Bitcoin Inscriptions and Serial Number Research Report Important Data, Impact on Bitcoin, and Latest Developments

Author: Brandon Bailey, Gabe LianGuairker, Gui; Translation: Huohuo/Baihua Blockchain

TLDR:

– In the first 200 days since the first Bitcoin Ordinals were engraved, a total of 1.14 million image-based Ordinals have been created. This exceeds the total number of NFTs minted in the first 200 days on Ethereum, Solana, and Polygon respectively.

– From January 1st to September 1st, the cumulative trading volume of Bitcoin Ordinals reached $596.4 million, making Bitcoin the third-largest NFT network in terms of trading volume, only behind Ethereum and Solana.

– The Ordinals activity caused the longest period of unconfirmed pending transactions in Bitcoin since 2021.

– Even when excluding BRC-20 from the total Bitcoin Ordinals, Bitcoin remains the third most popular chain in digital collectibles. The cumulative trading volume of the top 50 BRC-20 tokens accounts for only 30% of all Ordinals transactions.

– In terms of daily trading volume, the main markets for Ordinals trading activity are Magic Eden, Unisat, and OKX, with market shares of 20%, 34%, and 44% respectively.

– The demand for Ordinals engraved on rare satoshis continues to grow. There are now robust frameworks to measure the rarity of satoshis and some rare satellite markets that make it easy for users to acquire and trade rare satellites.

– Recursion is a novel innovative technology that allows engravers to build Ordinals beyond the 4MB block size limit and create high-resolution artworks at a fraction of the cost required to mint Ordinals.

1. Introduction

In March 2023, Galaxy Research and Mining released a report discussing Ordinals, a new area of Bitcoin digital collectibles. Galaxy Research and Mining predicted at the time that by 2025, the market capitalization of the Ordinals market would reach $500 million, with a registration count of only 260,000. Fast forward to now, the ecosystem has grown to over 33 million Ordinals, experiencing explosive growth of about 126 times from March 2023 to September. The significant growth of Ordinals not only demonstrates the intrinsic appeal of Bitcoin digital collectibles but also reflects its rapidly maturing ecosystem. The Ordinals landscape is constantly evolving through improved wallet and marketplace infrastructure, new use cases for Ordinals, and scalability improvements.

This report is an update on the Ordinals ecosystem since our last writing in March 2023. It provides a comprehensive overview of the significant developments in the Ordinals infrastructure and compares Ordinals activities on Ethereum, Solana, and Polygon. The report also investigates the impact of Ordinals on Bitcoin fees and explains that most of the fee surges in the past six months were not caused by Ordinals-related transactions. The data provided in the report indicates that Bitcoin users often pay excessive fees for transactions, regardless of whether these transactions are related to Ordinals or not.

2. Current Status of Ordinals Infrastructure

Since the release of the software that allows arbitrary data to be written into the smart contract (referred to as the Ord client) in January 2023, the growth of the Ordinals ecosystem and the development of key infrastructure have achieved an incredible amount. Currently, there are over 33 million inscriptions, with text files being the most common file type, mainly due to the BRC-20 Token standard.

The BRC-20 Token standard is still an inefficient way to mint and transfer inscriptions, as it requires users to perform multiple transactions to complete a single operation. There are currently several proposed Ordinals Token standards, which are more efficient and robust protocols for creating tokens on Bitcoin, such as ORC-Cash and ORC-69.

Although text-based inscriptions supported by the BRC-20 Token standard dominate the total number of inscriptions, most of the excitement and key technological developments in the Ordinals field are focused on collectible digital artifacts. Tools supporting image-based inscriptions have made significant progress. Three major wallet options have emerged to store image-based inscriptions: Xverse, Hiro Wallet, and Unisat Wallet. These wallets act as browser extension wallets, allowing users to connect to trading platforms, send and receive Bitcoin or inscriptions, and view Ordinals collections, providing a user experience comparable to Ethereum’s Metamask. Xverse Wallet also offers a mobile application solution.

There are various inscription-as-a-service products, such as Ordinalsbot and Unisat. Binance, the world’s largest cryptocurrency exchange, also launched inscription-as-a-service through its mining department, Binance Pool, on August 31, 2023. From a market perspective, Magic Eden has always been the most popular trading platform for inscriptions. However, Ordinals Wallet, Gamma, and BN are also becoming competitors in this field.

