Beyond Simple Transactions: Giving Satoshis Identity and Meaning Through Bitcoin Ordinals and Inscriptions
Tags: nft, btc, nftscan, web3
Published: 2023-11-13 08:01:36

Satoshis, the smallest units of Bitcoin, are commonly seen as just tools for basic value transfers and deals on the Bitcoin network. However, satoshis can also have extra meanings, identities, and capabilities added to them through the use of ordinals and inscriptions.

## What are Ordinals?
Ordinals refer to a numbering system that enables the unique identification and tracking of individual satoshis on the Bitcoin blockchain. Satoshis are numbered based on the order in which they are mined and then passed from one transaction’s inputs to another transaction’s outputs, following a “first-in, first-out” sequence. This ordinal numbering gives each satoshi a unique ID based on its place in the chronological order of bitcoin movements on the network.

By utilizing this methodical numbering and accounting of all satoshi transactions, it becomes possible to trace the full origins and ownership history of any single satoshi token over time. The ordinal scheme essentially records the entire lifespan of a satoshi in a way that imprints an identity on it stemming from its transaction history on the blockchain.

## How Inscriptions Work?
While ordinals allow the tagging and tracking of satoshis, inscriptions provide the capacity to further save extra data directly linked to specific satoshi tokens. Inscriptions allow satoshis to be filled with arbitrary content such as text, images, documents, and more. This content gets encoded and engraved into the transaction outputs that spend a satoshi, cementing the inscription to the token itself as it moves across the blockchain.

In a way, we can think of ordinals as assigning an identity to a satoshi based on its transaction record. Inscriptions build on this by allowing satoshis to carry additional metadata attached to this base identity. The intricate use of mechanisms like taproot and script-path spending is what enable this inscription of custom data into spending of target satoshis.

Thus inscriptions turn satoshis into programmable tokens that can represent or contain almost anything — assets, collectibles, certified documents, media files, and more. Satoshis transform from just carrying Bitcoin value to being digitally unique artifacts in their own right, authenticated and tracked via the Bitcoin blockchain.

## Bitcoin Inscriptions NFTs vs Traditional NFTs
Inscriptions are more than just simple text or image files stored on the Bitcoin blockchain. They essentially allow satoshis to become non-fungible tokens (NFTs) with unique identities and purposes. However, Bitcoin inscriptions differ from traditional NFT implementations on other blockchains.

Unlike other NFT platforms that require separate infrastructure and tokens, Bitcoin inscriptions leverage the base Bitcoin network and transactions. They rely on clever use of ordinals and scripting functions like taproot and script-path spends to imprint data permanently into target satoshi tokens. This means Bitcoin NFTs via inscriptions inherit the full security, decentralization, and immutability of the underlying Bitcoin blockchain.

The power of inscriptions is in enabling the creation of singular, one-of-a-kind digital assets that can be exchanged and collected. Inscriptions allow attaching content like art, music, literature, or any arbitrary data that can be stored in a byte string. This content can even be dynamically pulled from web servers, allowing for HTML inscriptions that remix and reference other inscriptions.

In this way, inscriptions open up Bitcoin’s programmability to enable NFT-like capabilities without needing separate ledgers or compromising on decentralization. Satoshis become more than fractions of BTC value — they become the building blocks for creativity, ownership, and exchange atop the base Bitcoin protocol.

**Issues with Bitcoin NFTs:**
The Bitcoin network and its users may experience issues and difficulties as a result of Bitcoin inscriptions and NFTs. These are a few of the issues:

**1/ Transaction backlog:**

As NFT trading and inscribing become more popular on the Bitcoin network, there may be a backlog of transactions and a rise in fees needed to receive faster confirmation times. Regular Bitcoin users may find it more costly and challenging to transact on the network as a result.

**2/ Increasing storage and bandwidth needs:**

As more NFT and inscription data is added to the blockchain, there may be a need for more storage and bandwidth to maintain a complete Bitcoin node. Regular users may find it more difficult to engage with the network as a result and could also make it more expensive for node operators.

## NFTScan Analysis on Bitcoin NFTs
While still early, inscription-based NFTs on Bitcoin are seeing gradual adoption. So far, approximately 39 million inscriptions have been created directly on the Bitcoin blockchain, showcasing usage of this new standard for provably scarce digital artifacts.

Bitcoin NFTScan: https://btc.nftscan.com

![Image description](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/ecnj2ye4d9aud89nb56h.png)

These 39 million+ inscriptions account for around 13.74GB of extra data permanently stored on-chain alongside Bitcoin’s transaction history. This demonstrates the storage capacity of Bitcoin’s blockchain, which can embed both value transfer information as well as large amounts of ancillary imprinted data like inscriptions.

In total, miners have earned approximately 2,484 BTC in transaction fees from inscription NFTs over Bitcoin’s lifespan. This highlights an added revenue stream for Bitcoin miners who help secure inscription data by accepting fee-bearing transactions that embed NFT content into satoshis using ordinals and inscriptions.

And over 679,112 unique Bitcoin addresses have been actively involved in creating or trading inscribed NFTs, showing demand for trustless peer-to-peer exchange of provably scarce digital items. As inscription techniques become more user-friendly, these figures could grow exponentially.

While inscriptions are still a niche use case, the traction so far indicates interest in Bitcoin’s programmability for purposes like NFTs. By leveraging the durability and security of Bitcoin’s decentralized blockchain, inscriptions provide a platform for trusted digital ownership and exchange without intermediaries. The growth metrics around inscriptions show that a new standard for digital collectibles and artifacts is emerging atop the most secure and proven blockchain network in existence.

## Why Ordinals and Inscriptions Matter?
On the surface, ordinals and inscriptions may seem like niche functionalities with limited uses. But they open up a realm of possibilities for Bitcoin’s use as a programmable public ledger beyond just payments. Here are some examples of what specialized satoshis could enable:

- Collectibles — Inscribed satoshis can represent unique digital collectibles, from art and music to games and media. These collectibles are immutably recorded and transferable on the Bitcoin network.

- Authentication — Documents, contracts, certifications, and other data can be indelibly inscribed to satoshis to create verifiable authentications and proof of ownership.

- Traceability — By tracing ordinals and inscriptions, products and assets can have certified chains of custody on the Bitcoin blockchain. This allows for provable authenticity and history.

- Programmability — Inscriptions introduce arbitrary data and programming logic, enabling satoshis to trigger custom transfers, events, etc. based on signature verification and spending conditions.

While most Bitcoin users may never need to directly leverage these satoshi-level programmability features, they enable a new realm of innovation and use cases built on top of Bitcoin’s sturdy blockchain foundation. The core Bitcoin network remains focused on value transfer, but ordinals and inscriptions unlock additional functionality using satoshis themselves as programmable tokens. This expands Bitcoin’s utility and unlocks new economic models for harnessing Bitcoin’s security and immutability.

## Conclusion
Looking past the popular image of satoshis solely as fractional units of Bitcoin value transfers, advanced techniques like ordinals and inscriptions offer ways to manipulate Bitcoin’s base data structures to give satoshis unique identities and custom functionalities. This provides a glimpse into new possibilities in areas like digital collectibles, certification, provenance tracking, and programmable money. While still highly complex and technical, satoshi-focused innovations highlight Bitcoin’s adaptability as a robust blockchain platform for expanding functionality anchored by the security of its distributed ledger.

![Image description](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/uh26a4xbjd5mxcfqhsuj.png)

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