Background of inscriptions
The upgrades of Bitcoin, including OP_RETURN, SegWit and Taproot enabled the development of Ordinals.
OP_RETURN
By 2014, the need for pruning useless UTXO data led to OP_RETURN outputs, signaling 40 bytes of unspendable script for arbitrary data inclusion.
SegWit
2017’s SegWit upgrade tackled transaction malleability and block capacity limits. It proposed a separate block in which to inject metadata, called the witness block,which is higher in storage capacity. Bitcoin’s witness block also bolstered space for data-embedding scripts. SegWit set the stage for 2021’s pivotal Taproot upgrade, constituting the technical foundations for modern inscriptions.
Taproot
The Taproot upgrade in 2021 introduced Schnorr signatures and Merkelized Alternative Script Tree (MAST) data structure, enhancing efficiency, privacy and script complexity. Schnorr signatures allowed for key & signature aggregation within transactions which meant that the network can process more transactions at a faster, cheaper rate. MAST as a data storage allowed Merkle branches only record the result of executed script to the blockchain, instead of all possible ways a script can be executed. This drastically reduces the space that transactions take up, especially more complex ones. Most crucially, Tapscript removed script size constraints by making modifications to Bitcoin’s scripting language to enable it to read Schnorr signatures, allowing complex inscription protocols to be encoded directly onto Bitcoin’s base layer. After years of incremental improvements for flexibility and capacity, Bitcoin was primed for a new era of layered digital ownership.
They are essentially metadata labels that can be attached to satoshis (the smallest units of Bitcoin), just like adding a stamp or seal to physical currency. These embedded data can be text, images, files, or even smart contracts, opening up a wide range of applications in the world of cryptocurrency.
How this allowed Inscription
Effectively, it removed the script size limit of 10000 bytes. Scripts are now only limited by the block size limit of 1vMB, equivalent to roughly 4MB in size; Bitcoin could potentially run larger and more complex scripts, and those scripts wouldn’t be as constrained by resources such as file size. These allow transactions to have larger metadata attached to them, be processed faster, and cheaper. With these inscription-enabling upgrades realized, Bitcoin has transformed from a relatively simple payment ledger to an advanced platform for programmable money, facilitating embedded data representations, customizable asset logic, and rich scripted transactions.
Ordinals Theory
A Satoshi (abbreviated as “sats”) is the smallest unit of bitcoin. Each bitcoin consists of 100 million satoshis. Its purpose is to assign each satoshi an ordinal number corresponding to the order in which it was created by miners (1, 2, 3, 4, …).
Summarizing on Inscriptions, if everyone follows the same protocol, and there are public indexers that correctly track all data and transactions, then all participants can agree on who owns what content without additional consensus or trust mechanisms.
BRC20
It’s a token standard created by @domo , which uses json code to release and transfer tokens based on Ordinals theory. To simulate a balance update, they will use multiple inscriptions.
It does this by recording each transaction affecting the balance and calculating the final result offchain(not on the bitcoin network itself) , which relies on centralized indexers like Unisat. Since the history of changes affecting the balance will never change(they are already in the blockchain) , they can be represented using inscriptions.
Metrics for Ordinals
Most of the Ordinals inscribed is text, which means BRC20 tokens.
https://dune.com/dgtl_assets/bitcoin-ordinals-analysis
total brc20 txns | Total fee paid (BRC20) | Total non BRC20 txns | Total fee (non BRC20) |
|---|---|---|---|
50m | 4423.53 BTC | 8.2m | 1089.32BTC |
The activity of inscriptions significantly improved in November 2023 and OKX got a large number of new users. Other popular marketplaces include Unisat, MagicEden. Daily total volume is ~16m.
Projects
Unisat
The leading project in brc20. First one to provide inscribe tool and marketplace. At beginning, when Domo promoted Brc20 protocol and deployed $ORDI for experiment. People need to run a bitcoin full node to mint ORDI token, then Unisat released the tool for minting brc20 without the requirement of a Bitcoin full node. The indexer standard is highly relied on Unisat. Unisat provides BRC20/Ordinals launchpad, inscribe tool, marketplace and wallet. Now the team built a new chain Fractal Bitcoin.
Magic Eden
Multichain NFT marketplace provides NFT marketplaces for Bitcoin, Solana, Polygon, and Ethereum. As the recovery of solana and development of the bitcoin ecosystem, and under the airdrop incentives, Magic Eden’s volume surges a lot. For Ordinals mktplaces:
other protocols
Stamps
Bitcoin STAMPS, or SRC-20 tokens, are Bitcoin-native non-fungible tokens (NFTs) that are impossible to prune (removed by nodes). They are created using the Bitcoin STAMPS protocol, which proposes to give permanence to NFTs on Bitcoin. STAMPS is short for Secure Tradeable Art Maintained Securely.
The protocol embeds image data in unspent transaction outputs (UTXOs) instead of storing it in witness data that can be pruned, as is the case with Ordinal NFTs. Therefore, digital collectibles minted with Bitcoin STAMPS cannot be pruned, eternally preserving their immutability.
Runes
The protocol was proposed by Casey Rodarmor in Sep. 2023. Casey positioned Runes as a simpler and more effective alternative to the experimental BRC-20 standard for fungible tokens.
The widespread adoption of the BRC-20 standard led to the creation of numerous "junk" UTXOs, causing network congestion. To address this challenge, Rodarmor introduced a UTXO-based protocol to prevent the generation of such UTXOs. It does not require off-chain data or a native token for its operations.