Ordinals infrastructure now supports inscription gating on platforms such as Discord (i.e., exclusive access to digital communities by verifying inscription ownership). It also utilizes Discreet Log Contracts (DLCs), which are native transaction programmability features of Bitcoin, allowing collectors to use inscriptions as collateral to obtain Bitcoin-denominated loans.

After about 8 months of Ordinals development, Bitcoin developers have built NFT tools that are comparable to those on other major Layer-1 blockchains such as Ethereum, Polygon, and Solana. Several companies are actively working on secret building and improving Ordinals infrastructure. Here is a timeline that summarizes many milestones in the Ordinals field over the past 9 months:

Although the market volume of Ordinals and NFTs has generally declined since the beginning of 2023, the development of Ordinals infrastructure continues to progress rapidly, indicating that Ordinals is not just a trend.

III. Ordinal Market Activities

NFT minting activities on Ethereum began in August 2015 with the launch of the Terra Nullius NFT series. The first NFT minting on Polygon was recorded in May 2020, and the first minting on Solana was recorded in October 2020. NFT minting activities began on Ethereum, Solana, and Polygon before the summer of 2021, when NFTs gained mainstream media attention. Compared to the minting activities after the NFT bull market in the summer of 2021, the minting activities in the first 200 days on these networks were relatively few. For reference, when Solana and Polygon NFT activities were first launched in 2020, the entire NFT ecosystem had a market value of only $41 million. In just two years, by 2022, the NFT market value on all three blockchains had grown to $32 billion.

The following chart tracks the amount of coinage that has occurred in each blockchain within the first 200 days since its inception. The chart excludes the engravings of BRC-20 coinage factories; the data below is based solely on image engravings.

The Ordinals ecosystem has seen impressive user engagement in its initial 200 days of activity. During this period, Bitcoin users minted (i.e. inscribed) 1.14 million digital artifacts. Considering that Ordinals was launched during a bear market for cryptocurrencies, its rapid growth is noteworthy. In the first half of 2023, the number and base prices of blue-chip collectibles’ NFTs declined rapidly. Despite the broader NFT market struggling to recover from the bear market, Ordinals has garnered significant attention and the concept of Bitcoin digital artifacts is thriving.

Although Bitcoin’s coinage activity in the first 200 days is considerable, it is still far below the total NFT coinage activity occurring on other mainstream blockchains, indicating that Ordinals has a long way to go in terms of adoption compared to the broader NFT ecosystem. One obvious reason for the significant difference in total coinage across chains is that Ethereum, Solana, and Polygon have been supporting NFT activities for many years. Additionally, Ethereum, Solana, and Polygon experienced accelerated adoption during the NFT boom cycle in 2021. If Ordinals continues to gain momentum in the next NFT bull market cycle, we may see Bitcoin start to compete with Ethereum, Solana, and Polygon in terms of total coinage.

1) Transaction Activity

While it is necessary to exclude non-image transactions from our metrics when compared to other NFT ecosystems, including all types of engravings transactions is important for understanding the overall impact of emerging technologies. Ordinals transactions refer to all types of engravings activity: images, texts, applications, audio, and other types of digital content. The emergence of engravings allows for the construction of other meta-protocols, such as tokenization schemes, where BRC-20 is the most popular to date. BRC-20 transactions are entirely text-based engravings, and BRC-20 transactions significantly exceed non-BRC-20 Ordinals transactions. By examining the transaction volumes of the top 50 BRC-20 Tokens, we find that most BRC-20 transactions have low values. From January 1st to August 31st,

In order to better compare Ordinals transaction activity with the broader NFT transaction activity, we attempt to exclude BRC-20 from the calculation of Ordinals transaction volume detailed in the next section of this report.

2) Rollup

NFT transaction volume saw a significant decline in 2023. From February to August 2023, monthly NFT transaction volume declined for six consecutive months. August 2023 was the worst-performing month for NFTs this year, with transaction volume dropping by four times compared to February 2023. Despite unfavorable market conditions for NFTs in 2023, Ordinals achieved meaningful growth. It is noteworthy that Ordinals accounted for 18% of all NFT transaction volume in May.

In the first three quarters of 2023, Ethereum dominated the NFT trading volume, surpassing the total of Solana, Bitcoin, and Polygon. Despite the small trading volume of Ordinals in January 2023, Bitcoin ranked third in cumulative network NFT trading volume, reaching 596 million US dollars. Even excluding BRC-20 from the total number of Bitcoin transactions, Bitcoin is still the third most popular blockchain for digital collectibles, after Ethereum and Solana.

