Author: Delphi Creative, Marlon

Compiler: DAOSquare

# Chapter 1: What are Ordinals and BRC-20

Introduction

2023 is one of the most transformative years in Bitcoin's history. Previously, Bitcoin was known for its stagnant network, but with the advent of inscriptions, Bitcoin has entered an exciting technological revolution.

First and foremost, there are Ordinals, a new technology that has led to an entirely new market, which people have quickly embraced. Through emerging Bitcoin token standards such as digital collectibles, meta-protocols, and BRC-20, a vibrant ecosystem is rapidly growing, with a market capitalization exceeding $1.8 billion.

The once rigid Bitcoin network is now a thing of the past, filled with exciting new elements. But what exactly are inscriptions, and what is their value proposition? How do Ordinals and BRC-20 work? Most importantly, how can you get involved and reap everything you desire from this ecosystem?

Decoding the Jargon

One of the most confusing aspects of crypto is the jargon, which is indeed a maze of unfamiliar slang. To eliminate confusion, all crypto-native terms in this article are italicized and will be explained immediately or defined in the glossary at the end.

# Chapter 2: A Deep Dive

Technical Overview

Satoshis

Before diving into Ordinals, we need to understand its foundation: Satoshis.

Satoshis, commonly abbreviated as "Sats," are the smallest denomination of BTC. One BTC is equivalent to 100 million Sats, and vice versa, 100 million Sats make up one BTC. The name comes from Bitcoin's anonymous creator, Satoshi Nakamoto. The maximum supply cap of BTC is 21 million, so the maximum supply cap of Sats is 2.1 trillion Sats.

What is the significance of Sats?

Sats are the native currency of the Bitcoin network. Therefore, they are used to pay transaction fees, and due to their small denomination, they can facilitate micro-payments.

Not all Sats are created equal!

Throughout Bitcoin's operation, there have been several recurring events generated by key mechanisms hard-coded into Bitcoin's technology. These recurring events provide us with a simple way to categorize Satoshis, namely: by their scarcity.

| Event | Frequency | Definition | Sat Type | |----------------------------|-----------------------|--------------------------------------------------|-----------------------------------------------| | New Block | Approximately every 10 minutes | A new Bitcoin block is mined, and the block reward is paid in BTC. Sats are produced in the order they are mined. | Common Sat: Any Sat other than the first Sat of a block. | | Uncommon Sat: The first Sat of each block. | | | | | Difficulty Adjustment | Approximately every 2 weeks / 2016 blocks | The Bitcoin network adjusts the difficulty target that must be met to accept blocks by changing the hash rate. | Rare Sat: The first Sat after each difficulty adjustment. | | Halving (next one will occur in late April 2024) | Approximately every 4 years / 210,000 blocks | The number of Bitcoins that can be mined per block is halved. | Epic Sat: The first Sat after each halving. | | Cycle | Approximately every 24 years | Every 6 halvings, difficulty adjustments, and halving events occur simultaneously, referred to as a cycle. The time between cycles is defined as a Cycle. | Legendary Sat: The first Sat that occurs during a cycle or after a Cycle begins. | | Genesis Block | Only once | The first Bitcoin block ever mined is called the Genesis Block. | Mythic Sat: The first Sat in the Genesis Block. |

Ordinal Theory: Value Proposition

How do we track rare Sats?

This is where the Ordinal Theory, introduced by former Bitcoin Core contributor Casey Rodarmor, comes into play. In summary, Ordinal Theory focuses on giving each Satoshi a unique identifier.

The theory proposes a numbering scheme for Satoshis, assigning a unique number to each Sat based on the order in which it was mined. This makes it possible to track, transfer, and collect Sats, opening up a whole new market for rarity-based transactions.

Inscriptions: The Birth of Ordinals

In 2021, Bitcoin completed a critical upgrade called "Taproot," aimed at helping the network scale. Casey Rodarmor pioneered a unique way to embed data onto the Bitcoin blockchain using some features of Taproot, particularly on Satoshis, leading to the birth of inscriptions. Sats inscribed with data are now commonly referred to as Ordinals.

