The inscriptions were enabled by the Taproot protocol upgrade which activated on the Bitcoin network on November 14, 2021. Taproot introduced the ability to add complex scripts and extra data to Bitcoin transactions, making Bitcoin more programmable and laying the foundation for innovation.
In many ways, Bitcoin ordinals are Bitcoin's version of NFTs (non-fungible tokens). By writing data onto the blockchain, they create unique tokens that cannot be replicated. The key difference lies in inscribing data directly onto Bitcoin transactions themselves rather than requiring smart contracts like those on Ethereum.
Background on Ordinal Development
The path to Bitcoin ordinals has been paved by previous protocol upgrades. Segregated Witness (SegWit), activated in August 2017, fixed transaction malleability bugs and enabled writing flexible scripts. This allowed the witness part of a Bitcoin transaction to store extra data.
Then in 2021, Stacks developers brought smart contract functionality to Bitcoin by utilizing unused transaction space. This enabled usable NFT minting and trading without congesting Bitcoin.
When Taproot activated later in 2021, it further enhanced privacy and reduced transaction costs. It also allowed complex smart contract-esque scripts to appear as normal transactions externally. This camouflage makes interactive transactions like ordinals and NFTs largely indistinguishable on the blockchain.
Creating Bitcoin Ordinals
To create Bitcoin ordinals, users first need to download the Bitcoin Core software and sync the full node with the blockchain to track new transactions and blocks. An "Ordinals" wallet must then be created in Bitcoin Core to register ordinals and store any created.
Fees are charged to register ordinal names on the blockchain, comparable to purchasing an internet domain. Lengthier inscriptions incur higher fees based on the amount of data being imprinted.
There are also services like Gamma and community projects such as Oridalsbot which facilitate composing images and text which can then be inscribed onto satoshis to produce Bitcoin-based NFTs.
How Inscriptions Work Technically
Under the hood, inscriptions leverage features unlocked by 2017's SegWit upgrade. Specifically, SegWit enabled the witness field within transactions for holding signature data. Developers realized this witness space could also store extra arbitrary data.
When constructing Bitcoin ordinal transactions, users can choose to encode information like document hashes, serial numbers, images, or text. There are defined encoding schemes for the different data formats.
The size of inscriptions is limited to the space available in a transaction's witness. This imposes limits on the length of text or resolution of images. Larger data can be spread across multiple chained transactions if needed.
Once inscribed, this data is permanently recorded on the blockchain and can be viewed through block explorers. There are also open source tools for properly decoding and extracting the information from the raw transaction hexadecimal strings.
Use Cases and Benefits of Inscriptions
Given Bitcoin's inherent transparency, immutability, and establishment as the world's most robust blockchain, ordinal inscriptions introduce valuable functionality for proving data legitimacy and origin.
Some prime examples include:
- Timestamping documents for demonstrations of ownership or existence at a point in time
- Supply chain tracking of physical goods and materials
- Verification of certificates, policies, identifiers across organizations and borders
- Notarization of information like wills, legal agreements, property records
The use of the Bitcoin blockchain rather than a centralized database provides censorship resistance and removes reliance on any individual third party for correctly archiving and ensuring integrity.
Current State of Ordinal Ecosystem
As a new feature, Bitcoin ordinals and inscriptions are still in early but promising stages. Wallet providers including Hiro Systems and Xverse have announced planned support for composing, sending, receiving, and interacting with Bitcoin NFTs and ordinals using familiar user interfaces.
Improvements to the user experience are still needed for mainstream accessibility. However the base layer functionality now exists for advanced Bitcoin inscription. As wallets and applications build on this foundation, adoption is expected to accelerate, unlocking future waves of innovation.
Conclusion
Bitcoin ordinals introduce provable digital scarcity and inscription capabilities to Bitcoin in the form of NFT-like assets. Powered by the advances in Taproot, ordinals serve as building blocks for verifiable data anchoring, custody tracking, document notarization, and creative industries building on Bitcoin.
While still technical at present, the user experience surrounding Bitcoin ordinals is rapidly being smoothed out by dedicated wallet developers. Over its 13 year existence, Bitcoin has only continued to expand its utility with each protocol upgrade. Ordinals represent the latest progression in enabling real-world application and cementing Bitcoin's status as the global standard for blockchain functionality.