(Note: To exclude the trading volume of BRC-20 from the following calculations, we subtract the cumulative trading volume of the top 50 BRC-20 tokens (187.5 million US dollars) from the total trading volume of Ordinals (596.4 million US dollars). The top 50 BRC-20 tokens account for the majority of the total BRC-20 trading volume.)

On May 11, 2023, the daily trading volume of Ordinals reached a historical high, when the first wave of BRC-20 tokens were minted through Unisat and the Ordinals wallet. From May 1, 2023, to July 18, 2023, the daily trading volume of Ordinals generated a total trading volume of approximately 207 million US dollars, with an average daily trading volume exceeding 2.5 million US dollars.

The chart below shows the daily trading volume of BRC-20 transactions on Ordinals from February to September 2023. To calculate the trading volume data of BRC-20 transactions in the chart, we eliminated the trading volume data during the period from May 5 to December 12, 2023, when Unisat only generated sales of over 56 million US dollars through BRC-20. Since it is difficult to accurately classify the volume of text-based inscriptions and other types of inscriptions from the market based on images, there may be instances of BRC-20 trading volume from other points on the market that we cannot eliminate, except for Unisat.

The chart also does not include off-market trading data for Ordinals and Twelvefold Mint, as these transactions do not exist in the market trading volume data tracked by Dune Analytics. The main sales volume of Yuga Labs TwelveFold Mint generated approximately 16.5 million US dollars of Ordinals trading volume in one day. In the image-based Ordinals trading volume, off-market transactions of Ordinals account for at least 10 BTC (approximately 270,000 US dollars). The chart represents our best estimate of the daily trading volume of Ordinals, excluding the frenzy of BRC-20:

Before Ordinals gained meaningful support from major NFT markets, there were some early Ordinals trading markets. From February to April 2023, the Ordinals market, Ordinals wallet, and Ordswap dominated the Ordinals trading volume. However, when Magic Eden announced its support for Ordinals in March 2023, the dominance of market trading volume shifted from the early markets. Magic Eden’s entry into the Ordinals field shocked the market as they were the first major NFT market to support the adoption of Ordinals on other chains.

When Magic Eden launched support for Ordinals, it was the fifth largest NFT marketplace based on transaction volume, with over 1.3 million users. In terms of Ordinals transaction volume, the main markets are now Magic Eden, Unisat, and OKX, accounting for 28%, 28%, and 38% respectively.

Although Magic Eden and OKX started relatively late in the Ordinals ecosystem, they now account for 36% and 25% of the total Ordinals volume respectively.

In the next section of the report, we analyze the impact of Ordinals trading activity on Bitcoin mempool and transaction fees.

IV. Impact of Ordinals on Bitcoin Mempool and Transaction Fees

In the first half of 2023, miners accumulated a total of 8,684 BTC in transaction fees. It is worth noting that in the first half of 2023, transactions related to inscriptions reached 1,779 BTC, accounting for 20% of total miner revenue. In comparison, the fees in the first half of 2022 were 2,325 bitcoins, and the total fees for the whole year of 2022 were 5,375 bitcoins.

From May 2023 to July 2023, the share of Bitcoin transactions related to Ordinals remained relatively unchanged, decreasing from 47% of all Bitcoin transactions to 46%. During the same period, the share of Bitcoin transaction fees for Ordinals decreased from 30% to 12%.

Apart from the transactions in May 2023 that caused a surge in fees, most transactions with fees higher than the median block fee rate are not related to Ordinals. Although Ordinals account for a significant portion of total transactions, they are not the most profitable transactions in the block.

While Ordinals may not be the most expensive transactions on Bitcoin, they contribute to a backlog of transactions, clogging the Bitcoin mempool (the pool of unconfirmed Bitcoin transactions). The mempool has been backlogged since April 22, 2023, for about 4 months. This is the longest active state of an uncleared mempool since the surge in on-chain activity in early 2021.

Whether someone pays ordinal fees or conducts regular transactions to move Bitcoin from one address to another, Bitcoin users often end up paying excessively high fees for block space. In the next section of the report, we will analyze in detail the surge in transaction fees in the first half of 2023.