The simplest way to understand Ordinals is to imagine someone carving artwork onto a coin. If the coin's owner wishes, they can still spend the coin (buy a bowl of snail noodles), but the artwork will forever be etched on the coin. Inscriptions work similarly; once someone binds data to a single Sat, they can spend that Sat to transmit the associated data.

With the emergence of the ability to track and identify Sats using the Sats theory, a craze began to inscribe arbitrary data onto Sats, giving rise to a brand new ecosystem.

By early February 2023, the total number of inscriptions exceeded 60 million, showcasing the strong momentum of this thriving ecosystem.

Arbitrary data inscribed on Sats can include images, GIFs, videos, and even HTML code. The only limitation on data is the Bitcoin block size limit (4MB). It is important to note that each inscription requires a fee, just like any other transaction on the Bitcoin network. The transaction fees paid for inscribing Sats typically vary based on file size; the larger the file, the higher the fee.

NFTs vs. Ordinals: NFTs and Ordinals

Ordinals with inscribed images are similar to NFTs on Ethereum. Therefore, people have started referring to them as Bitcoin NFTs. Although there are similarities between the two, there are four distinct differences between Ordinals and NFTs:

• Ordering: Ordinals are inscribed on Sats, and Sats are numbered according to the order they were mined. Thus, unlike NFTs, each Sat has a true ordering.

• Limitations: As mentioned earlier, when inscribing data onto Sats, there is a bottleneck, as Bitcoin blocks are limited to 4MB in size, which restricts the data capacity that can be inscribed on all Sats in each block. However, theoretically, NFT based on smart contracts does not have a significant data capacity limitation.

• On-chain: Ordinals are fully stored on-chain, meaning that inscriptions on Sats will forever exist on the distributed ledger and are immutable. In contrast, NFT metadata is often stored on centralized servers, meaning that if the server goes down, the path to the NFT will be lost, making it impossible to point to the correct data source.

• Concurrency: Sats can allow multiple different files to be inscribed. Since inscriptions can be arbitrary data, unique digital products can be created. For example, a Sat can be inscribed with HTML code pointing to different files on the same Sat, allowing for features like internal hyperlinks, giving the embedded Sat characteristics similar to traditional web pages.

Mempool

Before interacting with applications that support Ordinals, it is crucial to understand the Bitcoin mempool.

Bitcoin transactions are not directly added to the Bitcoin blockchain. Instead, transactions first enter a queue known as the mempool. All valid transactions reside in this waiting area, where they are then verified and packaged into a block, a process that takes about 10 minutes. When the chain is busy, a large number of transactions enter the mempool, making it difficult for miners to process them quickly, leading to congestion and longer transaction times. The direct result is an increase in transaction fees.

Bitcoin miners receive transaction fees as a reward for validating and adding transactions to the blockchain. Users can choose the transaction fee for each transaction, meaning that to encourage miners to prioritize their transactions, users can increase the transaction fee. The higher the fee provided to miners, the greater the incentive, thus increasing the priority of that transaction in the mempool.

Below is a screenshot of a mempool browser.

Here you can view several metrics, such as current gas fees, block height, and average block time. The mempool block explorer also projects a visual representation of the Bitcoin blockchain, where pending blocks are colored orange, and confirmed blocks are in a blue-purple gradient. In the upper right corner, you can enter any transaction ID or wallet address for more details, such as the position of that transaction in the queue or the tokens held by a specific address. Overall, the mempool is an important tool for tracking transactions when interacting with applications.

BRC-20: A New Token Standard

Shortly after the emergence of Ordinals, a Twitter user named redphone first proposed a new token standard. Domo implemented this idea and designed the new token standard: BRC-20. BRC-20 inscriptions quickly gained popularity and began to dominate transactions related to Ordinals.

BRC-20 is Ordinals inscribed with JSON data that can create and transfer Tokens. It includes three Token functions: deploy, mint, and transfer. The ownership of the Token is proven by the latest transfer receipt, and in practice, wallets and other applications read these transfer receipts and allocate BRC-20 balances to the addresses that hold the transfer receipts.

