Interpretation of the basic principles of the Ordinals protocol and the rarity system of "satoshis"

Original Title: 《In-Depth Understanding of the Ordinals Protocol》

Author: Wang Yishi

Once upon a time, some small traders distanced themselves from the financial center of New York, lacking high-tech trading means, and relied on traditional methods like phone or fax to make a living. These traders thrived before 2010. However, with the rise of high-frequency trading, these small traders began to be crushed by large financial institutions, suffering unfair treatment in trades, as their orders were often preempted by the high-frequency trading algorithms of large institutions.

In just a few years, these traditional traders vanished, replaced by new traders armed to the teeth with technology.

Hey, admit it. I know many people share this view of Bitcoin, considering it an outdated technology. If you can't discuss topics like abstract accounts ERC4337 or ZK Layer 2 networks at a party, you seem to be seen as out of touch.

But in fact, Bitcoin has been leading innovation, with the Lightning Network being a typical example of steady development over the years. Recently, Ordinals entered the fray, shaking up the Bitcoin ecosystem.

In this article, I will guide you through the technical details of Ordinals, giving you a basic understanding of it.

Basic Principles

We all know that each Bitcoin can be divided into 100,000,000 units, called satoshis (or sats), known as "聪" in Chinese.

1聪 = one hundred millionth of a Bitcoin.

The Ordinals Protocol, released by Casey Rodarmor in January 2023, proposed a brilliant idea:

Can we arrange these "sats" in a certain order, assign them an ordinal number between 0 and 2,100,000,000,000,000, and then link them to other information: images, text, videos, or even a string of code? This way, each sat becomes unique and irreplaceable. This essentially gives Bitcoin the native ability to create NFTs.

Sounds exciting, right? This protocol largely relies on the upgrades made during the 2021 Taproot overhaul. The Taproot upgrade brought higher levels of privacy, security, and scalability to the Bitcoin network. While it has always been possible to attach data to Bitcoin through technical loopholes, you could basically only cram in 4MB of data; anything more was not feasible.

The core of the entire Ordinals protocol has two main points:

1. The numbering of each "sat." Just like license plates, the uniqueness gives rise to the concept of "fancy numbers."
2. First in, first out.

All applications built on top of the protocol revolve around these two points, including domain name systems, etc., which is very exciting.

Let's look at an example to deepen our understanding.

Example

In the image below, there are two Inputs on the left, with addresses 1 and 2 holding a total of 5 sats. In this transaction, 4 sats are sent to an address starting with 3oPz, leaving 1 sat as a miner's fee.

Assuming in the above transaction, we secretly assigned an identity (ordinal number) to each sat using the Ord protocol, after the transaction is completed, the 4 numbered sats Ord A->D from addresses 1 and 2 would go to address 3, while the last sat would go to the miner.

The so-called "first in, first out" means that the numbering of each sat is determined by its index in the transaction output. For example, in the transaction output (Output) shown below, address 3 is prioritized over the miner's address, so the sats transferred from addresses 1 and 2 are first inherited by address 3, and then by the miner's address.

Don't underestimate the "first in, first out" rule; without it, the order of Ordinals would be thrown into chaos.

Inherent Rarity

As mentioned earlier, the Ordinals protocol assigns a unique number to each "sat." So how do we see this?

The official documentation of Ordinals provides a detailed explanation. It essentially assigns differences based on certain periodic events in Bitcoin itself. For example, in the Bitcoin world, some events occur frequently, while others are relatively rare, naturally forming a rarity system. These periodic events include:

• Blocks: A new block is mined approximately every 10 minutes, and this number is always constant.
• Difficulty Adjustment: Every 2016 blocks, or every two weeks, the Bitcoin network adjusts the difficulty target based on changes in hash rate.
• Halving: Every 210,000 blocks, or every four years, the reward for mining each block is halved.
• Cycle: Every 6 halvings, some magical things happen: halving and difficulty adjustment occur simultaneously. This is called "overlap," and the time period between two overlaps is referred to as a "cycle." "Overlap" occurs approximately every 24 years. The first overlap is expected to happen around 2032.

This gives us the following rarity levels:

• Common: Not the first sat of its block
• Uncommon: The first sat of each block
• Rare: The first sat of each difficulty adjustment cycle
• Epic: The first sat of each halving period
• Legendary: The first sat of each cycle
• Mythical: The first sat of the genesis block

According to this definition, the rarity of each sat is clear at a glance:

In the Ordinals protocol, we typically use "hours," "minutes," "seconds," and "milliseconds" to represent

A°B′C″D‴
│ │ │ ╰─ Satoshi index in the block
│ │ ╰─── Block index within the difficulty adjustment cycle
│ ╰───── Block index within the halving cycle
╰─────── Cycle, numbered from 0

For example, the following satoshi is relatively common:

1°1′1″1‴
│ │ │ ╰─ Not the first sat in the block
│ │ ╰─── Not the first block in the difficulty adjustment cycle
│ ╰───── Not the first block in the halving cycle
╰─────── Second cycle

While the following one is a bomb, with mythical rarity, as it is the first sat of the genesis block.

0°0′0″0‴
│ │ │ ╰─ The first sat in the block
│ │ ╰─── The first block in the difficulty adjustment cycle
│ ╰───── The first block in the halving cycle
╰─────── First cycle

However, to be honest, the ordinal number of inscriptions is not absolutely related to collectible value. If that were the case, the value of inscriptions surviving on the Bitcoin network would converge, becoming less valuable over time, which clearly defies common sense. Therefore, I have a different opinion from the author on this matter.

Total Supply of Rare "Sats"

• Common: 2.1 trillion
• Uncommon: 6,929,999
• Rare: 3,437
• Epic: 32
• Legendary: 5
• Mythical: 1

As of the writing of this article, 745,855 uncommon sats have been mined—one for every 25.6 Bitcoins in circulation.

Minting NFTs

If you want to mint Ordinals NFTs, you can check out this tutorial by xiyu on Twitter, which is very clear.

I previously wrote a simpler BTC NFT minting guide, so I won't elaborate here.

Differences Between Bitcoin NFTs and Ethereum NFTs

Historical Context

On August 21, 2012, Charlie Lee revealed an exciting proposal on the Bitcointalk forum: to add proof-of-stake to Bitcoin. This was not just a new asset scheme but a way to breathe new life into Bitcoin using ordinal algorithms. However, this groundbreaking proposal, despite passing the test of implementation, was never deployed.

Soon after, on the same forum, jl2012 took it a step further, proposing a more perfect scheme using decimal notation and ordinal algorithms. This scheme possessed all the important properties of ordinals and was closer to the essence of Bitcoin. This dreamlike idea sparked widespread discussion but remained just a dream, never realized in practice.

Such stories evoke thoughts about ordinal algorithms. This algorithm is not a new invention but a natural result that exists within the mathematical framework of Bitcoin, stemming from Bitcoin's long history rather than contemporary literature. They are the culmination of a series of events since the early development of blockchain.

In a sense, Ordinals have given Bitcoin a deeper meaning. The legends of origin and evolution, innovation and exploration, are quite fascinating.

Further Reading:

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