1) Factors Driving the Rise in Bitcoin Fees

The two main factors that contribute to the rise in Bitcoin fees are:

Differences in time preference for block space consumption leading to voluntary overpayment. Consumers of block space exhibit different time preferences, meaning differences in urgency and strategic timing decisions that result in different block space consumption patterns, thus driving fees up during peak demand periods.

Overpaying due to an incorrect estimation of fees. Users may unintentionally pay a premium on standard transaction fees due to calculation errors or a lack of understanding of the current fee structure.

The behavior of low time preference users can be reasonably explained and visualized on-chain. These users always bid higher than the lowest possible fee level for widespread acceptance in the mempool (the default size of the mempool is 300 MB, so when it reaches capacity, it starts clearing or removing transactions starting from the lowest fee rate). Anything higher than this “clearing level” can be considered a “time preference premium” because it implies a desire to be included in a block faster than X, where X represents the clearing of the entire mempool and the “clearing level” returns to zero sat/vByte.

However, high time preference users are optimizing for different trade-offs such as opportunity costs, and analyzing their behavior requires making subjective assumptions. Using this framework, we can start quantifying and specifying the size of the “time preference premium” that users are willing to pay. In a sense, this “time preference premium” can often be seen as the amount users are willing to “overpay” to be included in the next block (or multiple blocks). This will be described as voluntary overpayment (e.g., BRC-20 users attempting to mint new tokens before reaching maximum supply). Some users may pay excessive fees due to other non-economic factors (e.g., poor fee estimation by wallets and trading platforms). These types of transactions will be described as involuntary overpayment.

Below is a case study illustrating an example of voluntary overpayment in Bitcoin.

2) DeGos Mint Case Study

The DeGods Mint in March 2023 serves as an illustrative case study to conceptualize why users would voluntarily overpay transaction fees. As background, DeGods is a collection of 10,000 NFTs originally launched on the Solana blockchain in 2021. In March 2023, the creators of DeGods launched a version of their NFT collection on Bitcoin. Prior to this, the creators of DeGods sold their collectibles through a Discord lottery. The DeGods Mint on Bitcoin was sold on-chain on a first-come, first-served basis. Starting from block 781,279, the mints were sold at a minting price of 0.333 BTC. Users who were able to include their transactions in the first 500 confirmed transactions of the mint would be the lucky ones to purchase the DeGods mints at the minting price.

The minting process of DeGods Mints caused frenzy among users as many had to make wild guesses on the appropriate fees attached to their transactions to succeed in minting. The DeGods Minters paid fees ranging from 7 to 1,725 USD for their transactions, as shown in the table below:

Other simple facts about the DeGods Mint include:

During the mint, the highest fee rate observed in the block was 39,177 sats/vByte, with a total transaction fee of 10,000,000 sat (0.1 BTC), which was 932 times higher than the median fee rate in that block.

The median fee rate of block 781,279 is 6 times that of the median fee rate of the previous block.

The total fee for this block is 3.552 BTC or $96,000. The confirmed number of transactions in this block is 2,602.

Out of the 2,602 transactions, 559 are related to DeGods mint. The total fee for Bitcoin transactions related to DeGods mint is 2.969 BTC or $80,000 (accounting for 83.6% of the total fee).

The median fee rate paid by those attempting to mint DeGod is 784 sat/vByte, which is 18.6 times higher than the median fee rate of all transactions in the block.

From the perspective of the minters, determining the fee for a transaction is essentially a cost-benefit calculation. If the minters believe they can profit from selling the item immediately from the mint, they will try to optimize the transaction by determining the selling price of the item on the secondary market and adding a certain fee to ensure a positive price difference between the minting price and the secondary market price.

After the initial minting, the secondary market value of DeGod’s inscription is 1 BTC. Compared to other minters, those who paid 90% or more for DeGod can still profit from the secondary sale if they sell immediately after purchase, as shown in the table below:

The next section of this report will delve into the factors driving the increase in Bitcoin fees.

3) Quantifying the “Overpayment” of Bitcoin Transactions

Based on these characteristics, we can quantify the on-chain “overpayment” activity of users in minting and exchanging ordinals compared to their regular Bitcoin transactions. Here is the step-by-step breakdown of this method:

For primary ordinal transactions (i.e., Ordinals transactions), they are identified by the transaction ID listed on Ordinals.com. All other transactions during the same period are classified as regular Bitcoin transactions. It is worth noting that some of these regular Bitcoin transactions may be secondary market transactions not captured on Ordinals.com. However, as shown by the NFT data aggregator CryptoSlam, the number of secondary sales has significantly decreased since May 5th, indicating that even if included, their impact on the fee rate may be minimal.