The BRC-20 token contract was initially created by Domo. Initially, the minting fee for each batch was in dollars. Recently, the market capitalization of ORDI exceeded $1.4 billion, and the current trading price of the token is $67.72! This means that if someone minted an original batch of 1,000 ORDI at $5, its current value has exceeded $67,000.

Interested in learning more about the complexities of BRC-20 tokens? Check out these in-depth discussions from Delphi Digital:

• "BRC-20: Past, Present, and Future"

• "Delphi's Bitcoin Authority Report"

# Chapter 3: How to Get Started

This chapter will cover how to create and use a Bitcoin wallet, as well as the pros and cons of various wallets for interacting with inscriptions. If you are already an expert in this area, feel free to skip this chapter.

How to Create a Bitcoin Wallet that Supports Ordinals

The first task is to create a Bitcoin wallet and fund it. A Bitcoin wallet will store your Sats and Ordinals, as well as interact with various applications.

The most important point here is that your wallet must integrate a separate address for Ordinals or have the ability to freeze inscribed Sats. As mentioned earlier, Sats are the native currency of the Bitcoin network used to pay transaction fees. Ordinals are simply Sats that have data inscribed on them, which brings a risk that you might inadvertently use your precious Ordinal Sats to pay transaction fees.

Therefore, it is strongly recommended to use a wallet that supports two addresses or can freeze Sats to avoid losing inscribed Sats.

Two good wallets that support this feature are Unisat and Xverse. Unisat offers better application interoperability, while Xverse focuses more on user experience. The choice is yours! In the tutorial below, we will use the Xverse wallet.

Installing Your Bitcoin Wallet

Visit the Xverse website. The Xverse wallet can be used as a mobile app or a browser extension. For better interaction with applications later, it is recommended to use the browser extension. To install the browser extension, click download and add the extension to Chrome.

Creating Your Bitcoin Wallet

Once installed, click the icon under the browser extension and then click "Create Wallet." Each new wallet will generate a unique mnemonic phrase, usually consisting of 12 words.

This is your wallet's private key, and if your wallet is lost, this is the only way to recover it, so be sure to keep it safe! Because anyone who has this mnemonic phrase can have complete control over your wallet and assets. It is generally recommended to write down the mnemonic phrase physically (for example, in a notebook) rather than storing it electronically (for example, in a computer document or phone album) to avoid unauthorized access due to device damage.

After backing up the mnemonic phrase, select the correct words to confirm that the mnemonic phrase has been stored. Finally, create a password. You will use it every time you want to access your wallet from the browser extension.

Meeting Your Bitcoin Wallet for the First Time

Your wallet displays your token balance, and you can send, receive, swap, and purchase tokens through it. In "Settings," you can access the mnemonic phrase and change the displayed currency. Currently, my token balance is zero.

When you click "Send" or "Receive," your wallet will show three different Bitcoin addresses, similar to a bank account number, which must be provided when sending or receiving funds. Here, the user-friendliness of Xverse comes into play.

The first address is your BTC address, which should always be used to fund your wallet. Your BTC is stored here for paying transaction fees. Never use this address to manually receive Ordinals or BRC-20 tokens to avoid paying transaction fees with Ordinal Sats.

The second address is exclusively for Ordinals and BRC-20 tokens. When deploying and minting inscriptions, Xverse will automatically ensure that Ordinals and BRC-20 tokens are sent to this address. However, if you are executing a peer-to-peer transaction (directly receiving), be sure to provide this address to receive Ordinals and BRC-20.

The third address is for Stacks NFTs and SIP-10 tokens, which is beyond the scope of this guide and will not be elaborated on.

Funding Your Wallet

You can fund your wallet in several different ways:

• Buy BTC directly from your wallet: Click the "Buy" button, and you can purchase BTC directly through third-party services like Moonpay or Transak. These gateways allow you to buy Bitcoin using a debit or credit card. Note that using third parties comes with additional potential risks.

• Send BTC from a centralized exchange: If you use centralized exchanges like Coinbase and Robinhood, you can fund your wallet directly from your exchange account. Even if you do not have an exchange account yet, creating one may help avoid the additional risks associated with other funding options. When sending BTC, provide your Bitcoin wallet address (the first address). Transactions typically take about 10 minutes to confirm.

