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Ordinal Inscriptions History ‘24: How Bitcoin NFTs Came to Be

For the first time, bitcoiners can store digital artifacts on the Bitcoin blockchain. Casey Rodarmor’s ordinals protocol lets users inscribe any data type on their satoshis. This transforms a regular satoshi into a Bitcoin NFT (non-fungible token) that follows the Bitcoin protocol/Bitcoin core and can be included in valid transactions on the Bitcoin network.

We’ve already covered ordinal inscriptions, ordinal inscriptions benefits, and how you can create your own ordinals and use them in your bitcoin transactions. This article examines how the Bitcoin blockchain became compatible with storing digital art. To explain that, we will touch on 5 specific events from 2012 to 2023 that transformed the Bitcoin blockchain.

Clarification:

We will be using these terms interchangeably:

  • Ordinal inscriptions
  • Digital artifacts
  • Bitcoin NFTs
  • Ordinal NFTs
  • Bitcoin inscriptions
  • Ordinals

We might have missed some events in between those which we are discussing in this article. If that’s the case, please inform us in the comments.

1. Colored bitcoins (2012)

In the traditional Bitcoin system, all bitcoins are treated equally and are not differentiated based on their source/intended purpose.

Screenshot of a scene from Animal Farm.  Colored bitcoins are a part of ordinal inscriptions history.
Colored bitcoins changed the notions of all coins being equal in value and used for the same purposes.

Developed in 2012, colored bitcoins signified their purpose/attribute. This extra, non-financial data highlighted each colored bitcoin amongst millions of others others. Moreover, the concept moved Bitcoin away from only being a P2P currency. That’s because by using colored bitcoins, users could reflect:

  • Asset ownership
  • Firm shares
  • Voting rights
  • Digital collectibles
  • Real estate 
  • Gaming elements

However, adding the “non financial data” took up block space and overran the bitcoin nodes. So the Rare Pepes images being traded were slowing down the processing speed of the “pure” financial transactions.

2. OP_RETURN function (2014)

Colored coins used “metadata injection” to add metadata. This involved using the scriptSig field of a transaction’s input script. But metadata injection was inefficient and limited in capacity.

The Bitcoin community introduced the OP_RETURN function as a part of the Bitcoin Core 0.9.0 release in 2014. The function allowed users to “store” arbitrary data on a bitcoin transaction output, which would then be stored on the bitcoin block space (Figure 1). 

Figure 1: Example of how arbitrary data is stored on a transaction output. Source: Creative Data

​Because the data was added on the output, the inscription content size could have been as high as 80 bytes. It was still big enough to only house a string of text, but was an example of how Bitcoin was moving towards incorporating more diverse data types on it. 

3. Segwit upgrade (2017)

In 2017, the Bitcoin community proposed SegWit, or the segregated witness data. Before SegWit, the OP_RETURN function included the arbitrary data on the transaction block, which already included the transaction time, address of the sender/receiver, etc. on the Bitcoin chain.

SegWit proposed the witness block, which could house the witness data in higher capacity.

4. Taproot upgrade (2021)

Taproot upgrade, in 2021, built on SegWit’s separation of transaction signature data from transaction data. It introduced a new type of transaction signature called Schnorr signatures, which are

  • More efficient
  • More secure than the previous (Elliptic Curve Digital Signature Algorithm) signatures
  • Smaller in size

These allow transactions to have larger metadata attached to them, be processed faster, and cheaper.

5. Ordinals

The ordinal theory is built atop all preceding four developments. It uses the Taproot upgrade (see Figure 2– the use of the Taproot function has jumped since the release of ordinals), SegWit protocol, OP_RETURN function, and the principle of colored bitcoins. For the first time in bitcoin’s history, users can trade Bitcoin NFTs on the Bitcoin blockchain.

Following Ordinals' release, Taproot adoption on Bitcoin increased.
Figure 2: Following Ordinals release, Taproot adoption has increased. Source: Glassnode

Users can inscribe videos, images, text, PDFs, audios, etc. on individual satoshis. This expands Bitcoin’s use case and enables the trade of Bitcoin NFTs. In the long term, the hope is that NFT enthusiasts trading their digital assets for Bitcoin could lead to more people using Bitcoin and the possibility of an unrivaled, uncensored exchange of data. In the short term, this could raise the value of the Bitcoin network and make the chain compete with others to get more shares of the NFT market.

Transparency statement

AIMultiple works with many companies, including Gamma.io mentioned in this article.

Sources

  1. Annison, Tara (February 6, 2023). “A Comprehensive Explanation of Ordinals: NFTs on Bitcoin.” Medium. Retrieved 14 March, 2023.
Access Cem's 2 decades of B2B tech experience as a tech consultant, enterprise leader, startup entrepreneur & industry analyst. Leverage insights informing top Fortune 500 every month.
Cem Dilmegani
Principal Analyst
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Cem Dilmegani
Principal Analyst

Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.

Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.

Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.

He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.

Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.

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