“Overpayment” is defined as the fee amount (in sats/vByte) of a transaction in a block that is higher than the median sats/vByte of the same block. We choose the median sats/vByte level of the block because we believe that bids around this level will provide a reasonable chance of being included in the next block for high time preference users.

Based on the above method, the following graph shows the average overpayment amount per day on Bitcoin for Ordinals and non-Ordinals users during the period from April 2023 to May 2023 when the block space market was dominated by users with higher time preference. BRC-20 frenzy.

Due to the continuous development of the mempool (and the fact that block time is unstable in design, longer block times increase the fee rate for a given block because users have more time to bid on the next block), rational users with a high time preference will not bid when they view the mempool if the fee rate is lower than the median fee rate of the mempool. For example, in the graph above, on May 9, 2023, Ordinals/BRC-20 users paid an average of 2.8 sats/vByte, which was higher than the median fee rate of the block, while non-ordinals users paid an average of 45.9 sats/vByte, which was 16 times higher than the median fee rate of the block.

Transaction-level data indicates that during April to May 2023, most of the fee pressure did not come from Ordinals/BRC-20 users, but from “regular” Bitcoin users. Contrary to popular belief, during periods of significant fee increases, blockchain regular users who engage in so-called “financial transactions” largely bear responsibility for pricing Ordinals transactions. In addition, the chart below shows that although ordinals account for over 70% of the mempool transaction volume, they have never accounted for over 30% of the total miner transaction fees.

One final insight regarding overpayment is that there is a significant difference between average sats/vByte and median sats/vByte during periods of high fee volatility. The graph below shows that both average sats/vByte and median sats/vByte reached their peak on May 8. Prior to May 8, average sats/vByte and median sats/vByte typically changed in sync. However, after May 8, the percentage difference between the two sharply increased, reaching a peak of 116% (average sats/vByte was 116% higher than median sats/vByte). This difference may be due to overall fee volatility during the period of fee increases, which made fee estimation from wallets difficult during this period.

From a statistical perspective, the average value may be influenced by outliers, which in this case refer to transactions with excessive fees. During periods of low volatility, the average fee and median fee are similar, while during periods of high volatility, these two metrics show significant differences, further highlighting the impact of overpayment on fee dynamics. By measuring the convexity of Bitcoin fees, we know that few transactions are the main cause of on-chain fee increases.

Over time, the demand for Bitcoin block space continues to increase, and wallet providers will need to optimize their fee estimation schemes or provide solutions such as Replace-By-Fee (RBF) and fee selection to better serve users and prevent them from overpaying for transactions. Overpayment in Bitcoin transactions can be mitigated through more sophisticated fee estimation services provided by wallets and trading platforms. Regular Bitcoin users will benefit from fee estimation optimization and improvements pursued by wallets focused on Ordinals, such as Xverse, Hiro, and Unisat. In particular, in the face of increased block space demand and the resulting fee volatility, fee estimation schemes will be a key component of next-generation wallet technology to prevent users from overpaying for transactions.

4) Other Insights and Key Points on Bitcoin Transaction Fees

During the BRC-20 craze, a surprising development that caught the attention of market participants was how quickly transaction fees in the mempool skyrocketed during periods of high demand. This is because transaction fees are driven not by the size of the mempool (i.e., the general demand for Bitcoin block space by low and high time preference users), but rather by the demand from high time preference users specifically for the next block.

In the graph below, we illustrate this relationship by showing that fees typically do not skyrocket when the demand for the next block (highlighted in red) is less than or equal to the capacity of the next block. However, fees do increase when the demand for the next block exceeds its capacity. While this may seem obvious to casual mempool observers, it emphasizes an important assumption when discussing transaction fees on the network in the future. As long as the network can maintain demand for the next block within its natural capacity, the overall demand for block space is (almost) inconsequential.

The above framework for understanding block space demand is relevant to discussions about Bitcoin’s security budget. The discussion should not focus on the question of “whether transaction fees will rise enough to provide sufficient income for miners?” but rather on the question of “how do we ensure sustained demand for block space beyond 4 MvB?”