• Cross-chain bridges: If you are a cryptocurrency native and already have a wallet on networks like Ethereum, you can bridge BTC from your existing wallet to your Bitcoin wallet. Note that this method may come with some security risks, counterparty risks, and smart contract risks. Please do your research carefully before using these applications!

If you want to interact with any of the applications listed below, we recommend trying with a small amount of funds until you are fully proficient in the process.

# Chapter 4: Ordinals and BRC-20 Ecosystem Guide

Although the Ordinals ecosystem is still relatively young, there are several applications that support the trading of Ordinals and BRC-20 tokens. Here is a list of some applications worth trying:

OKX, Unisat, and Magic Eden: Ordinals Market

Ordinal markets facilitate the buying, selling, and exchanging of Ordinals and BRC-20. Through these platforms, you can effortlessly sell your Ordinals and BRC-20 tokens and scout various collectibles. Additionally, these markets often allow users to deploy, mint, and transfer inscriptions.

If ranked by scale and trading volume, the top three markets are OKX, Unisat, and Magic Eden. While OKX currently leads the race, it restricts certain features to users using the native OKX wallet. On the other hand, Unisat and Magic Eden offer a more user-friendly experience.

Quick Recommendations

While you can trade Bitcoin NFTs on these markets, Ordinals Market and Ord.io cover a broader range of NFT collections and are excellent tools for tracking trending collections over the past 24 hours, 30 days, 90 days, and more.

Ordinals Bot: Deploying, Minting, and Transferring Ordinals

One of the simplest ways to create inscriptions and deploy any type of Ordinal is through the OrdinalsBot application. With an integrated API, users can batch generate inscription orders, which is particularly convenient when creating an entire collection. Payment for API services can be made using the Lightning Network or directly on Bitcoin.

It supports all types of inscriptions, with additional features including inscribing to specific types of Satoshis, such as only inscribing on uncommon Sats.

Magisat: Rare Sats Market

Magisat is a market specifically for trading Rare Sats. You can trade, buy, and sell Satoshis, covering any rare and quirky Sats, such as pizza Satoshis. Pizza Satoshis are a very typical case in the Bitcoin community, related to the 2010 pizza event (a programmer bought two pizzas for 10,000 BTC, which is claimed to be the first time BTC was used to purchase a physical product). Additionally, Magisat allows you to scan any Sats in your wallet to see their rarity.

Ordinalhub: Aggregator and Analysis Tool for Ordinals

Ordinalhub is an aggregator, a tool that consolidates Ordinals from different markets onto one platform and provides features such as trends, recent sales, and floor price displays. It simplifies trading by helping users find the best prices, as BRC20 tokens and collectibles often have different prices across platforms.

Liquidium: Ordinals Lending Platform

Liquidium is one of the first Ordinals applications to support decentralized finance (DeFi). The protocol allows for peer-to-peer lending of Bitcoin using Ordinals inscriptions as collateral. Currently, the leading players in the lending market include NodeMonkes, Bitcoin Frogs, and RSIC.

Alex Go: Leading DeFi

AlexGo has surpassed $800 million in total trading volume, with a TVL of $122 million, making it one of the leading protocols for DeFi on Stacks in the Bitcoin L2 space. It supports Ordinals through four applications:

• AMM DEX: A native decentralized exchange using automated market makers (AMM) to facilitate trading between various Bitcoin ecosystem assets.

• B20: A native trading application that supports order book trading of BRC-20 tokens.

• Kickstart: A launchpad for various projects, including Ordinals and BRC-20.

• Connect: An asset bridge supporting Bitcoin, BRC-20, and EVM-compatible networks.

# Chapter 5: Highlights of Ecosystem Development

Recursive Inscriptions

One of the earliest breakthrough developments in the field of inscriptions is the introduction of recursion. Recursive inscriptions first gained attention in June 2023, and the total number of recursive inscriptions has recently exceeded 350,000.

