contracts, traders need specialized crypto wallets to scan satoshis. However, as Ordinals gain traction, finding the necessary tools and marketplaces for trading Ordinals has become easier.

Download an Ordinals-compatible wallet

The first step to trading Ordinals is to download a crypto wallet that supports them. There is no single "best" Bitcoin wallet, as preferences vary by user. Research different Ordinals-compatible wallets, review their features, and take precautions when storing the wallet’s private key. Some options include Leather (formerly Hiro), Xverse, and the Magic Eden Wallet. 

Buy or transfer Bitcoin

Since all Ordinals transactions occur on the Bitcoin blockchain, purchases require BTC. If a trader doesn’t already have Bitcoin, they can buy BTC on a centralized exchange (CEX), a Bitcoin ATM, or a fiat-to-crypto service like MoonPay, then transfer it to their Ordinals wallet. Alternatively, BTC can be moved from another wallet before browsing for digital artifacts.

Find an Ordinals-friendly marketplace

Not all NFT marketplaces support Bitcoin Ordinals. Before trading, confirm that a platform is compatible with Bitcoin and the Ordinals protocol. Magic Eden typically has the highest transaction volume for Ordinals trading, but other platforms supporting Ordinals include OKX, Gamma, and the Ordinals Wallet.

Trade BTC for an Ordinal

Once a trader finds an Ordinal they want, they can purchase it using the BTC in their wallet. Most Ordinals marketplaces allow users to connect their wallet via an option in the top-right corner of the screen. Some Ordinals are listed at a fixed BTC price, while others use a bidding system or allow buyers to make lower offers.

When a transaction is finalized, the buyer sends BTC – including marketplace fees and transaction costs – to the seller. At the same time, the seller transfers the inscribed satoshi to the buyer’s wallet. Once an Ordinal is in a wallet, the owner can either hold onto it or list it for sale again.

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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.