When examining fee peaks during periods of high demand for the next block, we observe that a significant portion of the total fees paid by that block are driven by a small number of users who pay extremely high fees, indicating strong convexity. However, this relationship becomes less apparent on days with lower fees. To illustrate the bidirectional dynamics of Bitcoin fees, the graph below shows that on May 15th, the top 2% of transactions accounted for over 15% of the total fees. On average, the top 10% of transactions account for 21.05% of the total fees in a block. However, the percentage of transactions from the top 2% of fees significantly decreases during fee peaks in May and then recovers.

In normal circumstances, when Bitcoin fees are not skyrocketing, most of the fee pressure comes from abnormal transactions, which we define as the top 2% of transactions in a block based on sats/vByte fees. This is also reflected in the difference between average sat/vBytes and median sat/vBytes, likely due to involuntary overpayment or a lack of understanding of mempool dynamics during fee fluctuations.

During fee peak periods, these outliers account for a smaller proportion of the overall fee pressure, indicating that while users are increasing the fees they are willing to pay to be included in the next block, they may not necessarily be overpaying compared to other high time preference users. They are still competing to be included in the same block.

In the next section of this report, we will delve into the new developments in the Ordinals infrastructure and minting technology.

Section 5: New Developments in Ordinals

Transactions on Bitcoin, especially those involving ordinal numbers, have greatly benefited from previous protocol-level upgrades (such as Segwit) that reduce transaction weight and overall fees. However, Segwit was not originally designed for Ordinals, nor was Taproot (the Bitcoin upgrade that made Ordinals possible). The existence and proliferation of ordinal numbers on Bitcoin have become possible for unexpected reasons, but since their creation earlier this year, the Bitcoin development community is now working together to deliberately support such activities by building tools centered around ordinals. (For a deeper discussion on the factors that led to the creation of ordinals and their impact on Bitcoin development, refer to the report in March 2023.)

This section of the report will focus on the new technologies being developed on Bitcoin to facilitate the growth and maturity of the Ordinals market.

1) Recursion

In June 2023, major Ordinals block explorers were upgraded to enable recursive inscriptions and added support for JavaScript and CSS file types. Recursion allows users to link one inscription to another inscription using the following format: /content/. Through recursion, users can add JavaScript and CSS libraries to create rich HTML files directly on Bitcoin. One of the best examples of the benefits of recursion is provided by the OrdinalsBot team, which we will discuss below:

Example of recursive inscription

Source: OrdinalsBot

If each layer mentioned above is engraved into a single image, the file size would be 250 kb before any compression techniques are applied. Assuming a collection size of 10,000 pieces and an inscription cost of 10 sat/vybte, the cost would be approximately 1.8 million dollars.

HTML inscriptions can be created through recursion. By leveraging the HTML canvas element, engravers can use JavaScript to create graphics as shown in the image below:

HTML element used for creating graphics with JavaScript, source: OrdinalsBot

Then, recursion can be used to reference the written JavaScript logic, which can significantly reduce block space usage and lower the associated costs of generating the final image.

This process is operated through a comprehensive script that includes a single drawing function. The function takes a canvas element and a series of inscription links, coordinating the loading of all image layers.

Thus, it facilitates the seamless creation of the canvas, ensuring only the complete image is rendered rather than progressively loading individual layers, providing a simplified and cost-effective visualization process.

Final recursive inscription, source: OrdinalsBot

The final result is a complete image that can be resized or saved just like a regular image. Compared to 250,000 bytes, the final HTML script is only 621 bytes, but the image can still be viewed at full size or at a resolution of 250,000 bytes.

Assuming a collection size of 10,000 blocks, the recursive process can save 99.7% of the total size (6.21 MB vs 2.5 GB).

Assuming a fee rate of 10 sats/vByte, the total cost of engraving the collection is approximately $12,000, compared to $1.8 million if engraving separately without recursion.

In conclusion, recursion can be used as a compression technique to allow for larger collections and lower minting costs. Through recursion, collections can record the characteristics of generating or creating PFP collections as their own separate layers and use recursive calls to generate the file image from these individual layers. The other three main benefits of recursion include:

Creators can surpass the 4 MB block size limit. By using recursion, complex digital artifacts can be assembled, reflecting the process of assembling a puzzle. Initially, the individual components (similar to puzzle pieces) are engraved separately. Then, the final script integrates these different elements, synthesizing them into a cohesive and singular image, thus presenting a unified visual from segmented scripts.