In summary, recursive inscriptions allow new inscriptions to call and reference data from existing inscriptions. This may sound mundane, but its implications are profound!

First, recursion provides a practical way to circumvent the 4 MB limit of Bitcoin blocks. By splitting data into multiple inscriptions that reference each other and are in different blocks, we can easily upload large files to the Bitcoin network. Two other significant benefits of recursion are improved storage efficiency and reduced transaction costs.

Most importantly, recursion is the origin of a multitude of developer tools. Through recursion, code libraries can be built with inscriptions. Thus, Ordinals have truly reached the next level of optimization. For example, we can now create high-quality NFTs on Bitcoin using recursion, as it allows creators to leverage existing inscription libraries to aggregate the inscribed traits of collectibles, simplifying the process of creating thousands of unique NFTs without having to create thousands of NFT collections individually.

Alternative Token Standards

BRC-20 tokens have only three functions (deploy, mint, and transfer), which not only limits their functionality but also makes them static in development. As a result, new experimental token standards are emerging one by one, aiming to improve upon BRC-20. Here is a quick overview of two current alternatives:

CRBC-20

The CRBC-20 token standard, named Cybord, leverages the ability of inscriptions to store arbitrary data directly. Consequently, the costs of inscriptions are significantly reduced, and the indexing process is greatly simplified, making CRBC-20 a cheaper and faster alternative to BRC-20.

ORC-20

Like CRBC-20, ORC-20 addresses the limitations of BRC-20 and focuses on enhancing security and flexibility. Unlike BRC-20, ORC-20 supports a wider range of data formats, allows for transaction reversals, and is backward compatible with BRC-20. Additionally, ORC-20 saves on transaction fees by running reusable inscriptions, resulting in lower costs.

# Chapter 6: The Road Ahead

Key Takeaways

In early 2023, Bitcoin experienced a significant development centered around inscriptions, creating immutable digital assets: Ordinals and BRC-20 tokens. Although the emerging Ordinals are not yet mature, their market capitalization has already surpassed $1.7 billion, and there is no doubt that they are driving innovation in Bitcoin by enabling users to store various data on Sats.

The ecosystem currently includes centralized and decentralized exchanges, markets, popular token standards, and protocols based on its technology. Being in its early stages, the speculation and enthusiasm of Ordinals supporters have surged alongside the emergence of new token standards, and even DeFi applications have begun to experiment with the financialization of Ordinals.

Moreover, the recent approval of spot Bitcoin ETFs marks a milestone in institutional adoption. While the long-term effects are debated, the Ordinals and BRC-20 ecosystem is poised to benefit from the widespread adoption of Bitcoin and the growing demand.

Future Outlook

Despite the thriving ecosystem, skepticism has never ceased, with some Bitcoin enthusiast groups advocating for developers to eliminate Ordinal technology and its related elements. Although this criticism is multifaceted, it stems from the drawbacks of the technology itself and its impact on the Bitcoin network, leading them to even view inscriptions as a system flaw.

A detailed discussion of this argument is beyond the scope of this guide. However, it is important to acknowledge that Ordinals and BRC-20 transactions have led to an explosive increase in demand for Bitcoin block space, which could negatively impact the network's health. A congested mempool leading to unreasonably high transaction fees and long confirmation times is just one of the negative consequences. On the other hand, inscriptions are an important source of revenue for miners to protect the network. The upcoming Bitcoin halving, expected to occur in late April 2024, when miners' block rewards will be halved, will further shake this debate.

While the future of Ordinals and BRC-20 may still be uncertain, the enthusiasm surrounding the development of its ecosystem remains fervent. It is hoped that this guide will not only spark your interest but also encourage you to explore the world of Bitcoin's Ordinals further. To keep your curiosity alive and point you toward potential avenues for researching it, here are two upcoming trends worth watching:

Trac Network: A Pioneer in Decentralized Indexing

For Ordinals to function properly, an Ordinals index is needed. It is crucial to understand that Ordinal and BRC-20 transactions are accomplished through off-chain indexing of on-chain data without involving technical complexities, allowing the entire network to identify, track, and sort Ordinals, meaning that indexing is a key infrastructure.

To exchange inscriptions between two parties, both entities must run the same index. Currently, the vast majority of projects are using the ord indexer to solve compatibility issues, making this important infrastructure very centralized. Dependence on a single indexer poses serious technical risks, so some protocols are working to build viable competitors. One of them is Trac Network.

The core product of Trac Network is Trac Core, whose value proposition is a decentralized open-source indexer. It aims to achieve decentralization by introducing governance tokens. This means that TRAC holders can influence direction and manage the development of Trac Core by voting on key development projects.

For more information, check out "Many Words On Trac Network."

Rune: A Homogeneous Token Protocol

Casey Rodarmor, the creator of Ordinal Theory, is developing a homogeneous token protocol expected to be released in April. This new homogeneous Bitcoin token protocol is called Rune, based on the Ordinals technology stack, and aims to address many of the current issues with the BRC-20 token standard. For example, tokens created using the Rune protocol will not require off-chain infrastructure, thus eliminating many of the controversies surrounding BRC-20.

Since it is being built by the same person who proposed Ordinal Theory, speculation about the official token issuance for Ordinals is rampant in the community. Such a token standard may have real potential to replace BRC-20.

Aaron summarizes Casey Rodarmor's latest podcast about Rune here, which is a goldmine of alpha.

# Glossary

• Aggregator: An aggregator integrates products, activities, data, information, etc., from various markets and exchanges and consolidates them onto one platform. By using an aggregator, users can effectively determine the best prices.

• Automated Market Makers (AMMs): AMM is an algorithm that facilitates decentralized trading of digital assets. In summary, AMM automatically swaps assets using liquidity pools (smart contracts containing two or more cryptocurrencies).

• Bitcoin Halving: Bitcoin halving is a key mechanism built into Bitcoin's core design. Approximately every four years, the block reward is halved to control Bitcoin's supply, scarcity, and inflation. Miners protect the network by solving complex mathematical equations and are incentivized to verify and maintain the state of the Bitcoin network through block rewards. After each halving, miners' rewards are halved.

• BRC-20: BRC-20 is a token standard aimed at generating and managing fungible tokens on the Bitcoin blockchain. It utilizes the Ordinals protocol for data inscriptions and is a type of Ordinal.

• Bridging & Bridges: In crypto, a bridge is an application that allows users to exchange assets between two different networks. Therefore, bridging refers to transferring assets across networks.

• Decentralized Finance (DeFi): Decentralized finance refers to applications that provide financial services using blockchain technology without the need for intermediaries. DeFi allows you to trade assets, earn interest, lend, and more without requiring third-party intermediaries.

• EVM-compatible: EVM refers to the Ethereum Virtual Machine, which is the computing engine of the Ethereum network. It controls the state of the network and enables smart contracts to run. EVM compatibility refers to the ability of a network or protocol to write and deploy code that is compatible with the Ethereum Virtual Machine.

• Floor Price: The floor price refers to the minimum market price of an asset, meaning the cheapest price at which a product can be purchased.

• Governance Token: A governance token is a utility token that grants holders participation in project decision-making. Voting is typically required on governance proposals that affect the trajectory of project development.

• L2: L2 is short for Layer 2, referring to networks built on top of Layer 1, such as the second-layer network of the Bitcoin network. Generally, L2 networks exist to introduce enhancements and expand the functionality of the underlying blockchain, such as reducing transaction fees.

• Ordinals: Ordinals are specific Sats inscribed with arbitrary data on Bitcoin. The data can include text, images, videos, GIFs, audio, and even code.

• Satoshis (abbreviated as Sats): Satoshis, commonly abbreviated as Sats, are the smallest denomination of BTC. One BTC is equivalent to 100 million Sats. The name comes from Bitcoin's anonymous creator, Satoshi Nakamoto. Sats are used to pay transaction fees and can facilitate micro-payments. The maximum supply cap of Bitcoin is 21 million, so the maximum supply cap of Sats is 2.1 trillion Sats.

• TVL: TVL refers to Total Value Locked, a commonly used metric in cryptocurrency that defines the total value of digital assets locked in an application.