Recursion enables composability, unlocking various use cases. One major benefit of the composability provided by recursion is the ability to conduct on-chain art display processes. Onchain Monkey (OCM) Dimensions is the first series displayed on-chain. Another use case unlocked by recursion is the ability to conduct open edition and limited edition prints. Gamma recently released “Prints” which they labeled as a new version. Prints are achieved by utilizing recursion, where an artist writes on an original high-resolution artwork, and then Gamma creates a packaging for creating digital versions. By embedding the print number directly into the digital asset, the version number of the print can also be viewed on any display. Other features include on-chain lotteries and the ability to utilize the code library engraved on-chain. The Onchain Monkey team includes p5.js and Three.js libraries, which enable them to create their own Dimensions digital artifact collections. Users are also starting to join more advanced libraries such as react.js and Animate.css.

Recursion makes it more feasible to create games directly on Bitcoin. Developers can write popular game libraries and create more complex native on-chain 3D games by referencing these libraries recursively.

To some extent, the script has the ability to transform Bitcoin block space into a global hard drive, and recursion effectively optimizes storage and data, making it cheaper and more composable, thus expanding the possibilities and design space. The market and browser are equivalent to web browser clients that are used to explore and experience content on the Bitcoin blockchain. As more and more people write code libraries into Bitcoin, these libraries can be referenced, making it easier for all creators to build more immersive experiences and artworks. The Ordinals collector Jokie88 has launched a GitHub repository that tracks a list of all code libraries recorded so far. The list currently includes 40 different libraries that can be referenced recursively.

2) Recarving

Recarving allows users to carve multiple pieces of data onto the same satoshi (the smallest unit of Bitcoin). To recarve a satoshi, users need to own it, so artists cannot reallocate satoshis containing their artworks after they are sold. Recarving was introduced in the Ord client version 0.9.0 released on September 11, 2023. It should be clarified that recarving does not affect the immutability of the carvings. Recarving does not overwrite or delete previously carved data on the satoshi, but rather creates an array of data. All the data recarved onto the satoshi appears in chronological order.

The five main benefits of recarving are:

All recursive elements contained in a single satoshi: Recarving combined with recursion allows individuals to carve all recursive elements onto the same satoshi, creating larger and more complex digital artifacts.
Version control technology: Recarving can be used for upgrading or version control of code repositories or other on-chain applications.
Reduced risk of fungibility issues: While carvings already pose minimal risk to the fungibility of satoshis, recarving further reduces this risk as multiple assets can be stored on a single satoshi.
New metadata and storytelling opportunities: Through recarving, artists can effectively create entire art galleries or series on a single satoshi. Artists can also utilize recarving to create dynamic or living artworks. For example, recarving can be used as a better way to carve books, where each page can be carved onto a single satoshi and then viewed in chronological order through a browser.

Recarving also provides a mechanism for proving ownership. After purchasing a carving, collectors can recarve a text file with their own name and then sell it to a new owner, displaying the collector’s history of owning the artwork.

3) Progenitor Carvings

Progenitor carvings are a way to enhance the guarantee of provenance for carvings. Provenance refers to the ownership history, creator, and creation time of an artwork. Determining provenance is crucial for verifying the authenticity of an artwork. The authenticity of NFTs on Ethereum and other general-purpose blockchains is determined through accounts and smart contracts. Provenance is determined by the wallet address that deployed the issuing smart contract. However, Bitcoin does not use an account-based model, making the Ethereum-based provenance methods impractical.

The creator of Ordinals, Casey Roadamor, did not associate provenance with Bitcoin wallet addresses, which includes privacy trade-offs and lack of customization. Instead, the concept of root carvings was envisioned, which would serve as avatars or logos for future works. Root carvings are the “parents,” and future carvings, the “children,” can be linked back to the parents. In practice, this works by using the satoshi of the root carving as an input to reveal the transaction. When the output created by the submitted transaction is spent, it displays the carving content on the chain, which is called a display transaction. This creates a lineage tree as shown in the diagram below:

Simple Design for Parent-Child Reproof

Source: Medium, Cypherpork

The pull request for the standard father-son inscription has been merged into the Ordinals client in September 2023 and is currently in operation.

4) Rare and Unique Satellites

Many collectors hope to have their artwork engraved on satellites that have a certain degree of rarity or uniqueness. Mining pools have also noticed people’s interest in “rare” sats. The mining pools Luxor, F2Pool, and BN Pool collectively account for about 50% of the total hash power, and they are separating rare resources from the block rewards they receive. In the past few months, a market for rare sats has also emerged, making it easier for speculators and artists to acquire and trade these sats. Some well-known markets include Magisat, Danny Deezy’sSat Dispenser, and Lumisat. NFT markets and Ordinals explorers (such as Magic Eden and Ord.io) also embrace the popularity of the concept of rare sats, allowing users to sort and filter inscriptions by rarity.

Here are some common examples of rare satellite groups and methods:

Rodamor Rarity Index. The Rodamor Rarity Index is a method created by Casey Rodamor, the creator of the Ordinals client, to identify rare sats.

Block 9 sat – Satoshi Sats. Block 9 sat is the oldest circulating sat, mined by Satoshi Nakamoto and sent to Hal Finney in the first-ever Bitcoin transaction. From a quantity perspective, the sats from block 9 are not necessarily rare because that block has 50 billion satoshis, and it is still unclear how many satoshis from that block are still in circulation since many complete bitcoins from these early blocks are believed to be lost or dormant, locked away in wallets whose owners can no longer access their private keys. Due to its historical and cultural significance, Block 9 satellites are very popular. Some popular series engraved on Block 9 Sats include Ordinal Maxi Biz (OMB) Green Eyes and Timechain Collectibles Series 2.

Block 78. Block 78 is the first Bitcoin block mined by someone other than Satoshi Nakamoto. Block 78 was mined by the famous cryptographer and digital privacy advocate Hal Finney. Similar to the 9th block satellite, from a quantity perspective, the 78th block satellite is not necessarily rare because that block has 50 billion sats, and similarly, the circulating supply of these sats is still unknown. Due to their history and association with Hal Finney, these satellites are very popular. Some popular series engraved on Block 78 Sats include OnchainMonkey (OCM) Dimensions and Ordinal Maxi Biz (OMB) Blue Eyes.

Black Sats. Black Satoshis follow the Rodamor Rarity Index but are not the first Satoshi of a block. Instead, they are the last Satoshi minted within a block. The idea of black satellites was created by @blackxbtx.

LianGuailindrome Sats. LianGuailindrome Sats refers to satellites that can be read the same backwards or forwards in digits. There are approximately 9 billion LianGuailindrome Sats, accounting for 0.0000043% of the total supply. Some popular collections engraved on LianGuailindrome Sats include: Geo Ordinals and LianGuailindromes.

Sat Names. Ordinals can be represented in various ways, such as integer notation, decimal notation, degree notation, percentile notation, and names. The most common representation is integer notation, which is allocated based on the order of mining. Recently, people have started to explore and experiment with the representation of “Sats” names. Bitcoin developer and engraver Danny Deezy has launched his Satoshi Cards series, constantly pushing the boundaries of Sat name elements. Satoshi Cards are a collection of trading card-style artworks engraved with human-readable words or phrases on Sats.

The Satoshi Card shown here is engraved with “deepdarkweb”. Source: Ordinals.com

Conclusion

Bitcoin is one of the top three blockchains in terms of NFT minting and trading activity, following Ethereum and Solana. By the end of 2023, the trading volume of Ordinals, including BRC-20, is expected to accumulate around $725 million. The increasing adoption rate and value of Ordinals in recent months have been supported by new developments and tools.

One of the most exciting innovations of Ordinals is recursive engravings, which provide NFT creators with a new framework to expand their digital collections in an economically efficient manner. Novel collections and file types on Bitcoin may emerge from recursive engravings. In addition to recursion, techniques such as parent-child engravings are redefining the way indexes and proof of ordinal origins are handled.

Part of the reason for the backlog of transactions in the mempool is the ongoing minting activity of Ordinals, which may exacerbate the volatility of transaction fees. This may be positive for miners, especially as the Bitcoin halving approaches, and may encourage crypto wallets and trading platforms to adopt more sophisticated fee estimation strategies. Miners and mining pools are also embracing ordinality by collecting and selling rare Sats.

The Ordinals movement is driving Bitcoin into an unprecedented era of innovation, harnessing the untapped potential of the blockchain and giving rise to various new products. Looking ahead, the development path of Ordinals is not only promising, but the maturation of infrastructure and the rising adoption rate also indicate the way forward. This continued momentum confirms the view that ordinals are not a passing trend, but a permanent fixture in the realm of on-chain digital collectibles.

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